Four Important Changes to Social Security for Pre Retirees

Last Friday, members of Congress passed a vote to amend the Senior Citizens Freedom to Work Act in 2000.   Here's a summary:

  1. Anyone currently utilizing the file and suspend strategy is “grandfathered” under the old rules and payments being made to ancillary beneficiaries on their record will continue to be made.  This was a matter that required amendment to the original bill, which would have created (had it passed in the original form) a circumstance where those payments would have ceased immediately upon enactment.
  2. File and suspend can still be requested (and ancillaries still paid on the record of the worker whose benefits remain in suspension) for the next 6 months.  Once the six month window closes, applicants may still suspend benefits but no ancillary benefit will be paid on that record.
  3. Individuals who are 62 years of age or older by the end of 2015 are also “grandfathered” and will still be permitted to collect the spousal benefit only at 66, if the standard criteria for eligibility is met. 
  4. Deemed filing applies regardless of age, therefore the restricted application (for those beneficiaries who do not fall within the criteria of #1-#3) is no longer an filing option.

 In summary, retirement planning with longevity demands the help of a qualified professional who understand how to build social security filing strategies as the center piece of your retirement plan.

The College Planning Tip: Attach a photo with a scholarship application

This is the time of the year where seniors in high school are diligently looking for and applying to scholarship opportunities.  As a matter of fact, most students are given a set of instructions from the specific scholarship sponsor as to what information should be included with an essay.   It's not uncommon to find students who can compose creative content for their essays, or even go the extra mile of having their essays professionally edited.  The question really comes down to: What's the student ultimately trying to accomplish on their scholarship application?

Answer: It's not always the student with the best grades, or grammar, or writing style of the essay.  More often than not, it's the student who best connects their story with the scholarship sponsor.  Now I am definitely not saying that grades, achievements, activities have no importance, but I am saying that sponsors typically want to feel some sort of connection with the applicant.   Don't view the application as "needs to be better", but think of it as "unique".  How can one student stand out from all the other scholarship applicants?  Having said that, send in a recent professional high school picture.  Like the old saying: "a picture is worth a thousand words".

Some scholarship sponsors want to have a good visualization of their students when reviewing their applicants.   Why not just give them what they want?  Literally.

The Middle Market Health Coverage Strategy

The constant challenge for many middle market companies today is to catch up with the Affordable Care Act, and provide lower cost health insurance without compromising benefits.   Sure, a company could ideally just opt to choose a plan with higher deductibles therefore lowering premiums.  Problem solved, right?   Not so fast.   The challenge that many middle market companies face is trying to keep the employees happy, the regulators happy AND KEEP their investors happy.

Possible solution:  What if we are able to structure a plan where a company keep their current major health insurance provider, reduce premiums by raising deductibles and gap the deductible with a group indemnity policy?   Depending upon the insurance carrier that's offering the gap coverage, it's very possible that middle market companies could reduce overall premiums, and provide enhanced benefits for critical illnesses such as cancer, strokes or outpatient care.  Most importantly, it's possible that a enterprise could increase their cash flow, provide affordable healthcare coverage for their employees, and offer an added voluntary benefit to help fill in the gaps.

In summary, never has it been more important that HR managers, CFO's and corporate executives seek out qualified professional help that can help structure and price their overall health benefits package.

How to lower Medicare premiums

Many pre-retirees spend their time focusing on how to protect their savings, and generally envision their retirement of playing golf or tennis two to five times a week, the sunset walk on the beach and the local social club for evening spirits.  Instead, many find themselves worried about the debt they've accumulated, caring for an elderly parent, and perhaps helping take care of their grandchildren. 

What most folks don't know is with careful planning, there can be an efficient plan on when retirees want to take social security, where they want to reside for their retirement, and when to downgrade your house or begin spending down their assets.  As a matter of fact, an increase in Modified Adjusted Gross Income during retirement can increase Medicare premiums.   The metric used to determine Medicare premium pricing is known as Medicare means testing.  Bottom line: higher earning retirees will pay higher premiums for Medicare than lower earning retirees.

In conclusion, it's important that pre-retirees carefully work with a financial professional that can help them identify their needs, and develop a plan that will help maximize their retirement income strategy.


The cheapest pension alternative for executives: Fixed Index Annuities

Historically, financial professionals have typically used cash value life insurance as funding vehicles for executive bonus programs.   Given current interest rates, and lack of liquidity in the marketplace and cash flow instability for middle market businesses, index annuities may serve as a more suitable replacement for life insurance.   Unlike life insurance, index annuities can be single funded, which doesn't require the executive or employer to commit to an annual premium nor worrying about the policy lapsing.  Furthermore, cash value life insurance such as fixed index universal life, whole life, or variable universal life contracts do not offer a lifetime income benefit.  Whereas fixed index annuities offer employees to have an "income benefit" growing at a guaranteed fixed rate of return for a certain period of time.

Consider this, most executives typically earn over 6 figures of earned income, and have other types of retirement assets such as 401K's, IRA's or brokerage accounts.   Using an employer's bonus to fund an index annuity essentially provides a lifetime guarantee income source, even if the contracted has been completely depleted from distributions to that key executive.   Furthermore, because it's considered a non qualified vehicle, it avoids ERISA guidelines and can be offered to key selected employees only. Last, there are favorable tax advantages where the annuity grows tax deferred.

In summary, pension plans may have too many challenges for companies, because of mandatory discriminatory testing rules and additional administrative expenses.   The alternative  cost effective solution for employers are fixed index annuities with guaranteed lifetime income riders.


The College Planning Tip: How can I maximize scholarships?

Most kids in high school and parents unfortunately are at a disadvantage when it comes to college funding.   The main reason is because families don't know if the financial aid package provided by the college is in fact a good or average deal.  Important questions families should ask themselves when preparing for this daunting process are:  Do we have a college planning coach or specialist that can help us lower our expected family contribution? (EFC).  Are we exceeding our asset protection allowance, and if so, how do we re-position assets to be under the exemption?  What can we do as a family to exceed the average amount of non need based aid?   Life Insurance products and annuity products can be good outlets for families to protect their financial needs by lowering both their EFC and staying under their asset protection allowance.  Families earning more than $80,000 of adjusted gross income should always strongly consider using a certified college advisor or an specialist that specializes in college planning.  Families who want to maximize the most amount of scholarships and financial aid, should work with professionals who specialize in college planning, as early as the student enters high school.