We Got a Raise!

      The news this week for us seniors:  It was just announced that Social Security benefits for next year will increase by 8.7%. That comes after a 5.9% increase for 2022. The average monthly benefit for a retired worker currently stands at $1,660. So the average retiree will get an increase of a little over $140, to about $1,800 per month.

     That's pretty good when you consider that, according to The Conference Board, a nonprofit business think tank, the average U. S. salary increased by only 4.1% in 2022, and is expected to rise 4.3% in 2023.

     That's the good news for seniors. But there's always a catch, isn't there? For one, the bump-up in benefits could affect people who receive low-income subsidies for health care, meaning reduced amounts of assistance. The increase could also lead to cutbacks in income-related benefits such as SNAP and low-income rental assistance. By one estimate, about 40% of those receiving low-income benefits will see some reduction in at least one assistance program. 

     Others could see their incomes increase to the point where they have to pay income tax on their benefits. It gets complicated, but the basics are:  as an individual, if your income is above $25,000 a year -- or $32,000 for a joint return -- you are liable for federal tax on a portion of your income. If your individual income is above $34,000, or joint income above $44,000, then 85% of your benefits are subject to tax.

     Unfortunately, these thresholds were established in 1986 and never adjusted for inflation. So in 1986 some 15% of beneficiaries paid income tax on their benefits; today 56% of Social Security recipients owe taxes on their benefits.

     Then there are Medicare premiums. Those increases have not been announced yet. They went up by 14.5% for this year. There's some talk they will not go up at all for next year, or could even go down, due to the large increase last year. But who knows at this point. 

     In addition, a jump in Social Security benefits could push your income up to the point where you'll have to pay a surcharge for Parts B and D of Medicare. Currently, the level that triggers the extra charge is $97,000 for an individual, and $194,000 for joint filers.

     Still and all, we're glad to see an increase in benefits, even if our "take-home pay" is less than our gross pay. But there is one other bugaboo. The 8.7% increase to current and future retirees means more money is flowing out of the system. That in turn could mean Social Security reserves will run out of money sooner than 2034, which is the current estimate.

     Currently, about 90% of benefits are paid out of payroll taxes. The rest comes from the infamous "lockbox" of the Social Security trust fund. If the economy goes into recession, as many are expecting, higher unemployment will mean a drop in funding from payroll taxes.

     But no one knows for sure. Even if some jobs are lost, if wages rise next year, that will mean more payroll tax is collected. And also, the maximum amount of earnings subject to payroll tax will increase next year from $147,000 to $160,200 -- another source of more funds for Social Security.

     Social Security is a great program, keeping many seniors out of poverty, and bolstering the incomes of many others, allowing us retirees to hang onto our middle class standard of living. But there are no guarantees. For every push there's a pull. We manage as best we can.  

Will My RMD Save Me?

     Last week I took the annual RMD from my IRA account. Probably most people schedule monthly withdrawals from their IRA or 401K, but for various reasons -- including the fact that Social Security sends me money every month -- I choose a lump sum.

     In completing this exercise I found out a few things. Some good, some bad.

     The good news is that according to the Federal government my life expectancy has somehow gone up -- and yours probably has too. Last year my life expectancy was 24.7 years. Now, even though I'm a year older, the government says my life expectancy has increased to 25.5 years. Don't ask me why. But you can't argue with the government.

     The other good news is that my RMD -- by the way, that's Required Minimum Distribution, the amount of money we withdraw from our IRA or 401K per year -- is $953 more than last year. That's thanks to a booming stock market in 2021. So I'm getting a raise!

     However, the balance in my IRA plan has gone down by about 5% since the beginning of the year. So unless the stock market gets better soon, next year's RMD will be less than what I'm taking this year -- and again, the same probably goes for you too. So we'll all be living longer, but getting less money.

     More bad news. Well, it's not news. I've known it all along. I do not have a pension. (I admit it, I am jealous of those of you who have a pension.) The pension I was supposed to get was rolled over by my company in the 1990s into what they call a cash balance plan, which eventually became my IRA. So in effect, what I have is an IRA instead of a pension. 

     In other words, I'm on my own. Which is okay as long as the stock market goes up. Yes, the majority of my IRA is in stocks (well, in stock mutual funds). And yes, that might be considered a little risky. But there's no way a bond fund or a money market fund will keep up with inflation.

