Early Retirement One Year Anniversary

One of my former co-workers had been miserable in his position for several years – actually he had been perfectly happy with his job until our company hired another family member and put this co-worker in charge of him. The new employee was like a bull in a China store and my co-worker was forced to work long hours attempting to control the damage.  

He began talking regularly about retiring early and asking questions about finances related to retirement. My post, "Should I pay off my house with 401(k) monies?" was for him. He did end up using his 401(k) money to pay off his home. His wife had retired at age 58. I am not sure, but think she receives a pension from the hospital where she worked for 30-years as a nurse. She also has a part-time job working one day a week for her church. There would be no pension for my co-worker, just his 401(k).  My co-worker’s biggest retirement concern was the cost of their health care. He went over and over the numbers eventually concluding he couldn’t afford to retire early.

Then a good friend of his died at 61 from cancer and his 90-year old mother in-law stopped recognizing him when he visited her in the nursing home. He began not caring if he ran out of money; he surmised from his mother-in-law’s experience that when he is 90 he probably won't know if he is living in a dump eating cat food (his exact words) or in a nice home receiving expert care. He retired on his 62nd birthday not even taking my advice to work until the end of December to receive his holiday pay.  

I thought of him on his birthday a few weeks ago and sent an email congratulating him on first retirement anniversary. I also asked if there had been any financial surprises he had incurred or words of wisdom he could give me since my husband plans to join him in retirement at the end of the year and I still plan to retire early. Here is his response:

THANK YOU for remembering my retirement anniversary. Retirement is one word: AWESOME!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Between kids, grandkids, remodeling, gardening, dogs, travel and sleep there is not enough time in the day for everything. I can honestly say I have yet to have a boring minute, hour or day. I think one of the biggest differences between work and retirement is stress. For "me" retirement equals ZERO stress. Physically and mentally I feel twenty years younger. During the first couple of months I would feel "kinda" guilty when I would encounter people that were still working. No more. I paid my dues and have arrived. I used to look at retirement as winning the "race". Now I look at it as just "finishing" the race.

Notice he doesn’t even acknowledge the financial aspects of retirement. As my husband’s benefits come to an end, I am forced to enroll in my company’s inferior and more expensive benefit plans. Add in the $800 I just spent to replace my two-year old computer that crashed and my nervous Nellie tendencies are operating at full capacity.

Then I look at how stressful my husband has been in his job this past year, the long hours he worked including Saturdays and the occasional Sunday. How much I enjoyed him being laid-off last winter. How far behind we've gotten on basic home maintenance and cleaning. A real vacation; what is that? Then I think of my co-worker and how awesome his year has been. I want that for my husband and eventually for myself. My co-worker is right in that we don’t know what the future holds – whether we will be blessed with a long healthy life or succumb too early to a horrible disease or that we will end up penniless in a nursing home. As to our finances, I will never be able to control everything; appliances will need replacing, medical premiums will increase and I will need procedures like gum recession surgery. We have our 401(k) plans and we are maximizing his social security benefits by waiting until next year when he is 66 to begin collecting. If our finances become unmanageable we can always sell our home which is paid off. It is time for my husband to cross the finish line.

Are you retired?  Do you have any words of wisdom?

How to make the most of your social security benefits

I recently attended a social security workshop that changed my views on when a retiree should begin collecting social security benefits. We’ve all heard the rumors, “Start collecting as soon as possible, before the Social Security fund runs out of money” or “don’t wait to collect benefits - if you die early you will lose out on retirement money you’ve earned.”

Here is what I learned at the workshop:

Despite the grim outlook politicians and the media like to portray, the social security fund actually has sufficient reserves to pay out full benefits until 2036. After that if nothing else changes additional tax income will cover at least 77% of promised benefits from 2036 to 2085.

This means a person who is age 55 today probably won’t have to worry about benefits changing until age 79 at the earliest. Future changes that may occur include:

• Increased Social Security tax rates.
• Higher earnings maximum subject to Social Security Tax.
• Increase of Full Retirement Age
• Decrease of future retirement benefits
• Reduction of future Cost of Living Adjustments (COLAs)

Why should someone consider delaying benefits?
For people born in 1943 or later, each year you delay receiving social security your benefit increases by 8% per year up to age 70. After age 70, there is no additional monetary gain for waiting. Where else can you get a guaranteed 8% increase in earnings?  

