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Social Security Recipients Get 2.8% Cost of Living Boost in 2019

By Dave Winkler

The Social Security Administration announced a 2.8% cost of living adjustment (COLA) that will benefit 63 million recipients starting January 20191. This adjustment marks the second consecutive year of COLA growth of two percent or greater. In 2017, the increase was 2.0%2. In 2015 and 2016, COLA increases were 0.0% and 0.3%, respectively.

Beneficiaries include Americans who qualify for Social Security benefits, qualified current, divorced, or surviving spouses, disabled workers, and eligible dependents and family members.

At Cornerstone, clients who currently receive Social Security income benefits view this monthly check as helpful, but not the primary source of covering retirement expenses. For many clients, although they tend to qualify for the higher benefit due to higher income during earning years, benefits represents less than 20% of income needed to maintain their chosen standard of living.

Notifications of the 2.8% COLA will be sent to recipients by mail in early December. For the first time, Social Security recipients may also view these notices at www.socialsecurity.gov/myaccount.

  1. https://www.ssa.gov/cola/
  2. https://www.ssa.gov/oact/cola/colaseries.html
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When Is Social Security Income Taxable?

To find out if this tax applies to you, look closely at two factors.

Provided by Cornerstone Wealth Management

Your Social Security income could be taxed. That may seem unfair or unfathomable. Regardless of how you feel about it, it is a possibility.

Since 1984, Social Security recipients have had to contend with this possibility. Social Security benefits became taxable above a certain yearly income level in that year. Then in 1993, a second, higher yearly income threshold (at which a higher tax rate applies) was added. Unfortunately for today’s recipient, these income thresholds have never been adjusted upward for inflation.1 As a result, more Social Security recipients have been exposed to the tax over time. Today, about 56% of senior households now have some percentage of their Social Security incomes taxed.1

Only part of your Social Security income may be taxable, not all of it. This is good news for some. Two factors come into play here: your filing status and your combined income.

Social Security defines your combined income as the sum of your “adjusted gross income” (AGI), any non-taxable interest earned, and 50% of your Social Security benefit income. (Your combined income is actually a form of “modified AGI,” or MAGI.)2

Single filers with a combined income from $25,000 to $34,000 and joint filers with combined incomes from $32,000 to $44,000 may have up to 50% of their Social Security benefits taxed.2

Single filers whose combined income tops $34,000 and joint filers with combined incomes above $44,000 may see up to 85% of their Social Security benefits taxed.2

If you are a head of household, or a qualifying widow/widower with a dependent child, the combined income thresholds for single filers apply to you.2

What if you are married and file separately? No income threshold applies. Your benefits will likely be taxed no matter how much you earn or how much Social Security you receive. (The only exception is if you are married filing separately and do not live with your spouse at any time during the year. In that case, part of your Social Security benefits may be taxed if your combined income exceeds $25,000.)2

You may be able to estimate these taxes in advance. You can use an online calculator (a Google search will lead you to a few such tools) or the worksheet in I.R.S. Publication 915.2

You can even have these taxes withheld from your Social Security income. You can choose either 7%, 10%, 15%, or 22% withholding per payment. Another alternative is to make estimated tax payments per quarter, like a business owner does.2,3

Did you know that 13 states tax Social Security payments? In alphabetical order, they are: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia. It might be a surprise to some that California is not on this list. Sometimes, only higher-income seniors face such taxation. For example, in Kansas, Missouri, and Rhode Island, the respective AGI thresholds for the taxation of a single filer’s Social Security income are $75,000, $80,000, and $85,000.1

If it appears your benefits will be taxed, what can you do? You could explore a few options to try and minimize the tax hit, but keep in mind that if your combined income is far greater than the $34,000 single filer and $44,000 joint filer thresholds, your chances of averting tax on Social Security income are slim. If your combined income is reasonably near the respective upper threshold, though, some moves might help.

If you have a number of income-generating investments, you could opt to try and revise your portfolio so that less income and tax-exempt interest are produced annually. Part of our work with clients is to review this possibility.