     But that's okay, because of Social Security. I don't have to worry about the value of Social Security going down like my IRA has. In fact, Social Security is tied to inflation. So I got a 5.9% raise for 2022. We all did. And for next year they're talking about an increase of up to 9% (although it'll almost surely be less than that).

     So I'm okay. Maybe not quite keeping up with inflation, but close to it.

     But here's the thing. The government says I'll live another 25 years, bringing me up to 2047. But the government also tells us that unless things change, Social Security will run out of money in 2035. The proverbial lock box will be empty. And that means benefits will have to be paid out of then-current payroll taxes, which in turn means Social Security will only be able to pay out about 80% of earned benefits. Goodbye raise, hello decrease.

     So if we go by the government, after 2035 I'll still be alive, but old and poor. Will my RMD save me? Who knows. But still, that's 13 years from now. What me worry?

The 1.3% Solution

     I just got an email from Social Security notifying me there is a message for me on My Social Security. I signed up for the online account a couple of years ago, and now all my records are available on the website. B has not opened a My Social Security account. She still gets her information on paper, in the mail, which will probably arrive sometime next week.

     The message included a statement of my new benefit amount for 2021, before deductions, with a list of deductions for Medicare and taxes, and then the amount to be deposited in my bank account. Why, it's just like getting a paycheck! There's your gross salary, then all the  deductions, then your take-home pay, which is a whole lot less than your salary.

     Social Security benefit is going up by a paltry 1.3% for next year. The basic premium for Medicare Part B is going up by 2.7%, from $144.60 to $148.60. So our take-home will be something less than a 1.3% increase. Then if your income is above $88,000 for an individual, or $176,000 for a couple, you pay a surcharge, and that's going up, too. Or ... what Social Security giveth, Medicare taketh away.

     The threshold for being taxed on Social Security benefits is not going up. It remains at $25,000 for an individual and $32,000 for a couple. Anything above that is subject to federal income tax.

     These tax limits were set in 1985, back when you could live on $25,000 a year. If the limits had been adjusted for inflation, Social Security beneficiaries would only begin to pay tax starting at $60,500 for an individual and $77,400 for a couple. And so today, what Social Security giveth, the IRS taketh away.

     For comparison, in 1985 the premium for Medicare Part B was $15.50, not $148.60. However, there was no Part D to cover drug costs back in 1985. So that's definitely an improvement.

     Another point to consider. When you get health insurance through an employer your premiums are tax deductible. When you pay them on your own, such as through Medicare, they are not tax deductible -- making them more expensive.

    We may complain about the small increase in benefits -- that may actually prove a decrease for some people because of higher Medicare costs. Still, as we all know -- but don't always appreciate -- Social Security is a vital financial asset for retired Americans. What makes the asset so valuable? For one thing, the value of Social Security does not gyrate up and down like an IRA or 401K that's invested in the stock market. For another, as paltry as a 1.3% increase is, it's still a better rate than what you'd get from, say, a 10-year government bond which pays an even more paltry 0.8%.

     A bond is not exactly the same thing as Social Security, but it provides a relevant point of comparison. The bond rate determines the rate for an annuity. According to Jeff Sommer in the New York Times, the average 65-year-old man receives a Social Security benefit of $1,375 per month. An annuity paying him that much would cost almost half a million dollars. So that $1,375 per month is the equivalent of a half-million-dollar asset.

     There's one problem with Social Security. The system pays out more than it takes in via taxes -- a problem made worse by Covid, which has thrown a lot of people out of work, which means they are not contributing payroll taxes. The Social Security trust fund is projected to run out of money in less than 15 years. If nothing is done, benefits would be cut by more than 20%.

     We all assume that something will be done to shore up the system. But who knows what it might be. Some people suggest raising the retirement age to 68 or 70. Others want to raise the payroll tax, currently at 12.4% (half paid by the employer, half by the employee).

     Currently the tax only applies to incomes up to $137,700. President-elect Joe Biden has proposed adding the payroll tax to income above $400,000. That would raise some extra money. However, it would create a donut hole for incomes between $137,700 and $400,000, which some people might consider unfair. But more importantly, applying the payroll tax to income over $400,000 would only close about half of the deficit. 

