NewRetirement Retirement News Digest : Social Security

His & Her Benefits: Getting Ex's Social Security

jberman — Thu, 19 Nov 2009 02:04:00 GMT

The Wall Street Journal, November 13th, 2009

Is it true that as a 64-year-old divorcee, who was married for 13 years and hasn't remarried, I would be eligible to collect half of my ex-husband's Social Security benefit? My ex-husband is 67 and has been collecting full Social Security for more than a year. I have been waiting to collect my full retirement benefit from Social Security until age 66, rather than taking reduced benefits early.

If I could collect half of his benefit now, could I switch to my own full benefit at 66? Then, could I switch again, to collect my ex-husband's full benefit, if he dies before I do? Also, could I collect his benefits retroactively?

S.A. Reagan
Houston

You don't have a choice between collecting your own benefit or your ex-spouse's until you reach your full retirement age.

If you are between age 62, which is the youngest age at which you can collect reduced retirement benefits through Social Security, and your full retirement age, which varies based on the year you were born, your application for benefits generally will be based on your earnings record, says Dorothy Clark, a spokeswoman for the Social Security Administration in Baltimore. If the portion of your ex-spouse's benefit to which you are entitled at the age you apply is greater than your own, you could receive a benefit equal to that amount.

But if you wait until your full retirement age to file for Social Security, you can restrict the scope of your application to your ex-spouse's benefit only, and continue to accrue credits for delaying your own retirement benefit up to age 70, Ms. Clark says.

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Five ways to make your nest egg last a lifetime

jberman — Tue, 22 Sep 2009 07:15:00 GMT

Marketwatch, September 17th, 2009

Back in the good old days, before the crisis of 2008-09, many experts suggested that all you needed to do was withdraw 4% per year, adjusted for inflation, from your nest egg. That strategy, experts said, was a near guarantee that your nest egg would last a lifetime.

Well, go tell that to the guy selling apples and pencils on the street corner.

Yes, conventional wisdom has proven to be more conventional than wise. And now everyone is trying to figure out the best way to turn a nest egg into an income stream that will last throughout retirement. And that includes AARP, which this week released two tip sheets that "challenge conventional thinking and offer general guidance about how to make the best decision for you and your circumstances."

One of the tip sheets, "Making Your Nest Egg Last a Lifetime," which was written by Anthony Webb of the Center for Retirement Research at Boston College, suggests the following:

1. Delay claiming Social Security

Retirees and would-be retirees need to consider matching their fixed and, best-case, inflation-adjusted sources of income against their fixed expenses. And one way to create the best inflation-adjusted source of income at the moment is to delay taking Social Security for as long as possible, certainly at least until your full retirement age if not longer, said Janet McCubbin, director of financial security at AARP's Public Policy Institute.

At the moment, many people claim Social Security -- even though it means a reduced benefit -- at age 62, using the faulty logic that they may not live past the so-called break-even point. The break-even point is the date at which the sum of your reduced early benefits no longer exceeds what you would have drawn with the heftier, delayed benefits. (There are plenty of Wed-based calculators to help you figure your break-even age.)

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What You Need to Know About Social Security

jberman — Sat, 19 Sep 2009 01:10:00 GMT

CNN Money, September 17th, 2009

You've probably spent a lot of time sweating over your 401(k) and IRA. But have you given much thought to the way Social Security will fit into your retirement plans?

You should. In fact, Social Security provides 50% of the income for more than half of married retired couples and about 20% for high earners. Moreover, it's the only source of income you're likely to have that's guaranteed to last for life and keep pace with inflation.

But given the complexity of the Social Security calculations, it's tough to figure out how to make the most of it. The amount of your monthly check will depend on when you retire, how much you and your spouse earned, and whether you work in retirement. "That makes it hard to plan," says former Social Security Administration deputy commissioner Andrew Biggs. The following guide will answer those questions and give you strategies that can help you maximize your benefits.

