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Most US Workers Say They Will File for Social Security Early

To secure the maximum amount in monthly Social Security retirement benefits, Americans must wait until full retirement age to start receiving their payouts. Results from a 2023 survey show that most of today’s workers know about this stipulation – and yet the vast majority say they’re willing to file for their Social Security benefits early anyway.

UK-based wealth management company Schroders surveyed 2,000 working Americans to learn more about their readiness for and perspectives on retirement. The results showed that a mere 10 percent of respondents said they plan to hold off until age 70 to take their Social Security benefits. This is the case even though 72 percent of them are aware their payments could be higher if they waited.

Why Are So Many People Willing to Give Up More Income?

Many of the survey participants – roughly 44 percent – said they worry about Social Security running out of funds. Their fears may not be entirely unfounded. The Social Security program has served as a safety net for millions of retirees, providing monthly benefits since 1940. However, based on some projections, timely payments may not be possible beyond 2037.

Another 36 percent of the respondents said they would take benefits earlier because they need the money sooner.

These fears, said Deb Boyden, head of US defined contribution at Schroders, reflect “a crisis of confidence in the Social Security system.”

“Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement,” she said.

Other Key Findings

• Nearly half of all survey respondents (49 percent) acknowledged that they do not have any strategies in place for retirement income.

• Less than a quarter (24 percent) of those aged 60 to 67 who are still in the workforce said they believe they’ve accumulated sufficient retirement savings.

• Among respondents aged 45 and older, 69 percent say they fret over money daily – on average, 1.6 hours every day. More than half of this same group (53 percent) said they worry that stress over finances will have a negative impact on their overall health.
   
• Retirees who’d worked with a financial planner had higher average monthly incomes than those who had not sought out the help of an advisor ($5,075 per month versus $3,000 per month). Those who had set up a formal financial plan received nearly twice more per month on average in retirement – about $5,810.

Find more information on the survey results online.

Getting Social Security Checks While Living Overseas

Many retirees look forward to traveling in their retirement. More and more are actually retiring overseas, in part as a way to stretch savings. But what happens to retirees' federal benefits while they are out of the country?

The short answer is that although Social Security benefits are available to retirees in other countries, Medicare is not. In this installment we look at Social Security. 

Medicare vs. Social Security Benefits When Living Abroad

Unlike with Medicare, retirees who decide to move to another country can still receive their Social Security benefits. Once a retiree has been outside the country for 30 days in a row, they are considered outside the U.S., and the rules for collecting benefits apply.

The Social Security Administration (SSA) will send checks to anyone living abroad who is eligible for benefits. However, the SSA is not allowed to send checks to several countries. Retirees who move to Cuba or North Korea cannot receive any checks while they are in either country, but they can get any withheld checks if they go to a country where paychecks can be sent.

In addition, the SSA generally does not send Social Security checks to Cambodia, Vietnam, or areas that were in the former Soviet Union (other than Armenia, Estonia, Latvia, Lithuania, and Russia). However, retirees may be able to apply for an exception. In such cases, retirees may have to agree to certain conditions, such as appearing in person at the U.S. embassy each month, to receive benefits.

Retirees who are U.S. citizens can continue receiving benefits for as long as they live outside the United States. However, citizens of other countries who receive Social Security may have some restrictions on how long they can receive benefits while outside the U.S.

The rules are quite complicated. The Social Security publication Your Payments While You Are Outside the United States explains in detail what restrictions citizens of individual countries face. The SSA also offers a payment screening tool that tells beneficiaries whether they'll be entitled to benefits if they remain outside the country for more than six months.

Retirees may have their checks directly deposited into a bank account in the United States, and direct deposit is available in some other countries as well. Using direct deposit avoids check-cashing and currency-conversion fees.

In countries with a large number of U.S. retirees, American embassies and consulates have individuals who are trained to provide Social Security services, including taking applications.