     And Biden is also talking about expanding benefits by setting higher cost-of-living adjustments and increasing benefits to lower income retirees and to widows and widowers. Who would argue against giving poor people more money? But wouldn't it just make the Social Security funding problem worse? 

     It seems there are no easy answers. But there's one thing we'd all agree on: Social Security must be preserved and if anything, strengthened.

Social Security FAQs

     The last substantive change to Social Security occurred in 2015. That's when Congress eliminated the file-and-suspend and restricted-application strategies that gave married couples the opportunity to increase their lifetime benefits.

     But still, people often have questions about how the sometimes-complicated retirement system works, and how long it will be able to pay full benefits without some changes to the system. So here are a few Frequently Asked Questions, brought to us by Jeremy Kisner, Director of Financial Planning at Surevest Wealth Management in Phoenix, AZ. For those who are interested, he also writes a financially user-friendly blog called Clear and Concise Financial Advice.

     1. Can I collect benefits even if I continue working?
     Once you reach full retirement age, you can earn as much as you want without affecting your Social Security benefits  However, between age 62 and the year of your full retirement age you can only earn up to a certain threshold ($18,240 as of 2020) before benefits are reduced. For every $2 you earn above the threshold, your benefits are reduced by $1. But remember, only earned income from working counts towards the threshold. And also, if your benefit is withheld, Social Security will make it up to you with a higher monthly benefit after you reach full retirement age.

     2. How much are payments reduced when claiming retirement benefits early?
     They are reduced by approximately 0.555% for each of the 36 months you collect prior to full retirement age, and 0.416% for each month more than 36 months before full retirement age. So if your monthly benefit would be $1000 at full retirement age of 66, you would collect only $750 a month if you claimed benefits at age 62, for a 25% reduction.

     3. Are spousal benefits also reduced by the same amount for claiming early?
     Spousal benefits are actually reduced more. For example, claiming Social Security at age 62 would reduce the worker's benefit by 25%, but a spousal benefit by 30% -- or an average of 0.625% for each month prior to full retirement age.

     4. How much are benefits increased if I delay benefits until age 70?
     You accrue Delayed Retirement Credits which increase your benefits at a rate of 0.667 for every month you wait beyond your full retirement age. That works out to 8% per year simple interest.

     5. If I get married, am I immediately entitled to spousal benefits?
     No. You have to be married for one year before your are entitled to spousal benefits.

     6. What if my spouse dies prior to collecting benefits?
     You have to have been married for nine months to collect survivor benefits, and you have to wait until you are at least 60 years old (unless accidental death). There are also family benefits available to an unmarried child if one of their parents dies while the child in under 18., and spouses are also eligible to collect family benefits prior to age 60 if they are taking care of a child under 16.

     7. What happens to spousal benefits in the case of divorce?
     You can claim benefits on your prior spouse's record if you were married for at least 10 years, and are not currently remarried. It is not uncommon for two or more people to be claiming spousal benefits on one person's work record.

     8. Can I pay back benefits I collected prior to age 70, then get a higher payment as if I'd never collected?
     No. You used to be able to do this, but the option was eliminated in 2010.

     9. Are the ages of eligibility for benefits the same for widows and divorcees?
     Widows or surviving divorced spouses can claim survivor benefits at age 60. Divorcees can qualify for benefits at 62, even if the ex-spouse (age 62 or older) has not yet filed for benefits. You have to have been divorced for at least two years to file for benefits on an ex-spouses's record.

     10. What is now considered full retirement age?
     It depends on when  you were born:
     Year of birth       Full retirement age
     1942 or before          65
     1943 - 1954              66
     1955                         66 and 2 months
     1956                         66 and 4 months
     1957                         66 and 6 months
     1958                         66 and 8 months
     1959                         66 and 10 months
     1960 and after          67

     Bonus Question. Should I factor in the possibility that Social Security will go bankrupt in deciding when to start my benefits?
     Despite some reports to the contrary, Social Security is not in danger of going bankrupt. However, if no changes are made to the system, the trust fund (which has been built up over the years by collecting extra payroll taxes) will be depleted sometime around 2034. That's when benefits will have to be reduced -- by about 25% from their current level. There are ways to fix the system. But that's a topic for another post. Just one thing to keep in mind in this political season: If anyone is proposing a payroll tax holiday, that might put more money in workers' pockets, but it would also further deplete the Social Security system.

