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When it comes to our retirement accounts, especially the 401(k) plans, it is hard to figure out how our plan is doing compared to other plans. More importantly, one has to read through voluminous literature to find out the various charges and overhead fees involved. But a recent proposal by the Department of Labor, if approved, would put this information clearly in front of millions of 401(k) enrollees.

However, even if I know what are the fees and charges, how do I know if these are normal or an overkill? and how do I know which options are good and which are bad? In otherwords, how does a best of the best 401(k) plan look like, so I can measure my plan against that? This would be a natural question for anybody trying to make sense of their retirement plan options.

Well this same question was posed and answered by retirement plan experts and you can find more details about it in this recent article by MarketWatch, published in Yahoo!Finance.

Here are some of the important features of a good plan:

• Good Employer Matching
• Balanced range of good investment options
• An integrated view of your accounts, analysis and forecasting tools
• Auto-enrollment, auto-rebalancing options
• Managed accounts and
• Funds with Institutional pricing

Last week we presented Part 1 of our interview with Mr.Stanley Tomkiel III. Stanley Tomkiel is the author of two books on Social Security, namely Social Security Benefits Handbook and The Social Security Answer Book. Both the books are packed with lots of useful information in simple English.  You can read Part 1 of this interview here. Today we present you the second and concluding part of this interview.

Boomer411: Some of the questions and answers in your book imply that at times people do not claim or under-claim their Social Security Benefits. Is this correct? If yes, can you please elaborate on how and in what cases this happens most often.

ST: I have seen that many people do not claim all the benefits that they are entitled to.  Usually this occurs in the age frame from 62 to 66 because many people believe that you have to be completely retired in order to collect any Social Security benefits, and that’s not the case.  If your earnings in a given month are very low, regardless of the annual income and regardless of whether you have retired, you may be able to get a benefit for that month. 

If you have low annual earnings for a given year you may be able to collect some or even all of your benefits for the year.  Even if you are working above the yearly earnings limit, currently $13,560, it doesn’t mean that you can’t collect any benefits, only that there will be a reduction in benefits payable.  If you are under Full Retirement Age, which is now 66, you lose $1.00 of Social Security benefits for every $2.00 you earn over the limit.  So for example if you earn $25,000.00 this year, that’s $11,440.00 over the limit, so $5,720.00 must be withheld from your Social Security benefits.  But if your benefits are say, $900.00/mo, that comes to $10,800.00 for the year, (as long as you are over 62 for each month).  Only $5,720.00  needs to be withheld, so you can collect the difference, which is $5,080.  Most folks I know could put that money to good use rather than let the government keep it. 

And for the year you attain age 66, the annual limit jumps to $36,120, only the earnings in the months before the month you attain age 66 are counted, and the offset goes from 2 to 1 to 3 to1.  This means that a worker making even $100,000 a year could collect some benefits even if not retired.  And beginning with the month you turn 66, your earnings don’t count at all, and you get your benefits even if you’re making a million dollars a year! 

Also there is the monthly test that you can use in one calendar year.  You get to choose which year it will be.  Under this monthly earnings test, even if your annual earnings are too high to prevent the payment of any benefits, nevertheless you can receive a benefit for any month in which your earnings are below the monthly earning’s limit, which is 1/12 of the annual earnings test. If you are laid off for a period, or you take a long vacation, or become ill, or you just don’t feel like working, if your earnings in a given month are below the monthly limit then you can receive a Social Security monthly benefit for such months, no matter how high your annual earnings.

Another case where benefits are lost is in the case of a divorced wife or husband.  If you’re divorced at least two years from a SS covered worker, you can receive a spouse’s benefit even if the worker is still working, as long as he or she is age 62.  This is called “deemed entitlement.”  

Many people don’t realize how to take advantage of these rules.   Sadly, they lose those benefits. 

Boomer411: Approximately, what is the rough amount in dollars that might go unclaimed per year? What is one category of benefits that is usually ignored or the most unclaimed/under-claimed? If someone forgot to claim, can they go back and make a claim for retroactive benefits?