The countries are: Argentina, Australia, Austria, Belgium, Chile, Costa Rica, Croatia, Denmark, the Dominican Republic, Finland, France, Germany, Greece, Hong Kong, Ireland, Iceland, Israel, Italy, Jamaica, Korea, Japan, Mexico, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, the United Kingdom, and Yemen. Individuals in other countries need to contact the SSA in writing or by phone. For a list of phone numbers, visit the SSA's webpage.

Social Security Taxes

The taxes on overseas Social Security benefits are the same as taxes on benefits for retirees living in the United States. Retirees who file individual tax returns and earn between $25,000 and $34,000 may have to pay taxes on up to 50 percent of benefits. Retirees with income over $34,000 may have to pay taxes on 85 percent of benefits.

Retirees filing jointly with a combined income of between $32,000 and $44,000 may have to pay taxes on 50 percent of their benefits. Joint filers with a combined income of more than $44,000 may have to pay taxes on 85 percent of their benefits. Combined income is the retiree's adjusted gross income plus nontaxable interest plus one-half of the retiree's Social Security benefits.

In addition to U.S. taxes, some foreign countries may tax benefits as well. To find out whether a country imposes taxes on Social Security benefits, contact the country's embassy in the United States.

The SSA provides information and resources on its International Programs webpage for retirees who are moving outside of the U.S.

What About Supplemental Security Income?

The rules for receiving Social Security overseas do not apply to Supplemental Security Income (SSI) benefits. Most recipients of SSI are not entitled to benefits outside the U.S. SSI benefits will stop if a recipient is outside the U.S. for more than 30 days, and benefits won't start up again until the recipient is back in the country for at least 30 days. However, there are exceptions for dependent children of military personnel and students studying abroad.

What Is a Health Savings Account? Will Medicare Affect Mine?

A health savings account may help you save money on medical expenses, depending on your insurance type. If you are eligible, you can use your health savings account (HSA) to cover certain medical costs, according to HealthCare.gov.

How Does an HSA Work?

If you have a high deductible health plan, you can contribute to an HSA and use the untaxed money to cover medical costs, decreasing your total medical expenses.

High deductible health plans typically have lower monthly premiums than other insurance plans. However, individuals may pay more for medical services before coverage starts, per HealthCare.gov.

What Do Health Savings Accounts Cover?

You can use an HSA to pay for deductibles, copayments, and coinsurance.

Examples of typical expenses for which you can use a health savings account include:

• Acupuncture
• Ambulance costs
• Doctor visits
• Hearing aids
• Medications
• Psychiatric care and psychological therapy
• Certain long-term care services

However, you generally cannot use money from an HSA for monthly insurance premiums, unless you receive Medicare, health care continuation coverage, or unemployment compensation.

For long-term care insurance, you may be able to pay your premiums through a health savings account.

The Benefits of Health Savings Accounts

The advantage of using a health savings account is that funds are not subject to federal taxes when you contribute or withdraw money to pay for qualified medical expenses. You can also earn tax-free interest.

Should you have money left over in your account at the end of the year, it rolls over. The funds stay active, remaining in your account until you need them. Even if you change jobs or retire, you can keep your HSA.

In some cases, you can use your health savings account to cover your spouse’s and dependents’ medical expenses, even if they are not on your plan.

Health Savings Account Rules

2023 Contribution Amounts

The Internal Revenue Service sets contribution limits on HSA’s.

• For 2023, individuals can contribute up to $3,850, and families can put up to $7,300 into a health savings account, Investopedia reports.
• People who are 55 and older by the end of the tax year can make an additional $1,000 catch-up contribution.

Other Insurance Types

Other insurance plans can disqualify you from contributing funds to an HSA.

• Individuals with dollar-first insurance plans – in which the insurer takes care of its share of an included service before the insured individual pays deductibles or copayments – cannot put funds into a health savings account for their outstanding health care fees.
• Those on Medicare cannot add money to health savings accounts, though they can withdraw capital from their accounts to pay medical expenses that Medicare does not cover. While people using health savings accounts typically cannot use the funds to cover monthly premiums, there is an exception for Medicare beneficiaries.

