Raising Your Living Standard

As indicated in prior case studies, using the 521 form (http://www.socialsecurity.gov/online/ssa-521.pdf), millions of elderly who opted to take Social Security early (e.g., at age 62) can raise their sustainable living standards significantly by replaying and reapplying for higher benefits.

Using Social Security's 521 form (http://www.socialsecurity.gov/online/ssa-521.pdf), millions of elderly who opted to take Social Security prior to age 70 can raise their sustainable living standards by repaying all the benefits they’ve received in the past and reapplying for higher benefits. The required repayment is gross of the Medicare Part B premiums paid in the past.* Bummer. On the other hand, no interest is charged on the repayment. And, get this, the repayment is tax deductible.

For people close to 70 who took their benefits early (e.g., at age 62), this can be a very big deal.

Mary Hinojosa and her husband Miles Sigwell have two children to put through college--Franky, born in 2001, and Juliet, born in 2006. They would like to continue the family tradition of attending Caltech in Pasadena, California, so they must brace themselves for the annual $50,000 it will cost for each child in tuition, room, and board.

Mary and Miles have good incomes and still have some time to save. But after putting pencil to paper, they realize that this is not a simple calculation. Here's what they want to know:

Given that the $50,000 annual cost (measured in today's dollars) will arise in 2019-2022 and 2024-2027, how much do they need to save and when not only to meet this bill, but to have a stable living standard before and after they get the kids through college?

Selma Jones and her only child, Roger, aren’t crazy about each other, but they share a common desire – obtaining a higher living standard.

Roger’s 35 and makes $60,000 a year working for a landscaping company. Roger owns a large home that’s feeling pretty empty now that his girlfriend Thelma’s left. Roger hates to cook, clean, and do laundry. He spends lots of money eating out and having his place cleaned and his shirts pressed.

Bert and Ernie have been pals for a long time. They have the same $80K annual salary, and their employer, PBS, matches their $4K contribution to a 403(b).

They live across the street from each other on Sesame Lane and each owns his $200K Tudor-style home outright. They pay annual property taxes ($2K) and insurance ($700) on their home. Their homes are identical save for one feature: Bert gets the morning sun and Ernie gets the evening sun. Alas, their envy of each other is palpable.

Recently overheard on another financial website . . .

Question: "I'm 60 and have just retired. I have a pension that can pay me $760/mo. or a lump sum of about $120,000. I'm torn. Should I take the monthly payment format or the lump sum? It seems that I could take the lump sum and invest it elsewhere and do better job investing it. Right or wrong?" --Bill H., Birmingham, Ala.

Let's flesh this case out and see what ESPlanner suggests.

In 2010 everyone, regardless of income, will be eligible to convert their regular IRA money into Roth IRAs. Doing so will require paying taxes on the amount converted; i.e., the amount taken out of the regular IRA and put into a Roth IRA.

Currently, only those with adjusted gross incomes of less than 100K (single or married) are eligible to do the conversion. And those with higher incomes (110K for singles and 160K for married joint filers) are not able to contribute to a Roth IRA, although they can contribute to a Roth 401(k) if their employer has established such an account.

If your money is in a 401(k) plan, you may, with your employer's help, be able to roll over your 401(k) to an IRA and then in 2010 do the conversion. See http://www.kelseypub.com/blog/homefamily/2009-02-17/from-a-lousy-401k-to...

This case study shows a very large potential gain in living standard from exercising this option.

Basic Profile: Jack is 51, Jill is 49 Their children have already graduated from college. Housing: 25 years remain on their $350,000 mortgage. They pay $2,000 per year in property tax, $1,500 per year in homeowners insurance, and make a $2,255 monthly mortgage payment. Their last payment is due in 2033. Retirement Dates: Jack 65, Jill 63 (year 2023) » Read more Which Mortgage Should I Take? John and Betty are very lucky. They are 30 years old; they just got married; and they have reliable jobs in today’s economy--earning $50,000 each. The couple has a 3 year-old and a 1 year-old. They plan to send their children to moderately expensive colleges and to retire at 65. They have a $12,500 in savings, plus $70,000 set aside for a down payment on a house. » Read more When Should I Take Social Security? For years the Social Security Administration has urged retirees to take Social Security as soon as possible, even though doing so means permanently receiving lower benefits. Here’s what they’ve said: “From an actuarial perspective, it doesn’t matter when you start collecting. But you may die early and regret (hopefully, in heaven) having waited, so don’t take the chance of dying before collecting. Take your benefits early.” » Read more Contributing to the ROTH or IRA Huck and Molly Finn from Hannibal, Missouri are both 30, earn $50K each, have a modest home, plan for one child in 2010, target to retire at 65, and expect to earn 3% real (after inflation) on their investments. Their employers offer regular and Roth 401(k) retirement plans, but no match. Both plans can save taxes. Contributions to regular 401(k)s or IRAs are tax deductible, but withdrawals are taxable. Contributions to Roths aren’t deductible, but withdrawals are tax free. » Read more 12next ›last » Contact       Economic Security Planner, Inc. U.S. Patent Number: 6,611,807       Privacy Policy RSS