ST: I cannot approximate the amount of dollars that might go unclaimed in a year because I’m not an economist but some numbers will give you an idea of what we are talking about.  There are now 50 million beneficiaries in the United States and the Social Security Administration paid $585 billion in benefits in 2007.  In 2008 that will be closer to $600 billion.  That comes to approximately $50 billion a month; so even a very small percentage of such high numbers is very significant.  About 4 million claims are made each year. 

To put it on a personal level the average Social Security benefit is somewhere around $1,000.00 for a worker and $500.00 and change for a spouse; same for a child.  I’ve seen people lose several months’ worth of benefits because they missed a filing deadline or were unaware that they could have received something.  So, if you don’t know all the rules and don’t make the right moves, you stand to lose thousands and thousands of dollars. 

Unfortunately there are limits on retroactivity of applications, so if you file late, you can lose out.  The retroactive period for an application depends on the type of benefit.  The application of a retired worker under full-retirement age has no retroactivity if it would result in the payment of a reduced benefit.  For a retired worker who is above full-retirement age the retroactivity can be as much as six months.  Same for most survivor benefits.  For disabled workers and their dependents however, there is a 12 month retroactivity period.

One of the most important things a person can do if he or she is approaching social security time is to file a ‘Protective Filing Statement’ with the local SS office.  This can be done by mail.  Such a statement will protect the filing date without having to make the actual application.

Boomer411: In your intro to chapter 1 in the book, it says, ‘The general intent for retirement benefits was originally to provide a replacement for income lost due to age and its attendant restrictions on earning capacity. In recent years, this has been modified to become an age entitlement program’. Can you please elaborate on this?

ST: Sure.  Originally, if a beneficiary was working, his or her benefits were reduced or completely withheld because the program was designed to replace earnings lost due to retirement.  They still call the benefits Retirement Benefits.  Then the law was amended quite some time ago to allow those age 72 or older to keep all their benefits even if they were still working, no matter how much they earned.  In the 80’s this was lowered to age 70, then in 2000 this was lowered again to age 65, which at that time was Full Retirement Age.  FRA is now 66.  So retirement benefits are paid regardless of earnings once the person reaches Full Retirement Age, which doesn’t have anything to do with being retired, only with being age 66.  So instead of replacing earnings lost due to retirement, the SS program pays benefits based on age, so I call it an age entitlement program now.

Boomer411: Can you tell us about the hardest question that you were asked in your role as an SSA claims representative? And how you approached/answered it?

ST: Oh yes.  It has nothing to do with rules or forms or required documents.  The hardest question has always been: “How can I live on that?” when I would tell a retiree how much his benefit was going to be.  Sadly, the Social Security program has been oversold to many people over the years as if it would provide for a comfortable retirement income.  It was never intended to do so, being intended only to be about 1/3 of a retirement income, with another 1/3 from private pensions, and 1/3 from personal savings.  I felt as if I had hit the poor retiree in the head with a two-by-four!  Sadly, I had no answer.  The answer should have been asked long before retirement age.

Boomer411: Why should a Baby Boomer read your books? What other information can be found in the books?

ST:  Well, I have two books out, The Social Security Answer Book and The Social Security Benefits Handbook.  In the Answer Book, I compile hundreds of questions from real people, and give specific answers.  I have organized the questions by topic, so for example, if a reader wants to look at questions about Survivor Benefits, or Wife’s Benefits, they are grouped together.  I think that sometimes people don’t even know how to formulate a question because they are unfamiliar with basic concepts and terms.  So the Answer book helps not only by giving answers in straightforward words, but also to help people know how to ask questions by seeing what others have asked. 

The Social Security Benefits Handbook is more like a reference source rather than a read-through type of book.  It contains a statement of the rules and procedure of SS in layman’s language, so people unfamiliar with technical terms should be able to find out specific information.  It covers not only the applications rules and procedures, and how benefits are calculated, but also so-called “post-entitlement” issues, such as what to do if you are overpaid and the government wants money back, what you must report to SS, what happens if a check is missing or not received, and so forth. 

