Aaron Charles Gregg

Should I Delay Claiming Social Security?

“When you begin claiming affects how much money you get from the program, and once you're receiving checks, it's difficult to undo your decision.”

Getting the timing right on Social Security is important. Deciding when to claim is a decision requiring thoughtful planning and accurate information. A recent article from York News-Times titled “3 Reasons to Put Off Social Security for Another Year and 2 Reasons Not to” takes a common-sense approach.

There are good reasons to delay taking Social Security benefits. First, if you are under 70, the longer you delay benefits, the larger your checks. Benefits grow anywhere from 5/12^th of a month to 2/3^rd of 1% per month, depending upon your Full Retirement Age (FRA) and your current age. FRA is the age when you qualify for a standard benefit, based on your work history. For most of today’s wage earners, this is sometime between age 66 and 67.

A second reason to delay: you may get a larger lifetime benefit, if you live into your mid-80s or beyond. However, those who need the income to pay bills may not have a choice, even if they have not reached their FRA. If possible, delaying by a few months might be helpful to increase benefits.

A third reason is if you are still working. If you are working and earning a decent salary and have not yet reached your FRA, you may run into problems with the Social Security Earnings Test. The federal government deducts $1 from each monthly benefit for every $2 you earn over $19,560 in 2022, if you will be younger than your FRA for the entire year. If you will reach your FRA in 2022, you will still have a deduction, but this will be $1 for every $3 you earn over $51,960. If you are still working, delaying taking benefits makes sense.

The good news: the money will not be out of your pocket forever. Once you reach FRA, your benefits are recalculated to include the amount previously withheld, making checks larger. However if you do not need benefits right away, the best decision is to delay taking Social Security until you retire.

There are also reasons why delaying taking Social Security benefits is not necessary. The biggest one is if you are 70 or older. The benefits stop growing on your 70^th birthday, so there is no reason to delay. Make sure to sign up for benefits by your 70^th birthday.

If your life expectancy is not great, then there is no incentive to waiting. If you pass away before signing up for benefits, you might not get any money from Social Security. Take an honest look at your own health and your family’s health history. If you think you might not live all that long, or if everyone in the family passes early, it may make sense to apply for Social Security, even before your FRA.

When you sign up for benefits matters a lot. The Social Security Administration has calculators on its website to use once you have created a my Social Security account. This will give you an idea of how much you can expect to receive in Social Security benefits at various ages, based on your own work history.

It also makes sense to align your estate plan and retirement plans with Social Security.

Reference: York News-Times (Jan. 27, 2022) “3 Reasons to Put Off Social Security for Another Year and 2 Reasons Not to,”

There are Rules for Social Security when Someone Dies

“When a loved one passes away, there are usually various arrangements that need to be made. One of the tasks to oversee will involve reporting the death to the Social Security Administration.”

Notifying Social Security about a death is one of a handful of must-do’s shortly after a loved one dies. If this task is not done promptly, says U.S. News & World Report in the recent article titled “How to Report a Death to Social Security,” then there may be problems and extra work in the future.

Here are the four steps that need to take place.

Report the death to the Social Security Administration. The funeral director might offer to do this.  However, it may be best if the family does it, so you don’t have to share the decedent’s Social Security information. You can call the SSA directly or contact the local Social Security office. This cannot be done online. It must be done on the phone. You will need the decedent’s complete date of birth and their Social Security number.

Review Social Security payments. Social Security benefits arrive the month after the month to which they apply. For example, a February benefit will arrive in March, the March benefit arrives in April, and so on. However, the day that a person dies, those benefits stop on that day. There’s no such thing as a grace period or partial payment for the month.

If the person dies during March, they won’t be eligible to get benefits for March. They will receive benefits for February, but not for March. It doesn’t matter if they die on the last day in the month or on the first day.

What if you receive a check for the month the person died? Mail the check back to the Social Security Administration. Keep the person’s bank account open, if the deposit is made directly to the account to allow the SSA to retrieve the last payment.

