Last Chance To Take Advantage Of These Social Security Claiming Strategies Before They Are Gone

As part of the Budget Act of 2015,  two popular Social Security claiming strategies, “File and Suspend” and “Claim Now, Claim More Later”, will not longer be allowed. For anyone who is 66 or older they have until April 29, 2016 to decide if they would like to utilize one of the two strategies.
File and Suspend allows someone at their full retirement age (currently 66) to file for his or her own benefits and then immediately suspend those benefits.  That action triggers benefits for a spouse or other eligible family member while the worker’s own benefit continues to grow.  It also creates an option to collect a lump sum payout of suspended benefits.

The second strategy is often called “Claim Now, Claim More Later”, and it allows a spouse or qualified divorce spouse to claim only spousal benefits at full retirement age – worth up to half of their spouses benefit amount – while their own retirement benefit continues to grow to the maximum amount at age 70.

Utilizing these strategies may allow you to collect tens of thousands of dollars of additional social security income than you would have collected without them.

There is a phase-in timetable based on birth dates that determines who will be able to use these strategies and for how much longer, but anyone who is 66 or older who files after April 29, 2016 will not be able to use them.  If someone is already collecting social security benefits the changes will not impact them.

Take Advantage Of These “Loopholes” Before They Are Gone

If you want to know what areas you should be aiming to take advantage of with your finances look no further than the “loopholes” that are included to be closed or slashed in proposed budget deals or by presidential candidates on the campaign trail.

Two of the “loopholes” we are going to look at in this newsletter are the Backdoor Roth IRA and the Stretch IRA.  These two strategies were on the chopping block of President Obama’s recent budget proposal. 

Backdoor Roth IRA
Very few things in personal finance can have as positive benefit as the Roth IRA. With a Roth IRA you contribute money to your IRA and never have to pay tax on that money again. As the money grows each year you do not pay tax on the gains or income the account generates, nor do you pay tax when you withdraw money from the account. A triple benefit is since the IRS is not collecting tax on the withdrawals there is no such thing as Required Minimum Distributions (RMDs) on a Roth as there are on a traditional IRA.  Also, unlike the Traditional IRA, you can also take out your contributions from the Roth at anytime without penalty. It can be a retirement, education saving, and emergency fund tool all wrapped in to one. Unfortunately the Roth IRA does have income limits on contributions into it. If you earn over $176,000 in 2015 as a married couple you are not allowed to contribute to a Roth. Don’t fear though, even if your income is over the limit you can still get money into a Roth IRA by using the “backdoor” strategy. 

How to take advantage of the Backdoor Roth IRA.
Utilizing a backdoor Roth IRA is simple and straightforward.  First you create and add a contribution to a non-deductible IRA.  Soon after the funds hit the non-deductible IRA you would convert it into a Roth IRA. No tax is owed and your money is in the Roth where it can grow and you can take distributions tax free.

Stretch IRA
The Stretch IRA is a wealth transfer method that allows you the potential to “stretch” your IRA over several future generations. Under current rules, as a beneficiary when you inherit an IRA you can space out the distributions over the course of your life.  The tax benefit is that the IRA can stay in tact for a longer amount of time growing tax-deferred.  
If the provision in the new budget deal is passed, almost any non-spouse beneficiary would be forced to withdraw all of their inherited retirement accounts by the end of the fifth year after the account owner has died, effectively killing the tax benefits that come with the stretch IRA. 

How to take advantage of the Stretch IRA
IRA accounts at death of the owner pass by beneficiary designation. It is typical practice for most IRA owners to name their spouse as the primary IRA beneficiary and their children as the contingent beneficiaries. While there is nothing wrong with this strategy, it might require the spouse to take more taxable income from the IRA than what he/she really needs when he/she inherits the IRA. If income needs are not an issue for the spouse and children-, then naming younger beneficiaries (such as grandchildren or great-grandchildren) allows you to stretch the value of the IRA out over generations. This is possible because grandchildren are younger and their required minimum distribution (RMD) figure will be much less at a younger age.