     Meanwhile, if you're interested in improving your own financial system, I can recommend Kisner's book A Good Financial Adviser Will Tell You ... from which these questions were drawn. And if you really want to get into the weeds, check out IRS Publication 915 for even more detailed information about Social Security benefits.

Two Useful Guides

     You may have heard that the federal government has made a few tax and Social Security changes for 2020.

     If you're like me, you haven't paid much attention. But I saw a clear and useful summary on my friend Jeremy Kisner's website, and so I thought I'd pass on the links -- for those who want an easy guide to the new rules.

     The first reference guide is called 2020 Important Numbers. It provides all sorts of information, including the revised tax brackets, standard deductions for both single and married taxpayers, Social Security annual limits, retirement plan annual limits, estate and gift tax limits . . . and a raft of other numbers, all in a quick easy-to-read format.

     The second guide, called 2020 Social Security Cheat Sheet focuses on everything you need to know about Social Security, including maximum benefits, how much benefits are reduced for retiring early, earning limits for people collecting Social Security.

     Anyway, don't rely on me. Check out the two guides. You might need to zoom in on the computer to see them better. You might also want to print them out for future reference -- for this is an information world we live in, and so it's information that gives us both prosperity and empowerment.

Boring but Important

     Some things in life are no fun, but you just gotta do them. Going to the dentist. Getting a colonoscopy. Making the phone call that you dread. Paying taxes. (The deadline is Monday, April 15.)

     So today I'm talking about taxes, which in my opinion are the second most boring subject on earth, behind life insurance. But like life insurance, taxes may be boring, but they are important.

     Most of us have taxes withdrawn directly from our paycheck or Social Security benefit, so we never see the money. Somehow it seems less painful that way. And then if we get a refund ... why that's a bonus! (Even though, of course, it's not ... we've just been giving Uncle Sam an interest-free loan for the past year).

     It's all in how you frame things. I like the way our town does our real-estate taxes. You receive a bill in March. Instead of saying it's due on April 30, and if you're late you get a penalty, it says it's due on June 30 -- but if you pay early, by April 30, you get a discount!

     It's the same thing. But it makes you feel better. Of course, in the fine print it says "liens will be filed after 12/31" which is telling us that we don't really own the property at all. We're renting it from the local government, and if we don't pay up they will take it away from us.

     For the most part I don't mind paying taxes. It's the price of living in a civilized society. We pay real-estate taxes to educate our children. We pay Social Security taxes to finance our old age. We pay income taxes to buy tanks and guns and ... help the poor and build up our infrastructure. According to some people, we need more federal taxes to pay off the political hacks in Wash ... pay off the debt, or to pay for more infrastructure, or pay for medical care or higher education.

     So there are a few types of taxes that have been in the news recently -- mostly proposals to raise taxes -- and I just want to point out a few consequences.

     The flat tax. This would make everyone pay the same percentage of their income -- say 20% -- in taxes. Yes, the rich would pay more. But this tax is not progressive, so the rich would not pay proportionally more. Most people agree this is not fair since as you go up the income scale you can afford to pay more ... and remember, people are only paying the increased amount on the higher income. So if Ms. Moneybags makes, say, $1 million a year, she still only pays 10% on her first $9,525 of taxable income. She only pays the higher 37% on the amount above $500,000.

     Actually, the flat seems to be a way to lower taxes, and collect less money for the government, because let's face it, if you want to raise money, you have to go after the people who actually have money. You can only squeeze so much out of the middle class.

     The value added tax, or VAT. In this scheme, which you may have heard about, taxes are not collected on income. They're collected when people buy something. It's like a national sales tax. This is essentially a flat tax -- as are all sales taxes -- and so in a sense it is regressive, in that the richer you are, the less tax you pay as a proportion of your income.

     Plus, anyone who has any savings would suffer an immediate cut in their purchasing power, since that money was already taxed as income, and now it will be taxed again when it's spent. In other words, it would penalize retirees who have saved up any money outside a traditional IRA.

     Capital gains tax. Currently, capital gains on investments are taxed at a lower rate than the income people earn from working. The lower rate also applies to the qualified dividends people receive from stocks and mutual funds. Some people want to even out these rates. And honestly, I think they have a good argument. Why should working for money be penalized compared to investing for money?

