Social Security Benefits—How to Get a Bigger Check

Sure you can start your social security benefits at age 62, but is that wise?  In most cases not.  In most cases, given average life expectancy, you earn more by waiting until your full retirement age to start benefits.  If you’re married, you have even greater flexibility and opportunities to get higher social security benefits.

One set of researchers found that for married couple, having the lower-income spouse start benefits at age 62 and for the higher income spouse to defer benefits to age 70.    The lower income spouse should start as early as possible because their “penalty” for starting early disappears when the higher income spouse dies (the lower income earner can then collect the deceased’s benefits).

Another little know tactic is the “file and suspend” provision.  This allows the higher income earning spouse to file for benefits at his full retirement age yet suspend the actual collection of benefits until later. The suspension of collecting benefits allows the benefit to grow through age 70.  Yet, as soon as the higher income spouse files, the lower income spouse may start collecting benefits at 50% of the higher income earner’s rate.

If your situation changes after you begin benefits, you can exercise the little know “do-over” provision.  In such a case, you pay back all of the social security benefits you have received (without interest!).  You can then re-file when you want your benefits to start thereby allowing you or a spouse to collect more.  If you have no problem sending the government a large check, you may want to start your benefits at age 62 knowing that you can always exercise the do-over provisi0on and reverse your earlier filing.

You can use this limited information above to tell if your retirement advisor is any good.  Most financial advisors know little about social security because there’s nothing for them to “sell.”  Knowledge of social security won’t make then any commissions.  However, more competent fee-based retirement planners will charge a fee for their time in analyzing your social security options and help you maximize the decisions and get thousands more in your pocket.

If You Can Save in Retirement, Put It Where It’ll Count

In economic downturns everyone tends to tighten their budgets, and that includes retirees. In fact you may find you’re actually saving in retirement after paying your regular expenses. So where should you put this ‘extra’ savings as a retiree?

You may tend to just put it into your retirement savings into a bank account. But that makes your money vulnerable to inflation and unable to participate in market upturns. Its earnings are also taxed yearly - you may as well put it under the mattress.

Better to make it work toward ensuring more for you in the future. At 65 you statistically have some 20 years of remaining life expectancy. Long before that time elapses, both inflation and economic upturns will affect your holdings.

Presuming that you’ve stashed anywhere from 1 to 2 years of easy-to-access emergency money, you should put your ‘extra’ retirement savings into investments of a longer time horizon. Here, you’re looking for equity growth – both to offset the effects of inflation and further capitalize on the eventual rebound of the economy and the stock market.

Be sure to diversify your retirement savings among a variety of equity portfolios. Although you may invest some in funds that cater to large capitalization stocks, you should try to include real estate investments, international stocks, emerging markets, and smaller U.S. stocks.

These investments will reside in your ‘taxable’ accounts since they come from investment earnings and not work earnings. And as equity-based investments, their annual earnings should be small, since you’re investing for ‘growth in principal’. They may not ‘move’ for a while, but remember, you’ve already proven you don’t need this money. 

Consider this money outside your normal portfolio arranged according to your risk profile and income requirements. This way you can afford to risk a small portion of retirement savings and wait sufficient time for it to bloom.

For the most conservative investors, consider index-linked CDs.  These are FDIC insured CDs that pay interest based on increases in the stock market.  If the market falls, you original principal is guaranteed.  If the market rises, your index-linked CD increases in value.  Similar to this alternative, are equity-indexed annuities.  The same principals hold.  If the market declines, the issuing insurance company guarantees your principal.  If the market advances, your annuity balance participates in the gain.  Consult a retirement advisor to learn about your options for saving in retirement.

Take an ‘in kind’ IRA Distribution If You Expect Its Value to Increase

Once you’ve reached age 70½, you must take a minimum required IRA distribution (MRD) each year.  But if you don’t need the cash to live on and you expect your IRA stock to increase in the future, consider taking an ‘in kind’ IRA distribution for improved tax benefits.

Recent economic conditions have hit many equities hard. Their lowered values have lowered the value of the IRA they’re in. Since this year’s MRD is based on possibly a higher IRA value at the end of previous year, you will pay tax on an irritatingly large MRD for 2008.  To mitigate this, IRS has waived the 2009 MRD requirement altogether. 

Equities – such as stocks – you bought in your IRA have a ‘zero’ tax basis. Whatever value you take out for your IRA distributions is taxed at ordinary income tax rates. And that includes all gains those equities made. Also,  there’s no deduction for any loss within an IRA.

Keeping those depressed equities in your IRA for a possible comeback within a year or two will have you paying ordinary income tax rates when you take them out in the future for both their value and any gains. That’s a bad tax consequence of IRAs for appreciating equities.

Take an In Kind IRA distribution for reduced taxation

But if you expect those equities to appreciate, you have to withdraw your MRD, and you don’t need the cash for living, you can capitalize on that future growth at a much lower capital gains tax rate.  Do this by taking an ‘in kind’ IRA distribution.

You take an ‘in kind’ IRA distribution by requesting your IRA custodian to transfer the stock directly from your IRA account to a taxable account without cashing them in. Keep records on the value of that stock when it’s transferred. It’s on that value that you’ll have to pay ordinary income tax as an IRA distribution. You’ll have to come up with cash elsewhere to pay this tax.

