Monday, March 31, 2008

Today show: Social Security Death Benefit


The topic of Social Security death benefit came up on the NBC Today show this morning (March 31, 2008).

The SSA reference is “What to do when a beneficiary dies,” link here.

There is a one time benefit of $255 payable to a live-in surviving legal spouse, or to a live-apart spouse if that spouse is eligible for benefits on the beneficiary’s record as one number holder.

When there is no surviving spouse, the payment can be made to a dependent child, but the child must be eligible on the beneficiary’s record (normally that means the child is a minor and not on his or her own).

There are survivorship benefits available to the spouses and dependent children and even dependent parents, but it appears that such persons have to be claimed as dependents on income tax returns and be dependent in a legitimate way.

It appears, from what was said on the Today program, that the benefit is reported on the recipient’s tax return.

Wednesday, March 26, 2008

Social Security, Medicare report raises alarms; Could S.S. benefits really be cut for current retirees?


Today, we expect a major report on the Social Security and Medicare trust funds. The Investors Daily newspaper has a front page newspaper story by Jed Graham: “Medicare to start running out of cash as major cash hikes, benefit cuts loom; Social security also shaky; Entitlement programs could cost 12.3% of GDP by 2030 without reforms.”

The link is this:
http://www.investors.com/editorial/IBDArticles.asp?
artsec=16&issue=20080325
I won’t give the active hyperlink because McAfee SiteAdvisor flagged it, but I believe it is a “false positive.” The visitor can paste the URL into the browser and read his own security package’s report and instructions for viewing. (Or try later, when the problem may get resolved.)

45% of Medicare revenue will come out of general revenue by 2015.

The Social Security Trust Fund runs out by 2041. Those reserves were $2.2 trillion at the end of 2007. Medicare runs out in 2019.

The government would be able to pay only 78% of expected benefits when the fund runs dry. The article suggests the possibility of a FICA tax hike from 12.4% up to 15%, and the possibility of cutting benefits, even for some current retirees, up to 18%. That would be politically dicey. It also raises “moral hazard” questions about decisions that individual people make, accepting large buyouts from the employers to leave early and then take long “time-outs” to plan second careers, as I did.

One issue is longer life spans. This is a particular problem if people live longer while frail and needed care. That is why the “lower birth rates” get cited by social conservatives as an issue. But a low birth rate could be desirable if seniors could actually work into their 80s without creating extra health care expenses, and if employers welcomed them, without setting aside “special programs” for seniors, as AARP does. Removing health care from the employment area and funding it separately could help seniors keep working longer.

There is a similar Wall Street Journal story on p A3 by Tom Barkley and Jane Zhang, “Alarms Sound Anew Over Social Security, Medicare,” and “How’s Social Security, Medicare?” link here.

Picture: See what you can make out in the side view mirror. "Government is the problem." (Ronald Reagan).

Monday, March 24, 2008

My own IRS "pre-audit": due diligence for a retiree in special circumstances


I am, as many readers know, a “retiree” myself, not quite 65, having retired early, subject to earnings limits. Due to a family eldercare situation that I don’t give much detail about, I am living “at home” and in a sense “rent free” so I wanted to check everything in the tax and SSA rules to make sure I wasn’t doing anything “wrong” before filing this year’s tax return electronically with HRBlock.

In general, it appears that as long as I keep my return completely separate, with no claims of dependency (either way) or deductions, there are no complications.

I'm giving some links here that check the tax law and SSA policies as they would apply to me, as best as I can tell from reading the regs online. Visitors should always read the material and "fine print" carefully; I make no claims that I couldn't have missed something in drawing my own conclusions.

Visitors should always talk to their tax advisors or attorneys about their own particular circumstances, if they still have questions.

The IRS link for the Economic Stimulus Payment of 2008 is here.

Note that the Govtrack reference for the Economic Stimulus Act of 2008 (HR 5140) is here.

One issue of concern to me is the capability to reduce taxes by plowing IRA contributions back. I had Pension Annuity IRA withdrawal on a systematic withdrawal option that withdrew more than was needed. But there is a limit ($5000 for over certain ages) that can be plowed back, and it must be covered by earnings obtained by actually “working” (by and large, the same kinds of income that would apply to the Social Security Annual Earnings Limit Test.