The backdoor Roth and the Stretch IRA are not the only items included in the budget proposal. The table below is from Financial Blogger, Michael Kitces and describes all of the potentially impacting changes.


The good news is that we are in an election year and there is little likelihood that any of the President’s substantive tax changes will actually come to pass. Although it does give an indication of what is on the radar screen of potential crackdowns and loophole closers that could appear in future legislation. The crackdown on Social Security file and suspend and restricted application claiming strategies last year was an example of this.

Terror And The Markets

Over the past couple of weeks we saw terror attacks in Paris, Nigeria, Tunisia, Mali, and Lebanon. A bomb took down a Russian airliner in Egypt and Turkish fighter jets shot down a Russian bomber they claim infringed on their airspace. France and Russia are on a bombing spree in Syria. The markets typically do not like uncertainty, but they have shrugged off this recent geo-political turmoil and have actually risen sharply in the past couple of weeks. It seems more attention is being paid to the expected boost in the federal funds interest rate next month.

If we look back at events like this historically we would see that the behavior we are experiencing now in the markets is common to how it has responded to previous acts of terror. John Kimelman published an interesting column on titled “Why are Markets Largely Immune to Terror”  

The attacks on 9/11 in the US were on a far grander scale than what we saw in Paris, but the markets only took a month to recover. Attacks may cause short-term disruption to economic life; people may decide not to visit town centers for a few days. But this generally means they postpone consumption rather than abandon it. 

Here is a look at recent terror attacks and how the markets have responded after 1 week, 1 month, 6 months, and 1 year.



Book Review – The Value of Debt

When it comes to debt most people have a reflex aversion to it.  It’s not surprising considering that most popular financial sources all claim that you should get rid of all of your debt as soon as possible.  I recently read “The Value of Debt: How to Manage Both Sides of a Balance Sheet to Maximize Wealth” by Tom Anderson.  Anderson takes a different view of debt.  He explores how to use your personal balance sheet to enhance your net worth.   He has five tenets on how an individual or family should approach debt.  One of the tenets is to Explore Thinking and Acting Like a Company.  The goal or most if not all companies is to make a profit.  A lot of the principles that CFO’s use towards strategically using debt are applicable to families, but rarely used.  An example of a company using debt when you wouldn’t think they would need to is Apple issuing $39 billion in bonds since 2013 even though they have $178 billion in cash reserves.  Anderson is not suggesting that families start selling their own bonds, but there are other strategies that can be utilized to achieve your goals.  The main one is creating an Asset-Based Loan Facility.

Anderson claims that the strategic use of debt will allow you to have:

  1. Increased Liquidity – having more ready access to liquid funds or cash
  2. Increased Flexibility – having more options for addressing the direct and indirect costs of financial distress
  3. Increased Leverage – in good times, you have the ability to enhance and accelerate the accumulation of wealth
  4. Increased Survivability – a diminished likelihood that real survival issues, to your way of life or to life itself will arise.

A couple of the strategies in the book I liked in addition to the Asset-Based Loan Facility were options on how to finance cars, 2nd homes, boats, or other luxury items as well as how to maintain an ideal debt ratio..  It’s not about buying what you can’t afford, but about implementing a strategy to better purchase things you can afford and how to maximize value.

Anderson followed that book up with the 2015 release of “The Value of Debt in Retirement: Why Everything You Have Been Told is Wrong.”  I’m looking forward to reading that one too.

Are You On Financial Track?

Do you ever wonder if you are on track financially?  Sure. you can find plenty of websites out there with calculators that will say by age 30, 40, or 50 you should have various amounts saved.  But is it possible to lump everyone together based on a certain age?  What if you want to retire at age 55, and not at 65 years old?  Or what if you want to purchase a retirement home in the Hamptons?