Penalties

Although health savings accounts have several advantages, they also impose restrictions on how you use your money.

Taking money from your account for nonmedical or unqualified expenses before you reach 65 results in a 20 percent tax penalty. The 20 percent tax penalty for ineligible withdrawals does not apply if you are 65 and older. Still, you must pay income tax.

Opening a Health Savings Account

There are several ways to open an HSA.

• Employers can offer them, with the employer and the employee jointly funding the account.
• Some health insurance companies provide health savings accounts with high deductible health plans.
• Banks and financial institutions offer accounts for individuals.

How Does Medicare Affect Your Health Savings Account?

When you enroll in Medicare, you can no longer contribute pre-tax dollars to your health savings account. To put untaxed money in an HSA, you must have high deductible health insurance without additional disqualifying coverage, such as Medicare. Once you have Medicare, you can no longer add tax-free funds to your account.

After you enroll in Medicare, however, you can still access your health savings account. One of the advantages of health savings accounts is that they are vested. As a Medicare beneficiary, you can continue using untaxed funds to cover the medical expenses your insurance does not bear, such as deductibles, coinsurance, and copayments. You cannot, however, use tax-free money to pay for Medicare supplemental insurance.

While the Internal Revenue Service (IRS) prohibits people from using untaxed capital for high deductible health insurance plan premiums, the rule differs for Medicare. When you enroll, you can use your HSA to pay your Medicare premiums without taxes.

Withdrawing Money From Your HSA

People over 65 can withdraw funds from their health savings accounts for nonmedical expenses. Although these withdrawals are no longer tax-free, older adults do not incur the 20 percent tax penalty the IRS imposes on younger people taking funds HSA’s for ineligible expenses.

Since medical costs tend to increase with age, many prefer to keep their money in their health savings accounts to cover eligible medical expenses tax-free.

Delaying Medicare Enrollment

Some people with health savings accounts enroll in Medicare when they initially become eligible, forfeiting the ability to make HSA deposits for Medicare’s coverage. Others delay enrollment in order to continue making health savings account contributions.

• According to the Journal of Accountancy, only individuals with employer-sponsored high deductible health insurance as their primary coverage can continue adding to their health savings accounts past retirement age by delaying Medicare enrollment.
  
  Individuals with private insurance, continuation of health coverage (COBRA), or a health care exchange cannot fund their HSA’s after reaching retirement age.
   
• People who continue to work at small companies after becoming eligible for Medicare must enroll in the program immediately to have any health insurance coverage.
  
  Per MedicareInteractive.org, Medicare must be the primary insurance for those working at companies with fewer than 20 employees. Since the small employer’s health plan does not have to pay until after Medicare contributes, these individuals risk losing health coverage if they delay enrolling in Medicare. Deferment also results in a late penalty.
   
• Those with health insurance from businesses with 20 or more employees can put off Medicare enrollment and continue placing funds into their health savings accounts. Because the company insurance would remain the primary insurer when they join Medicare, they can continue receiving health insurance coverage without Medicare.

Individuals who wish to delay enrolling in Medicare should not accept Social Security payments. This is because Social Security automatically registers beneficiaries for Medicare Part A, rendering them unable to make HSA deposits.

Medicare and the IRS recommend that people who have delayed enrollment after becoming eligible should cease health savings account contributions six months before joining Medicare to avoid a tax penalty. A six-month lookback period applies, as Medicare’s coverage is retroactive.

If you have an HSA, whether you should delay Medicare enrollment depends on your situation. The decision could significantly impact your finances. Speak to your elder law attorney to learn more about your options for your health savings account as you approach retirement age.

