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Tips for Maximizing Your Social Security Benefits

Social Security

Social Security

Social Security is an important safety net that is part of the income mix for many older Americans after they retire. The actual monetary benefit you get from social security depends on several factors, one of which is how old you are when you begin to draw on the system. If you take the time to educate yourself about the rules that apply to Social Security, you may be able to insure that you get the largest possible benefit available to you.

1. Age
According to Kiplinger.com, your age at the time you start collecting benefits determines whether or not you are subjected to a benefits reduction. Everyone who is eligible for Social Security can start collecting benefits at age 62. However, you will not get the full retirement benefit if you start collecting at age 62. Those individuals born between 1943 and 1954 must wait until age 66 to receive the full retirment benefit from Social Security. Those born in 1960 or after must wait until 67 to get the full retirement benefit. If you were born between 1955 and 1959, the age for full retirement benefits is between 66 and 67. Reductions in benefits for those who don’t wait until full retirement age are variable, and can go as high as 25%.

2. Spousal Benefit
If you are married, and your social security benefit is lower than that of your spouse, it may be worthwhile to take what is called the spousal benefit. For the spouse with the lower social security benefit, the spousal benefit can be as high as 50% of the benefit of the spouse with higher social security. In some cases, this 50% benefit can be higher than the benefit that the lower-benefit spouse would have received on his/her own. In order to get the full 50% benefit, however, three conditions must be met. First, the spouse with the higher benefit must have applied for his/her social security benefits. Second, The spouse with the lower benefit must wait until full retirement age to apply for the spousal benefit. Third, the spouse with the lower benefit must take the spousal benefit from the start of the collection of social security checks.

3. Delay Benefits
If you are age 66 or 67, and therfore eligible for the full social security retirement benefit, you can elect to delay benefits up until age 70. If you are able to do this, you will realize a benefit increase of 8% for each year up to age 70. If there are cost-of-living adjustments to social security during the years that you delayed benefits, you will get them at age 70 when you start collecting checks.

4. File Then Suspend
Even if you want to maximize benefits by putting off social security until age 70, you can still give your spouse a chance to get spousal benefits based on your social security benefit. This is particularly valuable if the benefit your spouse would get on his/her own would be less than the spousal benefit. When you are at full retirement age, you can apply for social security and then put a suspension of benefits into effect immediately. This means that your spouse can get the higher spousal benefit, and your benefit will increase 8% per year until age 70.

Every individual needs to think carefully about when to take social security benefits. According to the rules governing social security, being married and delaying benefits as long as possible after age 62 can lead to significant increases in your total benefits.

Lindsey Samuelson writes about finance, aging & more at www.grouphealhtinsurance.org.

How To Choose The Right Type of Savings Account

guest post by Jonny Pean

For most people, the habit of saving money is a bit difficult.  First of all, it isn’t very exciting.  If you have a choice of saving a few hundred bucks this month, or spending it on that new designer purse, which one is more satisfying??  Of course, the designer purse!

Building a substantial cushion of liquid savings is essential, though, not only for peace of mind, but also in order to build true wealth over the long-term.  In this article, we are going to discuss the 3 basic types of savings accounts.  Personal finance experts generally recommend that the average person should have at least 3 months of living expenses in an account that is highly liquid.

Traditional Bank Account
Most local banks will allow you to open a free savings account with a very low initial account deposit.  That amount can be as low as $20 at many institutions.  Unlike the forex market, this is typically the best way to get started saving money.  This type of savings account typically offers the lowest interest rates, but it is also considered the most liquid.  Funds that you hold in a traditional account can be withdrawn at any time without penalty, and with an ATM card, funds can be withdrawn around the clock.

Money Market Account
Your local bank most likely offers money market accounts as well.  These are accounts that invest 100% of its capital in U.S. treasuries and other forms of U.S. government debt.  This is seen as a very safe, conservative investment with no chance of loss, since the government can always print more money to repay its lenders.

These accounts typically offer a more aggressive interest rate return than a standard savings account, but they also are not as liquid.  Typically, it will take several business days to withdraw funds.

Certificate of Deposit
This is a favorite among conservative investors because it offers the most aggressive interest rate.  CD’s are a very popular way to invest cash savings.  The increased interest rate is the major advantage that this type of savings vehicle holds over the previously mentioned ones.  However, the primary drawback is that CD’s will require you to keep your funds invested for until the CD reaches maturity, which can be anywhere from a few months to a few years.  Typically, the longer your cash is tied up, the better interest rate you will earn.

If you want to withdraw your cash before the maturity date, you can do that, but not without paying a penalty.  This makes a CD the highest yielding investment vehicle of the three discussed here, but also the least liquid.

Understanding the interest rate payoff and degree of liquidity in each of these investment vehicles will help you determine which is right for you in your current financial situation.