What about the one-time SS death benefit? Once the death has been reported, there may be a one-time death benefit of $255, sent to the surviving spouse, if they were living with the deceased. If the surviving spouse was living separately but is still eligible for benefits on the deceased’s record, the one-time payment may still be sent. If there is no surviving spouse, the death benefit can be sent to a child who is eligible for benefits based on the deceased’s record.

Arranging benefits for family members from Social Security. Depending upon the circumstances, family members may still be eligible to receive benefits. There will be paperwork. The best advice? Don’t delay, as when you apply will impact when benefits begin. Here are the family members who may be eligible for benefits after a death:

• A disabled widow or widower age 50 and older
• A widow or widower age 60 or older
• A widow or widower of any age caring for a child of the deceased under age 16, who is also disabled.
• An unmarried child of the deceased younger than 18, or 19 if they are a full-time student in elementary or secondary school
• A stepchild, grandchild, step-grandchild or adopted child in certain circumstances
• An unmarried child with a disability that began before age 22
• Parents who were dependent on the deceased for at least half of their support who are at least 62
• A surviving divorced spouse, but only in certain circumstances

The surviving spouse has several options regarding how and when to take which benefits. For instance, the surviving spouse may be able to apply for their own benefit plus a survivor’s benefit, but not at the same time. For instance, it may make sense to take a survivor’s benefit for several years and delay taking your own benefit, and then later take the surviving spouse’s own SS benefits when they are larger.

Reference: U.S. News & World Report (June 9, 2021) “How to Report a Death to Social Security”

Claiming Social Security? What You Need to Know

“You may be someone who looks forward to the day you retire, or you could be someone who plans on working for as long as possible. No matter which category you fall into, you should do some retirement planning in preparation for this major milestone.”

If you’re eligible for Social Security, those monthly benefits may be a big part of how comfortable your lifestyle is once you retire. However, making the most out of your benefits requires some knowledge and good decision making, as described in this recent article “4 Must-Knows Before Claiming Social Security” from The Motley Fool.

What’s Your Full Retirement Age—Your “FRA”? When you start taking benefits will have a big impact on the amount of your benefits. If you wait until your FRA, you’ll get your standard benefit. Born between 1943—1954? Your FRA is age 66. If you were born after 1967, your FRA is 67. If you were born between 1955 and 1959, you’ll want to check with the Social Security Administration to be 100% certain.

You become eligible to take your Social Security benefits once you turn 62. However, the benefit is reduced for every year that you take it early. Another option is to take it as late as age 70. Your benefits will grow for every year you wait. Let’s say your standard benefit would be $2,200. If you take it as early as age 62, it will be $1,650. If you wait to age 70, and it leaps to $2,900. Waiting could make the difference between paying and not paying some bills.

How Long Will You Live? This is the $20 million question. Family longevity and overall health could give you a higher probability of living a long life, but there are no sure answers. If you start taking benefits at age 62 and live to age 75, the total amount in benefits will be $257,400. If you take benefits at age 66, you’ll get $237,600. If you wait until age 70 to claim benefits and live to age 75, you’ll get $174,000.

A longer life means larger numbers. Live to age 80, you will get $365,000 if you start at age 62, $369,000 if you start at age 66, and $348,000 if you start at age 70. Live to age 85, and you will get $455,400 if you start at age 62, $501,600 by starting at age 66, and $522,000 if you wait until age 70.

How Much Have You Saved for Retirement? Social Security makes up about 40% of retirement income for the average American. If you’ve got a pension, consider yourself lucky. The more income streams, the better. If your expenses during retirement are, let’s say, $40,000 a year, and your income is $20,000, then you’ll need an additional $20,000 to keep your bills paid. Studies on investments and retirement (and there are many of these) report that if you have a traditional 60% stocks and 40% bonds investment portfolio, you risk running out of money in retirement, unless you keep withdrawals at no more than 4% of your total account value. An investment account of $500,000 that yields $20,00 annually—is a start. Most Americans do not have that much in retirement savings.

