Boost Your Social Security Benefits

There is no perfect time to apply for Social Security. You can claim early and take a smaller monthly payment for a longer period of time. Or you can claim later, collecting a larger benefit that is based on a shorter life expectancy. Your decision depends on many things beyond your need for the money: whether you're married, your spouse's earnings compared with yours, how much you have saved and your health.

Your goal is to maximize your Social Security benefits, but not all beneficiaries understand how to make the most of this guaranteed source of inflation-adjusted income. Over the years, Kiplinger's Retirement Report has written about little-known strategies to stretch government benefits. Those stories have been among our biggest source of reader inquiries, so we're returning to the topic.

Before we review the strategies, you need to know some Social Security basics. If you were born between 1943 and 1954, you can claim your full benefit, called the primary insurance amount, at age 66. The earliest you can claim Social Security is 62. But your benefit will be permanently reduced by a certain percentage for each month you claim before your 66th birthday. For instance, if you claim at age 62, you'll get 75% of your full benefit. If you claim at 64 and 9 months, you'll receive 90%. For each year you delay claiming benefits between 66 and 70, your benefit will increase by 8%. Hold off all four years, and you earn a 32% bonus, plus all accumulated cost-of-living adjustments.

A lower-earning spouse can claim a benefit based on his or her work record at age 62. Or the spouse can claim a "spousal" benefit, as long as the higher-earning spouse has started collecting benefits. If the lower earner is at full retirement age, he or she can collect a benefit that's 50% of the higher earner's primary insurance amount.

However, if the lower earner collects a spousal benefit before reaching full retirement age, the benefit will be reduced by a set percentage. For instance, if the spouse claims at 64 and 3 months, the spousal benefit will be 42.7% of the higher earner's benefit. And if the lower-earning spouse collects his or own benefit early and then "steps up" to the spousal benefit later, that spousal benefit will also be reduced.

Now let's turn to the strategies. At the risk of inviting accusations of sexism, we will refer to the lower-earning spouse as the wife. That's the way it usually is, and she tends to live longer than the husband, too.

First, if you're single. It usually makes sense to wait until full retirement age to start claiming benefits, unless you expect to die early or need the money sooner. This is especially true for women, who are more likely to reach the "break-even age," when the total value of full benefits equals what you would have received by claiming reduced benefits earlier.

Unless you have significant savings, it generally pays for singles to claim at 66, says Henry Hebeler, creator of the Web site AnalyzeNow.com. Many singles will not have enough savings to support a delay until age 70, Hebeler says. But a single person who collects at 62 is more likely to run out of money at an earlier age than someone with the same amount of savings who waits until 66, he says. "It usually works out that a single person should take benefits at full retirement age," he says.

You can use a free program on Hebeler's site to make your own calculations. Plug in your savings, tax bracket, annual spending and assumptions on investment growth. You can see how long your money will last based on when you start taking your benefits.

Married men should delay. Married couples can maximize total benefits by coordinating their start dates. The top goal is to increase the benefit for the surviving spouse, who gets 100% of the higher-earning spouse's benefit when he dies. If the higher-earning husband delays until 70, his survivor will get an extra 32% plus cost-of-living adjustments.

There are two ways that the surviving spouse would get less than 100% of her husband's primary insurance amount. If he collects Social Security before age 66, his benefit -- and his wife's survivor benefit -- will be lower. Also, the survivor benefit will be reduced if the husband dies and the wife collects the survivor benefit before turning 66. If she waits until her full retirement age, she'll get 100% of the survivor benefit. The size of her survivor benefit, however, will not be affected if she collects her own benefit or a spousal benefit early.

For many couples, a husband should claim at 70 while the lower-earning wife should start collecting at 62, according to a study by Boston College's Center for Retirement Research. Because the husband is likely to die earlier, the study says, he will increase the value of the survivor benefit by delaying. As for the wife, even though her benefit will be reduced by 25%, the authors figured that her reduced benefit is only temporary. After her husband dies, she will step up to the higher survivor benefit. In the meantime, the household is bringing in extra income.

Found money. Let's say you're at full retirement age. You'd like to delay collecting benefits until 70. If your wife is 62 or older, she could collect benefits based on her own work record, but she'd get more money with a spousal benefit. One problem: She can't apply for the spousal benefit until you file for your own benefit.

Here's what you do. You file for your own benefit, and your wife applies for the spousal benefit (which will be less than 50% of your benefit if she applies before her full retirement age). You immediately request a voluntary suspension for your own benefits. Your wife would then get spousal checks, and you can earn a bigger benefit when you reapply later.

James Mahaney, vice-president of Prudential Financial, recalls one couple who didn't realize they could "file and suspend." The husband didn't want to collect until 70. "They were leaving money on the table," he says. Once they learned of this strategy, the wife applied for a monthly spousal benefit of $1,000 -- a nice pot of "found money" over four years. If the husband dies first, she'll collect a higher survivor benefit.