Folks getting close to age 62 should be familiar especially with the application process and the earnings limits rules so they can make sure they don’t miss out on receiving all the benefits coming to them.

And of course, readers can e-mail me questions which I will post on my blog along with my answers.

This concludes our interview with Mr.Stanley Tomkiel III. To learn more about Mr.Stanley and his works or to submit your own social security question to him, please visit the following links.
www.Tomkiel.com
www.SocialSecurityBenefitsHandbook.com
www.SimpleSocialSecurity.blogspot.com

I came across this article recently, on the subject of debt in retirement. In this article, Dave Ramsey of “The Dave Ramsey Show” fame discusses whether it is good for someone to enter into their retirement while carrying debt. I was very thrilled to read Dave’s advise on this subject. Because, usually we see people talking about debt as it is an unavoidable part of our lives and that it’s okay to take on debt and so on. Dave takes a very fundamental approach to debt and explains how you just cannot even begin to build wealth as long as you have debt. So how can we even dare to dream of a good, happy retirement if we are so comfortable with debt. There are always exceptions to any rule and there will be cases such as buying a home or in some cases car, that you have to take the help of a loan.

But racking up credit card debt or taking upon any loan that’s offered to you in the name of enjoying life (living in the moment) can only mean one thing. If you yourself don’t care about being able to afford your lifestyle in the future, then why do you think someone else would and some how magically help you. It only means that there would be suffering down the road. 

Debt is bad for even younger folks. So how can one think it’s okay for someone in their 60’s and entering into retirement. It can rob one of their peace of mind, their quality of life.

My favorite point in Dave’s article was the question about good debt and especially Dave’s answer to the question.

Read this article to learn or refresh your memory on what is the impact of running a lifestyle with borrowed money. So take action today to insure a better tomorrow.

Today in our series on interviews, we present you our interview with Mr.Stanley Tomkiel III. Stanley Tomkiel is the author of two books on Social Security, namely Social Security Benefits Handbook and The Social Security Answer Book. Both the books are packed with lots of useful information in simple English.  This is the type of information that every retiree should be aware of, but sadly there are a lot of misconceptions still prevalent among many. So we wanted to showcase Mr.Stanley’s work for our readers and hopefully it will help some people. So without further ado, we present you our interview with Mr.Stanley Tomkiel…

Boomer411: Mr.Stanley, can you please tell our readers about yourself? And what motivated you to write the book ‘The Social Security Answerbook’?

ST: I’m a lawyer in New York City.  I was born and raised in Westchester and educated in Catholic schools all the way through College.  I went to law school at Western New England College School of Law in Springfield, Massachusetts.  I’m married with two grown children and I’m the proud grandfather of two grandchildren. 

After college I worked for the Social Security Administration as a claims representative in field offices in New Jersey, Connecticut and Massachusetts.  My job was to interview people applying for SS benefits, gather the necessary information and documents then to make decisions by applying the SS regulations. 

I realized how many people had misconceptions about Social Security, and also that there was a lot of erroneous information being spread in the media.  It seemed most people were confused by the SS rules. After I left the Social Security Administration, I went into private law practice. And again I encountered the same situation: confusion and misunderstanding, misconceptions and bad information.

So in 1984 I published the first edition of the Social Security Benefits Handbook.  The Handbook has been updated throughout the years and it is now published by Sphinx Publishing, a division of Sourcebooks.  The publisher suggested that I also write The Social Security Answer Book because I receive so many questions from people.  The Social Security answer book is a compilation of typical questions that I have received over the years.  I have organized the questions and answers into topical chapters.  I tried to distill down these questions to the most common and important ones, so my answers will have the most practical and widespread relevance.   Because Social Security information changes, even from year to year, I put up a website to keep the information in my books up-to-date.  This is the Social Security Benefits Handbook Online Edition at www.SocialSecurityBenefitsHandbook.com.

Boomer411: Please tell our readers about your blog, ‘Simple Social Security’ and how it might be useful to Baby Boomers?