Will You Need or Want to Work During Retirement? Working during retirement is a necessity for some. for others, it’s a way to get out of the house and socialize. If you have $40,000 in expenses and receive $20,000 from guaranteed income streams, the $10,000 earnings from a part time gig could lower the amount you’d need to pull from retirement savings.

There’s a downside to working during retirement. If you work too much, Social Security will decrease your monthly payments based on your income. If you are considering taking Social Security early while working, make sure to check the numbers, so you aren’t getting hit with penalties.

Reference: The Motley Fool (June 7, 2021) “4 Must-Knows Before Claiming Social Security”

How Do Special Needs Trusts Work?

“Trusts give parents of special-needs children additional options for extending care and financial assistance. However, you might need some expert help.”

Special-needs trusts have been used for many years. However, there are two factors that are changing and parents need to be aware of them, says the article “Special-Needs Trusts: How They Work and What Has Changed” from The Wall Street Journal. For one thing, many people with disabilities and chronic illnesses are leading much longer lives because of medical advances. As a result, they are often outliving their parents and primary caregivers. This makes planning for the long term more critical.

Second, there have been significant changes in tax laws, specifically laws concerning inherited retirement accounts.

Special needs planning has never been easy because of the many unknowns. How much care will be needed? How much will it cost? How long will the special needs individual live? Tax rules are complex and coordinating special needs planning with estate planning can be a challenge. A 2018 study from the University of Illinois found that less than 50% of parents of children with disabilities had planned for their children’s future. Parents who had not done any planning told researchers they were just overwhelmed.

Here are some of the basics:

A Special-Needs Trust, or SNT, is created to protect the assets of a person with a disability, including mental or physical conditions. The trust may be used to pay for various goods and services, including medical equipment, education, home furnishings, etc.

A trustee is appointed to manage all and any spending. The beneficiary has no control over assets inside the trust. The assets are not owned by the beneficiary, so the beneficiary should continue to be eligible for government programs that limit assets, including Supplemental Security Income or Medicaid.

There are different types of Special Needs Trusts: pooled, first party and third party. They are not simple entities to create, so it’s important to work with an experienced estate elder law attorney who is familiar with these trusts.

To fund the trust after parents have passed, they could name the Special Needs Trust as the beneficiary of their IRA, so withdrawals from the account would be paid to the trust to benefit their child. There will be required minimum distributions (RMDs), because the IRA would become an Inherited IRA and the trust would need to take distributions.

The SECURE Act from 2019 ended the ability to stretch out RMDs for inherited traditional IRAs from lifetime to ten years. However, the SECURE Act created exceptions: individuals who are disabled or chronically ill are still permitted to take distributions over their lifetimes. This has to be done correctly, or it won’t work. However, done correctly, it could provide income over the special needs individual’s lifetime.

The strategy assumes that the SNT beneficiary is disabled or chronically ill, according to the terms of the tax code. The terms are defined very strictly and may not be the same as the requirements for SSI or Medicaid.

The traditional IRA may or may not be the best way to fund an SNT. It may create larger distributions than are permitted by the SNT or create large tax bills. Roth IRAs or life insurance may be the better options.

The goal is to exchange assets, like traditional IRAs, for more tax-efficient assets to reach post-death planning solutions for the special needs individual, long after their parents and caregivers have passed.

Reference: The Wall Street Journal (June 3, 2021) “Special-Needs Trusts: How They Work and What Has Changed”

Protecting Adult Children with Disabilities

“Adults with disabilities are living much longer than in the past, which means their aging parents must plan for the day when their dependent children outlive them.”

One in four Americans has some kind of disability, and an increasing number of children are being diagnosed with some form of autism. The life expectancy for people with Down syndrome has increased from living to age 12 in the 1940s to nearly 60 today. Most children born with cerebral palsy live into their thirties. For parents of these children, it is more important than ever to create a plan and a community, says the article “How to build support system for adult children with disabilities” from The San Diego Union-Tribune.

