Monday, November 26, 2012

Social Security Claiming Tricks to Maximize Payout

by Robert Powell

With nearly 10,000 people turning 65 every day over the next 20 or so years, it’s not hard to imagine a new reality show called “Extreme Social Security Claiming Strategies and Tactics”, especially in the wake of news that beneficiaries will be getting just a 1.7% increase in their benefit in 2013. That show, sadly, is not yet a reality.

But what is real is this: There are a dozens of lesser known, often overlooked Social Security claiming strategies and tactics that are worth sticking in your back pocket, just in case there’s an audition call.

And case in point No. 1 is what Bill Meyer refers to as the “rat holes,” the ages at which a single retiree should never, ever, ever claim Social Security. Or at least not claim Social Security if they want to maximize the present value of their Social Security benefits.

Single retirees whose full retirement age (FRA) is 66 and who aren't affected by the earnings test should not claim Social Security in any month near FRA nor three years prior to FRA, according to Meyer, who is the co-author of “Social Security Strategies: How to Optimize Retirement Benefits,” and CEO of Social Security Solutions, Inc.

And the reason, according to Meyer, has to do with the pattern of reductions in benefits for beginning benefits before FRA and delayed retirement credits for delaying benefits until after FRA.

Friday, November 23, 2012

Ten Things You Must Know About Medicare

Heading into your retirement years brings a slew of new topics to grapple with, and one of the most maddening may be Medicare. Figuring out when to enroll, what to enroll in and what coverage will be best for you can be daunting. To help you wade easily into the waters, here are ten essential things you need to know about Medicare.

Medicare Comes With a Cost

Medicare is divided into parts. Part A, which pays for hospital services, is free if either you or your spouse paid Medicare payroll taxes for at least ten years. (People who aren't eligible for free Part A can pay a monthly premium of several hundred dollars.) Part B covers doctor visits and outpatient services, and it comes with a monthly price tag -- for most people in 2012, that monthly cost is $99.90. Part D, which covers prescription drug costs, also has a monthly charge that varies depending on which plan you choose; the average Part D premium is $30 a month. In addition to premium costs, you'll also be subject to co-payments, deductibles and other out-of-pocket costs.

You Can Fill the Gap

Beneficiaries of traditional Medicare will likely want to sign up for a medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments and other gaps. You can switch medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than six months after you first signed up for Part B. Medigap policies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits, and usually the only difference between same-letter policies is the cost. Plan F is the most popular policy because of its comprehensive coverage; it has a wide range of prices, from an annual $934 to $5,590 for a male, according to

There Is an All-in-One Option

You can choose to sign up for traditional Medicare -- Parts A, B and D, and a supplemental medigap policy. Or you can go an alternative route by signing up for Medicare Advantage, which offers comprehensive coverage through private insurance companies. Technically Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on which plan you choose. With Medicare Advantage, you don't need to sign up for Part D or buy a medigap policy. Like traditional Medicare, you'll also be subject to co-payments, deductibles and other out-of-pocket costs, although the total costs tend to be lower than for traditional Medicare. In many cases, Advantage policies charge lower premiums but have higher cost-sharing. Your choice of providers may be more limited with Medicare Advantage than with traditional Medicare.

High Incomers Pay More

If you choose traditional Medicare and your income is above a certain threshold, you'll pay more for Parts B and D. Premiums for both parts can come with a surcharge when your adjusted gross income (plus tax-exempt interest) is more than $85,000 if you are single or $170,000 if married filing jointly. In 2012, high incomers pay from $139.90 to $319.90 per month per person, depending on their income level, for Part B coverage. They also pay extra for Part D coverage, ranging from $11.60 to $66.40 per month, on top of their regular premiums.

When to Sign Up

You are eligible for Medicare when you turn 65.

If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B. You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from Social Security if you already claimed benefits.

For those who have not started Social Security, you will have to sign yourself up for Parts A and B, or Medicare Advantage. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. To ensure coverage starts by the time you turn 65, sign up in the first three months.

People still working may want to delay signing up for Medicare, but they will need to follow the rules carefully to avoid significant penalties when they do eventually enroll.

A Quartet of Enrollment Periods

There are several enrollment periods, in addition to the seven-month initial enrollment period. If you missed signing up for Part B during that initial enrollment period and you aren't working, you can sign up for Part B during the general enrollment period that runs from January 1 to March 31 and coverage will begin on July 1. But you will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B. Those who are still working, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you stop working (regardless of whether you have retiree health benefits or COBRA). If you miss your special enrollment period, you will need to wait to the general enrollment period to sign up. Open enrollment, which runs from October 15 to December 7 every year, allows you to change Part D plans or Medicare Advantage plans for the following year, if you choose to do so. (People can now change Medicare Advantage plans outside of open enrollment if they switch into a plan given a five-star quality rating by the government.)

