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Disability insurance funds depleting: Won’t cover payments by 2016

 

Social Security has two funds: one for “old age and survivors” and the other for disability insurance.

The retirement fund is going strong and is funded through 2033, according to the recently released annual report of the U.S. Treasury.

But the disability insurance fund is depleting quickly. By 2016, there are projected to be enough funds to cover only 80 percent of scheduled payments. Legislation will be needed to address the imbalance, the report said.

The disability insurance fund provides income support for workers who have become disabled and cannot work to support themselves and their families. Nearly 9 million Americans receive disability insurance. The average monthly benefit is $1,129.

When the disability insurance program began in 1966, about 1 percent of the population received disability insurance benefits.

Today, nearly 5 percent of the working-age population receives benefits, in part due to such demographic factors as the aging of the Baby Boom generation, the increase in women’s long-term employment, which qualifies more of them for disability, and the declining job opportunities for older workers during recent years.

The fund has also become the target of widespread abuse as some workers are suspected of exaggerating the extent and length of their injuries to collect disability payments.

Social Security is funded through payroll taxes collected by the Federal Insurance Contributions Act (FICA) and the Self Employment Contributions Act (SECA).

The money is placed into two trust funds:

1. The Old-Age and Survivors Insurance (OASI) Trust Fund

2. The Disability Insurance (DI) Trust Fund

These funds hold the accumulated assets and disburse benefit checks. The trust funds hold securities issued by the federal government, including marketable Treasury bonds and special issues.

The 2033 projection for depletion of the old-age and survivors fund is the same this year as it was last year.

After 2033, the dedicated payroll tax will be sufficient to fund three-quarters of scheduled payments until 2088 with annual income coming into the fund. Legislation would need to be enacted by that time to restore long-term solvency.

In 1982, the OASI trust fund was nearly depleted. Congress enacted emergency legislation that allowed borrowing from other federal trust funds, and no beneficiary was shortchanged. Legislation was later enacted to strengthen the OASI fund.

The borrowed amounts were repaid with interest within four years, the Social Security Administration reported.

Medicare also has enough funds through 2030, the report said.

The Medicare Insurance Trust Fund will have sufficient funds to cover its obligations until 2030, 13 years later than was projected prior to the Affordable Care Act. After 2030, 85 percent will be covered, declining slowly to about 75 percent by 2050, the report said.

Part B of Supplementary Medical Insurance, which pays doctors’ bills and other outpatient expenses, and Part D, which covers prescription drug coverage, are both projected to be financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs, according to the Treasury.

But as the population ages and healthcare costs rise, costs are projected to grow steadily from 1.9 percent of GDP in 2013 to 3.3 percent in 2035 to 4.5 percent by 2088. Roughly three-fourths of these costs will be financed from general revenues, and about one-quarter from premiums paid by beneficiaries, the Treasury report said.

©2014 CPAmerica International

 

 

According to a recent survey performed by Bankrate.com, a third of people (roughly 36%) in the U.S. have nothing saved for retirement. Of the 1,003 adults surveyed, 69% of those with no retirement savings were between the ages of 18 to 29. That’s not entirely shocking given the fact that not only are most adults at that age not even concerned with retirement, but generally things like moving out on your own, higher education expenses, etc. take precedence. However, 33% of those surveyed between the ages of 30 to 49 had no retirement savings and 14% of those age 65 and older had no retirement savings. Most of those surveyed acknowledged that they were not on track in saving for retirement. One can only assume that these individuals are relying in part or in whole on social security.

Given the fact that most reports have predicted the Social Security Trust Fund will run out of money in 2033 and benefits from that point forward would need to be reduced, these statistics are troubling. Those surveyed between the ages of 30 to 49 won’t have even reached retirement age before the Fund runs dry, and the life expectancy of the average American continues to increase.

The Social Security Administration actually has some fairly decent calculators, one of which is the life expectancy calculator. Also, almost all banks and investment companies have free calculators online that can give someone at least a rough of idea of what you would need saved along with Social Security benefits in order to retire. Remember, it’s never too late to start saving!

 

 

 

Final IRS regulations make permanent, and expand the scope of, proposed regulations that allow the use of truncated, or shortened, taxpayer identification numbers on payee statements and certain other documents.

A truncated taxpayer identification number (TTIN) displays only the last four digits of a taxpayer identifying number and uses asterisks or X’s for the first five digits.

Because of concerns about identity theft, the IRS has run a pilot program allowing filers of certain information returns to truncate an individual payee’s Social Security number (SSN) or other nine-digit identifying number on paper payee statements if the filers met certain requirements. The pilot program was not available for any information return filed with the IRS, any payee statement furnished electronically, or any payee statement that was not in the Form 1098, Form 1099 or Form 5498 series.

Last year, the IRS published proposed reliance regulations that established the TTIN and set forth guidelines for its use. The scope of the proposed regulations mirrored that of the pilot program with one exception: The proposed regulations permitted use of a TTIN on electronic payee statements in addition to paper payee statements.