Claiming Social Security Benefits at Age 70

If you are about to turn 70, congratulations on reaching a big milestone.  And if you also have delayed claiming Social Security retirement benefits up till now, you are joining a select group -- only 6.5 percent of Social Security recipients put off collecting their benefits until they reach three score and ten, the age at which they can collect the maximum benefit. If you are about to join this elite group of septuagenarian claimers, it’s important to know when and how to claim.

The decision of how long to wait to claim Social Security benefits depends on a number of factors, including other income sources in retirement and projected longevity.  But Social Security experts advise waiting as long as possible to start collecting benefits, up to age 70.  This is because if you delay taking retirement beyond your full retirement age (66 for those born from 1943 to 1954), you amass “delayed retirement credits” that increase your benefit by 8 percent for every year that you wait, over and above annual inflation adjustments.  Your checks will be about 76 percent more than had you claimed at age 62, the earliest you can file. It’s tough to find a better and more reliable investment than that. (However, keep in mind that if you are collecting benefits based on the work record of a current or ex-spouse, there is no point in waiting until 70 -- you won't accrue delayed retirement credits beyond your full retirement age.)

Don’t Wait Any Longer

Delayed retirement credits stop at age 70, so there is no advantage to putting off starting benefits any longer.  Not only won’t your credits increase by claiming after age 70, but if you wait longer than half a year, you’ll start losing monthly benefits you would have otherwise received.  The Social Security Administration (SSA) will pay you retroactively for benefits accrued up to six months after your 70th birthday, but that’s it.  If you wait any longer, benefits you would have received are permanently forfeited.

The next thing to know is that the SSA won’t automatically start sending you checks once you turn 70. You need to apply for benefits. You can do this starting four months before the date that you want your benefits to begin.  To get the maximum amount, you’ll want the benefits to start the month you turn 70.  There is, however, one scenario where benefits will automatically kick in at 70: those who took benefits after reaching their full retirement age and then suspended their benefits to earn delayed credits until age 70.  For them, the SSA should automatically restart benefits at 70.

You can apply online -- click here.  If you can’t submit your application online, you can call 1-800-772-1213 (TTY 1-800-325-0778). In normal times, another alternative is to visit your local Social Security office, but during the pandemic visits are by appointment only and only for a limited number of reasons. However, SSA offices should be reopening soon; check the SSA’s Coronavirus Disease page for updates. The SSA will want certain information and documents when you apply. For a checklist of what may be required, click here.

When will you get your first check?  The SSA issues checks a month behind, so your benefits should start arriving the month after the month you turned 70.  For example, if you were born July 17, you should ask that your benefits start in July and your first check will come in August.  However, those born on the first day of the month get a small bonus: the SSA treats them as if they were born the previous month and starts paying benefits in their birth month.  So, for example, if you were born July 1, you’d request benefits to start in June and the payments would begin in July.

What If You’re Still Working?

Working past age 70 (or any time past your full retirement age, in fact) won’t affect your benefits.  And while you won’t increase your monthly benefit by waiting past age 70 to claim, you could boost it by working in addition to collecting Social Security. This is because the SSA recalculates your benefits each December based on your 35 highest-earning years of work. If your earnings plus your Social Security benefits allow you to replace a lower-earning year, your overall benefit could increase in the annual calculation. But Social Security benefits are taxable, so if you’re earning more money your tax rate may be higher.

In most cases, your Medicare premiums will be deducted from your Social Security check. If you happen to be retiring at age 70 and you’ve been paying Medicare’s high-earner surcharges, keep in mind that you can reverse these surcharges if your income drops far enough. The Social Security Administration uses income reported two years ago to determine a beneficiary's premiums. If your income decreases significantly due to certain circumstances, including retirement, you can request that the SSA recalculate your benefits and your premium surcharges could be eliminated or reduced. 

For an article in The New York Times on determining the optimal time to claim Social Security benefits and ways to maximize benefits, click here.

For the SSA's Retirement Benefits page, click here.