As written about in another article, a charitable IRA gift may be a good idea. You can make one if you are 70½ or older in the year of the donation. Individually, you can endow a qualified charity with as much as $100,000 in a single year this way. This idea could have a dual purpose: The amount of the gift counts toward your Required Minimum Distribution (RMD) and will not be counted in your taxable income.4

You could withdraw more retirement income from Roth accounts to lower AGI. Distributions from Roth IRAs and Roth workplace retirement plan accounts are tax exempt as long as you are age 59½ or older and have held the account for at least five tax years.5

Will the income limits linked to taxation of Social Security benefits ever be raised? Retirees can only hope so, but with more baby boomers becoming eligible for Social Security, the I.R.S. and the Treasury stand to receive greater tax revenue with the current limits in place.

If you would like to review options to help manage social security taxes, we welcome your call.

#FinancialPlanning #RetirementIncome  #RetirementPlanning #SocialSecurity #Taxes #TaxStrategies #TaxSavings

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – fool.com/retirement/2018/08/30/everything-you-need-to-know-about-social-security.aspx [8/30/18]
2 – forbes.com/sites/kellyphillipserb/2018/02/15/do-you-need-to-pay-tax-on-your-social-security-benefits-in-2018 [2/15/18]
3 – cnbc.com/2018/09/12/the-irs-is-warning-retirees-of-this-impending-surprise-tax.html [9/12/18]
4 – fidelity.com/building-savings/learn-about-iras/required-minimum-distributions/qcds [9/17/18]
5 – irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts [10/25/17]

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You Can Limit Financial Costs if You Predecease Your Spouse, if Not the Emotional Ones

The transfer of assets when a spouse dies can be fairly simple—if you learn from my mistakes.

I pride myself on keeping meticulous financial records. But since my wife died on Jan. 1, I discovered I had made some real rookie mistakes that led to hours of extra work and substantial fees. The transfer of assets between spouses can be fairly simple—if you learn from my mistakes.

Dr. Lisa Jane Krenzel and I shared everything throughout our marriage. Like many couples, we split responsibilities. I paid the bills and made investments. She took care of our health insurance, plus the house. We maintained individual checking and savings accounts, as well as separate retirement accounts from various jobs throughout our careers. What went wrong?

  • Issue One:When we opened those checking and savings accounts, we never named beneficiaries. I had assumed, incorrectly, that our accounts would simply transfer to the other in case of death. The banker who opened the accounts never suggested otherwise. With a named beneficiary, her accounts would have simply been folded into mine. Instead, I had to hire a lawyer—at $465 an hour—to petition the court to name me as the executor of her estate. I needed this power to transfer her accounts. Filing costs in New York City for the necessary document was $1,286. The running bill for the lawyer stands at $7,402.00, and I expect it to rise.

I also needed the documents for the companies that managed her retirement accounts and a mutual fund, because, as at the bank, we never named a beneficiary. By the way, this paperwork also required signature guarantees or a notary seal, which can take up an afternoon.

  • Issue Two: The highly charged question of funeral and burial. Last summer, when I was told Lisa would not survive this illness, I tried to raise the issue of burial with her. She refused to have the conversation, but I quietly went ahead and purchased a plot of graves in the cemetery in Wisconsin where my parents, grandparents and great-grandparents are buried. This was something I actually did right.

We had to employ two funeral homes—one in New York and one in Wisconsin—and her body had to make the journey out there. All told, I spent $46,359 to cover funeral expenses, graves, transportation, a headstone and a basic casket.

I noticed something interesting in this process. All of my fellow baby boomer friends I have since asked have so far refused to deal with the issue. They wince when I even raise the question. Hear me: You don’t want to have to make this decision at the time someone close to you dies. You simply are not thinking straight.

  • Issue Three: Our health insurance plan covered the long hospital stays and doctors’ visits. However, shortly after Lisa died, I still received bills, even though our deductibles and copays had long since been covered. I paid them immediately, which was a mistake. I was incorrectly billed and I have been fighting the hospitals and insurance company since January to get a refund, even though everyone agrees the bills were incorrect. Before you pay any medical bills, make a simple call and determine their legitimacy. Mistakes are constant: The systems are so complicated, even people in these offices don’t always understand the intricacies.
  • Issue Four:Lisa had two life-insurance policies—one through her work and the other we purchased privately. The former was handled quickly and efficiently by her job and a check arrived almost immediately. Although the insurance company sent me a check for her private policy soon after her death, it took three months of constant calls and emails to determine a refund of the premium I had already paid for three months past her death. I kept getting wrong information from the company, because the people I dealt with didn’t understand it themselves.
  • Issue Five: Over the course of Lisa’s working life—from her first job at a fast-food restaurant to medicine—she paid more than $100,000 to Social Security. Since she died at 60, and our 19-year-old daughter is one year past the age of receiving a monthly benefit, all this money has simply disappeared into the lockbox in Washington. Nothing you can do about this one.