The IRS has now issued final regulations that expand the circumstances under which taxpayers may use TTINs. Specifically, the final regulations permit truncation of an employer identification number (EIN).

The final regulations permit use of a truncated taxpayer identification number on any federal tax-related payee statement or other document required to be furnished to another person except:

➤ Where prohibited by statute, regulation or other guidance published in the Internal Revenue Bulletin, form or instructions;

➤ Where a statute, regulation, other guidance published in the Internal Revenue Bulletin, instructions or form specifically requires use of a Social Security number, individual tax identification number, adoption identification number or employer identification number; or

➤ On any return or statement required to be filed with, or furnished to, the IRS.

A person may not truncate its own taxpayer identification number on any tax form, statement or other document that taxpayer furnishes to another person. For example, an employer may not truncate its EIN on a Form W-2, Wage and Tax Statement, that the employer furnishes to an employee.

The final regulations became effective July 15, 2014. The amendments to the specific information reporting regulations are effective for payee statements due after Dec. 31, 2014.

©2014 CPAmerica International

 

It’s a little scary to contemplate that Social Security trust funds are projected to be exhausted in the not-too-distant future. But that is the subject recently studied in a 2013 report from the Congressional Research Services (CRS).

If the trust funds cannot pay current expenses out of current income or accumulated assets, they are considered to be exhausted or insolvent, and that means the Social Security trusts funds cannot pay full current benefits on time. The report projects that without change, the trust funds will be insolvent by 2033. And that same year the program is projected to have enough income to pay only about 77% of scheduled benefits. The law provides that any individual who meets the eligibility requirement is entitled to benefits, which means the government is legally obligated to pay benefits to such individuals. If the government fails to pay the benefits provided by law, beneficiaries could take legal action. Insolvency does not relieve the government of its obligation to provide benefits.

The CRS study puts forth various scenarios that might take place in the future regarding Social Security benefit payments. If Congress has the will to act sooner rather than later, the less draconian the required changes necessary to maintain full benefit payments will be. The affect of earlier changes would be spread over a large number of workers and beneficiaries over a longer period of time. And prompt action would also allow Congress to more gradually phase in the necessary changes, rather than waiting until 2033 and abruptly cutting benefits and/or raising taxes. Early action would also make it easier for workers to plan for their retirements.

If Congress waits until 2033 the trust funds’ annual deficit could be eliminated with a cut in benefits of about 23%, rising to 27% by 2087. If Congress acts today, the necessary changes would be about half as large as those needed if Congress waits until the trust funds become insolvent.

Scary, yes. But we should hope for the changes to be made sooner than later.

 

Theft of personal information, such as social security numbers, to commit fraud on tax returns, to claim refunds or credits to which a taxpayer is not entitled to or commit other financial crimes is on the rise. Using this information, thieves often file fraudulent returns early during the filing season to avoid information matching. So you should have a pretty good indication that you are a victim of identity theft if you receive a notice from the IRS stating that more than one tax return has been filed using your information or wages are shown from an employer that you have not worked for. For the 2011 tax filing season, it has been estimated that identity theft related fraud was involved in the filing of 1.5 million tax returns representing $5.2 million. If you are a target, it can take months to clear your name, during which time a legitimate refund you should have received is withheld.

Typical methods used to gain access to your personal information include email or telephone phishing or dumpster diving. Some taxpayers receive phony IRS emails telling them they have a refund pending or are under investigation. The IRS does not send unsolicited tax-account related emails requesting personal and financial information. If you receive a suspicious email from the IRS report it by calling the IRS at 800-829-1040 or forwarding the email to phishing@IRS.gov.

The following are some of the preventative techniques one can employ to avoid identity theft:

• Arrange for masked social security numbers (SSN) where possible, e.g. on insurance cards.

• Store your social security card in a safe and secure location and do not discard any documents with your SSN on them. Use a shredder before discarding documents.

• Resist giving your SSN or other personal information to businesses just because they ask for it.

• Protect your computer by using firewalls and anti-spam or anti-virus software. Regularly change passwords for internet accounts with sensitive information.

Remember – an ounce of prevention is worth a pound of cure.

 

The middle of the month has just passed and with it my bi-monthly cursing of getting taxed, specifically for social security. This is a tax that I’m supposed to be paid back sometime starting thirty years from now in my sixties, but I highly doubt that. According to a study by the Urban Institute, a person who turned 65 in 1980 received $2.12 for every dollar paid in social security taxes, while somebody who turns 65 in 2030 (born in 1965) will receive $.84. I’m sure for somebody like myself, who will turn 65 in 2046, that figure will be closer to 50 cents if anything at all!