Financial resources and support services need to be put into place, for when parents are no longer able to provide care. Here are the key points to address:

Preserving the child’s eligibility for government assistance programs, including Supplemental Security Income (SSI) and Medicaid, through the use of a Special Needs trust. Any amount of money can be placed in the trust, and the funds don’t count when determining eligibility. If parents leave money directly to a child, they will lose their ability to get SSI and Medicaid benefits.

Start early. A Third-Party Special Needs trust should be set up before the child turns 18. It doesn’t need to be funded, but it needs to be created.

Be a stickler for the rules. If the child receives SSI, money from the trust may not be used for food and housing, but it can be used for other costs, like therapies that are not covered by Medicaid, or even extras, like a cellphone or vacation. An experienced elder law attorney will be able to help the family with planning and learning the intricacies of these rules.

Name a trustee and a successor trustee. Selecting someone to manage the trust on behalf of the child is a critical decision, and not always an easy one. The trustee should be someone responsible who cares about your child’s well-being. It could be a sibling, if the relationship is good, or a family member. The person should be younger than the parents, so they will be around after the parents have passed.

Open an ABLE Account—Achieving a Better Life Experience account. These are accounts that work in much the same way as a 529 account. They can be established for a disabled person at any time, but the child must have the qualifying disability before age 26. Money from a Special Needs trust can be moved into an ABLE account, and the beneficiary can use it for any qualified disability expense.

Prepare a letter of intent or guidance. This is not a legally binding document, but rather a way of sharing information with others about your child: their preferences, routines, comfort levels and wishes. It can also be used to provide information about caregivers, medical providers and others who are a good fit with your child. You may also wish to share information about what and who they don’t like. Update the letter every year or two.

Power of Attorney. Having a power of attorney for a disabled individual is far more flexible and less costly than a conservatorship or guardianship.

Housing options. Where will your child live? That depends on what kind of disability the child has and the family’s financial resources. Ideally, the child can transition from the family home to another place while the parents are still living. If feasible, the parents could leave the family home to the child in the Special Needs trust, but they’ll also need to leave enough money for ongoing expenses and maintenance of the house. Some disabled adults live in group home settings, where counselors and other staffers help residents live on their own.

An elder care lawyer will be able to connect the family with many different resources and help with creating a Special Needs trust.

Reference: The San Diego Union Tribune (Jan. 9, 2020) “How to build support system for adult children with disabilities”

What Can You Tell Me About a Special Needs Trust?

“If you have a loved one who deals with chronic illness or a disability of some kind, you want to be able to keep supporting them after you’re gone. However, you don’t want to disrupt their ability to collect funds from programs like Medicaid or disability payments. In these situations, you can use a special needs trust.”

A special needs trust is a specific type of trust fund that’s created to help a beneficiary with special needs but not jeopardize their eligibility for programs, like Supplemental Security Income (SSI), Social Security Disability Insurance (SSDI) and Medicaid. KAKE’s recent article, “How a Special Needs Trust Works,” says that programs like SSDI and Medicaid can be vital supports for those dealing with disabilities or chronic illnesses.

These programs have income limits to ensure they’re serving those who need them the most. If you were to just give money to your beneficiary when you pass away, it could come in above this income limit.

A special needs trust works around this. That’s because the owner of the funds is technically the trust, not the beneficiary. You also name a trustee to be in charge of disbursing the funds in the trust. Therefore, while the beneficiary benefits from the trust, she doesn’t have control of its assets.

If you are creating a special needs trust for a beneficiary, you must do this before the beneficiary turns 65. And funds from the trust typically can’t be used to pay for food or shelter.

If a person could benefit from a special needs trust, but they themselves own the funds, you can create a first-party special needs trust in which you serve as both the beneficiary and the grantor. These can be complicated to draw up, and states have varying rules determining their validity. A first-party special needs trust has the money that belongs to its beneficiary.