     But make no mistake. While this tax would penalize the wealthy, for sure, it would also penalize retirees. Anyone who has savings in an investment outside of a traditional IRA would pay a higher tax when they cash in their stock or mutual fund, or when they receive a quarterly dividend. Unfortunately, retired people are often lumped in with wealthy people -- because we're the ones who have saved and invested some money.

     The wealth tax. Presidential contender Sen. Elizabeth Warren has proposed a tax of 2% a year on all wealth above $50 million, rising to 3% for fortunes over $1 billion. This is a new idea. One might wonder how to collect this tax -- how does the IRS value the real estate, the art, the farming or the business interests that people own? But, really, most of us probably don't mind this tax, since no matter how anyone counts it, we don't have anywhere near $50 million.

     A higher personal income tax rate.  Rep. Alexandria Ocasio-Cortez is proposing a 70% income tax rate on income over $10 million a year. There's nothing novel about this. Taxes have been higher in the past. Again, most of us probably don't care, because we can't even imagine making $10 million in a year (or at all!) But you may want to look more carefully at her idea, since as long as a tax is graduated it implies a higher income tax on people with lower incomes as well.

     Which brings up a caveat. In 1983 when Social Security was reformed, an income tax was initiated on anyone receiving Social Security benefits if their income reached $25,000 as a single and $32,000 as a couple. Back in 1983 this was a reasonably decent income -- and so one could argue it was fair to start taxing away Social Security income over those amounts.

     But fast forward to today. Social Security still taxes any income over $25,000 as a single and $32,000 as a couple. But let's face it, that's not a lot of money anymore. If those limits were adjusted for inflation, they would today be more like $64,000 for singles and $82,000 for married couples. The 1983 reform was designed to tax beneficiaries who were pretty well off. Today the consequence of the "reform" is to hit retirees of very modest means. (By the way, 13 states, from Connecticut to Colorado, also impose their own income tax on Social Security benefits.)

     So beware those income levels. If they're not adjusted for inflation, what seems "wealthy" today may not seem so flush a few years from now.

Counting on Social Security?

     The recent government partial shutdown made me wonder -- suppose the government stopped paying Social Security. How long could I go before I got into real financial trouble? How long before I found myself looking for supper at the food bank, and petitioning town hall for relief on my real-estate taxes? The answer is: a little while, but not for long.

     It so happened that my friend Jeremy Kisner, an investment adviser with Surevest Wealth Management in Phoenix, AZ, recently posted a piece on Social Security. He was primarily addressing younger people who are jumping to take Social Security benefits as soon as they can, at age 62, not so much because they need the money, but because they're afraid the money will run out if they wait much longer. But his analysis is also relevant to my question: Will Social Security be around for as long as I am?

     So here, with Kisner's permission, is his perspective on the matter:

I was teaching a class on Taxes in Retirement and the discussion shifted to how to decide when to collect Social Security. I explained the conditions in which it makes the most sense to defer Social Security until age 70. Then one attendee asked how he should factor in the possibility of Social Security benefits getting cut if the system goes bankrupt.

Just to be clear, our Social Security System will not go bankrupt. However, if no changes are made to the current system, the Social Security "trust fund," which was built up by collecting more payroll takes than paid out, will be depleted. Benefits would then need to be reduced to match the payroll taxes being collected.

That will happen sometime around 2034, if we do nothing. Once the trust fund is gone, benefits would be cut to approximately 75% of their current level to keep the system solvent. The reality is this "do nothing" approach is unlikely as there is growing pressure to "fix" the system.

The options to fix Social Security are:

Increase payroll taxes. This is the simplest and most effective. The current payroll tax collects 6.2% from employees and another 6.2% from employers. This would need to be increased to 7.6% to keep Social Security fully paid. This approach would take some cash out of workers' pockets, which is never popular, and will hurt economic growth. Imagine that . . . if we put more away for the future, we have less to spend today.

Eliminate the cap on taxable earnings. The cap currently limits the 6.2% payroll tax to only the first $132,900 of earnings (as of 2019). We could close 71% of the Social Security funding gap if the cap was eliminated entirely. This would affect 4 - 5% of the workforce -- those who have wages above $132,900. These people may be a bit perturbed because they already have the worst return on their Social Security contributions.

