Friday, January 31, 2014

Planning for Social Security

Social Security recently announced its new figures for 2014.

Benefits for the 57 million monthly receipts will increase 1.5 per cent. The average check will be $1,294 per month.
People who receive the maximum benefit will receive $2,642 per month. These are people who paid in the maximum for 35 years.
People who receive disability payments will get an average of $1,294 per month. Cost-of-living increases are based on the consumer price index from the third quarter of 2012 through the third quarter of 2013. In the last 25 years, they have averaged 2.74 percent.

The maximum amount that can be taxed on Social Security will increase up to $117,000. That means that a worker at the top level will pay about $205 more this year. You must continue to pay the Medicare premium even above this level. In addition to that, people earning more than $200,000 have to pay an extra Obamacare tax of 0.9 percent.

Many people do not realize that you must give up some of your Social Security income if you start collecting before full retirement age.
For 2014, the figure is $15,480. For every $2 you earn above this amount, you must re-pay Social Security $1. There is a special rule for the year until you reach full retirement age. That year only, you can earn up to $41,400 and then you must give back one dollar for every three you earn. This only applies until the month of your birthday when you reach full retirement age.
After full retirement age you can earn any amount of income without a penalty. People often do not take this into consideration when they start Social Security at age 62.

Remember, every day 10,000 people reach retirement age. Because of all of this volume, Social Security is moving more functions online.

Many middle class taxpayers might get hit with the alternative minimum tax. This was created in 1969 to make sure that everyone paid taxes. Originally it got the very rich who maybe only owned tax-free investments such as muni-bonds. Today the rich are paying a lot more regular income taxes so that is often more than the alternative minimum. You have to pay whichever is higher. Low-income taxpayers do not earn enough to worry about the alternative minimum. This year it is estimated that some 3.9 million people or 4.2 percent will get hit with AMT. The average for individuals is $6,600. For a couple filing jointly the limit could be $80,800 and for individuals $51,900.

Whether you will be affected depends on your particular deductions. People at the most risk live in states with high local taxes, exercise stock options, report large investment options, have lots of children, use home equity loans, have many miscellaneous deductions or are claiming business depreciation.
People with extensive municipal bond holding also could be at risk.
If you are subject to this tax, you need to do substantial tax planning. Congress finally indexed the levels for exposure to this tax last year. That should make planning possible. Tax planning is important for all of your investment whether you are subject to this tax or not.