Social Security – Bananas

As I write my last newsletter for the year, I struggle to capture any specific topic, so I’ll call this my potpourri newsletter:  Things to consider for our clients and ourselves:

DIVORCE HAPPENS – I received an email from a CPA in Dallas this morning regarding a client of his.  She recently got divorced after 10+ years of marriage and is in her mid 50’s, during the marriage SHE had a small Sch C business that she operated out of their home.  For whatever reason when they filed their taxes each year all the income / Self Employment Tax was attributed to her ex-husband’s Social Security number and none to her.  He is in his 60’s and collecting Social Security, she does not have 40 quarters and will be totally reliant upon Spousal Benefits (50% of his PIA @ her own FRA) assuming she doesn’t remarry before then.  NOTE:  Should she decide to remarry, I instructed the CPA to tell his client to wait until age 60 before remarrying, especially if the EX is in poor health and longevity does not run in his family, so in the event of his death she would inherit 100% of his benefits even if he had remarried!

Takeaway:  Even if she continues to work and qualify for her own Social Security benefits, SSA takes the highest 35 years of earnings, indexes them to inflation in order to determine check at Full Retirement. 10 years of significant earnings + 25 years of zeros = Reduced benefits at FRA.  I probably receive several phone calls every year from small business owner approaching retirement, asking if they should put their spouses on the payroll so that they can qualify for Social Security on their own record.  I’d recommend that we run the numbers before making a decision and paying 12.4% in FICA taxes.

LIFE’S NOT FAIR! – Well it finally happened, I had a client hire me last week to run an analysis for he and his wife, who was born on January 2, 1954.  For those of you who remember January 1, 1954 was the last day that an individual could claim Spousal Benefits at age 66 (Restricted Claiming Provision) while delaying their own benefits until age 70.  In my own case, I’ve been receiving $1,000/mo. for the last 19 months while delaying my own benefits until age 70, I can do this since I was born in 1952.  Anyone born after 1/1/1954 can delay claiming and earn 8% per year in delayed credits, but they can’t claim spousal benefits while they wait.  About 1/3 of my new clients still have at least one spouse born prior to 1954 who can take advantage of this loophole, but those days are quickly coming to an end as we all continue to age.

Takeaway:  HEDGING THE BET –  If both spouses were born after 1953, I would most definitely consider having the higher earning spouse delay until age 70 and have the other spouse consider claiming at age 62 or FRA if still working.  If both spouses live into their mid 80’s or beyond this strategy might not make sense, but if one were to die before age 80, I’ve hedged the bet since the surviving spouse will inherit the greater of the 2 checks.  As I tell my audience’s “if you tell me your checkout date, I’ll tell you when to claim Social Security”.

IT’S A WONDERFUL LIFE –  Every year I make it a point to watch this classic movie and it never fails to bring tears to my eyes.  It’s all about being grateful for what we have, and not always wanting for what we think we need or want!  We are truly blessed to live in this country, and to have all that we have, so be grateful this Holiday Season and try to live in a State of Contentment.  Homework Assignment:  Watch this movie with you kids / grandkids and then discuss it when its over.  Many of your children have not seen or forgotten the message of this classic!

Takeaway:  It’s a Wonderful LONG Life!  Average life expectancy for a couple age 65 will be over 23 years with a real possibly of one or both spouses living into their 90’s and beyond.  This is AVERAGE life expectancy, how many of you and your clients are below average?  It’s a proven fact that individual who are more affluent and continue to work, live longer!

BANANASHave you ever thought about the process and journey a simple banana goes through, to get from the plantations of Central America to your local grocery store?  How do they transport them while still green and magically when I buy them, they turn yellow and ready for consumption!  Google the process of getting bananas to market.

Takeaway:  This is the story of a simple banana, stand back in awe of all that we take for granted next time you go to the grocery store, mall or shopping online!

I wish for you a most Joyful Holiday Season!  Take care and God Bless!!!

Dave Zander, CFP®