Determining the right time to begin collecting Social Security can seem like aiming at a moving target. There are factors to consider such as health, marital status, and current income. There is no “right” time to begin collecting benefits, but there are considerations to collecting earlier or later.

The decision that will have the largest impact on your Social Security benefits is the age at which you begin collecting. This choice will dictate your annual Social Security income for the rest of your life. More than half of retirees begin to collect benefits early, or before full retirement age. By collecting early, beneficiaries will experience a reduction of benefits by 8% annually resulting in a total permanent reduction of benefits between 25-30%. If recipients begin collecting at their full retirement age, they will collect 100% of their benefits, which will be adjusted for expected longevity and inflation. The maximum benefit is gained by delaying Social Security benefit collection until age 70.

Types of Claims.

• Single: A person who is entitled to only his or her own worker benefit. The individual must consider personal health and anticipated longevity, along with need for benefits. This type of claim may be maximized by deferring collection until age 70. The cumulative benefits received by a single recipient who begins to collect at age 70 will be larger than those of a single recipient who begins to collect Social Security benefits at age 62 or age 66.
• Spousal (single income household): The spouse of a wage earner qualifies for spousal benefits (amounting to 50% of the wage earner’s benefits) who has been married for at least one year or the parent of the wage earner’s child. In order to collect spousal benefits, the wage earner must have also filed for Social Security benefits. There is a significant benefit to waiting until full retirement age or later, but the spouse can file before full retirement age without causing the wage earner’s benefits to be reduced.
• Spousal (dual income household): In a dual income household, the spouse who earns a lower wage may elect to collect spousal benefits (amounting to 50% of the wage earner’s benefits) that result in higher benefits than they would have otherwise received. Again, the higher wage earning spouse must have filed for benefits in order for the spousal benefit recipient to begin collecting. The spouse may collect before full retirement age without causing the wage earner’s benefits to be reduced.
• Divorced: An ex-spouse may receive spousal age benefits if the marriage lasted at least ten years. The ex-spouse may collect as early as age 62 (collections will be subject to age based reductions or credits), and this decision will have no impact upon the benefit paid to the wage earner. In order to qualify for spousal benefit as a divorcee, the ex-spouse must be unmarried at the time of filing for benefits. If the spousal beneficiary does re-marry, the benefits will be suspended until the new marriage ends by divorce, death, or annulment.
• Survivors: A widower may collect the full amount of benefits that his or her spouse would have received. Collections begin as early as age 60, or age 50 if the survivor is disabled. In order to qualify, the marriage must have been intact for at least 9 months before death or 10 years if the marriage had ended in divorce. When filing for survivor benefits the recipient must be unmarried, but may continue to receive survivor benefits if they re-marry after receiving benefits. A unique component of survivor benefits is that the recipient may elect to receive benefits based upon his or her own wage earning contributions after age 62, even after collecting survivor benefits. If the widower delays collecting own benefits until after full retirement age, he or she will earn the age based delayed retirement credits.

Choosing when and how to file for Social Security benefits can be confusing, and it is important to consider all factors when making your decision.    

Call Asset Planning Group, LLC at 814-536-1040 to discuss your options, and learn more about how to maximize your benefits.

The increasing cost of healthcare is a concern for workers of all ages. Each year healthcare becomes more expensive, meaning a larger portion of retirement savings will be spent on health related costs. A health savings account, commonly referred to as an HSA, is a tax-advantaged account that can be used to pay for medical expenses now or in retirement. The account is FDIC-insured, and can be invested for greater returns.

Who qualifies?

To be eligible to establish a health savings account, an individual must:

• Be covered by a high deductible health plan.
  • A HDHP is one with a minimum deductible for individuals of $1,300 and for families of $2,600.
• No alternative health coverage such as Medicare, military health benefits, or medical FSAs.
• Not claimed as a dependent on another person’s tax return.
• Under the age of 65.

It is possible that an individual’s eligibility will change after opening an HSA, especially if he or she enrolls in a different healthcare plan. Regardless of eligibility, the account owner maintains control of the account and funds indefinitely. If the individual loses eligibility, he or she may not contribute to the HSA, but the account may be invested and continue to grow, or be withdrawn from if the need arises.

Tax benefits.

• Contributions: Contributions to the health savings account can be made with the owner’s pre-tax income, lowering the taxpayer’s total taxable income. If the contribution goes into the account via payroll deduction, the amount is not subject to the FICA tax that 401(k) and IRA contributions incur.  
• Growth: A health savings account can be used as an investment vehicle and account earnings are tax-free.
• Spending: Withdrawals that are used to pay for qualified medical expenses, such as deductibles, co-pays, prescriptions, and Medicaid premiums, are tax exempt.

Other Important Facts.

• Ownership/Portability: While some employers sponsor and even contribute to health savings plans, the employee is the account owner. This means that the account owner can take the account with them to a new employer, even in self-employment or unemployment. The health insurance provider may offer a health savings account, but an individual also has the option of opening an account with a financial institution.
• Contributions: In 2018, $3,450 may be contributed to an individual’s account and $6,900 to a family account. Catch-up contributions are an additional $1,000 for individuals age 55 or older. At age 65, the account owner is no longer eligible to make contributions.
• Distributions: Unlike with an IRA or 401(k), there are no minimum required distributions at age 70 ½. That means that if an individual does not need to use funds from the account, the assets can continue to grow for the individual or his or her beneficiaries.
• Penalties: If funds used from the health savings account are used for nonqualified purposes, and the owner is under age 65, the distribution is taxable as income and subject to a 20% penalty. If the funds are used for a nonqualified expense but the account owner is over age 65 or disabled, the distribution will only be subject to income tax, making the distribution similar to that of a 401(k) or IRA.
• Beneficiaries: HSAs can be inherited if a beneficiary is named. A beneficiary is not required to be covered by a high deductible health plan, but must meet account eligibility qualifications to make future contributions. If the beneficiary is a spouse, they become the account owner and incur no additional taxes. However, if the beneficiary is not the owner’s spouse, the value of the account becomes taxable in the same year of inheritance, which may create a significant tax liability.
• Reimbursement: An account owner is not required to reimburse qualified out-of-pocket expenses within the year of incurring the expense. Therefore, an owner may choose to reimburse themselves tax free for any expense incurred after the establishment of the HSA. This is an excellent option for account owners with large account balances later on.

The sooner the account is established and contributions made, the more opportunity the funds will have to grow over time. I encourage you to call Asset Planning Group, LLC at 814.536.1040 to discuss health savings accounts and how they can be an asset to your retirement savings strategy.