Utilizing the KISS protocol I like to take the approach of creating a dashboard that tracks specific goals.  A goal that you track can be anything.  You may want to ensure things like you are on track to retire at a specific age,  see your net worth grow by a percentage each year, generate a certain amount of passive income, or that you will have enough college savings for your kids.  Below is a sample dashboard that shows how you can take different measurements of your health at different times


For each of the measurements (Net Worth, Education Savings, Passive Income) the 1, 5, and 10 year goals in the box are generated by doing an analysis on what someone wants to achieve.  For example in the net worth section, this person wants to hit specific net worth goals ($2, $5, and $12 million) over the next 1, 5, and 10 years.

In the Education section they said that they wanted to have enough saved by the time their child goes to college to cover 100% of the cost.  In this case we could take a yearly measurement of their college savings and make determinations if they should save more or less, or be more or less aggressive  with their investments.  Or maybe they are on track and they do not have to make any changes.

In the Passive Income section usually everyone’s initial goal is to achieve financial independence by having enough passive income to cover all of their expenses.  The first step with the analysis would be to  take a look at how much passive income their investments are currently generating and then see what the gap is to get to financial independence.  From there we would see how much every year the would have to save and allocate to income generating investments.

Determining and tracking your financial health is not rocket science.  But it does take a system and a discipline to constantly measure and adjust what you are doing so that you stay on track and get to where you want to go.

Find Unclaimed Money


One of the best feelings is reaching into your coat or jeans pocket and finding money you didn’t think you had.  It doesn’t matter if it’s a $1 bill or a $20, it still makes it a good day.

Your coat pocket is not the only place you can find money you didn’t think you had.  Nowadays you can find it online.  Unclaimed money essentially hides in plain sight.  You can find things like abandoned bank and investment accounts, uncashed dividend checks and paychecks, tax refunds and funds due from canceled insurance policies.

An estimated 2.5 million claims totaling $2.5 billion were returned to rightful owners in 2012, according to the National Association of Unclaimed Property Administrators.

Here are steps to see if you have any that is yours.

  1. Go to, a site endorsed by the National Association of Unclaimed Property Administrators.  It lets you search in many states at once, free of charge
  2. Check in all of the states where you have lived.  Search under maiden names, trusts, or any businesses that you may have owned
  3. If you find some money that is associated to you there will be a claims process to go through.  The documents required to complete the claim will vary.

I looked for myself a couple of months ago and found about $50 that I was owed.  I filled out a form and in a month a check for $50 was mailed to me.

Get Your Financial S*#t Together


At the start of the year many people make New Years resolutions to get a handle on and improve their finances.  Unfortunately by now many of those people have given up on those resolutions.  The main reasons for abandonment are usually not having enough time to focus on the task or feeling that it is too daunting to put a financial plan together.

If you want to get a better handle on your finances here are five concepts that you should start with to build the foundation of your financial roadmap.

 Net Worth

Yes, you have one. This is the sum total of your assets (bank account balances, savings, investments, etc.) minus your debts (loans, mortgage, credit card debt, etc.). Your net worth is the easiest way to get a big-picture perspective on your finances and allows you to see if you are making your progress to your financial goals.

Here is one of many net worth calculators that exist. Take 5 minutes and calculate it.

Cash Flow

I often talk about the importance of getting a handle on Cash Flow (the income you have coming and the money you spend on expenses going out).  It is the foundation of getting control of your personal finances.

A lot of people think that budgets are only for people who have too much debt, are tired of never having money, have trouble paying the bills, or are blindsided by unexpected expenses.  That couldn’t be further from the truth.  Everyone should have a handle on what they are spending. Your living expenses are just one part of the cash flow puzzle.  How can you know how much you should be saving for retirement, investing for your child’s education, or have in an emergency fund if you do not have a handle on your cash flow?

Keeping track of all of your expenses can be a tedious process.  Do it for a month to understand where you are.  Keep track of every dollar you spend for a month and all of your income that you earn.  Then figure out what expenses you pay annually, semi-annually, or quarterly, and add their monthly amount to your tracker.  Even if you use a pen and paper or a spreadsheet to track everything the exercise will be valuable.


Liquidity is how accessible your money is.  Cash is the most liquid your money can be, because you can access it immediately.  Your home on the other hand would be on the opposite side of the liquidity spectrum.  Even if you sold it today, it would probably be a couple of months before the sale closed and you had the proceeds available to you.  Never mind the fact that you would need to find somewhere to live.