Costs in the Doughnut Hole Shrinking

One cost for Medicare is decreasing -- the dreaded Part D "doughnut hole." That is the period during which you must pay out of pocket for your drugs. For 2012, the coverage gap begins when a beneficiary's total drug costs reach $2,930. Catastrophic coverage, with the government picking up most costs, begins when a patient's out-of-pocket costs reach $4,700. Because of the health care law, the amount a beneficiary pays while in the doughnut hole is gradually shrinking, so that by 2020, beneficiaries will pay just 25% of the costs of their generic and brand-name drugs while in the coverage gap. For 2013, the discount on brand-name drugs in the coverage gap will rise to 52.5%, from 50% in 2012, and the federal subsidy for generics will rise to 21%, from 14%.

You Get More Free Preventive Services

Besides shrinking the costs that beneficiaries will pay for prescription drugs in the Part D doughnut hole, health care reform also increased the number of free preventive services available to Medicare beneficiaries. You get an annual free "wellness" visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers.

What Medicare Does Not Cover

While Medicare covers your health care, it generally does not cover long-term care -- an important distinction. Under certain conditions, particularly after a hospitalization to treat an acute-care episode, Medicare will pay for medically necessary skilled-nursing facility or home health care. But Medicare does not cover costs for "custodial care" -- that is, care that helps you with activities of daily living, such as dressing and bathing. To cover those costs, you will have to pay out of pocket or have long-term-care insurance. Traditional Medicare also does not cover routine dental or eye care and some items such as dentures or hearing aids. For more on tests, items or services that Medicare doesn't cover, check

You Have the Right to Appeal

If you disagree with a coverage or payment decision made by Medicare or a Medicare health plan, you can file an appeal. The appeals process has five levels, and you can generally go up a level if your appeal is denied at a previous level. Gather any information that may help your case from your doctor, health care provider or supplier. If you think your health would be seriously harmed by waiting for a decision, you can ask for a fast decision to be made and if your doctor or Medicare plan agrees, the plan must make a decision within 72 hours.

Wednesday, November 21, 2012

Finding Jobs, But Working For Less Pay

by Anjali Athavaley

Kecia Hawkins used to make $82,000 a year as an accountant for a health insurer before she was laid off two years ago. Earlier this week, the 47-year-old Bronx resident landed a part-time job installing computers. The pay: $10.25 an hour.

Welcome to the job market in New York City, where the burgeoning ranks of the unemployed are grappling with a grim prospect: settling for lower-paying jobs than they once had.

"Really discouraging," Ms. Hawkins said of her job search.

Economists and business leaders are increasingly troubled by a trend in New York City employment statistics: The lion's share of job growth has come in high-wage and low-wage industries, while middle-income work has lagged.

Monday, November 19, 2012

How to Avoid Going Broke in Retirement

by Steve Vernon

With average U.S. life expectancy still rising, if you look after your health it's quite possible you might live into your late '80s or beyond. As a result, people who retire in their 60s could be retired for at least two or three decades. That should be a good thing - except if you run out of money in your 70s or 80s!

If you're like most baby boomers, you haven't put enough away in retirement savings to maintain your current lifestyle, so you'll need to squeeze as much income as possible from what you did sock away. And unless you'll be receiving significant benefits from a traditional pension plan, which provides a lifetime monthly income, you should be certain to manage your retirement savings so you don't outlive it.

Unfortunately, research suggests many people simply "wing it" when it comes to retirement planning and drawing down their savings. They simply withdraw what they need for living expenses and hope the money lasts.

Hope is never good strategy! If you spend your retirement savings without planning, there's a good chance you'll go broke in your retirement years.

Let me instead introduce you to a better strategy to draw down and invest any type of retirement savings you have, whether a straightforward savings account with no special tax features; a 401(k), 403(b), 457 or cash-balance plan; or a traditional or Roth IRA.

Friday, November 16, 2012

Tax Breaks for Refinancing Your Mortgage

by Bill Bischoff

Serial refinancers should take note.

With mortgage interest rates at historical lows, refinancing might be an attractive proposition–even if your last refinancing deal was not too long ago. For instance, if you refinanced in 2010 or earlier, it could be time to do it again. While you’re at it, don’t forget to collect your rightful tax deductions. Here’s what you need to know about tax write-offs when refinancing your principal residence.

