Jane Young, CFP, EA
Social Security seems straight forward but it can be quite complex, there are many opportunities and pitfalls to watch out for. Before filing for Social Security, research your options to maximize your benefit, minimize taxes and avoid errors in your benefit calculation. It’s important to meet with a Social Security Representative prior to filing but don’t solely rely on this information. Due to the complexity of various options, they may overlook something that could impact your situation
You can file for Social Security benefits as early as 62 but you will receive a reduced benefit. Most healthy individuals should hold off on taking Social Security as long as possible. If possible, delay taking Social Security until age 70. Your benefit will increase 8% a year from your full retirement age to age 70. The full retirement age for individuals born before 1954 is 66 gradually increasing to age 67 for anyone born in 1960 or later.
Upon reaching full retirement you may be eligible to take 50% of your spouse’s benefit or 100% of your own benefit if you are currently married, were born before 1954 and your spouse has started taking benefits. While taking spousal benefits, your benefit can continue growing until you reach age 70 at which time you can switch to 100% of your own benefit if it’s higher. There is no advantage to delaying benefits beyond age 70.
If you have been divorced for two years or more, were married for at least 10 years and are currently unmarried, you are eligible to receive 50% of your ex-spouses benefit or 100% of your own benefit. If you were born before 1954, at full retirement you have the option to start taking 50% of your ex-spouses benefit and switch to your own retirement benefit at a later date. If you are a widow and you were married for at least 10 years you are eligible to take the highest of 100% of your deceased spouses benefit or your own.
If you take benefits before your full retirement age you are limited on how much you can earn before your benefit is reduced. In 2016, your benefits would be reduced by $1 for every $2 earned over $15,720. Benefits lost due to work will result in a higher benefit later. There is no income limit if you wait to take benefits at full retirement. If you take Social Security while working a larger portion of your benefit will be taxable, so you may want to consider delaying Social Security until you stop working or reach age 70.
If you held jobs where you paid into Social Security and you receive a pension from working in a job where you did not pay Social Security, your Social Security benefit may be reduced. Be sure to notify the Social Security Administration of your pension.
More information on your Social Security benefits is available at www.ssa.gov.
While driving home recently I was disconcerted by another commercial spouting false information and preying on investor fear. This commercial was exaggerating the danger and volatility of the stock market by implying most investors lost millions in the 2008 and 2009 market crash. In reality if you were invested in the stock market from 2006 to 2016 you would have seen a 65% increase in your stock portfolio. If you didn’t sell when the market dropped, you would have experienced a reasonable return rather than a loss on your investment. Commercials like this stir up fear and anxiety then promise the perfect solution to market volatility – the magic to provide great returns without taking risk.
There is no miracle product that is going to provide you with high returns without risk. If it sounds too good to be true, it is! A basic concept of investing is the trade-off between risk and return. If you want more return you will have to absorb greater risk. If you want a risk free investment you will be limited to CD’s and US government bonds that pay very low interest rates. If you want to earn higher returns you will need to take on some risk and invest part of your portfolio in the stock market.
The mystery product in commercials and ads that promise high returns with no risk is often a variable annuity. While on occasion the use of an annuity may be appropriate for a portion of your portfolio, most variable annuities come with significant disadvantages. A variable annuity is an insurance vehicle that invests your money into separate accounts similar to mutual funds. Annuities are complex insurance contracts that are commonly sold on commission, with built-in fees and significant restrictions on when and how you can withdraw your money. Earnings on money invested in a variable annuity grow tax deferred but are taxed at regular income tax rates when withdrawn.
Insurance salespeople influence you to buy annuities by promising protection from market volatility. Basically, in addition to paying the typical fees and commissions, you can purchase an insurance rider to guard against a drop in the market. However, this insurance usually only applies to a death benefit or the base amount used to calculate an annual income stream. If you think a variable annuity is appropriate for your situation make sure you fully understand the product’s benefits and restrictions before investing. Also consider an annuity with no or a low commission and without restrictions on when and how you can access your money.
A better option for managing market volatility may be to invest in a diversified portfolio that supports your time horizon. Avoid the need or temptation to withdraw money from the stock market when it’s down. Invest money needed in the short term in safe investments and limit your stock market investments to long term money.
Credit cards have become an excellent tool for saving money on travel. Many major credit card providers offer reward cards that provide 30,000 to 50,000 bonus airline miles after you charge as little as $3,000 to $4,000 over the first 3 months of opening the account. They frequently waive the annual fee for the first year. If you don’t want to continue, and pay the annual fee for subsequent years, cancel the card before the end of the year when the fee is due. Additionally, many travel cards have a generous rewards program that allows you to earn miles as you make purchases during the year. Many travel cards also allow you to waive checked baggage fees and provide you with priority seating.
Some cards with an attractive introductory offer include Chase Sapphire Preferred, Capital One Venture Card and Citi/AAdvantage Platinum Select, among others. A helpful website to compare the benefits and fees for various travel cards is creditcards.com/airline-miles.php. Before selecting a new credit card make sure you fully read and understand the terms and conditions. Credit cards opened to accumulate airline miles should only be used by those who pay off their entire balance every month. This should not be considered by those who carry a balance from month to month.
When travelling overseas you should have at least one card that doesn’t charge foreign transaction fees. Many credit cards assess a 3% foreign transaction fee on all international charges. Some companies have begun waiving foreign transaction fees including Capital One Venture Card and Chase Sapphire Preferred, to mention a few.
When travelling abroad, a rewards card without foreign transaction fees is essential but there will be times when cash is required. Use your ATM card to get foreign currency, it will provide you the best exchange rate. Avoid exchanging U.S. dollars for foreign currency at exchange bureaus. ATMs do charge a fee for every transaction so limit the number of transactions by getting as much money as possible each time you make a withdrawal. Additionally, it’s prudent to carry at least two ATM cards, from different banks, in case there is a security concern and access to your account is blocked.
Once at your destination you can save money and enhance the authenticity of your visit by staying and dining off the beaten path. Seek out family run hotels and restaurants that are local favorites. You can often save money by booking a Bed and Breakfast or vacation rental. Booking a room at the last minute can also result in nice accommodations at a reduced price. To find good restaurants, ask local residents for their recommendations. Observe who is patronizing a restaurant and select one that is teaming with locals rather than tourists. Once you select a restaurant, stick with the local specialties and order food that is currently in season.