But that stock value now becomes the basis of that transferred stock. If the stock appreciates three better tax consequences occur:

• Any gain will be subject to the low long term capital gains tax – and that’s for gain above its new basis. 
• You’ll not have to pay any tax on any gain until you wish to sell it.
• Dividends will be tax yearly – but if they’re qualified dividends, you pay at no more than the 15% rate (current rate in effect for 2009 and 2010)

Lastly, if the equities fall further and you decide their not worth holding for the future, you’ll be able to take a capital loss deduction and use it to offset other tax on other income or IRA distributions.

Eight Ways to Generate Supplemental Retirement Income without Special Skills

Supplemental Retirement Income Idea #1- Are you in pretty good health?
The woman that cleans my home is almost 60.  I pay her $140 to clean my home.  It takes her about 6 hours.  If you did the same one day per week, that’s $560 — more than many retirees need to bridge the gap in their retirement income needs. She has no skills whatsoever other than making things clean.  How do you get started with this?  Simply place a small ad in Craigslist.org or in your local newspaper under “services offered.”  Here’s one that men may like more–washing cars.  People like clean cars but it’s a hassle and takes time to go to the car wash.  You go to them.  Just go to any small office complex, walk into an office and explain that you wash cars right in the lot. Charge $25 and in an 8 hour day, you can earn $200 once you have a clientele at one location.  Then you decide how many days you want to work.  No skills required for these sources of supplemental retirement income.

Supplemental Retirement Income Idea #2- Do you like numbers?
Contact your local assessor’s office and find out the process to have real estate property taxes reduced. Then go into Title companies in your area and ask how to get a list of all the commercial buildings, the property owners and their contact information.  You can either mail them or call them and offer to cut their tax bill and they pay you the first year’s savings. A building worth $2 million (that’s a small office building) pays property tax of $25,000.  If you reduce that to $15,000 because you can show the value has declined, you just made yourself $10,000. Another idea for numbers people is to prepare tax returns during tax season.  You can go to H&R Block (they will teach you) or contact all the local CPAs in your area.

Supplemental Retirement Income Idea #3- Do you have a college degree?
Tutor kids.  Just let the principal at the local schools know that you are a retired and patient tutor with expertise in your subject.  Find out the going rate in your area by calling the local Sylvan learning center.  Take on as many kids as you like and work just afternoons or evenings as you desire.  You can even make more by having small classes–3 or 4 students that get tutored at once.

Supplemental Retirement Income Idea #4- Do you like administrative work?
You will have a tough time finding a job in this economy doing office work. But there is big demand from professionals who need a few hours a week of your time.  You can offer your services directly at Craigslist.org or on elance.com or guru.com or through your local business newspaper.  Alternatively, look up “virtual assistant” on Google and you’ll see loads of businesses that are already being contacted by professionals to outsource their administrative work.  Just sign on with one of these outsourcing firms and they will get the work for you.

Supplemental Retirement Income Idea #5- Do you have carpentry or fixing skills?
Everyone needs a good handyman but most are unreliable. You can charge $25 per hour or more.  The biggest need is in the retirement communities in your area as many retirees are unable to do their own repairs due to age.  Just let the manager of the retirement community know you’re available and place a little ad in their local paper and you’ll get calls. If you live in an area with a lot of second homes, you can become a caretaker of these homes.  I pay a guy $350/month for up to ten hours a month to look after my 2nd home.

Supplemental Retirement Income Idea #6- Do you like to cook?
You can cook for small parties or business events at the location of your client.  You don’t need to do any work in your home.  Only work at places that have a kitchen so that you can arrive early in the day with your food supplies and prepare everything on location. You can earn several hundred dollars per event.  Get started by letting everyone know you do this.  Send a letter to all the local clubs (Rotary, Lions, Garden clubs, etc) and all local businesses (get a list of local business by size form your Chamber of Commerce and list your service with the Chamber of Commerce).  Make sure to have a nice business card and discreetly place a small stack where the guests at all of your events can take your card.  In no time, your phone will ring off the hook if your food is good and prices reasonable.

Supplemental Retirement Income Idea #7- Are you Artistically Creative?
I found a woman who made gift baskets from her home.  I sent them to all of my new clients and ordered more than 10 per month.  My colleagues found out about it and they started using her also. This is a simple business to start.  Just send a mailer to professionals in your area (you can buy a list at Infousa.com) such as stockbrokers, insurance agents, CPAs, mortgage brokers, realtors, etc.  In no time, you’ll be busier than you want and can expand this business as large as you like.  Or cut it off when you’ve reached your capacity.  You buy the items that go into the baskets and the packing supplies and then add $10 to assemble each one–that’s about $40 an hour to you.

Supplemental Retirement Income Idea #8- Are you Digitally Inclined?
No one talks about it, but many professionals–attorneys, financial planners, insurance agents, etc. can’t work their computer.  They lack basic skills like how to scan their photo or import a photo into a Word document or prepare an Excel spreadsheet.  Offer your service at a super reasonable $35 per call for up to an hour.  All you need to know is how to work MS Office and you can even take a class.  To promote yourself, send out mailers (you can buy a list at Infousa.com).

There you have it, eight simple ideas to earn supplemental retirement income without special skills or by selling skills you can easily learn first.