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March 14th, 2016 by

The Bipartisan Budget Act of 2015, signed into law on November 2, 2015, ensures federal government funding through fiscal year 2017, primarily by suspending forced across-the-board spending cuts called “sequesters,” which were triggered when lawmakers failed to reach a budget agreement in 2011. Among a variety of other provisions, the law limits Medicare premium increases for 2016 and — in the biggest surprise — eliminates two potentially lucrative Social Security claiming strategies.

Bipartisan_Budget_Acts_SS_and_Medicare

Mitigating Medicare Increases

Prior to the bill’s passage, about 30% of Medicare beneficiaries faced Part B (medical insurance) premium increases of 52% due to rising medical costs and a “hold harmless” provision in the Social Security Act that prevented increases for the other 70% of beneficiaries because there was no Social Security cost-of-living adjustment (COLA) for 2016.1

The legislation authorizes borrowing from the General Fund to limit the standard Part B premium to what it would be if spread among all beneficiaries. The monthly Part B premium will remain at $104.90 for those protected by the hold-harmless provision and will increase to $121.80 (as opposed to a projected $159.30) for four groups: (1) Part B enrollees who have not yet filed for Social Security benefits, (2) those who enroll in Part B for the first time in 2016, (3) lower-income beneficiaries whose premiums are paid by Medicaid, and (4) higher-income beneficiaries (who also pay an income-based surcharge).2

A $3 monthly surcharge built into the higher standard premium will help repay the loan from the General Fund.3 The law authorizes a premium subsidy in 2017 if there is no COLA, but has no provisions for future years.

Closing Loopholes

A section of the bill titled “Closure of Unintended Loopholes” ends Social Security claiming strategies that may have been unintended consequences of the Senior Citizens Freedom to Work Act of 2000. Closing these loopholes is projected to slightly reduce the Social Security actuarial deficit.4

Depending on your age, you might still be able to take advantage of certain expiring claiming options. The changes should not affect current Social Security beneficiaries and do not apply to survivor benefits.

File and Suspend

Under the previous rules, an individual who had reached full retirement age could file for retired worker benefits in order to allow a spouse or dependent child to file for a spousal or dependent benefit. The individual could then suspend his or her worker benefit in order to accrue delayed retirement credits and claim an increased worker benefit at a later date, up to age 70. For some couples and families, this strategy increased their total lifetime combined benefits.

Under the new rules, effective April 30, 2016 (or later if the Social Security Administration provides additional guidance), no benefits can be paid while the worker’s benefit is suspended. Thus, a spouse (and potentially an ex-spouse) and a dependent child can receive spousal or dependent benefits only when the primary beneficiary is receiving worker benefits, effectively ending the file-and-suspend strategy for couples and families. This also means that a worker can no longer suspend benefits and request a lump-sum payment for the period during which benefits were suspended, an option that was helpful to beneficiaries who faced a change of circumstances, such as a serious illness.

The option to file and suspend after reaching full retirement age is still available as long as no benefits are paid to anyone during the suspension. So someone who claims worker benefits could decide to suspend future benefits upon reaching full retirement age (e.g., because he or she went back to work) and restart them later at a higher amount.

TIP:

If you are 66 or older before the new rules become effective, you can still take advantage of the combined file-and-suspend and spousal/dependent filing strategy.

Restricted Application

Under the previous rules, a married person who had reached full retirement age could file a “restricted application” for spousal benefits after the other spouse had filed for Social Security worker benefits. This allowed the individual to collect spousal benefits while accruing delayed retirement credits on his or her own work record. In combination with the file-and-suspend option, this enabled both spouses to earn delayed retirement credits while one spouse received a spousal benefit, a type of “double dipping” that was not intended by the original legislation.

Under the new rules, anyone born in 1954 or later will be deemed to be filing for any and all benefits to which he or she is entitled — a spousal benefit or a worker benefit, whichever is higher — and will not be able to change from one benefit to another at a later date.

TIP:

If you were born in 1953 or earlier, you can still file a restricted application for a spousal benefit once you reach full retirement age.

Basic options for claiming Social Security remain unchanged. You can file for a permanently reduced benefit starting at age 62, receive your full benefit at full retirement age, or earn delayed retirement credits by waiting to file, up to age 70. Although the changes are relatively small, the bipartisan agreement may open the door to much-needed legislative action on Social Security and Medicare.

Sources:
1–2) Centers for Medicare and Medicaid Services, 2015
3) Kaiser Family Foundation, 2015
4) Social Security Administration, 2015

Freeman Owen, Jr -Retirement Specialist

There is expert guidance available to you for your retirement planning goals.

