Social Security Survivor Benefits: Do you know how much you’re eligible to receive?

April 30, 2013

Americans contribute a significant portion of their lifetime earnings to Social Security, and for many, these benefits are their sole source of income throughout their retirement years.  So what happens when an individual dies before or while collecting their monthly benefits?  Thankfully, those entitled benefits don’t just disappear. The U.S. government has formulated a way to pay out benefits to surviving loved ones, even before their own retirement. This could amount to an important figure, especially for a widow(er) who did not work outside the home.

You may already be aware that a spouse can receive 100% of the benefit at Full Retirement Age (FRA) as a survivor (FRA is determined by year of birth; if born in 1962 or later, FRA is 67 years old). But did you know that benefits can also be paid to the surviving children? Most surviving children are eligible to receive a monthly benefit if they are under age 18 (up to 19 if they are still in high school), or any age if they were disabled before age 22. This amount may be added to the spouse’s survivor benefits, but the maximum total family benefit is limited, generally speaking, between 150% and 180% of the deceased’s benefit amount.

Divorced? As a former spouse, you may be entitled to benefits. As long as your marriage lasted 10 years or more and you do not remarry before age 60, you could get the same benefit as a widow(er). However, if you are caring for you and your former spouse’s child who is under 16 or disabled, the length-of-marriage rule does not apply. It’s also important to note that the benefits paid to a surviving divorced spouse will not affect benefits that other survivors could receive.

In order to plan an adequate cash flow analysis that incorporates survivor benefits, it’s crucial to know what percentage of survivor benefits one is eligible to receive, as this varies from situation to situation:

  • Widow(er), full retirement age or older =  100% of deceased spouse’s benefit amount
  • Widow(er), age 60 to full retirement age = 71% to 99%
  • Disabled widow(er), age 50 through 59 = 71%
  • Widow(er) at any age caring for a child under age 16 = 75%
  • A child under age 18 or disabled = 75%
  • Your dependent parent(s), age 62 or older:
  •         One surviving parent = 82%
  •         Two surviving parents = 75% to each parent

If you find yourself in more than one of the above categories, you will receive the higher of the two benefits.

If a spouse or parent were to die, applying for survivor benefits might not seem like a top priority, but it’s important to consider that these benefits are paid from the time of application, not the time of death.  There’s no need to wait for certain documents in order to apply, as the Social Security office works on survivors’ behalf to facilitate this progress.  For more information regarding Social Security survivor benefits, please visit www.socialsecurity.gov, or speak with your financial advisor today.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.


The Resilient Consumer

April 17, 2013

If you’re trying to know where the American economy is going, your first step should be to put yourself inside the head of the American consumer.

According to The Wall Street Journal, almost half of American consumers are unaware that the return to higher Social Security tax withholding on January 1 meant an effective 2% pay cut. About 48% of workers didn’t notice the change in their 2013 paychecks; 59% of lower-income workers, those most likely to have no cushion, didn’t notice. Only 26% of low-income households, and only 30% of all households, have reduced spending in response.

Add in uncertainty about the future course of government policy, both in America and internationally, and you’d expect consumer spending, which is responsible for roughly 70% of GDP, to be static, if not falling. Instead, after adjusting for inflation, it grew at roughly a 3% annual rate in January and February. The numbers may be skewed by a few anomalies, but even with March’s slight downtick, spending growth in the first quarter was relatively strong. What’s more, the Thomson-Reuters/University of Michigan index of consumer confidence rose more than expected in March, likely because of the strength in hiring and housing.

But there are downsides. March’s job growth was an anemic 88,000, dramatically smaller than the consensus view that non-farm payrolls would grow by 200,000. And the effects of the sequester’s large cuts in jobs and pay, directly on government workers and indirectly on the employees of government contractors, have yet to be felt.

We think that further growth in consumer spending, and therefore further GDP growth, is dependent on the private sector adding jobs at an accelerating pace through the spring. Stay tuned for April’s numbers at the end of the first week in May.


The Eurozone and Investor Confidence: What’s the connection?

April 4, 2013

Volatility and uncertainty in Europe persist. How sensitive are investors to the European situation? When the troubles of a nation that makes up only 0.2% of Eurozone output is blamed for downward movement of the U.S. stock market, that’s a sign of tremendous sensitivity. More on that country and why it has made investors skittish later, but first let’s look at current state of Europe and especially those nations that use the Euro currency (commonly called the Eurozone).

There are two interrelated issues we need to consider when evaluating the European situation: the state of the economy, as well as the severe financial pressure brought on by the enormous debt obligations of governments. This is the vicious circle that Eurozone countries find themselves in: there is a need to reduce government spending in order to improve the debt obligations, and this reduced spending weakens the economy. The weakened economy reduces tax receipts, and the reduced tax receipts make it more difficult to pay the debt obligations they were seeking to reduce. This not only keeps the debt obligations high, it also makes investors demand a higher interest rate on the debt, which makes it more difficult for the country to afford the payments. In the end, the real fear is that governments will default on their bonds and that these defaults will have a fatal effect on the banks that own the bonds. The banks going under would then have a domino effect and cause more and more banks to become insolvent. Because the consequence could be disastrous, even a small move toward that scenario has a large impact on investor confidence.

So, what is the current state of the Eurozone? The Eurozone as a whole has entered another recession after a short period of meager growth coming out of the global financial crisis.  The combined economic output of the 17 countries that make up the Eurozone shrank by 0.6% in 2012 and is projected to lose another 0.3% this year. Unemployment has been steadily increasing and is now at an alarming 11.9%.  In summary, the economy is not in great shape, but, to date, it is still your typical garden-variety recession—not a sign of Armageddon.

On a slightly better note, the debt side of the equation has been showing some improvement. The countries on the periphery that have been under the most stress are showing some improvement in their account deficits. In a normal situation, the financial condition of a country would have led to a weaker currency, thereby supporting export growth and foreign investment. But because these countries share a currency and such devaluation is not possible, other market forces must ultimately work. In this case, market forces have gradually reduced wages, making goods cheaper. Also, the European Central Bank’s pledge to support the Eurozone’s banks “at any cost” helped to lower the interest rates of government debt, enabling countries to better afford their debt payments and reducing investor concerns.

Even with the improvements, the immediate outlook remains challenging. Political turmoil reduces investor confidence. As we’ve seen, reduced confidence increases the interest rates that investors demand for a country’s debt. Italy, Greece and Spain abound in such political turmoil. Additionally, the record high unemployment in several countries further deteriorates their economies and sends them deeper into recession. Then there are events such as the one plaguing Cyprus, the aforementioned nation that makes up only 0.2% of Eurozone output. The Cypriote situation is one in which banks actually were fatally harmed by the defaults of Greek government debt. Cyprus was forced to close the country’s second-largest bank and inflict large losses to its biggest depositors. Because this was a visible step toward the disastrous outcome that investors have long feared, markets reacted. The real economic effects of the Cyprus situation are negligible, but the real damage was to investor confidence: “If it can happen there, who is next?”

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.