McKee Financial

6-15-2020 Newsletter: Before You Claim Social Security

We are always here to help in making decisions concerning Social Security.  It is a huge decision and one we will happily assist you with, when the time comes.  

 

Before You Claim Social Security


A few things you may want to think about before filing for benefits.

 

Provided by C. Brian McKee, RFC®, CKA®

 

Whether you want to leave work at 62, 67, or 72, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.

   

How long do you think you will live? If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after Full Retirement Age (which varies from age 66 to 67 for those born in 1943 or later), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at FRA or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, and c) have sizable retirement savings.

 

If you really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them. Essentially, the choice comes down to more lifetime payments that are smaller versus fewer lifetime payments that are larger. For the record, Social Security’s actuaries project that the average 65-year-old man to live 84.0 years, and the average 65-year-old woman, 86.5 years.

  

Will you keep working? You might not want to work too much, since earning too much income may result in your Social Security being withheld or taxed.

 

Prior to Full Retirement Age, your benefits may be lessened if your income tops certain limits. In 2018, if you are aged 62 to 65, receive Social Security, and have an income over $17,040, $1 of your benefits will be withheld for every $2. If you receive Social Security and turn 66 later this year, then $1 of your benefits will be withheld for every $3 that you earn above $45,360.

    

Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + nontaxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000 to $34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000 to $44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income taxes on up to 85% of their Social Security benefits.

  

When does your spouse want to file? Timing does matter, especially for two-income couples. If the lower-earning spouse collects Social Security benefits first, and then the higher-earning spouse collects them later, that may result in greater lifetime benefits for the household.  

 

Finally, how much in benefits might be coming your way? Visit SSA.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple years might translate to a slightly higher Social Security income.

  

A claiming decision may be one of the most significant financial decisions of your life. Your choices should be evaluated years in advance – with insight from the financial professional who has helped you plan for retirement.

C. Brian McKee may be reached at 812-477-8522 or brian@MckeeFinancialResources.com www.MckeeFinancialResources.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

Registered Representative, Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and McKee Financial Resources Inc. are not affiliated.

 

Citations.

1 - MarketWatch.com, November 2, 2019

2 - SSA.gov, May 28, 2020

3 - BlackRock.com, May 28, 2020

4 - MarketWatch.com, November 11, 2019

 

As always, this material is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate.

 

Interesting Economic Facts

 

THEY PRINT, THEY BUY - The Fed was purchasing $75 billion per day of Treasury bonds in mid-March 2020 when it launched “Unlimited Quantitative Easing.”  The daily debt purchases made by the Fed have slowed, dropping to just $4.5 billion per day of Treasury bonds acquired last week (source: Federal Reserve).  

 

BORROWING TRILLIONS - From Friday 3/13/20, the date of President Donald Trump’s declaration of a national emergency, through last Thursday 6/11/20, the national debt of the United States has increased $2.62 trillion, rising from $23.44 trillion to $26.06 trillion(source: Treasury Department).

 

NO KIDDING - The United States officially dropped into a recession on 2/29/20, its 6th recession in the last 40 years, i.e., since 1980.  The announcement confirming the start of this economic downturn was released on 6/08/20, exactly 100 days after the recession started.  The next most recent recession in the country began at the end of December 2007 and lasted 18 months through June 2009.  The announcement of the 2007 recession was released on 12/01/08, 336 days after the recession started (source: Nat’l Bureau of Economic Research).  

 

THE “CARES ACT” EFFECT - The nation’s 13.3% jobless rate as of 5/31/20 (released on Friday 6/05/20) would have been an estimated 16.3%if the workers who were being paid wages from funds obtained through a “Payroll Protection Program” (PPP) loan were counted as “temporarily laid off” instead of “actively employed” (source: Bureau of Labor Statistics).

 

HELP WANTED SIGNS - The number of job openings in the United States has fallen by just short of 2 million in the last 2 months.  There were 7.004 million job openings nationwide as of 2/29/20, a total that has dropped to 5.046 million as of 4/30/20 (source: Department of Labor).

 

NOT INFLATION, BUT DEFLATION - The Consumer Price Index (CPI) fell 0.1%on a month-over-month basis in May 2020, the 3rd consecutive month of “negative inflation.”  The last calendar year in which inflation was negative, i.e., deflation, was 1954 or66 years ago (source: Bureau of Labor Statistics).

 

NO GUARANTEE - The city of Detroit filed for bankruptcy on 7/18/13.  A court approved reorganization plan was finalized on 11/07/14 which included pension cuts to 32,000 active and retired city workers.  All 32,000 impacted workers, except for police and firefighters, suffered a 4.5% reduction to their pension and they lost all “cost-of-living” adjustments in the future (source: US Bankruptcy Court, Judge Steven Rhodes).

 

DO WHATEVER IT TAKES - The Fed established the $500 billion Municipal Liquidity Facility on 5/26/20.  The program can purchase short-term debt directly from US states.  Illinois became the first US state to utilize the facility, borrowing $1.2 billion on 6/05/20 for a period of 1-year at a cost of 3.82%.  Illinois faced a revenue shortfall due to a pandemic-driven delay in its tax collections (source: Federal Reserve).

 

BIG DECLINE - The state of Texas received $2.61 billion in sales tax revenue in May 2020, down $400 million from the $3.01 billion of sales tax revenue collected in May 2019 (source: Texas Comptroller Glenn Hegar).