QUESTION 1: Can I count on Social Security to be there?

You can. Despite what you may hear about the system going broke, the funds from workers' payroll taxes will cover all retirees' payments until 2016 even if no changes are made to the current program. After that the Social Security Administration can cover full benefits until 2037 by cashing in its Treasury bonds from the Social Security trust fund. And when the bonds run out, income from payroll taxes would be enough to cover about 75% of payments for decades.

That said, the government is looking at ways to shore up the system. President Obama has talked about imposing Social Security payroll taxes on income over $200,000 (currently, earnings over $106,800 are exempt). Other possible fixes: upping payroll taxes, raising the retirement age, and scaling back payments in some way.

The good news for anyone in or near retirement: "People 55 and over are likely to see no change or just a marginal change in benefits," says actuary Bruce Schobel, who worked on the commission headed by Alan Greenspan nearly 30 years ago that fixed the system (at least until now). But even younger workers can rest assured that drastic cuts are unlikely.

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The Diet COLA Myth

jberman — Sat, 29 Aug 2009 08:56:00 GMT

The Wall Street Journal, August 27th, 2009

AARP and other self-styled senior lobbies are raising a ruckus over the news that in 2010, for the first time in 35 years, Social Security recipients won't be getting a cost of living increase in their monthly checks. Members of Congress are calling for an investigation into the way COLAs are calculated. But the only real scandal here is the opposite of what Congress, the press and AARP are moaning about. The recent fall in prices has served up a windfall for seniors and a real $600 average increase in their Social Security payments this year.

There will be no COLA increase this year because consumer prices have been level or even falling. In the past nine months, the consumer price index—the official measure of the cost of living—has fallen by 2.3%, meaning the real purchasing power of a Social Security check has risen. How is this bad for seniors? In the 1970s we were told that inflation robs seniors more than most because they live on fixed incomes. Now we're told grandma suffers from no inflation.

Most seniors will have to pay about $2 a month more next year because of an increase in Medicare drug coverage premiums that are withheld from Social Security checks. But this is dwarfed by the Social Security windfall over the past 12 months that resulted from a 5.8% COLA increase awarded for 2009. This was an overpayment for sure. Prices rose by nearly 6% through August of 2008, but then inflation fell in last year's fourth quarter as energy prices crashed.

Prices have been roughly flat since that time according to the government's calculations. By January of this year, says Andrew Biggs, the deputy commissioner of Social Security under President George W. Bush, "Social Security benefits were about 4.3% higher this year than needed to maintain constant purchasing power." He figures that because the average Social Security check is $1,160 a month, the typical senior received a $516 bonus above inflation this year.

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Avoiding The Identity Theft Underworld

jberman — Wed, 19 Aug 2009 09:43:00 GMT

Forbes, August 18th, 2009

The U.S. Department of Justice is indicting a Miami man for working with two co-conspirators in Russia to steal 130 million credit and debit card numbers between 2006 and 2008. Breaking into the network of a payment systems company, the criminal enterprise was able to get the numbers from customer transactions at convenience stores, grocery stores and other retailers.

Cybercrime, which includes viruses, bots and phishing scams, has evolved from a nuisance to an extreme danger as global crime rings profit from online identity theft. Young hackers showing off their skills have been supplanted by an organized and underground criminal community. These bad guys understand business and technology, and they are just as structured as legitimate companies, using networks, staff and money laundering processes to earn money from stolen identities.

Identity thieves operate in a digital world that is largely beyond the reach of government and law enforcement agencies. While there are laws in many countries that protect against cybercrime, it can be difficult to determine prosecutorial jurisdiction, as many organized crime rings have operations around the world. For example, a phishing site might be registered in Russia to a person in China who is targeting Americans. Policing duties get murky.

