Link to SS website

Issue 6 • November 2007 

Basics on Social Security:

For clients of all ages questions about Social Security always come up during the planning process. Here is a quick review of the basics:

  • Currently your earnings up to $97,500 are taxed for social security. If you are salaried you pay 6.2% and your employer pays 6.2%. If you are self-employed you pay 12.4%
  • Whereas SS taxes stop at $97,500 of income, Medicare taxes have no earnings limit. They are currently 1.45% for you and 1.45% for your employer
  • The question I most often get is "will benefits be around when I retire?". Currently there are 3.3 workers for each SS Beneficiary, by 2032 it is projected to be only 2.1 workers per beneficiary. At the current rate the scenario doesn't look good. My guess is that to compensate for this shortfall of funding the government will eliminate the earnings cap for the social security tax. That at least seems to be the latest talk in Washington as a way to save the program.

Basics on SS Benefits:

  • All monthly benefits are based on your PIA (Primary Insurance Amount). This is the amount you would recieve if you retired at full retirement age.
  • To qualify qualify for benefits you must be fully insured: you must have earned 40 credits which is equal to about 10 years of work.
  • non working Spousal Benefits: at full retirement age eligible for 50% of other spouses PIA. At age 62 early spousal benefits would equal approximately 32 to 35% of PIA.
  • working Spouse: eligible for higher of own PIA or the benefit mentioned above depending on retirement age. This can be affected by eligibility for coverage or Gov pension offset.
  • Take benefits early or not? If you wait to take benefits at full retirement age it will take an estimated 11 years to come out ahead of taking the benefits early. This comes down to a decision on working after 62.
  • If you have claimed early benefits the earnings limit is $12,960 for 2007 up to the year you reach full retirement age. If you earn more you will see a reduction in SS benefits = to $1 for every $2 you earn over the limit.
  • If you attain full retirement age in 2007 (65 + 10 mos) your earnings limit is $34,440 (if you are receiving benefits). After this age there is no earnings limit while receiving social security benefits.

Medicare Basics:

  • Eligible at 65. Diverges from SS Full Retirement Age
  • Part A (Hospital Insurance) is financed through payroll taxes and is usually premium free.
  • Part B (Medical Insurance) has monthly charge, generally $93.50/month. May be higher depending on income.
  • Part D (prescriptions) generally about $24/month. Enrollment dates are Nov 15th to Dec 31 each year.

It's a lot to think about!

Coordinating Social Security + Medicare + Retirement is a challenge. Having a comprehensive retirement planning strategy can take the guesswork out of it.

Investment commentary:

Volatility is up and there are a lot of forces at work in the market. I have my own personal opinions about the underlying problems, but the only thing that matters is taking an objective look at where we may be headed. It's looking like gains are going to be more challenging to come by. We are paying the price of a debt financed economy that may take awhile to work through. The good news is the market is still hanging tough despite all the negative news. The disconcerning news is all the potential unknowns. Diversification is the only way to play this market. It should be interesting through the end of the year.


James A. Daniel,

This newsletter if for informational purposes only. The information contained within should not be considered as financial advice nor soliciation for financial services. Consult with your financial professional if you have any questions.

The Advisory Firm, LLC is a fee-only financial planning company and registered investment advisor.

© 2007 The Advisory Firm, LLC. All Rights Reserved.
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