Unlike many pension plans Social Security is adjusted for COLA:
Social Security payments are adjusted each year to keep up with inflation, as measured by the Consumer Price Index. Since automatic cost-of-living adjustments were added to Social Security in 1975, they have ranged from 14.3% in 1980 to zero in 2010 and 2011. The 2012 COLA increase was 1.7%. It is important to note some pension plans do not come with a COLA adjustment. Thus, a monthly pension payment that seems sufficient in 2013 may not go nearly as far in 2033.

You and your spouse should work together to make the most of your benefits:

The “Spousal Benefit”:
A married person who has little or no earnings history can receive spousal benefits equal to half of the working spouse’s primary insurance amount (PIA). 

- You must be age 62 or older to qualify.
- You can’t collect a spousal benefit until your spouse files for their own benefit.
- Your benefit will be reduced if taken before full retirement age, but it won’t increase if delayed past full retirement age.

The “File and Suspend” Strategy:
This strategy works best for the married couple who has one spouse with little or no earnings history. Begin by comparing the benefit this spouse would receive on their own to what they would receive for a spousal benefit; if the spousal benefit is higher consider the following strategy:

The higher-earning spouse files for social security at full retirement age then immediately suspends benefits. Once this spouse files, the lower earning spouse is entitled to 50% of the higher wage spouse's benefit. 

This strategy increases the lower wage-earner's monthly benefits now. It also allows the other spouse to wait until full-retirement age, increasing their benefit in the interim. Plus, it allows the lower wage earning spouse to receive the maximum survivor benefit.

The “Claim Now, Claim More Later” Strategy:
In this strategy the lower wage earner begins receiving his or her own reduced benefit.  The high wage earner files at full-retirement age for the spousal benefit. When this higher-wage earner reaches 70, he or she should switch to their own higher benefit. Note both spouses can’t receive spousal benefits on each other’s record at the same time. For this to work, the high-wage earner may not file for their own benefits before full-retirement age.

This strategy allows the low wage earner to start receiving benefits as early as possible. It allows the high-wage earner to receive a monthly benefit between the ages of 66 and 70 without having to reduce their own benefit. Plus, this allows the lower wage earning spouse to receive the maximum survivor benefit.

The Strategy for Two High-Earning Spouses:
One of the spouses files for the spousal benefit at Full-Retirement Age. Then switches to their own benefit at age 70. By collecting only a spousal benefit, this spouse can receive benefits at full-retirement age and still allow their own benefit to grow to its maximum.
 
The "Pay Back Strategy" is no longer allowed:
Previously you were allowed to begin collecting benefits at age 62 and then were able to pay all the dollars you had collected back, and restart your benefit at a new higher amount. As of December 2010, you are only allowed to do this if you change your mind and pay back benefits within the first 12 months of starting your social security retirement benefits.

The break-even age for collecting benefits at age 62 vs. full-retirement age is 78:
If you are in good health and have longevity in your family history, you will be better off in the long run to wait until full-retirement age to begin receiving benefits. 

I don’t think my husband and I will be able to utilize any of the above strategies, other than putting off collecting social security as long as possible, but I feel it is important to know what is available.

If you enjoyed this post, you may also like:
Do You Review Your Social Security Statement
Be Informed About Social Security
How do I know my 401(k) assets are safe from my company?

 

Be informed about Social Security

Both of my parents were eligible for a mere pittance in Social Security benefits at age 65 despite working together on the family farm 31 years before they divorced. My dad worked exclusively on the farm his entire life except for a brief stint with the army reserves. I found this hard to believe. I remember the farm not generating much income when I was small, but I thought it did fairly well once my younger siblings were in high school. How could this be?

Filing a Federal Income Tax return has nothing to do with Social Security:
My family's farm was owned by my grandparents. My father received a monthly allowance which my parents recorded as income when they filed their joint income tax return. The problem is filing an income tax return has nothing to do with the assignment of Social Security. The Social Security portion of a self-employment tax return is filed on a form called Schedule SE. So first my grandfather's name and Social Security number were listed on the Schedule SE and after his death my grandmothers. This meant all of the farm earnings and credits were posted to my grandparent’s accounts and none to my parents. This is an important lesson for anyone jointly running a family business, if you plan on one day collecting Social Security benefits make sure your portion of the business profits are filed on a separate Schedule SE with your name and social security number.