You never know when an emergency will arise.  You want to have enough money fully liquid but not too much where you have your dollars sitting around not earning anything.  Figure out how much time it would take for you to get your hands on $10,000, $25,000, $100,000, and $250,000.

Passive Income

I call passive income the holy grail of personal finance because it gives you the ability to achieve financial independence.   If you wanted to you would have the ability to quit your job, yet still pay for all of your expenses.

A valuable exercise is to use the assets in your net worth statement you calculated above and figure out  the amount of income those assets could generate if you stopped working today.  Then set some goals on how much passive income ($100,000 a year, $250,000, $1,000,000, …)  you would like to have and put a plan on the actions needed to achieve that.  Here is an article I wrote on how to execute on that topic

Planning for a Catastrophe

One question that is critical to answer is how are your family’s expenses paid for if you and/or your spouse die or become disabled.  If you calculate your passive income above and you do not have enough to cover your expenses, or if your assets cannot generate enough income each year until you are slated to stop working it may be wise to look at adding life and disability insurance.

There are different ways to figure out how much life insurance you need.  My favorite is to focus on the income that will be lost if something happens to you.  Here is a calculator that helps you calculate how much life insurance you should purchase.

The title of this article was inspired by a great blog I came across at On that website you can get free templates on life and death planning topics like a Will and Power of Attorney.  The author started the blog when in 2009 her husband died in an accident.  She was shocked by the number of things they had ignored or left disorganized.

Getting a handle on your finances can seem like a daunting task, but if you start off focusing on these 5 areas you’ll create a foundation for your finances.  Once you have these in place the next area I would focus on would be with planning for goals like (Ensuring you have enough money to retire, paying for your children’s education, buying a vacation home, …)

Everyone can use some passive income

Passive income is looked at as the holy grail of finance and investing.  When you think of it who wouldn’t want $100,000 or $1,000,000 of income coming in each year without having to spend an hour at the office.  It gives you more freedom, flexibility and can help you achieve financial independence.  Most people think that having passive income is something that is unachievable, but it can be done by setting a goal, putting together an action plan, and executing that action plan.

Outside of putting their kids through college and not running out of money in retirement, passive income one of the most popular financial goals I hear from my clients.  But even after reading books like Rich Dad / Poor Dad or The 4 Hour Week that emphasize the importance of passive income , you’ll probably still wonder what you have to do to achieve it.

Set a Passive Income Goal

The first step is to set a goal for how much passive income you would like.  Everybody has a different level of income that will bring maximum happiness due to different desires, needs, and living arrangements.  It’s up to you to find out your optimum income level.  Some people shoot for enough passive income to achieve financial independence and the ability to cover all of their expenses.  You do not need stop at $100,000 though, maybe you want $1 million or $5 million a year in passive income.  This is the time to dream, and dream big!

Put Together an Action Plan

Goals are great, but they come to life when you put an action plan together that shows how to achieve that goal.  Passive income starts with savings.  Without a healthy amount of savings, nothing works.  You must create a system where you are saving X amount of money every month, investing Y amount every month, and working on Z project until completion. Things will be slow going at first, but once you save a little bit of money you will start to build momentum.

We’ll look at a simple example that shows how you can achieve that $100,000 a year in income goal using real estate.  Let’s say if you need $50,000 of cash to put a down payment and purchase a $200,000 investment property that produces $20,000 of net income each year.  You would have to save and allocate $50,000 in 5 buckets over a period of time to purchase the 5 properties.  Let’s say you can save $25,000 a year.  You would be able to purchase a new property every 2 years and in 10 years you would have the 5 properties producing $100,000 a year in income.  I am simplifying things a little. In reality, once you started purchasing a couple of properties, you could start using the equity in each property to purchase additional properties. Your yearly net income would go up each year also as you are raising rents.  On the downside a property that cost $200,000 today will most likely cost more in the future so you will need more than $50,000 to purchase each property.  Also increasing would be things like property taxes and other expenses.