Meet me for a FREE retirement strategy consultation at my office at 833-313-7233 | MD, VA & DC. 

 

March 14th, 2016 by

Financial challenges are not limited to a specific age, but people tend to face certain challenges during particular stages of their lives. Regardless of your age, you might recognize some of these financial issues.

In Your 20s

1. Living beyond your means. When you have your first good job, it’s tempting to spend money on the latest and greatest gadgets, entertainment and eating out, and travel. But if you can’t pay for your wants up-front, you need to rein in your lifestyle. Too much debt can hold you back financially for a long time.

2. Not saving for retirement. You’ve got plenty of time, so harness that time to work for you. Start saving at least 3% of your annual salary now (more would be better), and your 67-year-old self will thank you.

3. Not being financially literate. Learn as much as you can about saving, budgeting, and investing now so you can benefit from it for the rest of your life.

In Your 30s

1. Being house poor. Whether buying your first home or trading up, don’t buy a house you can’t afford. Build in some wiggle room for a possible dip in household income.

2. Not protecting yourself financially. Life is unpredictable. What would happen if you were unable to work and earn a paycheck? Let go of the “it won’t happen to me” attitude and protect yourself with life and disability insurance. The younger you are when you purchase coverage, the lower your premiums will be.

3. Still not saving for retirement. Maybe your 20s passed you by and retirement wasn’t on your radar screen. Now that you’re in your 30s, it’s critical to start saving. Wait longer, and it will be hard to catch up. Start now, and you have 30 years or more to save.

Mistakes_People_Make_at_Different_Ages

In Your 40s

1. Trying to keep up with the Joneses. The nice homes, cars, vacations, and “stuff” that others have might look appealing, but appearances can be deceiving. Your neighbors could be taking on lots of debt.

2. Funding college over retirement. If you have limited funds, set aside a portion for college, but earmark the majority for retirement. Then sit down with your teenager and discuss academic options that your family can afford.

3. Not having a will or an advance medical directive. No one likes to think about death or catastrophic injury, but these documents can help your loved ones immensely if something should happen to you.

In Your 50s & 60s

1. Co-signing loans for adult children. Co-signing puts you on the hook if your child can’t pay, a situation you don’t want to face as you’re approaching retirement.

2. Raiding your home equity or retirement funds. Obviously, doing so will prolong your debt and/or reduce your nest egg.

3. Not calculating your retirement income. As you approach retirement, you should know how much you can expect from Social Security, pension income, and your personal retirement savings.

These are just a few of the financial challenges you might face throughout your lifetime. There’s a saying that wisdom comes with age, but it pays to be financially savvy at any age.

Source: Investment Company Institute 2015

Freeman Owen, Jr -Retirement Specialist

There is expert guidance available to you for your retirement planning goals.

Meet me for a FREE retirement strategy consultation at my office at 833-313-7233 | MD, VA & DC. 

 

March 14th, 2016 by

More student loan borrowers are expected to gain access to new federal programs designed to reduce monthly payments and lessen the wider economic toll of student debt.

The Revised Pay as You Earn (REPAYE) program will expand an existing income-based repayment program. It may be available to as many as 5 million Direct Loan borrowers (not Parent Direct PLUS Loan borrowers), without their having to demonstrate “financial hardship” and regardless of when they took out their Direct Loans.

Student Debt Relief
With this repayment plan, your monthly student loan payment would be 10% of your annual discretionary income. Discretionary income refers to what you earn above 150% of the federal poverty line ($17,655 in 2015). A borrower earning $40,000, for example, would make payments based on discretionary income of $22,345.

After 20 years of on-time payments, the remaining balance would be forgiven. If you borrowed money for graduate school, you must wait 25 years for forgiveness. Debt may be forgiven after 10 years for those in certain public-service jobs.

To qualify for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program, you must make 120 on-time payments on your Direct Loans (Direct Subsidized and Unsubsidized Loans, Stafford Loans, Direct PLUS Loans, and Direct Consolidation Loans). Only payments made after October 1, 2007, will qualify.

While making the 120 payments, you must be working full-time at a qualifying public-service organization, which may include federal, state, and local government entities such as the military, public safety and law enforcement, public education and libraries, public health and legal services, as well as tax-exempt, not-for-profit groups.

Source: The New York Times, August 14, 2015

Freeman Owen, Jr - Host of "Safe Money Talk" on CBS Radio The Big Talker 1580AM

There is expert guidance available to you for your retirement planning goals.

Meet me for a FREE retirement strategy consultation at my office at 833-313-7233 | MD, VA & DC.