Raise the retirement age. This seems logical since today people live so much longer than they did in 1935 when Social Security began. Unfortunately, this solution is surprisingly ineffective. A three-year increase in the full retirement age from 67 to age 70 for people born after 1960 would only cut the funding gap by 25%.

Means-testing for beneficiaries. This would mean that high-income retirees would have their benefits reduced or eliminated since presumably they don't need the benefit. Polls find this option to be unpopular with voters who simply think it is unfair.

The likely scenario is some combination of these options. While Congress is figuring out all of this, I encourage you to save as much as you can. After all, the maximum Social Security you can collect at full retirement age in 2019 is $2,861 per month. It is 32% higher ($3,770) if you wait until age 70. I'm guessing most people want to spend more than this.

How do you plan Social Security claiming decisions with this uncertainty.

So back to the original question. How do I factor in a potential cut to Social Security benefits when deciding whether to collect early (62), at full retirement age (66-67), or wait until 70? This is just like trying to make decisions based on what future tax rates might be. Nobody knows. Remember, most experts thought future tax rates would be increased, due to deficits, right up until they were cut in 2017.

Personally, I assume that rules and rates will continue at current levels until I have real information to the contrary. The likely scenario is that Social Security will be preserved and benefits will not be cut. I would plan on that. However, if you believe Social Security is going to be cut in the future, then the logical decision is to collect early, instead of deferring to age 70.

I wish I could provide more clarity, but for that we are -- yikes! -- dependent on the U. S. Congress.

     If you want more of Kisner's wisdom you can catch up on his latest at jeremykisner.com. Meanwhile, if we can believe Kisner's conclusions, we don't have to worry about Social Security. We'll get our benefits. But . . . I'm guessing our kids are still a little worried.

Working on Social Security

     I am finally applying for my Social Security benefit. I say "finally" because I am already past my so-called full retirement age. I filled out the form online, earlier today, and found that it is remarkably simple and easy (as long as you know when and where you you born, when and where you were married (and divorced if that applies) and all your other other basic information). I'd recommend the online route to pretty much anyone.

    However, I did have a couple of questions, about when my payment will actually appear at my bank, and how my Medicare premiums will now get paid. So I called the 800 number:  1-800-772-1213. Mistake. After navigating through the multilevel phone tree, I was asked if  I want to speak to a representative.

     "Yes," I said.

     Click, click . . . then the mechanical voice informed me, "The wait is one hour and eighteen minutes."

     No kidding. An hour and eighteen minutes. So I guess my questions will remain unanswered. I'll find out when I start receiving benefits . . . whenever that is, however much it is, and whether or not my Medicare premium will be deducted.

     Social Security and Medicare are wonderful programs, but . . . .

     Anyway, speaking of retirement income, I have started writing a column for the U. S. News Retirement website, for a little extra money. I thought some people might be interested, and since I'm guessing not everyone follows the U. S. News Retirement website, I figured I'd give you a link to go check it out. (I can't reproduce the whole article here because, you know, I wrote it for U. S. News, not for Sightings Over Sixty. But I can give you the lead-in, and then if you're interested you can click over to the site.)

     Regardless, the U. S. News Retirement site does offer some good basic retirement advice, and I recommend perusing it now and then. Anyway, here's what I have to offer:

     "There are many reasons to keep working in retirement. Of course there's the money. But beyond that, it's something that gets you out of bed in the morning – a place to go, a schedule to keep and a routine to anchor your life. You may also want the social interaction you find at work, and perhaps the sense of accomplishment for a job well done.

     "Nearly three quarters of employed Americans plan to keep working after normal retirement age, according to a 2017 Gallup poll. But most people (63%) don't want a full-time job. They don't want the stress, and they sure don't want to spend all day in a workplace with a poisonous atmosphere. And that's one great aspect of a retirement job: You have can quit if you don't like it, because you're not dependent on the job to support your family . . ."

     And so, if you want some ideas for part-time work in retirement, click over to my story on U. S. News Retirement. I believe you can leave a comment there if you want; but better to come back here to leave a comment so people will see it.

     I hope everyone is enjoying the holiday season. B and I are going to see a public garden and a lights display over the weekend. And then it's family, which is what the holidays are all about, aren't they?

The 0.3 Percent Solution

     The Feds just announced the increase for Social Security benefits for next year. The increase is 0.3%. So in 2017 the average beneficiary will see an extra $4 in their monthly benefit.