One reason I’m pessimistic about receiving any benefits is that the social security system is currently way too broad, as almost 20% of the population is receiving some form of the benefits. In addition, according to ssa.gov, the social security trust funds started to take in less money through payroll tax revenues than it paid out in benefits starting in 2010. And in 2033 the trust fund is anticipated to be down to 0. This social security trust fund is the accumulation of all the social security taxes ever collected less benefits that have been paid. This money is invested in the form of government bonds and the government has used this money to fund other programs. So there really isn’t a trust fund, as we all know that the government has been running deficits for years and will have to come up with this trust fund money to pay benefits somehow. Or to save money social security benefits will be cut (penalizing some hard workers who put money into the system and saved for retirement responsibly), the qualifying age will be increased, or social security taxes will have to be raised by either increasing the tax rate or the ceiling on wages that are subject to social security taxes.

At least I can take solace that I don’t live in Germany where social security payments are 20%, in Italy where they are in excess of 25%, and definitely not in France where they are closer to 40%!

 

The fastest growing segment of the labor force is workers over the age of 65,  according to the U.S. Bureau of Labor Statistics.

If you plan on working past 65, there are some issues to be aware of that author Mark Miller points out in his Wealth Management.com article:

Social Security timing: It doesn’t make sense to take Social Security in your first year of eligibility (age 62) if you continue to plan on working for two main reasons: 1) you will only receive 75% of your primary insurance amount and 2) there are penalties incurred on Social Security benefits if you earn income. For example, if you have earned income of more than $15,480 in 2014, you will be hit with a penalty of $1 for every $2 over that amount. These withheld benefits are given back after you reach full retirement age, but it does not make much sense to take the reduced benefits early. Instead, if you continue to work and can wait until the age of 70, you will receive 132% of the primary insurance amount for the rest of your life, and that is nearly double the amount you would receive at age 62. After age 70 benefits stop accruing.

Medicare filing: The article notes that Medicare benefits are by the far the most important and the most complicated. If you already receive Social Security benefits, the sign-up for Medicare is automatic. If not, your window to sign up is the three months before turning 65 up through the three months following. Failing to do so can result in expensive premiums down the road. For example, monthly Part B premiums jump 10% for each full 12 month period that a senior could have had coverage but didn’t sign up. If you plan on working past age 70, you can delay starting Medicare without penalty if you are insured based on your active work status by an employer with more than 20 employees. However, if you are self employed, or your employer has fewer than 20 employees, you should sign up at age 65.

Required Minimum Distributions (RMDs): RMD’s are mandatory from IRA accounts and 401(k)s (unless you are working for an employer who sponsors the plan) starting the year you turn 70.5. If you are working, you do not have to take RMDs from the 401(k) of your current employer; it is only required from former workplaces if they were never rolled over. These distributions can affect what tax bracket you will fall into, so it’s important to plan accordingly.

 

 

With baby boomers nearing or at retirement age, many expect social security to be one of their main sources of income, or at least a nice addition. If you were born between 1943 and 1954, the age for receiving the maximum amount of your earned benefits is 66. This age increases by two months for each year born until being born after 1959 when it plateaus at age 67. However, for all people that earned benefits, benefits can start being collected at 62, albeit with a 25% penalty in the monthly amount for people born between 1943 and 1954 and increasing up to 30% if you were born after 1959.

So which age should you start collecting at?

Let’s assume that full monthly benefits were earned at $1000/month and that you were born in 1950. The average life span for a male is 75 and at this age the retiree would have earned the exact same amount upon retiring at age 62 or 66, $144,000. Of course, at this point the present value of benefits is higher for the people that retired at age 62 since they started receiving money at an earlier date. When considering the present value of money, the break even point for this retiree would be age 81. Of course there are always taxes to worry about, even for social security earned, but these calculations get complicated depending on how much other income is earned.

The moral of this story is: if you expect to live past 81, you are better off postponing retirement until age 66.

 

In recent years with the uncertainty in the economy and Baby Boomers coming into retirement age, Social Security has been a hot topic. 

What is there not to worry about!?  Will it be there when you are ready to retire?  Should you take it early? Should you postpone benefits?

A recent article by Dan Kadlec for Time showed that the number of retirees taking early social security has fallen for the second consecutive year to a 35 year low.  According to Kadlec, this is possibly a return to the downward trend that was broken up by the recession, which caused many workers to opt for early retirement in frustration over their inability to find work.  Social security can be taken as early as 62 with reduced payments, but benefits can by maximized by delaying payouts to age 70.  Social security plays a varying role in retirement planning. For some it is supplemental to 401K and savings, but for others, it may be their only source of income.

In May of 2012, the Social Security Administration announced that the online version of the Social Security Statement was now available on their website at:  http://www.ssa.gov/mystatement/.  You have to jump through a few security hoops to get your statement, but it is there for your convenience.  The statement provides estimates for retirement and disability plus gives the user an opportunity to verify that their income has been properly reported. Setting up an account also helps you with information about qualifying for benefits and allows you to apply for benefits online when you are ready to take that step.

Not quite ready to retire, but looking for some planning guidelines?   

The Social Security Administration also offers a variety of benefit calculators  and tools for estimating retirement benefits.

Even if Social Security is only a supplemental part of your retirement plan, it is important to keep tabs on your account. Keeping the full picture of your retirement in view will give you a clear idea of what to expect.





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