Deducting Mortgage Interest After Refinancing

Say your mortgage balance is $300,000, and you decide to refinance and take out some cash by signing up for a new $335,000 15-year loan at a significantly lower interest rate. You use the extra $35,000 from the new mortgage to eliminate credit-card balances, pay off a car loan and cover some other expenses.

Assuming your home is worth at least $335,000 when you refinance (your lender will almost certainly require that to be true) and assuming you paid at least $300,000 to buy the home and make improvements over the years, your new mortgage is considered to have two separate parts for tax purposes.

The first part has an initial balance of $300,000, which equals the refinanced balance from your old loan. This $300,000 part is treated as so-called home-acquisition debt for tax purposes. All the interest on up to $1 million of home-acquisition debt can be written off as an itemized deduction on Schedule A of your Form 1040 (use Line 10). Interest on home-acquisition debt in excess of the $1 million cap is generally nondeductible.

The second part has an initial balance of $35,000, which equals the cash you took out when you refinanced. This $35,000 part is treated as so-called home-equity debt for tax purposes. Interest on up to $100,000 of home-equity debt can also be written off on Schedule A (use Line 10 here too). It doesn’t matter how you use the loan proceeds. Interest on home-equity debt in excess of the $100,000 cap is generally nondeductible.

Warning: If you’re a victim of the dreaded alternative minimum tax (AMT), you can deduct interest on up to $100,000 of home-equity debt for AMT purposes only to the extent you use the loan proceeds to pay for home improvements. In our example, you used the $35,000 of home-equity debt proceeds to pay for other stuff, so you won’t get any AMT deduction for the interest paid on the $35,000 part of the new loan.

Wednesday, November 14, 2012

Five Financial Moves Not to Make at 50

by Liz Davidson

Turning fifty used to be a milestone for retirement - you could plan to sock away much more money. That reality has changed dramatically. It is no longer true that:

  • You’ll be in your peak earning years at age 50. Baby boomers may not enjoy their fifties as their top wage earning years after all with the fiscal crisis and the recession hitting right at the same time.
  • Your kids will be out of the house. With 15.8 million adult children currently living with their parents, and 59% of Baby Boomers providing financial support to adult children who are no longer in school, Baby Boomers are not experiencing an empty nest.
  • Your wealth will be higher than it was a decade ago. The “lost decade” of the 2000s continues, with $19.2 trillion of household wealth lost according to the U.S. Treasury.
  • You can count on your company pension. Even if you have a pension in place, it doesn’t mean it will be there forever. Ford Motor Company wants to get out of the pension business altogether. They announced earlier this year that they were giving retired workers a choice to either keep their pension or take a lump sum payout. Ford was the first major company to make an offer like this—other companies may follow suit or change payout options altogether.
  • You can count on Social Security. Social Security for those under age 55 is up in the air. In order to make sure Social Security is funded for everyone, we could see means testing or pushing out the minimum Social Security ages even further.
  • Your expenses will decrease in retirement. Health care expenditures have increased over tenfold since 1980 to $2.6 trillion dollars. Many companies have stopped offering retiree medical benefits, and even discontinued retiree medical benefits for workers who were already retired. This trend of cutting back on retiree medical benefits is even spreading to cash-strapped state governments like Illinois.

Times have certainly changed. In today’s economic environment, once you pass the milestone of your fiftieth birthday, you have to be very careful not to make financial mistakes that you can’t correct. There are a few seemingly benign financial and lifestyle moves that can actually derail your retirement plans – watch out for these:

Monday, November 12, 2012

Protecting Your Deductions

by Laura Saunders

Never mind your income-tax rate for next year—what will happen to your deductions? 

Presidential candidate Mitt Romney twice has raised the possibility of imposing caps on tax benefits to help lower tax rates. Instead of simply cutting the home mortgage-interest deduction or the write-off for charitable donations, lawmakers could allow each taxpayer one overall allowance to use as desired. Mr. Romney suggested options ranging from $17,000 to $50,000. 

President Barack Obama, meanwhile, has repeatedly suggested capping tax benefits in the administration's budget proposals. 

Of course, the outcome isn't up to either candidate but rather to Congress, which faces many tough decisions about taxes next year. Still, taxpayers trying to plan for 2013 would be wise to take a hard look at their deductions as well as their income. 

"It might be a good idea to accelerate large write-offs as well as income while the law still allows them," says Robert Gordon of Twenty-First Securities in New York, an investment firm specializing in tax strategies. 