Real estate is not the only thing that produces passive income and I recommend having different sources added to your mix.  Things like dividends payments from stocks or interest from acting as a bank and lending out money are other examples that work.  Another example is royalties from things like authoring a book or writing or recording music.

 Force Yourself to Start

Starting is the hardest part, but also the most important.  Circle a date to get started and push aside any distractions.  Once you get started you can use a thermometer to track your goal and ensure you are progressing as you had planned.


Small Business Retirement Plans


The vast majority of businesses in the U.S employ fewer than 100 workers, yet these employees have less access to things like retirement planning vehicles and other benefits than those who work for larger companies.  Here’s an overview of all the major features of each kind of retirement plan, including SIMPLE, SEP, 401(k), defined-benefit, and profit-sharing plans.  In choosing the right plan, it pays to have a working familiarity with the different kinds of retirement options.

Below, I’ve compiled the major features of each type of plan, along with an overview of benefits


A SEP will allow you to set up a type of IRA for yourself and each of your employees.  You must contribute a uniform percentage of pay for each employee, although you won’t have to make contributions every year.  SEPs have low start-up and operating costs and can be established using a two-page form.  As a small employer, you can also decide how much to put into a SEP each year, offering flexibility when business conditions vary.

Key Advantage: Easy to set up and maintain

Employer’s role: Set up plan for selecting a plan sponsor and completing IRS Form 5305-SEP.  No annual filing requirements for employer

Contributors to the plan: Employer contributions only; 100% tax-deductible

Date to set up new plan: By due date of tax return (including extensions)

Maximum annual contribution (per participant): Up to 25% of W-2 wages or 20% of net adjusted self-employment income for a maximum of $52,000 in 2014

Contributor’s options: Employer can decide whether to make contributions year-to-year

Minimum employee coverage requirements: Must be offered to all employees who are at least 21 years of age, were employed by the employer for 3 of the last 5 years and had earned income of more than $550

Participant Loans: Not allowed

401(k) PLAN

401(k) plans – both traditional and Roth – have become a widely accepted retirement savings vehicle for small businesses.  They can vary significantly in their complexity

Key advantage: Permits higher level of salary deferrals by employees

Employer eligibility: Any employer with one or more employees

Employer’s role: No model form available. Advice from financial institution or employee benefit advisor may be necessary. Annual filing of Form 5500 is required. Also may require annual nondiscrimination testing to ensure plan does not discriminate in favor of highly compensated employees.

Contributors to the plan:  Employee salary reduction contributions and/or employer contributions

Maximum annual contribution (per participant): Employee: $17,500 ($23,000 for participants 50+) in 2014.

Employer/employee combined: The lesser of 100% of compensation or $52,000 ($57,500 including catch-up contributions for 50+) in 2014.

Contributor’s options: Employee can elect how much to contribute pursuant to a salary reduction agreement. The employee can make additional contributions, including possible matching contributions, as set by plan terms.

Minimum employee coverage requirements:  Generally, must be offered to all employees at least 21 years of age who have completed a year of service with the employer

Vesting: Employee salary deferrals are immediately 100% vested. Employer contributions may vest over time according to plan terms.

Participant loans: Plan may permit loans and hardship withdrawals.

Withdrawals:  Withdrawals permitted after a specified event occurs (e.g., retirement, plan termination). Early withdrawals subject to tax penalty


Provide a fixed, pre-established benefit for employees.  This traditional type of pension plan is often viewed as having more value by employees and may provide a greater benefit at retirement than any other type of plan.  However, defined plans are more complex and therefore costlier to establish and maintain than other types of plans.

Key advantage: Provides a fixed, pre-established benefit for employees; allows higher tax-deductible contribution for older employees

Employer eligibility: Any employer with one or more employees

Employer’s role: No model form available. Advice from financial institution or employee benefit advisor may be necessary. Annual filing of Form 5500 is required. An actuary must determine annual contributions.