Developing countries, such as Russia and China, are responsible for a large portion of the world's malware, spam and viruses. These countries are experiencing rapid growth in skills and technology that are outpacing laws and enforcement. Because labor is cheap and legitimate technology jobs are scarce, highly skilled whiz kids are turning to cybercrime to make real money by masterminding schemes to steal credit card and Social Security numbers

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Social Security Q&A

jberman — Thu, 06 Aug 2009 09:12:00 GMT

The News & Observer, August 5th, 2009

Q: I'm thinking about getting disability protection from a private company. If I become disabled and have a private policy, would it reduce my Social Security disability benefit?

A: No. Your eligibility for Social Security disability benefits is not affected by any private insurance you may have. But, you may be interested to know that workers' compensation and certain other public disability payments may affect your Social Security benefit. You can learn more and even apply for disability benefits online at www.socialsecurity.gov/disability.

Q: I understand that to get Social Security disability benefits, my disability must be expected to last at least a year. Will I have to wait a year to receive benefits?

A: No. You do not have to wait a year after becoming disabled to receive disability benefits. In fact, you should apply for disability benefit as soon as you become disabled. It may take months before a final decision is made on your claim. If your application is approved, we will pay your first Social Security disability benefits for the sixth full month after the date your disability began. For example, if your disability began on January 15, we would pay your first disability benefit for the month of July. However, we pay Social Security benefits in the month following the month for which they are due. So you will receive your July benefit in August. To learn more, visit www.socialsecurity.gov/disability.

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Legal Issues 101: How do I apply for--and win--social security disability benefits?

jberman — Mon, 03 Aug 2009 07:50:00 GMT

San Francisco Examiner, August 2nd, 2009

So you find yourself disabled and unable to work. What to do? Is it just as simple as applying for federal social security disability, and begin receiving your earned disability checks from the government? Not so fast, I'm afraid, as statistically up to a staggering 2/3 of claims for disability are rejected outright. The key, then, is to keep applying, keep your claim floating down the administrative chain, and have plenty of medical records to back up your claim so that when you get to the appeal stage before an administrative law judge, the judge will agree that yes, you are in fact disabled, and also find that you are unable to do any type of alternative “substantial gainful activity.”

By the way, about 85% are denied on Reconsideration -- the second stage of the administrative appeal process -- and usually by the second appeal, about 90% are approved. The difference? Most claimants by that point have someone representing them, helping them jump through the bureaucratic hoops.

The information I present here are actual observations – and not legal advice – that I can make from personal experience. I hold an advanced national paralegal certification in social security disability law, and currently work on these types of cases. This is one area of exception in that paralegals may represent claimants in the hearing process. Because it’s before an administrative-law judge, it’s considered a “quasi-tribunal,” and not operating under such strict restrictions as one would normally encounter in a courtroom setting. The process, however, is not an easy, quick thing to do in order to procure your benefits, but you can get them. The key is tenacity.

There’s an old joke floating around the disability industry that says if you are well enough to pick up a pencil to fill out the application, then you’re not disabled. While this is not exactly accurate, it does correctly portray the inherent difficulties in getting approved. It’s an extremely stringent system, laid out in codified law, administrative law, statutory “grids,” and the SS Administration’s medical “Listings.” It’s a cumbersome five-step sequential process to evaluate disability claims, and if at any step of the way, you do not meet their criteria, it’s possible you’ll be summarily booted out of the system. If you are truly disabled, then you have the right to the benefits that you’ve paid into during your productive working years.

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Tips to Maximize Social Security Benefits

jberman — Wed, 29 Jul 2009 07:59:00 GMT

US News & World Report, July 27th, 2009

The Boomerater™ Report, our weekly collaboration with online baby boomer resource Boomerater, this week discusses various tips to help you maximize your income from Social Security.

Here is the question from a Boomerater member: “My wife was a stay-at-home mom, but did work for about 12 years. Is she entitled to Social Security benefits? If so, what’s the best age to begin taking benefits? She and I are both 60 years old and would like to learn of any tips that can help us maximize income from Social Security.”

