February eFinPLAN.com
“Taking the mystery out of financial planning” Newsletter

Topics
•Social Security Retirement Income
•Blog Role: Informative and Interesting financial blog discussions

Social Security Retirement Benefits (SSRB)
The U.S. Social Security Administration provides or administers benefits for retirement, survivors, disability income, the disabled (SSI), and Medicare health insurance. This article discusses the retirement benefit.
 
The Dependability of SSRB is questionable by many younger workers today. Many people wonder if there will be enough in the trust fund for them when they retire. When old-age retirement benefits were originally designed back in the 1930’s, the life expectancy was much shorter than it was today. When someone retired, the Social Security Administration didn’t have to pay out benefits for very long on average. With many workers paying into the system, and these short pay-out periods, it was easy to be financially solvent. Today proportionally fewer people are paying into Social Security and people are living longer. If this trend continues people wonder if Social Security Retirement Benefits will be there for them and if their financial plans should take into consideration Social Security retirement income.
 
Social Security will probably survive, because retirees and pre-retirees are one of the largest blocks of voters, so no politician who wants to be re-elected will ever want to see the end of Social Security during his/her watch. In addition, the government can easily print or borrow money. Also, many people will continue to work and pay into Social Security longer than they expected, because they can’t afford to retire. The stock market has reduced many retirement savings, some companies are suspending 401(k) contributions, and other factors such as health expenses and job losses are affecting people’s savings. Therefore, people will be paying into Social Security for a longer period of time and shortening the benefits pay-out period.
 
Changes to Social Security always happen during economic and demographic shifts. If you were born in 1937 or earlier, your Full Retirement Age (FRA) is 65, but you can start receiving SSRB at age 62 with a 20% - 30% reduction in benefits. If you were born after 1937, your FRA is older than 65, as late as age 67 for those born in 1960 or later. Your actual FRA depends upon your date of birth. The Social Security Tax (also known as FICA Federal Insurance Contributions Act) is made up of Old Age, Survivors and Disability Insurance (OASDI) and Medicare. The FICA tax rate for employees is 7.65% (OASDI 6.2%, Medicare 1.45) and it is 15.3% (OASDI 12.4%, Medicare 2.9%) for those who are self-employed. The taxable wage base for OASDI is $106,800 for 2009, which means your income above this figure is not taxed OASDI. As our government looks for ways to reduce expenses and increase revenue, it is considering many solutions, such as increasing the FRA, increasing or eliminating the OASDI wage base, and finding some way to change high income retirees’ benefits.
 
Supplementing income has always been the original intent of SSRB, not providing more than 50% of a retiree’s income. The original design was to help provide some of the basic necessities of daily living for the elderly. However, today it is often the only source of income for some, or it provides a significant source of income for many. Given that corporate America is cutting back on defined benefit pension plans, and people are losing substantial value of their retirement investments because of a bad stock market, SSRB will continue to play an important part in retirement planning for many people.
 
Your decision to include Social Security in your retirement calculation is a personal one. The eFinPLAN software provides you the flexibility to include or not include it in your calculation.
 
Social Security Retirement Benefit estimates can be calculated within the eFinPLAN software, which bases your estimated income on your age and income. Your actual benefit will be based on your earning history and eligibility; the Social Security Administration provides this more accurate estimate at www.ssa.gov. That website instantly calculates your benefit after you input your name, Social Security number, income and state of residence. They track your earnings history so they can provide you a more accurate estimate of retirement income at 62 and at your full retirement age. We recommend that you obtain your actual benefit number online and enter it into your eFinPLAN.

People wonder when they should start receiving SSRB: take the reduced benefit at age 62, full benefit at the Full Retirement Age (FRA), or delay it, thus increasing the benefit. $27,876 is the maximum retirement income at FRA in 2009. The answer to this is a little difficult; it depends on the life-span of the person receiving benefits, the inflation rates for both SSRB increases and the cost of goods in the future, and rates of return earned on investments. eFinPLAN will help you make these calculations, because you can enter different retirement ages and income amounts, and you can compare the growth of your investments. Then you can determine which scenario allows your assets to last longer or to be larger.
 
Break even analysis can also be used to help you make your decision. For example, assume someone was eligible for $24,000 in SSRB at FRA (age 65) or could wait until age 70 and receive $31,800, but the person decides to retire 3 years early and receive $19,200. For this example comparing Age 62 to FRA, the BEY (Break Even Analysis) is 12 years for age 62, compared to 12.19 years for age 70.  Comparing FRA to age 70, the BEY is 15.38 years. There are several Web sites I found that can run the breakeven analysis for you; one is http://www.gggcpas.com/tools/gggcalcs/sscal4.htm.
 
Other considerations: if you continue to work and receive SSRB benefits prior to FRA, your benefits may be reduced. In addition, a portion of SSRB may be taxed as well for beneficiaries with income above $25,000 for a single individual and $32,000 for a married couple filing jointly. Also, don’t forget that Medicare health insurance doesn’t start until age 65, so your plans must consider the cost and issues related to individual health insurance.
 
Trusted professional tax and financial advisors should be consulted before making final decisions about the best way for you to receive income; they can also help you with some of the other related issues. Doing some of your own research, study, and eFinPLAN financial planning equips you to make decisions along with your team of advisors.

Blog Role: Informative and Interesting financial blog discussions
At eFinPLAN.com you will find “News Feeds” on the right side of the screen. These are interesting financial articles and blogs from around the Web that I think are useful. Go to eFinPLAN Blogroll to see the following and more:

•Income Diversification from Moolanomy.com
•Predictions for 2009 from FreeMoneyFinance.com
•Beware the Going Out of Business Liquidation Sale from FiveCentNickel.com
•2009 Federal Tax Brackets from AllFinancialMatters.com
•What’s Inside Your Target Date or LifeCycle Retirement Fund? from MyMoneyBlog.com
•Crisis always comes with opportunity from MoneyRulesDebtStinks.com
•How to save money with coupons from ChristianPF.com

Spread the word about eFinPLAN
Tell others about eFinPLAN and this newsletter by forwarding this to others. Thanks.

eFinPLAN reports, newsletters and the Web site are designed to increase your knowledge of financial matters and permit you to take greater control of your financial future. The resources provided are to assist you as you advance up the financial learning curve. No single company or person has all the financial knowledge you need or can address everyone’s individual situation and show all possible solutions. Therefore, we encourage you to utilize other resources, and when appropriate, rely upon trusted professional advisors. This is not intended to, and does not, provide specific legal, tax, accounting, and insurance, and investment, financial or other professional advice. eFinPLAN is not your financial planner or investment advisor. For specific advice on these aspects of your overall financial plan, we encourage utilizing trusted professional advisors. This is not an advertisement or solicitation for any specific investment or investment strategy. Information contained herein is not a substitute for consultation with a competent legal professional or tax advisor and should only be used in conjunction with professional advice.

Copyright 2009 All rights reserved. eFinPLAN, LLC, & Taking the mystery out of financial planning are service marks of eFinPLAN, LLC.