Contributors to the plan: Primarily funded by employer

Maximum annual contribution (per participant): Actuarially determined

Maximum annual benefit: The maximum annual benefit at retirement is the lesser of $210,000 or 100% of final average pay

Contributor’s options Employer generally required to make contribution as set by plan terms

Minimum employee coverage requirements: Generally, must be offered to all employees at least 21 years of age who worked at least 1,000 hours in a previous year

Vesting: Rights to benefits may vest over time according to plan terms

Participant loans: Plan may permit loans


Your contributions as an employer to a profit-sharing plan are discretionary.  Depending on the plan terms, there is often no set amount that an employer needs to contribute each year.  As with 401(k) plans, profit-sharing plans can vary greatly in their complexity.

Key advantage: Permits employer to make large contributions for employees

Employer eligibility: Any employer with one or more employees

Employer’s role: No model form available. Advice from financial institution or employee benefit advisor may be necessary. Annual filing of Form 5500 is required.

Contributors to the plan: Annual employer contribution is discretionary.  Date to set up new plan By year end (generally Dec. 31)

Date contributions are due:  Due date of tax return, including extensions

Maximum annual contribution (per participant):  The lesser of 100% of compensation or $52,000 in 2014. Employer can deduct amounts that do not exceed 25% of aggregate compensation for all participants.

Contributor’s options: Employer makes contribution as set by plan terms. Employee contributions, if allowed, are set by plan terms.

Minimum employee coverage requirements: Generally, must be offered to all employees at least 21 years of age who worked at least 1,000 hours in a previous year.

Vesting: Employee salary reduction contributions and most employer contributions are immediately 100% vested. Employer contributions may vest over time according to plan terms (5-year cliff or 3-7 year graded, or 2-6 year graded if top-heavy)

Participant loans: Plan may permit loans

Withdrawals: Withdrawals permitted after a specified event occurs (e.g., retirement, plan termination). Early withdrawals subject to tax penalty.


SIMPLE (Savings Incentive Match Programs for Employees of Small Employers) plans are usually set up as IRAs. They are easy to establish and inexpensive to administer. Your contributions as an employer are flexible: you can either match employee contributions dollar for dollar—up to 3% of an employee’s compensation—or make a fixed contribution of 2% of compensation for all eligible employees.

Key advantage: Employers who set up a new plan may be eligible for a tax credit of up to $500 a year for the first 3 years to help defray the costs of starting the plan. File IRS Form 8881

Employer eligibility: Any employer with 100 or fewer employees that does not currently maintain another retirement plan

Employer’s role: Set up plan by completing IRS Form 5304-SIMPLE or IRS Form 5305-SIMPLE. No annual filing requirements for employer. Bank or financial institution processes most of the paperwork.

Contributors to the plan: Employee salary reduction contributions and employer contributions

Date to set up new plan: Generally by 10/1 of the year before the start of the plan

Date contributions are due: Due date of tax return, including extensions; elective deferrals by participants due 30 days after the last day of the month for which contributions are made

Maximum annual contribution (per participant): Employee: Up to $12,000 in 2014 ($14,500 if age 50+). Employer: Either match employee contributions 100% of first 3% of compensation (can be reduced to as low as 1% in any 2 out of 5 years); or contribute 2% of each eligible employee’s compensation (up to $260,000 of compensation in 2014).

Contributor’s options: Employee can decide how much to contribute. Employer must make matching contributions or contribute 2% of each employee’s compensation (up to $260,000 of compensation in 2014).

Minimum employee coverage requirements:  Must be offered to all employees who have earned income of at least $5,000 in any prior 2 years and are reasonably expected to earn at least $5,000 in the current year

Vesting: Employer and employee contributions are immediately vested 100%

Participant loans: None allowed

Withdrawals:  Can occur any time after contribution is made, but 25% penalty if withdrawal occurs during 2-year period beginning on the first day of participation

2014 Last Chance Financial Planning

Take the 2014 Last Chance Financial Planning Challenge and determine if you need to take any actions before the end of the year to get your financial house in order.

It’s a simple checklist that covers only those areas that need attention at year end – taxes, retirement savings, investments, insurance, and medical. It might take you five minutes, tops.