     Of course even that measly $4 -- and more -- will likely be taken away from recipients to pay for Medicare. So far as I know, Medicare has not announced any increase for next year. But wait . . .

     I can't say that this post is primarily designed to be informative; it's simply meant to further the discussion.

     The typical reaction I've seen around the Internet reads something like this:  I worked all my life and paid Social Security taxes for almost 40 years, and now Social Security gives us virtually no increase to help us pay our bills. They say the reason is because there's no inflation, mostly because the price of gas has gone down. Well, that's great for truck drivers and uber drivers. But what about the seniors who actually rely on Social Security? Food prices are going up, medical costs keep climbing, and pretty much everything else (except for gasoline which we don't even use much anymore since we don't commute) is more expensive than last year. What are we supposed to do?!?

     Well, to revive an old Clintonism, I feel their pain. I just paid the latest installment of the tax bill on my condo. I noticed it went up $100 from last year. That  doesn't seem too bad. Except it comes to 3.5% -- or more than ten times the rate of the Social Security increase. My sewer tax went up from $300 to $330 for the year. That's a 10% jump!

     Honestly, I do not follow my own budget that carefully, so I can't really portray myself as a good judge of how much "real" inflation is, compared to the official figures. I do remember the 1970s, when prices seemed to increase every month. Inflation these days is nothing like that. And yet, we're planning a trip to South Carolina in a few weeks. The hotel prices seem huge! And prices on airbnb and homeaway don't look much better. Predictions for the death of inflation may be premature.

     My medical insurance has not increased. And when I moved to Connecticut from New York, the bill for Medicare advantage actually went down by a few dollars. That's good news!

     But then I went to the doctor yesterday for my annual physical. It seems that, instead of raising prices, Medicare may be stealthily cutting services. I used to get an annual physical, complete with blood tests and an electrocardiogram. But now, I'm told, Medicare will only pay for a Wellness visit. The Wellness visit does not include a blood test for cholesterol, triglycerides or other factors -- unless you already have a history of heart disease. In other words -- in a switch from the previous situation -- Medicare will pay for a pre-existing condition; but it will not pay to diagnose a new condition.

     That seems kind of backwards, doesn't it? Fortunately, I don't have a lot of medical issues, so it's not a big problem for me. But the doctor did prescribe one drug. I'm going to pick it up at the pharmacy later today. I'm holding my breath, wondering how much it's going to empty my pocket.

6 Ways to Maximize Your Social Security

     Social Security took a cut out of every paycheck we ever earned and used the money to pay benefits to our grandparents, parents and older siblings. Now, finally, it's our turn. It's only natural that we want to get our benefits, too.

     The rules for collecting Social Security are complicated and often changing. For example, Congress recently closed two "loopholes" in filing for Social Security. One was called "file and suspend" and the other "restricted application" – both allowing two-income married couples to boost their benefits as one spouse collected while the other's continued to grow, at a rate of about 8 percent a year.

     Meanwhile, we hear dire predictions that Social Security is running out of funds. Eligibility rules may change or benefits may be cut. Social Security is supposed to be indexed to inflation, but in the past few years increases have been minimal because government measures of inflation have been so low. The projection for 2017 is no cost-of-living increase at all for Social Security.

     Nobody knows what the long-term future holds for Social Security. But under current conditions, there are six proven and non-technical strategies to make the most out of the program. They may not all be easy to do, but they are simple and tried-and-true. 

     1. Work a long time. Social Security figures your benefit by calculating your average indexed monthly earnings for the 35 years in which you earned the most money. So, obviously, one way to maximize benefits is to put in a full career, working at least 35 years. Maybe that seems like a long time, but look at it this way: If you retire at full retirement age (66 for most baby boomers), you clocked 35 years even if you didn't start your career until you were 31. You would also hit 35 years if you began working at age 21 and took off 10 years to raise children. 

     2. Have a good job. Social Security sets a maximum amount of salary that is subject to the payroll tax. It's currently $118,500 per year, which is the same amount of earnings it will credit toward your benefit. This amount is adjusted for inflation. The maximum amount in 2000 was $76,200, and in 1990 it was $51,300. It's easier said than done, but the way to maximize your benefit is to earn the maximum amount set by Social Security throughout your career. If you were earning at least $51,300 in 1990, $76,200 in 2000 and $118,500 today, you're eligible for the maximum possible benefit. 