Finally, there is the major psychological trauma of grief. I think most people believe death will never intrude on their lives and when it does, we will be so old and decrepit that it won’t much matter. Trust me on this—even when it’s been expected for a while, it still shocks deeply. There is absolutely no way you can prepare yourself for the shattering heartbreak of loss. When it did come to me, I found the support of friends, family and faith to be invaluable. Amazingly, that cost nothing.

Mr. Kozak is the author of “LeMay: The Life and Wars of General Curtis LeMay” (Regnery, 2009). Appeared in the April 28, 2018, print edition.

Rich Arzaga, CFP® & David Winkler
Cornerstone Wealth Management, Inc.
info@cornerstonewmi.com

2400 Camino Ramon, Suite 175
San Ramon, CA 94583
925-824-2880

CA Insurance Lic# 0D92796 & Lic# 0G10586. Rich Arzaga and David Winkler are registered representative with, and Securities and Advisory services offered through, LPL Financial, a registered investment advisor, Member FINRA/SIPC. Financial planning is offered through Cornerstone Wealth Management, Inc. a registered investment advisor and a separate entity from LPL Financial. The information contained in this e-mail message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

This article was prepared by a third party for information purposes only. It is not intended to provide specific advice or recommendations for any individual.

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LPL Ranks #1 in Customer Loyalty in 2018

The most meaningful measure of how well we’re serving our clients is whether we exceed their expectations in delivering the value and commitment they need to pursue their life and financial goals.

That’s why I wanted to share with you the news that LPL and its affiliated advisors, including Cornerstone Wealth Management, were recently ranked No. 1 in customer loyalty among 21 leading financial distributor firms. It means a great deal for us to be part of a network that’s a recognized industry leader in providing quality personal service—and it’s an even greater honor that LPL has risen in these rankings in each of the past three years.

The rankings were among the findings in Investor Brand BuilderTM, a Cogent ReportsTM study released by Market Strategies International, in which 4,408 affluent investors nationwide were surveyed.*

The study explored the key aspects of client experience that drive investor loyalty. On each of the top 5 drivers of investor loyalty, LPL earned No. 1 rankings by exceeding client expectations in the following areas:

  • Quality of investment advice
  • Financial stability
  • Easy to do business with
  • Range of investment products and services
  • Retirement planning services

In addition, LPL ranked No. 1 in the likelihood of its investors recommending the firm and its advisors to their friends, families, and colleagues.

As an advisors affiliated with LPL Financial, I we are proud of this recognition by investors of the value of the objective financial advice we offer to help clients pursue their goals, and of the innovative products and services our affiliation with LPL allows us to provide access to.

I appreciate the opportunity to partner with you, and I look forward to our continued work together. Thank you for your business.

This letter was prepared by LPL Financial LLC. This is not a recommendation to purchase, or an endorsement of, LPL Financial stock. LPL Financial and Cogent are unaffiliated entities.

*Market Strategies International, Cogent Wealth Reports, “Investor Brand Builder™: Maximize Purchase Intent Among Investors and Expand Client Relationships,” November 2017.

ABOUT THE REPORT: Market Strategies International’s Cogent Wealth Reports: Investor Brand Builder™ provides a holistic view of key trends affecting the affluent investor marketplace. The November 2017 report is based on a web survey of over 4,000 affluent investors, who hold $100,000 or more in investable assets. A total of n=82 LPL advisor clients were represented in the study. Customer Loyalty is based on how likely the participant would recommend each of their investment account companies to friends, family, or colleagues. Participants also evaluate their investment account companies using a 5-point rating scale across 10 aspects of client experience.