The idea of limiting tax breaks in order to raise revenue or lower rates, or both, isn't new. Taxpayers who owe alternative minimum tax, or AMT, already lose benefits such as the deduction for state and local taxes. 

The three biggest tax breaks are for employer-provided heath insurance, the mortgage-interest deduction and retirement savings. There is real revenue in capping such breaks—and real pain for those who lose them.

"In practice, it's not an easy thing to do. These benefits are how we buy homes, get health insurance, save for retirement and give to charity," says Michael Graetz, a former top Treasury official who now is a professor at Columbia University's Law School. 

Experts note that cutting tax breaks is often highly progressive, hitting higher earners more than people earning less. That is because upper-income taxpayers are more likely to make greater use of benefits by "itemizing" deductions and listing them separately. 

According to the Tax Policy Center in Washington, only about 12% of taxpayers making less than $63,000 itemize, versus more than 90% of taxpayers earning above $150,000. The top 5% of taxpayers, who earn about $200,000 or more, on average have itemized deductions of 13% of income. 

Mr. Romney hasn't released details of which benefits he would cap or how. Elsewhere he has proposed across-the-board income-tax rate cuts of 20% (not 20 percentage points), while maintaining or lowering current rates on capital gains. He has vowed as well to preserve deductions for the middle class and avoid tax increases on it. An aide said Mr. Romney defines "middle class" as married couples with adjusted gross income up to $200,000. 

President Obama's proposed limits on tax breaks are both specific and expansive. They would affect joint filers with adjusted gross income of $250,000 or more ($200,000 for singles). In addition to cutting the value of itemized deductions to 28% or below for upper-bracket taxpayers, he calls for limiting breaks for municipal-bond interest, retirement savings, health insurance, moving expenses and more. 

Taxpayers should prepare to act later this year if the situation becomes clearer. Some possible moves: accelerating state income- and property-tax payments; paying medical-insurance premiums or other deductible costs, if they are large enough to surmount the 7.5% hurdle; and making large purchases if you will be deducting state sales tax from your federal return, assuming Congress renews this break for 2012. 

Also, pay special attention to investment-interest deductions and large charitable contributions, neither of which is currently limited by the AMT. 

Proponents of continuing the current deduction for investment interest say a cap could distort investment decisions. "Leveraged investments will suffer, because their tax rate might rise just when the deduction drops," Mr. Gordon says.

Charitable contributions, which are backed by a powerful coalition of nonprofits, are highly favored. Donations are fully deductible within certain limits, and givers also often get a full deduction for donations of appreciated stock or other property without first paying tax on the gains. 

Friday, November 9, 2012

Best Buy’s Price Matching: Good for Consumers, but What About Profits?

Best Buy sign: Credit Reuters

by Chris Nichols

Wal-Mart's not the only retailer that's had about enough of  Now Best Buy is fighting back against the Jeff Bezos-run merchandising juggernaut.

The Minnesota-based electronics and games seller, apparently tired of hearing how its stores are serving as a physical testing ground for goods that later will be purchased online, is planning to match the prices on items sold by the ever-growing Amazon empire and other Web-based under-cutters in the weeks ahead.

According to a report in The Wall Street Journal, the pricing plan will take place during the holidays. Best Buy is also aiming to provide free home delivery for products that aren't currently stocked in stores. It's doing so, the WSJ points out, even as new CEO Hubert Joly contends the "showrooming" idea isn't as big of a deal as Best Buy's doubters would have you believe.

Consumers and Shareholders

It's a daring move by Best Buy, which has been going through a significant executive makeover and has been pursued this year in a buyout offer by founder Richard Schulze. Additionally, it comes just as the company gets a new online head settled into his office and says goodbye to Chief Financial Officer James Muehlbauer. Very interesting times around the Twin Cities.

Wednesday, November 7, 2012

Seven Valuable Benefits You May Not Even Know You Have

by Erik Carter

Most of us know about Social Security, Medicare, our employer's retirement plan and IRAs, but if you're like many Americans, you could be eligible for other benefits worth tens or even hundreds of thousands of dollars that you might not even be aware of. These are benefits that you've paid for either by working for a particular employer or through your tax dollars. Here are some of the most common:

1) Lost Pension Benefits

Just like bank accounts are insured by the FDIC, pension plans are partly insured by the Pension Benefit Guaranty Corporation or PBGC. In a recent blog post, my colleague Linda Robertson, details how 37,000 people have claimed $252 million in missing pension benefits from the PBGC since 1996. However, there are still over 36,000 people with almost $197 million in unclaimed pension benefits, ranging from $1 to as high as $676,436! If you were you in a terminated pension plan, you may want to check out the PBGC's Pension Search to see if you're one of them.