The amount of your benefit. Most people can elect to begin taking Social Security when they turn 62, but benefits increase each year they are not taken until age 70. The level of your benefits are determined by your lifetime earnings history. Outside earnings may reduce your Social Security benefits until you've reached what's known as your Full Retirement Age (FRA) -- 65 for those born before 1938, and increasing to 67 for those born in 1960 and later. You can go to this link and use the Retirement Estimator to determine your benefit amount.

Eligibility. To qualify for retirement benefits you will have needed to work for at least 10 years or 40 quarters of credit. You can delay receiving your benefits until age 70 and will receive Delayed Retirement Credits (DRCs) for doing so. Depending upon your age, your eventual monthly benefit will be increased by 6.5 percent to 8 percent per year for each year benefits are deferred up to age 70.

Income taxes. Most recipients receive benefits tax free. However, those with higher incomes must include up to 85 percent of their Social Security benefits in their taxable incomes.
Lesser known, but very important Social Security “factoids”:

1) If you are married and your spouse has not earned any Social Security credits, your spouse can collect a spousal benefit once you've reached your FRA and are collecting benefits yourself. You can then “suspend” your own benefits and earn more DRC’s up until age 70. That way, your spouse gets benefits now and your benefits continue to increase both for yourself and your spouse (widow/widower benefit)

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Social Security and Medicare finances worsen

jberman — Wed, 13 May 2009 04:47:00 GMT

Yahoo News, May 13th, 2009

The financial health of the government's two biggest benefit programs may have slipped over the past year, reflecting the deep recession that has already bitten into other areas of the budget.

The trustees for Social Security and Medicare are scheduled to provide their annual report on the finances of both programs on Tuesday. In advance of the release, many private analysts said they expected both programs could run out of cash sooner than last predicted.

A year ago, the trustees projected that the Social Security trust fund would start paying out more in benefits than it collects in taxes in 2017 and that the trust fund would be depleted in 2041.

For the Medicare trust fund, which pays for hospital care, the situation was more urgent. It was projected to start paying more in benefits than it collects in taxes within a year, and the trustees forecast that it would be depleted by 2019.

But many analysts said the worst recession in decades will produce a bleaker forecast for both Social Security and Medicare in the new trustees' report. The downturn has resulted in a loss of 5.7 million payroll jobs since it began in December 2007 and an unemployment rate that hit a 25-year high of 8.9 percent in April.

Fewer people working means less being paid into the trust funds for Social Security and Medicare.

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Strange But True: Claim Social Security Now, Claim More Later

tsaleen — Tue, 28 Apr 2009 20:51:00 GMT

Center for Retirement Research at Boston College - April 27, 2009

Introduction

Under Social Security, married individuals are entitled to a retired worker benefit based on their own earnings and/or to a spousal benefit equal to one half of their spouse’s benefit claimed at the Full Retirement Age (currently 66). If a married individual claims before the Full Retirement Age, the Social Security Administration assumes that the individual is claiming both types of benefits, compares the worker and spousal benefits, and awards the highest. Upon reaching the Full Retirement Age, individuals can choose which benefit to receive. As a result, married individuals can claim a spousal benefit at 66 and switch to their own retired worker benefit at a later date. This approach allows a worker to begin claiming one type of benefit while still building up delayed retirement credits, which will result in a higher worker benefit later.

In the past, providing these benefit options for spouses was not particularly valuable, since those who postponed benefits beyond the Full Retirement Age were giving up expected lifetime benefits. With the recent advent of an actuarially fair delayed retirement credit, lifetime benefits are roughly the same whether claimed at the Full Retirement Age or at age 70. As a result, today the availability of benefit options has real value for couples and therefore inevitably increases the cost of the Social Security program.

This brief describes how the procedure can benefit married couples, estimates how much it could cost the Social Security Administration on an annual basis, and characterizes those most likely to take advantage of the option. The conclusion is that the procedure could cost as much as $9.5 billion per year and a significant amount of that additional money would go to households in the upper portion of the income distribution.

