Some misconceptions about Social Security

Posted on February 22, 2023February 22, 2023 by Danielle

I hear these all the time. Maybe you know all this already, but there’s a lot of misinformation and outdated information, so browse through this as a self-check!

1. You can collect at 65.
Well, technically true—in fact, you can collect at 62, but you’re going to give up a lot. The full retirement age is NOT 65 and hasn’t been since the year 2000. If that one somehow slipped by you, don’t feel bad—most corporations are still designing their retirement programs around age 65 and don’t seem to have caught up with the change, either. If you were born in 1960, or later, your full retirement age is 67.

2. If you’re divorced, you lose all rights to a spouse’s Social Security.
Again, nope. If you were married at least 10 years, you can collect based on your own benefit or ONE HALF your spouse’s benefit as it would be at their full retirement age, whichever is higher. If you claim benefits, the Social Security Administration will give you whichever benefit is higher. Even if your ex-spouse is remarried, you can still collect. If they have multiple spouses, they can ALL collect, and this does not affect yours, theirs, or the ex-spouse’s benefit. You cannot sign away this right in a divorce settlement (and there would be no reason to do so). As long as you do not remarry before age 60, you can choose to collect off the record of whichever spouse (current or ex) has a higher benefit to you.

3. You can choose to collect only a spousal benefit, then switch to your own at 70.
Nope, not anymore. That benefit went away several years ago.

4. A married couple can only get one Social Security benefit.
Again, nope. Each spouse can collect their own benefit based on their work history. If one has a large benefit and the other has a tiny benefit, the spouse with the small benefit will be paid ½ the other spouse’s benefit if higher. Let’s say spouse #1 has a monthly benefit of $2,400 and spouse #2 has a monthly benefit of $900. Spouse #2 will get $1,200. If #2 has a monthly benefit of $1,300 on their own work record, they’ll get $1,300.

5. Once you collect on your own record, you don’t get survivor’s benefits.
If one spouse dies and has the highest benefit, the surviving spouse can collect the full amount of the highest benefit, but will then lose their own. So, the surviving spouse from #4 can collect $2,400, but lose any spousal benefit and will switch from their own lower benefit. For a divorced spouse this is good news, but may be bad news for a married surviving spouse who will now lose some of the income they had as a couple. Don’t depend on Social Security to automatically make this switch–claim it. I’ve seen too many widows who haven’t collected the higher survivor’s benefit for years after they were entitled to it.

6. You’re better off not reporting tips or cash income.
Well, you already know this is illegal. Yes, it probably puts more money in your pocket today, but in the long run you’re screwing yourself out of Social Security benefits as well as (potentially) disability benefits and survivors benefits for your family if you die while the kids are young. Lots of people (hairdressers, food servers, contractors) try to get away with this but if continued for years, really comes back to bite you in retirement benefits. Think again.

7. You should get your money as soon as possible. Social Security will go away.
I first heard this about 45 years ago. Social Security is still here. The American voter (you!) has some say over this—Republicans want to reduce it, make the retirement age even older, and “sunset” the law every 5 years. Yes, Social Security is in trouble, but there are many fixes—including taxing all income, not just amounts under $160,200. Yes, you read that right—people making over $160k pay no further Social Security tax. Maybe there will be changes, but it will probably affect workers earlier in their career, not retirement age. Nevertheless, no one should depend on Social Security for their full retirement income if they can find any way to save.

If you claim early (say, 62) you’re losing about 8% a year in benefits. AND, if you still work from 62 to 63, you give back $1 for every $2 you earn above $21,240. And then there’s that “great” idea that people say they’ll take the benefit and invest it. Will your investments produce a guaranteed 8% return PLUS cost of living increase every single year until your full retirement age and make enough to compensate for your lifetime reduced benefits? Um, no. If you even do save it, which pardon me but I doubt it.

8. I’ll get the dollars it says in my benefit statement.
You’ll get those dollars minus payments for Medicare. So your check won’t actually be as much as your statement says.

9. I don’t need extra health coverage, I have Medicare.
Medicare pays for a whole lot, but not everything—there are deductibles and quite a lot of things it doesn’t pay for. You need some supplemental (known as Medigap) or a Medicare Advantage plan.

10. Medicare Advantage is very low cost or free compared to the Medigap plans. Why shouldn’t I go with it?
Advantage plans can be free, but be sure you look at the deductible, which can be quite substantial, and resets every year. They also have some serious limits on physical and occupational therapy, should you need it. It may be the only choice if policy price is the major consideration, but be aware that it operates much more like an HMO, and your choice of doctors and hospitals may be limited, and procedures denied or reviewed. They may appear to give you a lot of things not covered in a Medigap policy, but this is a teaser for things that are easy and cheap to provide, while they save on more expensive things or choices.

Once you choose an Advantage plan, you generally cannot switch to a Medigap plan. The opposite is not true—those with a Medigap can usually switch to Advantage. Why do you think that is? Because insurance providers make more money for less service with Advantage plans. If you were happy with an HMO, an Advantage plan may work for you, but I don’t favor them in most cases.

When to claim, and all the ins and outs surrounding claiming after a divorce are, of course, somewhat complex and decisions should be made based on your own financial situation. I’m here to help.