The Best Recovery for a Financial Hangover – Part 4 of 4

Seven Resolutions to Begin in 2010

  1. Control spending: If you spend less you'll have more money available to pay down debt and save for the future. Write down your expenses for a month to see where your money is going. You might be surprised by how easy it is to find places to scale back.
  2. Create a debt repayment plan: If you carry credit card debt, write down everything you owe and make a plan to pay it off. Start with small items you can act on right away–it will make tackling the bigger debt easier. Also, try buying with cash only. It’s a sure-fire way to prevent increases in your credit card debt.
  3. Set up auto-savings plans: Arrange with your bank or another financial institution to have a set amount deducted from your checking account to a savings account each pay period. Of the Americans who have been able to contribute to emergency savings funds, automatic withdrawal is the most popular method, according to the Consumer Federation of America.
  4. Boost retirement savings: If your employer offers a 401(k) plan, increase your contributions. If you don't have an employer plan, open an Individual Retirement Account (IRA) and arrange for contributions to be made automatically from your checking or savings account.
  5. Create a long-term plan: Write a list of your long-term goals, such as buying a home or saving for college or retirement. Visit the Life Events section of Smart About Money for concrete tips on accomplishing those goals.
  6. Protect Yourself: Be prepared for the unexpected by making sure you, your family, your assets and investments are insured and fully covered. If you do not have a will, make 2010 the year you establish a life plan.
  7. Find a financial buddy: Share your financial resolutions with a friend, colleague, or family member, and you’ll be more likely to keep them. Find someone else who wants to turn around their debt or cut their spending, and establish a mutual support system.

The Best Recovery for a Financial Hangover – Part 3 of 4

Tackling the Little Things

Getting debt under control and improving savings habits are two big steps to a better financial life, but those actions only are possible if Americans have more specific aspects of their financial lives under control.

While the economy recovers, job stability remains a vast and very valid concern. Without income, saving stops and debt can spiral. Even if they still have a job, Americans need to assess their marketability and increase their professional value by networking and upgrading job skills.

If someone experiences a job loss, it’s important to be proactive. They should negotiate severance pay, file for unemployment benefits and look into alternative insurance plans, because living unprotected will risk their family’s security. Individuals who have lost their jobs also should immediately start looking for work. Most states allow people to work a certain number of hours, and earn up to half their previous income, and still retain unemployment benefits.

Those who are struggling financially also might find it difficult to pay their mortgage. If individuals have missed a payment, they should immediately search through financial records or identify spending habits to find out what caused the missed payment. They also should contact their lender, who is required to examine their client’s financial life before taking any drastic action against the client’s home.

Even without a job loss or mortgage trouble, it’s time for Americans to involve their entire family in assessing the household budget. Tracking spending for a month will reveal some easy places to cut back without causing any significant lifestyle changes. Turning off lights and appliances, cutting down on weekend trips and dinners out and eliminating habits such as smoking all will help reduce household spending. And, it will give the family a head start on saving in case of emergencies.

For Americans to recover, maintain or rebuild their financial lives after this recession, they need to make permanent changes so they’re prepared for any future trouble in the economy. Identifying areas in which they are struggling, scrutinizing bills and spending habits and prioritizing aspects of their financial lives will help individuals create a proactive financial plan to last the whole year, and beyond.

Next Up: Seven Resolutions

The Best Recovery for a Financial Hangover – Part 2 of 4

Changing the Way We Save

Although pre-recession Americans spent or consumed much of what they earned, the recession did provide a teachable moment.

In the 1980’s, Americans averaged saving 10 percent to 11 percent of their disposable income. By 2007 the Federal Bureau of Economic Analysis reported that figure dropped to a low of 1.7 percent. Only in 2009, in the midst of a recession that had Americans worrying about their jobs and futures, did the savings rate increase, but only to 5 percent.

It’s a start, but that rate is still less than half of what it was a quarter century ago. And it’s leaving a majority of Americans unprepared for retirement and emergencies.

“Americans are significantly ‘under saved’ as they near their retirement years,” Neiser says. “They’ll need at least 50 percent to70 percent of their pre-retirement income to live comfortably in retirement, and most aren’t even close to having the financial cushion to do that.”

In 2009, only 13 percent of workers questioned in the Employee Benefit Research Institute’s (EBRI) annual Retirement Confidence Survey said they felt very confident about having enough money for a comfortable retirement. That’s the lowest percentage since EBRI first asked the question in 1993 and a 50 percent decline in confidence since 2007.

 

The recession also taught us the need for having an emergency savings for our financial and psychological well-being. Having a cash nest egg can help consumers better weather the recession, and in the future, it will enable them to avoid accruing debt when unexpected expenses occur. According to the Consumer Federation of America, those with an emergency savings of more than $500 are less likely to worry, lose sleep, suffer poor health and decrease productivity at work than those who have saved less.

“It is the perfect time for individuals to take a hard look at their finances, spending a little less and saving more,” says Beck.

Up Next: Tackling the Little Things

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