Before the Bipartisan Budget Act of 2015 passed, the Social Security Disability Insurance Trust Fund was projected to be depleted sometime this year.
Congress shifted tax revenues from the Old Age and Survivors Insurance Trust Fund to keep disability benefits fully funded. However, Social Security still faces long-term shortfalls under currently scheduled funding and expenditures.
While Social Security disability benefits are a good backstop, you may wish to consider purchasing your own disability insurance, particularly if you’re self-employed. And since government disability benefits don’t kick in for at least five months (and even a private insurance policy may have a waiting period), you also should consider setting aside an emergency fund.
If you’ve retired and are taking Social Security benefits, but also have other substantial income such as wages, self-employment, interest or dividends, you may owe federal income taxes on Social Security benefits. Joint return taxpayers with a household income between $32,000 and $44,000 could pay income taxes on up to 50 percent of benefits. If reported income is more than $44,000, you may have to pay taxes on up to 85 percent of your benefits.
If you’re receiving Social Security benefits but have not yet reached full retirement age, earning extra income could result in some of your benefits being withheld. For example, if you earn more than $15,720 a year, $1 in benefits will be withheld for every $2 in earnings above that limit. The year you hit full retirement age, both your earnings limit and benefit amount increase, and in the following years, there’s no limit on earnings.
Last April, two strategies that had long helped married couples optimize their Social Security benefits came to an end:
• File and suspend – file for spouse but earn delayed credits on their own benefit
• Restricted application – full retirement age beneficiary files for spouse only benefits
However, the suspend strategy remains intact for divorced couples: If an ex-husband or wife decides to suspend his or her benefit, the ex-spouse can still apply for a derivative benefit if eligibility requirements are met.
In other Social Security news, on July 7, Rep. Walter B. Jones (R-NC) introduced H.R. 5670: Social Security Guarantee Act of 2016. This bill, which was assigned to a congressional committee for consideration, is designed to guarantee the right of individuals to receive Social Security benefits in full with an accurate cost-of-living adjustment each year.
Talk to a financial professional and a tax advisor about how Social Security benefits can fit into your complete retirement income strategy. We are able to provide you with information but not guidance or advice related to Social Security benefits. Our firm is not affiliated with the Social Security Administration or any governmental agency.
Interested in reading more? Here are some articles that may be of interest to you:
[CLICK HERE to read the article, “A Summary of the 2016 Annual Reports,” from Social Security Administration. 2016.]
[CLICK HERE to read the article, “Benefits Planner: Income Taxes and Your Social Security Benefits,” from Social Security Administration. 2016.]
[CLICK HERE to read the article, “Fact Sheet,” from Social Security Administration. 2016.]
[CLICK HERE to read the article, “Government Spells Out New Social Security Rules,” from Kiplinger. February 2016.]
[CLICK HERE to read the article, “H.R.5670-Social Security Guarantee Act of 2016,” from Congress.gov. July 7, 2016.]
Raymond C. Lantz, Jr. is the president and founder of USA Wealth Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with Ray Lantz on WBSM 1420AM or on the Radio Pup app.