ST: I receive questions about SS from people all over the country, so I post these questions with my answers on my blog, Simple Social Security at SimpleSocialSecurity.blogspot.com

Boomer411: Tell us about your law practice?

ST: First let me say that although I am a Boomer, I have no plans on retiring!  I practice personal injury law as a partner in Tomkiel & Tomkiel with offices in Manhattan and Yonkers, NY.  I began practicing law with my father in 1979, and now my son is a lawyer and my partner, the third generation.   I used to handle Social Security cases myself, but because I am so busy with personal injury cases, I now make referrals for people who need lawyers for their Social Security claims. 

Boomer411: In your opinion, do people in their 30’s and 40’s have any hope of taking advantage of the Social Security benefits in its current form when they retire? Also, what can a person in this age group do to better prepare themselves for a good retirement?

ST: I am as sure as someone can be about the future, that people now in their 30’s and 40’s will receive Social Security benefits, but I would be very surprised if the system is the same as it exists now.  Since it was founded in 1937 Social Security has seen many, many changes.  Most of these changes in the first decades expanded the program and increased benefits that are payable.  In the last few decades, that direction has changed, with one important exception (the elimination of the “retirement test”). 

The most recent significant change is the gradual   increase in full retirement age from age 65 to age 67 (it is currently age 66).  I expect that in the future that will rise even higher because current monthly benefits are paid from current workers’ payroll taxes.  The Baby Boom generation was not exactly prolific, so the number of workers as a ratio to the number of beneficiaries is declining and will continue to decline.  It is now about 3.3 to 1, i.e., about three workers pay the taxes that fund the benefits of one worker.  And as people live longer, with fewer young people paying taxes, that ratio is expected to drop to 2.1 to 1 by 2034.

So I would say that in the future, unless people immediately start having very large families it will be absolutely necessary to cut back the amount of benefits being paid from the system.  And there may be a switch at some point to a private Social Security account system perhaps integrated with the government-run programs. 

The best thing that young people should do about retirement planning  is to realize that the government’s role in providing their retirement income is going to decrease significantly, so they must be prepared to rely on their own resources. 

And that means to save and invest, whether it be in stocks, bonds, real estate, or babies!  Hey, if you have five or six children who can help fund your retirement, that’s a lot cheaper than the expected 2.1 ratio.  Now maybe we need a tax credit for people who support their parents in their old age, instead of having the government take the workers’ money in taxes and then giving it to their parents in benefits.  Why not cut out the middleman?  Just a thought.

This concludes Part 1 of the interview. Stay tuned for the second part of this interview in which Mr.Stanley shares valuable information on situations when people usually leave money on the table and how one can make sure to get all the money he or she is entitled to from uncle Sam and more.

For those living in Canada, Jonathan Chevreau of the Wealthy Boomer column in Financial Post has a very interesting, informative interview about Canadian Pension Plan and its possible future direction, in his latest interview with Malcolm Hamilton in Part 4 of the interview. Malcolm Hamilton is a retirement consultant at Mercer Canada. You can view the interview by clicking here. Thanks to my dear friend Alex for sending this link.

In this interview Malcolm discusses briefly the history of the Canadian Retirement Benefit system and the direction they have taken. He also compares it with the American Retirement System or the Social Security system in terms of the respective direction for the two systems.

It is an interesting and informative interview for anyone interested in the retirement system of either of the countries or for those wondering about their future options for retirement in Canada.

One important thing to keep in mind is that any government retirement benefits system is only designed to supplement your retirement income, never as a sole source of retirement income. Also, it is really upto you to take responsibility, interest in your own retirement savings and start contributing early, often and as much as you can to build your nest egg. This is the only way to be really sure that you will have a good retirement. Or one also has a second choice, and that is to hope things will work out and if they don’t, then simply blame it on the government or someone else. Please note that, in spite of your blaming someone else, you will still be the sufferer and not the other person, organization or government being blamed. So for you to not suffer, there is really only one choice and that is the first choice of taking responsibility to make sure you have enough saved and invested.

Check out the Wealthy Boomer column and other financial sites to educate yourself on how to take care of your retirement.

All the best in your efforts.