Changes to retirement programs while you were on Christmas break

Posted on January 26, 2023January 26, 2023 by Danielle

The so-called Secure Act 2.0, signed into law December 29, 2022, has changed some of the basics of retirement programs for 2023 and beyond, so do be aware.
The maximums you can contribute have gone up, and this may be the greatest benefit for most people who can afford to contribute.
1. Roths now have a contribution of $6,500, with a $1,000 additional catch-up if you’re over 50. This is $500 more than last year. Same for traditional deductible IRAs.
2. If you have a 401k, 403b, 457, or Roth 401k, you can contribute up to $22,500; over 50 you can add another $7,500 for a total of $30,000, up from $27,000 in 2022.
3. HSAs can now snare $3,850 for individuals and $7,750 from families, with $1,000 catch ups.

Another change was that you can delay required minimum distributions from your 401k, 403b, and traditional IRAs until 73 beginning in 2023, and until 75 beginning in 2033. I’m not sure this is actually a good idea, for several reasons:
• It encourages people to keep on working, when maybe they should consider that it’s time to stop, enjoy life, and make way for somebody younger.
• It staves off urgency to save, because, well, you may as well just work forever.
• Once you start RMDs, the required amount will be larger and could possibly kick you into a higher tax bracket where you’ll pay more taxes on your money in a shorter period of time.
• If you never actually get to spend your money, your heirs will probably be in their highest earning years and so they’ll pay more taxes on the money than a retired person might have.
Still, given the hits to investments in the past year, many people will be glad to let their investments ride a little longer without being forced to sell off in an already low market.

It’s depressing to think that the French are going to the mat to protest increasing the retirement age from 62 to 64, while Americans are faced with being forced, er encouraged, to work longer and longer or face retirement poverty on the relatively puny Social Security. And pensions—what’s that?

There are a number of other changes that depend on the discretion of plan sponsors, not individuals. For example, plan sponsors may allow linking of accounts to an emergency fund, consider student loan payments as deferrals for matching, and make emergency withdrawals available. What they actually do offer remains to be seen, and will depend somewhat (as usual) by pressure from employees or their unions. We’re likely to see that pressure exerted on big employers, but more than 99% of people work for small employers—and many don’t even offer retirement plans. So, one faint cheer for better workers’ rights.

An economical hobby

Posted on May 20, 2021May 20, 2021 by Danielle

Depending on what you choose, hobbies can be expensive. If your hobby requires a great deal of expensive equipment and travel (such as skiing or sailing), it’s going to take some careful scrutiny to fit that into a budget. It’s all going to have to come out of your discretionary budget, and only after savings have been fully funded.

I might contend that sometimes the collecting of materials for a hobby is actually a hobby in itself. Some people (ahem) can hardly resist the beauty of materials like yarn, fabric, embroidery floss, art materials…whether or not we’ll ever have time to make something out of them. In fact, making something, which means choosing one concrete creation instead of all the possible dreams, may act to spoil the fun.

However, the internet and maybe even the pandemic have taught us there are cheaper ways of acquiring knowledge—YouTube and even subscription sites are far cheaper than live lessons with an individual, or the cost of a three day conference seminar. I’m definitely not discounting the value of a live instructor, but if we’re sampling a possible new skill or trying to reactivate something we already know a bit about, it can be very economical to begin online. Online also gives you a community, no matter your location, job, previous experience, age…really, it’s opened up the world for pursuits where it can be hard to find enough people and information in one place.

I’ve seen some discouraging posts lately on some music sites. You have to be very careful to scrutinize marketing—anyone that promulgates they are the “only way to learn” while charging a hefty fee should be suspect. My strong advice is to look for a money back guarantee in case you don’t like what you’ve paid for. For example, I recently subscribed to a guitar program that I adored—for the first 30 days. Then, for some reason, the owner decided to update his well-functioning website. For one week (which I was paying for), the site was down entirely—with no extensions offered. Then, for the next 3 weeks it mal-functioned, crashed, and offered significantly less material than previously. As far as I can tell, all the “improvement” consisted of a change in theme colors. I exercised my money-back guarantee on the 59^th day, after hoping against hope that it would be fixed. Two months after, I hear it still isn’t. I feel a lot like what I felt when you have a great first date and never hear from the person again.

Having been rejected by a potential guitar teacher as pretty much too old to bother with, I’ve thought a lot about why an adult might want to take up or return to a hobby. Are you ever too old to learn something? Should teachers only be interested in young students with conservatory potential? Obviously, I believe this is defeatist, aging self-talk. After all, when possible, you should use your money on things which enhance your life. Here’s what I came up with while mind-mapping. While it’s mostly focused on guitar, perhaps it will apply to a pursuit you are considering.

Now you can recapture something you loved as a young person, but life intervened.
Now you can enjoy the sheer joy of playing an instrument without the pressure of getting into a university program. No more tryouts!
Now you have the luxury of time to perfect a piece. The process can be more important and more satisfying than any result.
You can learn to play an instrument where even the simplest pieces sound wonderful (unlike, say, violin). N.B. but if violin or French horn is your interest, you’ll put up with the sounds, as has every other learner before you.
You can get a decent instrument for far cheaper than many others (such as piano, harp).
It’s easily portable. You can play with a group or other instruments.
As an adult, your knowledge of the world of music is much larger—you’ve simply heard more than kids. If not, playing guitar can introduce a whole new world.
The instrument itself is beautiful and a pleasure to pick up every day.
You can take up a challenge to learn something uniquely beautiful and relatively uncommon that many people wouldn’t have the courage to do.

When I become disgruntled with my “lack of progress” (to where?), I plan to review this. It’s a good use of time and money to improve your life. And it doesn’t have to cost a fortune.