Calculating Spousal Benefits

Under current law, married individuals are entitled to retired worker benefits based on their own earnings or, if they have no earnings, they receive 50 percent of their spouses’ Primary Insurance Amount (PIA). If they have some earnings, the spousal benefit is used to "top up" the worker benefit so that the total equals 50 percent of the spouse’s. The amount can be lower if the individual chooses to receive either the retired worker benefit or the spouse’s benefit before the Full Retirement Age (see Table 1). However, spouses’ benefits are not affected by the age at which the worker-beneficiary claims benefits.

Prior to reaching the Full Retirement Age (FRA), when a married individual files for benefits, he or she is subject to a "deemed filing" provision. Under this provision, it is assumed that the individual is filing for both the spousal benefit and the benefit based on his/her earnings record. The Social Security Administration then compares the two benefits and awards the higher. After reaching the FRA, deemed filing no longer applies, giving the individual the ability to choose which benefit he or she receives.

Originally, we thought that "claim now, claim more later" would involve the wife receiving the spousal benefit in two-earner couples with roughly equal earnings. For example, consider a two-earner couple in which the husband is three years older than the wife (the typical age difference according to the Health and Retirement Study). Both husband and wife had originally planned to delay claiming until age 70 in order to receive the highest possible monthly benefit. But, instead, once the husband claims his benefits at age 70, the wife – now 67 and no longer subject to deeming – can file for just a spousal benefit. The wife then continues working and contributing to Social Security. At age 70, she files for her own retired worker benefit, which has now reached its maximum amount due to the delayed retirement credits, and stops receiving the spousal benefit. In this situation, the wife gains three years of spousal benefits that she would not have enjoyed under the conventional claiming approach.

But it turns out that those most likely to receive a spousal benefit while using "claim now, claim more later" are the husbands in two-earner couples. The reason stems from the results of an earlier study that showed married women will maximize the couple’s expected lifetime benefits by claiming early.1 The intuition for this somewhat counter-intuitive finding is that women’s planning horizon for how long they will receive their own retired worker benefit is from the date of their retirement to their husband’s death. When their husband dies, they are entitled to their husband’s benefit as a widow. Therefore, optimal claiming in most cases has the woman claiming benefits at 62 and the husband delaying until 69.2 As a result, the way an optimizing couple would use "claim now, claim more later" is for the wife to claim at 62 and, once her husband reaches age 66, he would claim a spouse’s benefit based on his wife’s earnings. At age 69, he would claim the maximum amount of his own retired worker benefit due to the delayed retirement credits, and stop receiving the spousal benefit. Of course, if the woman is the higher earner, the story works in reverse.

The Cost of "Claim Now, Claim More Later"

One can get a rough idea of the potential annual cost by considering how many participants are eligible to use this strategy and how much they will gain from it. In 2006, roughly 650,000 husbands had higher earnings’ histories than their wives.3 The typical wife’s Primary Insurance Amount – the unreduced benefit that serves as the basis of the spousal benefit – is about $900, so the husband would have received 50 percent of $900 for 36 months for a total of $16,200. Multiplying the number of men eligible (650,000) times $16,200 yields a total cost of $10.5 billion. Doing the same exercise for the 10 percent of cases – roughly 80,000 – where the wife has higher earnings than the husband yields an additional cost of $1.3 billion. Thus, a rough estimate of the annual cost incurred by households making their joint claiming decisions is about $11.8 billion.4

A more sophisticated approach to estimating the total cost to the program is to compare for each couple their optimal claiming ages and value of benefits under conventional claiming and under a scenario where "claim now, claim more later" is added to their options. This approach allows for couples with different age differences and different ratios of husband’s to wife’s earnings.

See the entire brief in PDF here...