 

IMPACT OF LOW PRICES - US field production of crude oil was 11.1 million barrels a day for the week ending 6/05/20, the 10th consecutive week of declining domestic oil production.  The total decline over the 10 weeks was 1.9 million barrels a day from a peak of 13.0 million barrels a day as of 3/27/20 (source: Department of Energy).

 

PANDEMIC DEATHS - As of 6/06/20, 37% of the COVID-19 deaths in the United States had occurred at nursing homes (source: Washington Examiner).

 

WE WANT OUT TOO - 42% of Italians surveyed in late April 2020 would vote in a referendum to leave the European Union, following a similar exit made by the United Kingdom on 1/31/20 (source: Tecne survey).

 

NO DISCOUNT - The University of Southern California has announced its 2020-21 tuition will increase by +3.5%from the prior year regardless of whether classes are to be held in person or online (source: LA Times).

 

FANS WERE MISSING - The world’s top 3 golfers were paired together for the first 2 rounds of the PGA golf tournament in Ft. Worth, TX last Thursday and Friday.  The trio, Rory McIlroy(# 1), Jon Rahm (# 2) and Brooks Koepka(# 3) had combined career PGA earnings of $101 million before last week (source: PGA).

 

...and for the History Lovers... This Week in History

 

June 15, 1752

Benjamin Franklin and his son test the relationship between electricity and lightning by flying a kite in a thunderstorm.

 

June 16, 1858

Abraham Lincoln, in accepting the Republican nomination for the U.S. Senate in Illinois, declares that, "A house divided against itself cannot stand."

 

June 17, 1972

Five men are arrested for burglarizing Democratic Party headquarters at the Watergate complex in Washington, D.C.

 

June 18, 1775

The British take Bunker Hill outside of Boston, after a costly battle.

 

June 19, 1885

The Statue of Liberty arrives in New York City from France.

 

June 20, 1941

The U.S. Army Air Force is established, replacing the Army Air Corps.

 

June 21, 1939

Baseball legend Lou Gehrig is forced to quit baseball because of amyotrophic lateral sclerosis--a disease which wastes muscles.

 

 

 

The McKee Financial Resources LLC Website

 

This week we are back to covering the glossary section of our website.  The glossary section of the website is filled with useful terms that are likely to come up. 

 

McKee Glossary: F-J

 

Federal Income Tax Bracket

The range of taxable income that is taxable at a certain rate. The brackets for tax years 2019 and 2020 are 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent.

Fixed Income

Income from investments, such as CDs, Social Security benefits, pension benefits, some annuities, or most bonds, that is the same every month.

401(k) Plan

A defined contribution plan that may be established by a company for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 401(k) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.

403(b) Plan

A defined contribution plan that may be established by a nonprofit organization or school for retirement. Employees may allocate a portion of their salaries into this plan, and contributions are excluded from their income for tax purposes (with limitations). Contributions and earnings will compound tax deferred. Withdrawals from a 403(b) plan are taxed as ordinary income, and may be subject to an additional 10 percent federal tax penalty if withdrawn prior to age 59½.

Fundamental Analysis

An approach to the stock market in which specific factors - such as the price-to-earnings ratio, yield, or return on equity - are used to determine what stock may be favorable for investment.

Gift Taxes

A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. For 2019 and 2020, the first $15,000 a year from a donor to each recipient is excluded from tax. Most states also impose a gift tax. The gift tax exclusion is indexed for inflation.

Holographic Will

A will entirely in the handwriting of the testator. Without witnesses, holographic wills are valid and enforceable only in some states.

Individual Retirement Account (IRA)

Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then the entire withdrawal is taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.

Inflation

An increase in the price of products and services over time. The government's main measure of inflation is the Consumer Price Index.

Intestate

A person who dies without leaving a valid will. State law then determines who inherits the property or serves as guardian for any minor children.

Investment Category

A broad class of assets with similar characteristics. The five investment categories include cash alternatives, fixed principal, equity, debt, and tangibles.

Irrevocable Trust

A trust that may not be modified or terminated by the trustor after its creation.

Joint and Survivor Annuity

Most pension plans must offer this form of pension plan payout that pays over the life of the retiree and his or her spouse after the retiree dies. The retiree and his or her spouse must specifically choose not to accept this payment form.

Joint Tenancy

Co-ownership of property by two or more people in which the survivor(s) automatically assumes ownership of a decedent's interest.

Jointly Held Property

Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.

 

Source: http://www.mckeefinancialresources.com/learning_center/glossary/

 

McKee Financial Resources Inc.

Ph 812-477-8522 / Fx 812-477-8521

Email:  brian@MckeeFinancialResources.com

 

Evansville Office:

McKee Financial Resources Inc.

727 N. Cross Pointe Blvd.

Suite C

Evansville, IN 47715

 

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McKee Financial Resources Inc.

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205 N. College Ave

Bloomington, IN 47401

 

Indianapolis Office:

McKee Financial Resources Inc.

48 N. Emerson Avenue

Suite 300

Greenwood, IN 46143

 

Securities offered through Registered Representatives of Cambridge Investment Research Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory Services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. McKee Financial Resources Inc. and Cambridge are not affiliated.

 

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