Here are a couple of links on IRA maximum contributions in these circumstances:

1

2 (clearer, I think)

Another set of links here concerns my making sure that there is no “implied” tax liability for (my) living with “family” in certain sensitive circumstances. IRS generally takes “personal use” off the table for tax purposes and regards blood relatives as family for “personal use” determination (regardless of how one feels about this matter socially).

A couple of references.

Personal Use of Business Property

Residential Rental Property

Detailed examples. This link gives an example (#2) in which a sister-in-law is considered immediate family. This example supports the idea that personal use of a dwelling by relatives does not affect income taxes one way or another unless one tries to claim deductions of some kind (or dependents).

I have made earlier postings on the fact that you do not need to have social security income withheld, but may be responsible for taxes on up to 85% of it.

If you have “self-employment” income of more than $400, here is the reporting requirement for social security tax purposes. Link.

In some cases, family members are eligible for benefits on your account, as long as they are not using their own separate accounts. Here is the basic reference.

The following glossary for SSA may be useful: Link.

Notice the definitions of “number holder” and “wage earner” as synonyms.

The concept of “number holder” eligibility on his or her own work record is explained here.

The main link for “family maximum” is this. The "Family Maximum" always applies to one "number holder" ("wage earner") and does not apply to two relatives who already have their own accounts (as best I can tell). This is a critical point (in administrative law), because some people might argue that this is not "just."

Basic link for Social Security POMS Manual for retirees is here.


Update: March 31

The "Specified Private Activity Bond Interest" item appears to be taxable only when one is subject to the Alternative Minimum Tax (AMT). Here is a typical link from Franklin Templeton.

There is a lot of confusion on how to estimate the tax liability for social security income. Here is a good site (Bankrate) to explain it: link. I overestimated the liability in my case. You have to be "pretty good with numbers" like the Ben Campbell character in the movie "21" to get this.

Example: You make $21000 outside of social security, and collect $16000 in benefits. You take 50% of the SSA benefits, or $8000, and add to the $21000, to get $29000. You subtract the $25000 floor. The remainder, $4000, is taxable at 50%, so $2000 gets added to your gross income. That rate can go up to 85% if the total (the $29000 in this example) goes over $34000 for a single person. These rules appear to apply to the gross income, before taking any deductions or exemptions.

Tax software programs know how to make this calculation.

Curiously, apparently the only IRS form only for "worksheet for Social Security Recipients" is on publication 590 for IRA's, link here.

Thursday, March 20, 2008

Sandwich generation feels increasing emotional and financial pressures from eldercare as well as childrearing


The "Sandwich" generation is in the news again, as ABC Good Morning America this morning had the story "Sandwich Generation Faces Massive Stress in Caring for Aging Parents and Kids; Social Worker Study Finds Majority Ill-Prepared but Says Help Is Available," by Kate Snow and Lara Naaman. The link is here. The story related two African American families. One was taking care of an 81 year old father with dementia; another, of a grandmother with complications of diabetes. One family had uprooted itself and moved cross continent to take care of parents.

A related earlier story from Feb.21 is "Overwhelmed by the Costs of Elder Care: Caring for Her Grandparents, Ray Payton Feels Her Financial Security Slipping Away," link here. The individual felt absolutely responsible for her grandmother's care, no matter what.

A commenter posted a long term care link that did not link, but maybe the intended link was this (National Care Planning Council).

Curiously, none of the presidential candidates are paying the attention to this issue that one would expect. Hillary, Barack, John, where are you on this?

Monday, March 10, 2008

AARP has major article, website on jobs for seniors


AARP Bulletin for March 2008 has a story on p 12, that companies will be looking for older workers with updated skills, despite the current economic crisis. The story, by Elizabeth Pope, is called "They Won't Let Me Retire" and talks about an 82-year-old nurse.

AARP has a webpage that list major employers that work with AARP to look for senior workers. The link is this.

There is even a sidebar box "Uncle Sam Wants You." The AARP lists the Internal Revenue Service, the Peace Corps, and Office of Disaster Assistance (Small Business Administration) was working with the organization.

The latter two of these agencies would probably be most interested in candidates with social work or "volunteer" experience (overseas, Red Cross, etc). The Peace Corps volunteer questionaire asks heavily about previous volunteer experience.

The IRS has extensive data centers around the country (in the DC area, near New Carrolton in MD and in the Potomac Highlands in W VA). They are a large information technology shop with a lot of "old" systems (even in assembler) and tend to take a very long time to implement changes. It would sound likely that sometimes they would look for older programmers with mainframe experience. They also have contracting companies hire workers in the northern VA area, and tend to want specific experience with old assembler systems.