     3. Don't retire early. Workers are eligible to start taking Social Security benefits at age 62, but the amount you receive is discounted by about 25 percent if you sign up at this age. Also, if you start Social Security before full retirement age and you earn more than $15,720 per year, the government starts temporarily withholding your benefits. Conversely, if you work beyond full retirement age, you receive a bonus of approximately 8 percent a year, up to age 70. There's no extra benefit to working past age 70. 

     4. Don't earn too much in retirement. If you're married and file a joint tax return, your Social Security benefit is not taxed if your combined income falls below $32,000. Half is taxed if your income is between $32,000 and $44,000, and 85 percent of your benefit is taxed if your income exceeds $44,000. If you had a good career and didn't retire early, you'll likely be subject to the 85 percent rule.

     5. Live in a tax friendly state. There's not much you can do to avoid federal taxes unless you have a low income. But you can do something about state taxes. Most states do not levy income tax on Social Security benefits, including retirement havens like Florida, Arizona and the Carolinas. But about a dozen states do exact income tax on your Social Security benefits, including red states like Kansas and Utah as well as blue states like Connecticut and Vermont. (Of course, B and I just moved to Connecticut, but not for long. We can't afford it!) 

     6. Stay in good health. By far the most important factor in how much you collect from Social Security is not how much you earned, and not when you decided to start benefits -- but how long you stick around to collect those benefits. In other words, the best way to maximize your Social Security is to eat right, get some exercise, make sure to have an annual physical and in every other way take care of yourself so you continue to collect a monthly benefit throughout a long and prosperous retirement.

News on Medicare and Social Security

     Last week's agreement on the federal budget brought two new developments for retirees -- one about Medicare, the other on Social Security.

     According to a report in the Washington Post, the premium increases for some Medicare customers will not be as punishing as previously reported (see my Oct. 13 post Who Pays More for Medicare).

     Under the first proposed plan, most people who do not have their Medicare premium deducted from their Social Security benefit would have seen a 52 percent increase in their premium for Medicare Part B, from $104.90 to $159.30. (The exception: individuals making over $85,000 a year, or couples making over $170,000 a year, who pay more.) Medicare recipients who do have their premiums deducted from their Social Security payment were "held harmless" -- in other words, they were protected from any increase at all.

     The reason for the disparity: a federal rule says that Medicare rates in a given year cannot increase more than Social Security checks. Since Social Security benefits are not going up next year (because inflation is judged to be zero) Medicare charges cannot go up. That meant people who are on Medicare, but who do not receive Social Security, had to pick up the difference. That would have punished approximately 16 million people, or 30 percent of Medicare recipients, with the 52-percent increase..

     The new agreement still holds harmless anyone who has Medicare deducted from their Social Security. But it limits the increase for the rest to some 17 percent, raising their premium from $104.90 to about $123 per month. The extra money to cover the difference will come from "a loan from the U.S. Treasury to the Medicare trust fund." The loan will presumably be paid back over five years with a $3 per month "surcharge" embedded in the new premiums.

     Please don't ask me to explain any further details, because I do not have the wherewithal to dig deep into the weeds of Medicare financing. Do any of us? But personally, as one of the 16 million, I do appreciate the financial shenanigans that will save me $30-some per month next year.

     And speaking of shenanigans, the New York Times reported yesterday that the federal budget deal also closes two "loopholes" in filing for Social Security. One is called the "file and suspend" strategy. This maneuver allowed two-income married couples to boost their benefits. One spouse would file for benefits, then immediately suspend them, allowing them to collect while the spouse's benefits continued to grow at the Social Security rate of about 8 percent a year.

     The other loophole was known as "restricted application." This allowed married people who reach full retirement age (66 for most of us) to collect a spousal benefit while their own benefits continued to increase -- again, at the 8 percent rate.

     Starting in 2016 filers will no longer be able to utilize these strategies. But don't worry. If you took advantage of either of these methods in the past you will be grandfathered in. Apparently, there aren't that many -- something less than 1 percent of Social Security recipients used one of these strategies to boost their benefits. But, presumably, it will save the Social Security system billions of dollars in future obligations. And, assuming the file-and-suspend people were not the neediest among us, that's probably not a bad thing.