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Stimulus checks coming to older Americans

tsaleen — Sun, 29 Mar 2009 07:28:00 GMT

Silicon Valley Business Journal - March 27, 2009

Nearly 55 million older Americans enrolled in certain government programs will get a one-time, $250 payment from stimulus funds in a move that will inject $13 billion into the economy.

The funds will be available for those who receive Social Security or Social Supplemental Income benefits, or are beneficiaries of Veterans Affairs or the Railroad Retirement Board. Funds from Social Security or SSI will be delivered through those agencies.

The VA and railroad board will be responsible for paying individuals under their respective programs. Those enrolled in more than one of these programs should expect only one $250 payment.

The funds will be shipped out in May.

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Watercooler » 3 things to know about taxes for retirement

tsaleen — Mon, 23 Mar 2009 07:30:00 GMT

The Salt Lake Tribune - March 20, 2009

Here are three basic tax planning tips to keep in mind concerning retirement:

Withdrawals from 401(k)s are taxable income » They are taxed at your regular income tax rate once you retire. That can work out well if your rate is lower in retirement. It's important to realize that a good chunk of the amount you see in your 401(k) account will be going to the government unless you can take steps to offset your tax burden.

Consider a Roth IRA » Money withdrawn from traditional IRAs is taxable, while Roth IRAs grow tax-free, making them good retirement income. Roths also do not have an age maximum for contributions and don't entail required minimum distributions at age 70½. With a traditional IRA, you cannot contribute starting with the year you turn 70½.

Taxpayers with adjusted gross income higher than $100,000 can't convert to a Roth at the moment. But next year the income limit will be removed, making it an ideal time to convert if you haven't already.

Know what's taxable income in retirement » Some taxes in retirement are unavoidable, and retirees and near-retirees should get a handle on them.

Pension or annuity payments from a qualified employer retirement plan are taxable.

Social Security benefits may be fully or partially taxed, depending on your income level. They generally won't be completely tax-free unless they are your only income. For information see Internal Revenue Service Publication 915 on the IRS Web site at www.irs.gov, or get one by calling 800-TAX-FORM (800-829-3676).

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Strange But True: Free Loan From Social Security

tsaleen — Tue, 17 Mar 2009 21:59:00 GMT

Center for Retirement Research at Boston College - March 17, 2009

When to claim Social Security is one of the most important decisions Americans make when approaching retirement. Currently, retirees can choose between claiming at the Full Retirement Age1 and receiving full benefits, claiming as early as age 62 but receiving reduced benefits, or delaying retirement to as late as age 70 and collecting higher monthly benefits. The reductions and the delayed retirement credits are approximately actuarially fair for the person with average life expectancy. Early retirement benefits are lowered by an amount that offsets the longer period for which they will be received. The delayed retirement option offers higher benefits but for a shorter remaining lifetime. Thus, on average, workers will receive the same lifetime benefits regardless of when they claim between the ages of 62 and 70.

Recently, several unconventional claiming strategies have come to light that have the potential to pay higher lifetime benefits to some individuals and increase system costs.2 This brief focuses on one of these strategies, which we call the "Free Loan from Social Security" strategy. The first section outlines the procedure and incentives of employing this strategy. The second section, using data from the Health and Retirement Study, presents estimates of the cost to Social Security under three different scenarios and describes who would gain. The final section concludes that the estimated annual $5.5 billion to $11.0 billion cost of allowing free loans from Social Security is likely to increase substantially over time.

Free Loan from Social Security

This strategy originates from a little-known part of the law that allows individuals who are already collecting benefits to change their minds and start over.3 For example, an individual can claim Social Security at age 62 and then reclaim at age 70 and receive a higher benefit, provided he pays back the benefits he has received. Because the claimant is only required to return the nominal amount of the collected benefits, he could invest the money that he receives and keep the interest.4 In essence, the claimant is a borrower who is required to pay back only the principal of a "loan," making this strategy akin to an interest-free loan from Social Security. An individual with average life expectancy will increase his lifetime benefits by the amount of the investment earnings. Should the claimant die before reaching average life expectancy, this strategy will involve a loss. But the strategy always dominates simply claiming at age 70 because it provides "early retirement" benefit payments for those who die prior to age 70 and the additional interest for those who "repay the loan" and reclaim at 70.