You need to remain married ten years in order to collect on your ex-spouse's Social Security account:
A marriage must last ten years before a divorced person may be eligible for an ex’s Social Security benefit. So if you’ve been married 9 years and ten months hold on for another two months if you want to one day tap into your spouse’s Social Security account. Note you will need to be unmarried to collect these benefits and at least 62 years old.

Read the obituaries:
If you were married to your ex for more than ten years make sure you read the obituaries. Once an ex-spouse has died you are eligible for a divorced survivor benefit. This benefit will be 100% of the deceased ex-spouse's benefit. If you remarry after age 60, you can still receive the survivor benefit.

My dad may be eligible for a spousal benefit:
My Mother, who worked before she was married, returned to work after her divorce and is still working at age 74. Her Social Security benefits continue to increase, as she makes additional contributions. Plus on a side note, her Social Security benefit was no longer subject to income tax once she turned 70 years old. It just occurred to me that my dad could probably collect a higher Social Security benefit if he applied for spousal benefits. He is eligible for 50% of her benefit which is probably more than he receives now. He could also be eligible for free Medicare Part A benefits based on her earnings record, since I doubt he has accumulated enough Social Security credits to be eligible for Medicare on his own. If she were to die before him he would be eligible for the higher deceased ex-spouse benefit.

He was such a jerk towards her throughout their marriage and divorce proceedings though I don’t think I can bring myself to tell him this.

See also:
Do you review your Social Security statements?

Do you review your Social Security Statement?

What is a Social Security Statement?
The Social Security Statement is a tool designed to help you plan for your financial future. It provides an estimate of the social security benefits you will receive under current law at age 62, your full retirement age, and at age 70. It also lists estimated benefits if you were to become disabled, family survivorship benefits and whether or not you are Medicare eligible. The Statement briefly explains what it takes to become eligible for benefits. Basically, you must work for ten years to earn retirement benefits, and you must work at least five of the last ten years to claim disability benefits. The statement is updated each year to reflect your latest report of earnings. When you get your statement, you should verify that your earnings record is correct for previous years.

When will I receive my Social Security Statement?
By law, social security statements are mailed out annually. You should automatically receive a statement if you have a Social Security Number, are age 25 or older, have any job earnings on record and are not already receiving benefits (including Medicare). You should receive your statement a couple of months before your birthday.

Why is it important to review your statement?
This is important because your earnings record is what the government bases your benefits on (for retirement, disability, Medicare, etc.) Verifying your earnings record is also important because if the numbers are off (especially if they are off dramatically) it could be an indicator of identity theft or fraud.

What if you didn’t receive a statement?
You can request a statement at any time; information on how to do so can be found on the SSA website.

What if you find an error?
If you discover an error in any of the earnings Social Security has listed other that last year, call Social Security's helpline at 800-772-1213, Monday through Friday, from 7 a.m. to 7 p.m. Have your W-2's or tax return for the incorrect years available.

Why am I writing about this?
Because the earnings record on my latest SSA statement was incorrect as were the earnings record of every employee at my company who had received their statement this year. My earnings statement had zero earnings recorded for 2006 while my earnings for 2007 were listed correctly. 2006 was the year my company transferred our payroll processing to an outside provider, ADP. This switch, for year-end tax filing purposes, was a hellish nightmare (ADP issued our company's W-2's eleven times before they got them right). Our accounting department is still working through the tax implications of this fiasco.

Upon noticing this error, I called the SSA hotline on my own behalf and discovered not only my 2006 wages, but the 2006 wages for every employee in our company was being held in suspense. I then asked my boss if his statement had been correct; his birthday was earlier this year. He didn't know as he had shoved his unopened statement into a file. This led me to believe our employees are not reviewing their SSA statements. It turned out my boss's 2006 wages were also listed as zero, while his 2007 wages were correct. Come on people you need to review these statements. This is your money.

On a positive note, it looks like this will be an easy fix. I sent a copy of my W-2 for 2006 to our local SSA office. On the company's behalf, per SSA instructions, I had the entire correct 2006 wage file resent to SSA.