social security benefits

Wake up with REM: Rube Goldberg edition

Income taxes are like Rube Goldberg machines: a movement by one element will impact another in surprising ways. Income goes up, some limitations go down; check this box, now we’re getting a refund. Yet somehow, by line #63 (Total Tax), we arrive at an answer the taxpayer and the IRS can both agree on (we hope). With that in mind, The REM Cycle presents tax news with a liberal sprinkling of Goldbergian facts and videos to get you through this final week of tax season. Hang in there, folks!

The IRS’s overall audit rate continues to plummet, with less than 1% of individual and partnership returns being audited. Does this situation mean more people and companies will cheat on their taxes? The answer? “It’s complicated.” [Forbes]

Debt among older Americans is rising fast. In 2017, retired workers received an average of $1,404 per month in Social Security benefits—but this amount can be reduced due to student loans. Mortgage and credit card debt only compound the problem. What to do? [CNBC]

The TCJA’s expensing and income tax changes may become permanent. Will it affect you? Will it even come up for a vote? [TaxFoundation.org]

Books to inspire financial well-being. Focusing on your well-being is an important part of life. Get a good night’s rest. Eat a healthy breakfast. Go for a jog, practice some yoga, forego that yummy cheeseburger in favor of a salad — all with the goal of being our best possible self. Extend that focus to your financial health with this list of recommended books. [New York Times]

 

Damian Kulash, lead singer of OK Go, talks about the insane amount of math involved in creating their video for “The One Moment.” (See the video he’s discussing here.)

This video is part of www.OKGoSandbox.org

 

Like a Rube Goldberg machine, federal tax swings down, state income tax pops up. Here’s why. [Politico]

13 ingenious facts about Rube Goldberg. Goldberg was likely the only Pulitzer Prize-winning cartoonist with a degree in engineering, a rap sheet for refereeing a street fight in Harlem, and a “Three Stooges” screenplay under his belt. [Mental Floss]

 

His inexhaustible reservoir of elaborate contraptions that mutated simple tasks into madcap feats of ingenuity made Rube Goldberg rich and famous. But he was also an all-around cartoon man and artist. (New York Times)

 

ICYMI: A behind the scenes look at the design and building of the Goldberg apparatus for OK Go’s music video for “This Too Shall Pass.” [Pehr Hovey]

The Wake-Up Call is The REM Cycle’s biweekly compilation of newsworthy articles pertaining to taxation, accounting, and life in general. Got a hot tip? Email us at REMCycle@rem-co.com.

Wake-Up Call - Valentine's Day edition

WAKE-UP CALL-01.jpg

Posted by REM Cycle Staff

The Wake-Up Call is The REM Cycle’s biweekly compilation of newsworthy articles pertaining to taxation, accounting, and life in general. Got a hot tip? Email us at REMCycle@rem-co.com.

As accountants, we get excited about numbers. (Maybe a little too much.) We got to wondering: What percentage of Americans celebrate Valentine's Day? How much does the average adult spend on gifts? How many gallons of wine get sold that week? Grab some heart-shaped chocolates and dig into this handy infographic of Valentine's Day by the numbers. [history.com]

Currently filing joint, but about to file as single? Take note: divorce agreements entered into or amended after December 31, 2018 will no longer be picked up in income (recipient) or a reduction of income (payor) due to the Tax Cuts and Jobs Act. [Taxbot.com] (See REM's full list of changes here.)

Between 30-40% of Americans will rely primarily on Social Security for income after age 65. But how much of that Social Security is taxable? The amount you receive will determine whether the IRS will take a chunk, but the likelihood is that you won’t have to pay state tax at all: Check out this list of 37 States That Don't Tax Social Security Benefits. [The Motley Fool]

Valentine’s Day is a good time to review the new tax brackets. Whether you’re filing single, married jointly, head of household, or married filing separately, the likelihood is that the new tax law has changed the rate you’ll pay this April. (Who says romance is dead?) [Business Insider]

Think you’ve heard the worst of the Equifax data breach? Think again. Tax ID numbers, credit card expiration dates, and even the states that issued the consumers’ driver licenses were accessed by hackers. [AP News]

ICYMI: Love is in the air in Date Night with Taxes [YouTube].

Social security benefits: timing is everything

Posted by Joseph DeMartinis, CPA

I was talking to a client a few weeks back who said to me, “What do I care? I get a raise at 62 anyway.” He was referring to filing and receiving his social security benefits at age 62 instead of waiting until his full retirement age (FRA). I had to quickly run through a few different scenarios with him and discuss why taking the benefits now instead of waiting may have an adverse effect on his long-term goals. It really resonated with me and made me wonder how many people have the same mindset as that client.

The basics

If you’re employed or self-employed, you are most likely paying into your social security benefits. In order to qualify for benefits when you retire, you need to have worked and paid into the social security system for 40 quarters, or 10 years. Your benefit is calculated based on a ratio of your 35 highest years of earnings, using zeroes for any year in which you did not work. There are spousal and survival benefits available, and even if divorced, you may qualify for benefits based on a former spouse’s earnings (restrictions may apply).

Back to the example

Now that we know the basics, let’s jump back to the example I mentioned earlier about my client taking benefits at 62. We will have to make a few assumptions in order to paint a proper picture. Putting aside whether or not there will be a social security system still around when my client retires (that’s a different conversation), let’s assume his FRA is 67 (this is important) and that he will live until 90 (lucky guy!). His FRA benefit is expected to be $24,000 a year, and for the sake of simplicity, we’ll assume no annual cost of living adjustment (COLA). Is this unrealistic? Probably – but there have been three years since 2010 with no COLA. We will also assume he is single and NOT working during the time period discussed, as working while collecting social security benefits can decrease the amount of benefits received.

If he begins collecting at 62 with an FRA of 67, he will have a 30% permanent reduction from his social security benefits. If he takes his benefits at 67 there will be no reduction, and if he waits until 70, he will receive a 24% increase in his benefits.

Breakdown of his monthly benefits

 
 

Approximate total payments he would receive over the course of his lifetime

 
 

Summary of his break-even ages when comparing the different options

 
 

As you can see from the information above, the various break-even points are ages that need to be reached in order for my client to receive the advantage of holding off on receiving his benefits. If he lives until age 78, then it was the right choice for him to hold off his benefits from 62 to 67, and if he lives until 82, then it was the right choice for him to hold off his benefits from 67 to 70.

(I’m not sure I need a disclaimer for a blog post, but obviously the example above was for illustrative purposes and should not be relied upon as a guarantee of benefits. Changing any of the variables above can have a drastic effect on the outcome of the example.)

So what's the right answer?

It depends. I know that seems like a cop-out answer, but in order to know the right answer there are a host of variables that must be discussed with your advisors. Your health, lifestyle, family situation, and need/desire for the income all become factors that must be discussed and prioritized in order to maximize the benefits that you can receive.

No one has a crystal ball. When it is time to start thinking about filing for social security, you should reach out to your accountant and other trusted advisors to weigh your options.

Legal note: Contributors to The REM Cycle are certified public accountants (CPAs), but they’re not your CPAs and this blog does not create or constitute an accountant-client relationship. Contributors are licensed to practice public accountancy in New York State and have based the information presented on U.S. and, where applicable, state laws. All content provided on this blog is for informational purposes only, and should not be seen as accounting advice. Raich Ende Malter & Co. LLP (REM) makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. REM will not be liable for any errors or omissions in this information, nor for the availability of this information. REM will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at any time and without notice. You should consult with a CPA before you rely on this information.