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How Secure Is Social Security?

For years people have been worried about Social Security’s future, but what is the actual outlook? According to the federal government, unless Congress acts to intervene, Social Security shortfalls are expected beginning in 2035.   

Social Security retirement benefits are financed primarily through dedicated payroll taxes paid by workers and their employers, with employees and employers splitting the tax equally. Employers pay 6.2 percent of an employee's income into the Social Security system, and the employee kicks in the same. Self-employed individuals pay the entire 12.4 percent Social Security payroll tax. This money is put into a trust fund that is used to pay retiree benefits. 

The trustees of the Social Security trust fund have reported that if Congress doesn’t take action, the fund’s balance will reach zero in 2035. This is because more people are retiring than are working, so the program is paying out more in benefits than it is taking in. Additionally, seniors are living longer, so they receive benefits for a longer period of time. 

Once the fund runs out of money, it does not mean that benefits stop altogether. Instead, retirees’ benefits would be cut. According to the trustees’ projections, the fund’s income would be sufficient to pay retirees 77 percent of their total benefit. 

Congress can act to shore up Social Security before this happens. Some ideas include eliminating the cap on benefits. Right now, workers only pay Social Security tax on the first $137,700 of income (in 2020). That amount can be increased, so that higher-earning workers pay more in taxes. The Social Security tax or the retirement age could also be increased.

Social Security is immensely popular and lawmakers are unlikely to allow steep benefit cuts to take place. The last time the program was in financial trouble and received a major overhaul was in 1983, when President Ronald Reagan and congressional Democrats struck a deal to increase taxes and gradually raise the retirement age from 65 to 67.

For more information about a the potential Social Security shortfall, click here and here.

Working on Your Bucket List? First, Finish Your Estate Plan

“Many seniors may be more focused on their bucket lists, than worrying about having their financial affairs in order.”

Seniors should be having some heart-to-heart discussions with their spouses and loved ones about their wishes concerning their assets and their final days, according to Intermountain Catholic in “Retirees Have Several Financial Issues to Consider.” After a loved one dies, family members are often left dealing with the expenses of their medical care and funeral. To be left to deal with these issues while grieving, adds another layer of heartbreak. It doesn’t have to be this way.

Many people put off making a will.  This means that their property won’t be distributed as they would want. If you don’t already have a will, contact an estate planning attorney and get started right away. Without a will, your estate will be distributed according to the laws of your state.

Ask your estate planning attorney if a “pour-over trust” is appropriate for your situation.  It puts the property that you own at the time of death into an already-prepared trust, so your trusted heir can succeed you as a trustee and then divide the estate, according to your wishes.

Don’t put your 401(k) or IRA savings accounts into trusts. The IRS will see that as a 100% withdrawal and you’ll be charged the taxes on it for the year the withdrawal was made. That one mistake could, and has, decimated lifetimes of savings.

You’ll want to grant a trusted family member or friend the power of attorney and medical power of attorney, so your affairs can be handled, if you should become unable to do so. If you do not want “heroic measures”—CPR and other medical procedures done to bring someone back to life, if they are unresponsive—then you’ll want a Do Not Resuscitate (DNR) form. That form will need to be with you and you should tell others about it, so they can instruct medical personnel accordingly. Otherwise, EMTs and doctors are required by law to take whatever measures they deem necessary to keep you alive.

If you haven’t already applied for Social Security, you may wish to go to your local Social Security office to discuss what benefits are available to you and how to collect them.

Most seniors qualify for Medicare, but there are many different plans. It is also likely that you’ll need supplemental plans to cover costs, including prescriptions.

Your best bet: sit down with an experienced estate planning attorney who can help you create an estate plan that is best for you and your family.  You should also have conversations with your family members about tough topics, so when the time comes for them to act on your behalf, they’ll be ready.

Reference: Intermountain Catholic “Retirees Have Several Financial Issues to Consider”