The AARP web page also lists a number of consumer-oriented companies, especially Home Depot, with which AARP has worked for several years. AARP may tend to work with companies with a consumer or lifestyle focus, because some seniors would tend to have experience in or interest in home improvement, even as a "hobby," because of previous experience owning and maintaining real property.

AARP also works with some financial institutions, including MetLife and New York Life. I do know that New York Life sometimes looks for seniors to become agents when they have had other kinds of experience in the insurance industry. But "agenting" requires an extroverted temperament, to go out and prospect for leads and "sell" and this may not be for everyone. They may offer an extensive training program and even a training bonus, but may have a rule that the senior can have no other income (at least from work). I interviewed them in the spring of 2005. I also got a call from Humana but did not pursue it. It is rather easy to get a life insurance license (especially if one worked in the industry and is familiar with it), but other financial planning requires SEC licenses and exams and extensive study (which some people may find useful in maintaining their own money). Life insurance agents can earn renewal commissions, but these tend to work only for agents in the business for a number of years. Some life companies (like PrimeVest) have put a lot of sales efforts into getting people to convert from Whole Life to Term, a measure that many financial planners consider desirable today. (Other interest sensitive "investment" policies -- like universal -- present a more complicated picture.)

I also wrote about life companies on this blog July 10, 2007 (see archive links).

Tuesday, March 04, 2008

John Hancock gives closed webinars on how its Long Term Care plans work: should be typical of industry


Today, March 4, 2008, John Hancock Life Insurance presented the Webinar on Long Term Care (to ING employees and retirees), which I had discussed prospectively on Feb. 20, here.

Technically, the presentation comprised a series of slides (like a grade school “film strip”), and the audio came from the phone; the visitor had to register first and call an 800 number to hear the audio commentary through phone. The “conferencing” was provided by Genesys. It lasted 22 minutes.

Much of the substance of the presentation was discussed Feb. 20. But there was additional information. For example, the average nursing home cost in the United States is $195 a day or $71000 a year (I thought it was already more). The average assisted living ranges $21600-$26300 a year, and home health care is actually more than assisted living, or about $31200. It was not clear if the home health number covered seven days a week and included live-in help, which normally requires its own room and now has to be immigration-checked.

The presentation covered the concept of a Daily Maximum Benefit, plus lifetime maximums, which can cover ten years and total to more than one million dollars. (By way of comparison, a typical high rise luxury condo in Manhattan with at least one bedroom is usually more than one million.)

The presentation discussed the lack of Medicare coverage for nursing home stays, which usually covers in full only the first twenty days, and then with a copay through one hundred days. 25% of all nursing home care in the US is out-of-pocket. Medicaid requires a spend down of assets, so, as the presenter explained, long term care insurance represents a capacity to protect assets. The presentation did not mention filial responsibility laws (or “poor laws”), but I believe that some states may start enforcing them.

A LTC policy is often a guaranteed issue to employees who are still working full-time (and can include career agents), but will require underwriting (which is often quite strict) once people have retired. A forty year old may be able to purchase it for $15 a month, and add in Future Benefits Options and Automatic Benefits Increase features, or, for example, Bed Reservation. Nonforfeiture options (when premium payments stop) are available. There are concepts like Commitment Based Professional Care, and Informal Care, which would allow reimbursement to friends and relatives who run errands or give informal care. Restoration of Benefits is possible after a lapse. A qualification period is required to start benefits, but this period accumulates lifetime in case the beneficiary gets better and does not need all of the benefits in one episode of care.

One point about qualification could really matter, however. The patient must meet two of six criteria to qualify for reimbursement under the LTC plan. It's possible that other adult relatives could experience considerable problems dealing with the person who does not quite qualify, and want to place the person in assisted living, when then, it would seem, the patient would still be paying out of pocket despite having paid premiums.

The concepts in the Webinar seem familiar to those who have started following the Long Term Care Insurance industry in light of the "demographic winter" crisis. When I was working, the concept was first presented to employees in 1999. When retirees are screened for beginning LTC later in life, however, they are likely to face close underwriting scrutiny, as I noted on previous posts about the AARP/Genworth plans.

Note: there is a current story today on the taxability (and social security issues) for poll workers' pay in the "major issues" blog; poll workers are often retirees. Link here.