An example might help. Based on Social Security life tables, the average 62-year old born in 1944 has a life expectancy of approximately 21 years. His Full Retirement Age is 66, at which point he is entitled to 100 percent of his primary insurance amount (PIA).5 If he opts for early retirement at 62, he will receive 75 percent of his PIA; if he postpones retirement past 66, he will accrue delayed retirement credits, culminating in a maximum benefit of 132 percent of PIA at age 70. As already noted, under conventional claiming strategies Social Security is actuarially fair. In other words, the average retired individual with a life expectancy of 83 will receive the same lifetime benefits no matter what age between 62 and 70 he claims. In Figure 1, areas A and B show the benefits received if the individual claims at 62, while areas C and B are the benefits received if claiming at 70. The value of area A, the benefits earned before 70, is equal to the value of area C, the change in benefits due to delayed retirement. If that same individual takes advantage of the "Free Loan from Social Security" strategy he will collect benefits equal to area A and earn interest on A equal to A´, but he needs to pay back only area A. In total, then, this individual would end up with a Social Security benefit equal to areas B and C and an investment gain equal to A´.6 The gain to the individual and the loss to the system is therefore the value of A´.

The implication from Figure 1 is that any individual with average life expectancy – age 83 – will benefit from implementing this strategy and his gain is area A´. But some individuals whose life expectancy is lower than the average can also benefit. Assume that the individual who claimed at 70 adopts the "Free Loan" strategy. He first claims at 62, invests the benefits paid to him, and reclaims at 70. As noted above, reclaiming at 70 requires the individual to pay back the value of the benefits received over the prior eight years, but not the interest. Keeping the interest gives him a ‘head-start’ on reaching the break-even age compared to an individual claiming at 62 under the conventional strategy. To break-even, he simply needs to live until he receives total benefits from Social Security that, together with the interest, add up to the total benefits received by a conventional age-62 claimant. Because of the interest earnings, this point occurs at age 81.7

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When credit card debt ruins retirement

tsaleen — Mon, 02 Mar 2009 08:45:00 GMT

CreditCards.com - March 2, 2009

Are Social Security and private pensions exempt from garnishment?

Dear Credit Guy,
I have recently retired and have only my Social Security and a private pension. If I quit paying my credit cards, can my Social Security and private pension be garnished? I live in Arkansas and have a homestead that protects me from creditors except for taxes and credit for work done on my home. I do not have any credit on work for my home, nor do I owe any back taxes. If I die in the next few years, can the proceeds on the sale of my home -- if any -- be attached by the credit card companies? Thanks. -- Lorene

Dear Lorene,

Congratulations on your retirement. I wish it was working out better for you. From your letter it sounds as if now that you are retired and living on a fixed income, the payments on your credit cards have become overwhelming. Before you stop paying on those accounts, I'd like you to consider several things.

First, the collections process can be stressful and unpleasant. If you can avoid it, I would -- at all costs. Depending on how much you owe, it is unlikely that your creditors will simply accept that you are not going to make payments, charge off the balances and leave it at that. What is more likely is that the original creditors will turn over the balances to collectors, and they will work hard to collect what is owed. After numerous phone calls and mailed correspondence, you may wish for a way to make it all go away.

Second, your Social Security income is exempt from garnishment, unless you owe the government, and your private pension is most likely protected as well. However, you will need to notify your bank that all money in your account is from exempt sources. I would also suggest you check with your state's attorney general to assure that your pension income is indeed protected.