With a third-party special needs trust, the trust holds funds that a beneficiary doesn’t directly own. These are generally used by grantors to allow the beneficiary to start getting money from the trust, even before their death. The funds never technically belong to the beneficiary, so they can’t be used for Medicaid payments. The trust can be used to save money for the beneficiary and future beneficiaries.

The third type of these trusts is the pooled special needs trust. Nonprofit organizations manage assets for a fee, and these organizations pool the funds of multiple trusts together and invest them. When it comes to payments, beneficiaries get an amount equal to their percentage of the pooled trust’s balance.

A special needs trust lets you write down what you wish your funds’ purpose to be, making it legally binding. Special needs trusts are irrevocable, so you can also protect your funds from creditors and lawsuits against the trust’s beneficiary. It lets you help your beneficiary deal with the expenses that come with illness or disability, without hampering their ability to get other assistance.

Reference: KAKE (September 30, 2019) “How a Special Needs Trust Works”

What Changes Will Be Made to Social Security This Year?

“Here are five Social Security changes for 2020 that could impact your monthly take-home income.”
While Social Security now delivers benefit checks to more than 63 million people every month, the program is primarily designed to provide a financial foundation for our nation's retired workers. Nearly 45 million retired workers (70% of all beneficiaries) receive a benefit check monthly, with more than 60% of these seniors expecting their payout to make up at least half of their income.
Motley Fool’s recent article, “5 Social Security Changes in 2020 That Could Affect Your Take-Home Income” explains that with the relative importance of Social Security, it should come as no shock that the second week of October holds considerable importance to these tens of millions of Americans. That's because it’s when the Social Security Administration (SSA) announces changes to the program for the upcoming year. Any changes could directly affect what beneficiaries are paid on a monthly basis. These changes can also affect non-retirees who aren't getting a Social Security benefit Let’s look at some of these changes.
1. COLA. The most important figure in the October announcement from the Social Security Administration is the cost-of-living adjustment (COLA). Social Security's COLA is measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The average monthly CPI-W reading from the third quarter of the current year (July through September) is compared to the average monthly CPI-W reading from the third quarter of the previous year. If the average figure has risen from the previous year, then beneficiaries receive a "raise" that's commensurate with the percentage increase year over year, rounded to the nearest 0.1%.
2. Withholding thresholds. Early claimants who haven’t hit their full retirement age but are currently (or expected to begin) taking benefits, will be subject to the retirement earnings test. This test allows early filers to earn up to a certain amount of money, before the SSA is allowed to withhold a portion, or all, of their benefit. For those who won't reach their full retirement age in 2019, $1 in benefits can be withheld for every $2 in earnings above $17,640 ($1,470 a month). For those who’ll reach their full retirement age this year but have yet to do so, are allowed to earn $46,920 before the SSA begins withholding $1 in benefits for every $3 in earnings above the limit. Note that these withheld benefits aren't lost forever, because you get them back in the form of a higher monthly payout when you reach your full retirement age.
3. Maximum monthly payout. If you're currently claiming a retired worker benefit and have made a good deal of money on an annual basis over your working career, there's a chance that you'll be able to net more in monthly payouts in 2020. There’s a cap on the maximum monthly payout at full retirement age. In 2019, no individual at their full retirement age can take home more than $2,861 per month, even if they made millions of dollars each year throughout their working career.
4. Disability income thresholds. Even though 7 of 10 program recipients are retired workers, about 10 million people each month also get a check from Social Security Disability Insurance (SSDI). Approximately 8½ million are disabled workers, and the rest are spouses or children of these disabled workers. If the average CPI-W reading does increase on a year-over-year basis from the previous year (which appears likely), these SSDI income thresholds for the disabled and legally blind should go up a little in 2020.
5. A warning to the wealthy. Lastly, Social Security's changes for 2020 won't just impact those receiving a benefit. Wealthy workers can also anticipate paying more into the program, provided that inflation rises on a year-over-year basis, as measured by the CPI-W.
Reference: Motley Fool (July 28, 2019) “5 Social Security Changes in 2020 That Could Affect Your Take-Home Income”