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Tax Guide Updates

Comment posted to “The Individual Investor’s Guide to Personal Tax Planning 2013,” by AAII staff, in the December 2013 AAII Journal.

In the Estate Tax section, there is a typo saying for 2014 the total effective exclusion would be $10.68 billion; I believe t

—Susan Crabtree from Ohio

Charles Rotblut responds:

The estate tax exemption for 2014 is $10.68 million, not $10.68 billion. We’ve fixed the typo online, and apologize for the error.

On December 6, 2013, the Internal Revenue Service (IRS) published the standard mileage rates for 2014. The deductions are 56 cents per mile for business, 23.5 per mile for medical or moving purposes and 14 cents per mile for charity service. The 2013 Tax Guide has been updated on AAII.com to reflect these new numbers.

—AAII staff

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Social Security Spousal Benefits

Comment posted to “Social Security Strategies for Couples,” by William Reichenstein and William Meyer, in the December 2013 AAII Journal.

My wife and I are pursuing Strategy 2 since I am five years older and have double the primary insurance amount (much like the example). However, I suggest that everyone who hasn’t yet committed to a strategy make their own spreadsheet calculator based on the article (good job showing the calculations). You can then set up as many cases as you want. As in all things in life, it all comes down to when each of you perish. So, while my wife and I are pursuing Strategy 2, if we both die at age 85, it would be no different net present value (if I recall correctly when I did this calculation) than if we both took benefits at full retirement age.

In the end, what I made the decision on was that: 1) we don’t really need Social Security to live a good life, at least until I am 70, and 2) I wanted to leave my wife a good annuity after I die, assuming average life expectancies (when she is likely to really need it).

—Tim Soles from Texas

I must question the following sentence from the claiming strategy example: “In Strategy 2, Peggy begins benefits in four years, when she turns 62, of $900 a month and Mark begins spousal benefits only at that time of $450 a month, half of her primary insurance amount.” I believe Mark’s $450 should be $600, half of Peggy’s PIA; unreduced because Mark has attained full retirement age. Correct

—Bob G. from Colorado

Bill Reichenstein responds:

You are correct; there is an error in Table 3. Since her PIA is $1,200, he should get spousal benefits of $600 from age 66 through age 69, a total of four years. I incorrectly have Mark getting $450 per month in spousal benefits. Corrections have been made to the online version of the table and the article.

When to Begin Social Security Benefits

Comment posted to “Social Security Strategies for Singles,” by William Reichenstein and William Meyer, in the November 2013 AAII Journal.

Take the money as early as possible. If not needed for current income, invest the money in an adjustable interest rate mutual fund. At a discount rate of 5%, money today is worth far more than inflows beginning five years or more down the road. Plus, if the retiree needs increased savings for long-term care at age 66 or older, he or she will have ready resources available.

—Edwin Perkins from California

Suppose you have a significant amount of IRA/401(k) money. If you take Social Security at age 62, maybe you should leave the IRA/401(k) to grow tax-deferred until age 70, versus having to draw upon some of those dollars for eight years if you wait until age 70 to take Social Security.

Furthermore, required minimum distributions starting at age 70 will push your taxable income higher. You want to start Social Security at 70, further pushing up taxable income? Anyone else think income tax rates might be higher in eight years?

—Anthony Crocker from California


Discussion

Lawrence Flescher from WI posted 6 months ago:

It would also be nice to see a treatment of benefit choices after divorce. The workers at SS give conflicting accounts. Any advice?


Mary Dehoff from AZ posted 6 months ago:

I began to collect my benefit at age 62. I would reach the break point (should have done it another way) at age 85. I do not believe that by the time I am 85 (10 years from now) those of us with assets will be eligible for any social Security benefit. We will be means tested out of benefits.

If I am wrong, I doubt it will affect the amount of steak I eat.

Mary


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