Third, if a judgment is granted by the courts to satisfy your debts, yes, the creditor can place a lien on your home that would be paid if and when your home is sold. The creditor cannot force the sale of your home, but with a judgment lien in place, the creditor would receive the amount owed, assuming the home sold for more than what was owed on any mortgage loan.

Fourth, I recommend you speak with a Certified Housing Counseling Agency that is able to explain what a reverse mortgage might do for you. Reverse mortgages are becoming more popular for people over the age of 62, and are a safe option for either taking a lump sum of money or a monthly amount given to you from the equity you have in your home. This money does not have to be paid back by you and might allow you a higher standard of living in those golden years you worked hard to achieve.

Last but not least, rather than stop paying on your credit card accounts, I would recommend that you at least visit with a qualified credit counseling agency to determine if you have the resources available to repay your debt. If you do not have enough income to repay, then you may qualify for Chapter 7 bankruptcy. Filing bankruptcy is not something that I normally recommend, but in your case, it may make the most sense.

There are two large, respected accrediting agencies that offer credit counseling. I am a member of the board of one, the Association of Independent Consumer Credit Counseling Agencies, and I hope you use its services. The other major accrediting agency is the National Foundation for Credit Counseling.

Take care of your credit!

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House 401(k) Hearing: 4 Ways to Fix the Retirement System

tsaleen — Thu, 26 Feb 2009 16:11:00 GMT

US News & World Report - February 24, 2009

The House Education and Labor Committee held a hearing today to examine the shortcomings of the U.S. retirement system. The two-and-a-half hour discussion largely highlighted the weaknesses of the current 401(k) retirement savings system. “For too many Americans, 401(k) plans have become little more than a high stakes crap shoot. If you didn’t take your retirement savings out of the market before the crash, you are likely to take years to recoup your losses, if at all,” said Chairman George Miller, a California Democrat, in an opening statement. “As a result, we are realizing that Wall Street’s guarantees of predictable benefits and peace of mind throughout retirement was nothing more than a hallow promise.”

Four invited retirement experts also offered their ideas to fix the retirement system. Excerpts:

John Bogle, founder of Vanguard Group:

“I envision the creation of an independent Federal Retirement Board to oversee both the employer-sponsors and the plan providers, assuring that the interests of plan participants are the first priority. This new system would remain in the private sector (as today), with asset managers and record keepers competing in costs and in services.”

Dean Baker, co-director of the Center for Economic and Policy Research:

Allow “workers the option to contribute to a government run pension system that would provide a modest guaranteed rate of return. The system would be a universal system like Social Security, however it would be voluntary. To try to maintain high rates of enrollment, there can be a default contribution from all workers of 3 percent, up to a modest level, such as $1,000 a year. Workers could be allowed to contribute some additional amount, for example an additional $1,000 per year, that would also earn them the same guaranteed rate of return. The system should also be structured to encourage workers to take their payouts in the form of annuities, except in the case of life threatening illness. For example, a nationwide system could easily offer free annuitization, while charging a modest penalty, perhaps 10 percent, to workers who take their money out of the account in a lump sum… At a 3 percent rate of return, a worker who saved $1,000 a year for 35 years would be able to get an annuity of $4,200 a year at age 65… This can be done at no cost to taxpayers, simply by having the government assume market risk by averaging returns over time.”

Paul Schott Stevens, president and CEO of the Investment Company Institute:

“Congress should not mandate specific investment options or distribution methods or attempt to regulate exposure to investment risk. Nor should Congress undermine the ability of plans to pay for services using asset-based fees…Congress should reject attempts to scrap or undermine the existing system or fundamentally alter its structure.”

Alicia Munnell, director of Boston College’s Center for Retirement Research:

“We also need to consider a new tier of retirement income… The goal of this additional tier would be to replace about 20 percent of pre-retirement income. To accomplish the goal, participation should be mandatory, participants should have no access to money before retirement, and benefits should be paid as annuities. The system should be funded and reside as much as possible in the private sector.”

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