2) Retirement Accounts from Previous Jobs

Just as there are lost pension benefits, many people have retirement plans from previous jobs that they've left "out there." A recent survey showed that half of Americans left a retirement plan with a previous employer and almost 20% of them left accounts worth $50k or more. This usually just entails neglecting to manage the investments and keep the beneficiaries updated, but sometimes it can even mean completely forgetting and essentially losing the account altogether, especially for beneficiaries who may not even know the account ever existed. To make sure this doesn't happen, consider consolidating your previous retirement accounts into an IRA or your current employer's plan. Here are some of the pros and cons of your options.

Monday, November 5, 2012

Four Medicare Enrollment Mistakes to Avoid

by Amanda Gengler

When Houston attorney Barbara Quackenbush retired at age 67, she decided to stay on her company health plan through COBRA rather than sign up for Medicare. But as her COBRA coverage neared expiration, she learned that this choice will saddle her with a Medicare penalty requiring her to pay 20% higher premiums.

Even scarier, she'll be left without coverage for 10 months. When Quackenbush found out, she says, "I was so upset I nearly dropped the phone."

Reaching the big six-five is your ticket to guaranteed, affordable insurance via the Medicare system - provided you comply with a byzantine set of rules.

Getting the sign-up process right can be tricky for anyone, but it's become a major headache for the growing number of folks working past 65, say advocates, particularly now that Medicare enrollment no longer comes at the same time people start collecting full Social Security.

"There are pitfalls you must watch out for," says David Lipschutz, a policy attorney at the Center for Medicare Advocacy. Here are four big ones to avoid.

Mistake no. 1: Not enrolling because you're employed.

If you're still working, and have coverage from your job, you don't have to sign up at 65. Many workers, though, benefit from enrolling, especially when you consider that you can take parts A and B at different times.

Who should sign up?

Part A, which covers hospitals, is a no-brainer for most people. It's usually free and may pick up costs your job does not.

If you work for a small company, your firm may require that you take Part B, which covers doctor visits, so that Medicare can start paying most of your expenses. Anyone with a high-deductible plan can also benefit from Part B, since it often picks up costs before you've met the deductible.

A caveat: If you have a health savings account, you must stop making deposits.

Who should hold off on Part B?

Workers at large companies. The plan costs at least $100 a month and often provides little benefit beyond what their job covers.

Saturday, November 3, 2012

Latest Jobs Report Shows Persistent Economic Growth

by Catherine Rampell

The American job market is looking a little stronger than had been feared just a few months ago, according to the government’s final labor snapshot before the presidential election.

Whoever wins the election on Tuesday might even inherit an accelerating economy in 2013, if (and that is a big if) Congress is able to smooth over that pesky fiscal cliff in the few weeks after the election.

The nation’s employers added 171,000 positions on net in October, the Labor Department reported on Friday, and more jobs than initially estimated in August and September. Hiring was broad-based, with just nearly every industry except state government adding jobs. The unemployment rate ticked up slightly to 7.9 percent in October, from 7.8 percent in September, but for a good reason: more workers joined the labor force and so officially counted as unemployed.

None of this makes for a game-changer in the presidential race, analysts said. But it appeared to provide some relief for President Obama, whose campaign could have been sideswiped by bad news from the volatile monthly jobs report. With the latest numbers, the economy finally shows a net gain of jobs during his presidency. His record had previously been weighed down by huge layoffs in his first year in office after the financial crisis.

Friday, November 2, 2012

Ten Million U.S. Households Do Not Have Bank Accounts

by Blake Ellis

The number of people who don't have bank accounts is on the rise, as many households turn to alternative ways of getting cash -- like prepaid cards, payday loans, pawnshops and check-cashing services.

About 8.2% of U.S. households, or nearly 10 million, lack a bank account, according to survey results released Wednesday by the Federal Deposit Insurance Corporation. That's up from 7.7%, or about 9 million households, in 2009.

Most commonly, households reported that they don't have a bank account because they don't have enough money to open and fund one, with 33% of respondents saying this is the case.

Greg McBride, senior financial analyst at, said that checking accounts can be costly for some consumers - especially for those living paycheck-to-paycheck who can't meet minimum balance requirements and get hit with fees or those who are chronic overdrafters.