Claim a spousal benefit. Like the man above, you're at full retirement age and you want to delay until 70. But you can still get benefits now -- a spousal benefit. If your lower-earning spouse is at least 62, she could claim her own benefit. You can then apply for a spousal benefit. At 70, you switch to your own higher benefit. This strategy offers you and your spouse several advantages: Your wife's survivor benefit will be higher if you die first, and you'll be bringing extra income into the household until you reach 70. At that point, your wife can switch to a spousal benefit based on what you would have received at 66.

Raymond Lekowski, 67, of Fort Lauderdale, Fla., had planned to wait until 70 to claim benefits. But when he read in Kiplinger's Retirement Report about claiming a spousal benefit, he decided to go for it.

His wife, Carol, a retired nurse, started collecting her own benefit just short of full retirement age. Her monthly benefit is about $1,000. Raymond, a retired executive for a communications company, gets a spousal benefit of about $500. If Raymond had claimed at 66, he would have collected more than $1,925 a month. By waiting until 70, his benefit will be 32% higher, plus inflation adjustments. "By not taking the benefit, it's like investing the money and seeing it grow," Raymond says. And if he dies first, Carol will be left with the bigger survivor benefit.

Note that the higher-earning spouse cannot use this tactic -- known as "restricting an application" to spousal benefits -- if he's younger than full retirement age.

The retirement do-over. If you claimed your benefits early, perhaps at age 62, you may decide that taking a permanent cut was a mistake. Believe it or not, you can repay the benefits, free of interest, and reapply for a bigger benefit later. Your wife must return any accumulated spousal benefits as well. Dan Cowles, a retired systems analyst for IBM and Wachovia, decided a do-over was a smart move. He had claimed his benefits at age 62. But he says: "I had regrets as the years went by. I was in good health, and my mother lived until she was 94."

Last year at age 67, Cowles, who lives with his wife, Sharon, 65, in Cumming, Ga., decided to repay his benefits. After mailing in a Request for Withdrawal of Application (SSA Form 521), the government told him that the tab was about $84,000. He took the cash from a money-market fund paying 3% interest. Because each year of delay boosts a benefit by more than twice that rate (not including the COLA), he figured he was getting a nice return on his investment.

At the time he repaid his benefits, he was receiving $1,580 a month. He reapplied soon after and now receives $2,196 a month -- $616 more. By repaying $84,000 in past benefits, Dan "bought" an additional $616 a month in inflation-adjusted income. That's less than what it would cost to buy an inflation-protected immediate annuity with a 100% survivor benefit from a low-cost annuity provider.

If Dan dies first, Sharon would receive his full benefit. Dan's higher benefit also means that Sharon's spousal benefit will be bigger. And he will be able to recoup the income taxes he paid on the benefits he gave back. Cowles says that he's owed a credit of about $8,200, reducing his repayment cost even further. (Check IRS Publication 915 for instructions.)

One word of caution: Although this do-over strategy works well if you were already collecting benefits, it's riskier to plan to collect reduced benefits now with the intention of repaying them later. You might not live long enough to take advantage of the repayment strategy. In that case, your spouse would be left with a reduced survivor benefit.

Remember, Medicare premiums are deducted from Social Security checks. When you withdraw an application, you must pay back all the benefits, including the benefits that paid your Medicare premiums. But if you don't intend to reapply for Social Security for several years, be clear that you are withdrawing from Social Security but not Medicare. You will pay your Medicare premium separately. You can test out the payback strategy on Hebeler's Web site, AnalyzeNow.com

by. Susan B. Garland, Yahoo Finance

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Commuting in Five Seconds

Amid the economy's many ailments, some good news has remained mostly off the radar: The at-home work force is growing, and it is encompassing new occupations ranging from radiology and nursing to auditing and teaching.

The bad news: Fierce competition means your odds of landing one of these jobs are poor. And if you succeed, you will probably take a pay cut.

For companies, home-based employees, independent contractors and freelancers are helping cut costs and improve customer service. Full-time, home-based freelancers and independent contractors in the U.S. are expected to increase by 200,000 workers to 11 million by the end of 2009, says Ray Boggs, a vice president of IDC, Framingham, Mass., a market-research firm; he sees another 200,000-worker increase in 2010.

While that is a mere blip on the radar in an economy that has been losing nearly that many jobs in a month, the trend means a lot to the individuals who are benefiting from it. They are avoiding dreaded commutes, doing volunteer work, pursuing college degrees or caring for family. And they are performing increasingly complex tasks from home, from reading MRIs to helping clients search for Bigfoot, the mythic wilderness creature.

"We are seeing a general broadening of the work-at-home landscape," says Christine Durst, chief executive of a work-at-home Web site and co-author of a new guidebook on the topic.

Applicants are stacking up by the hundreds of thousands, however. Based on my survey of a dozen companies that use home workers, your odds of actually landing one of these positions range from about 25-to-1 to 300-to-1.

ARO Contact Center, Kansas City, Mo., which employs just 200 home auditors and sales and customer-service workers, gets 1,000 resume's a week, says Michael Amigoni, chief operating officer. West Corp., Omaha, with 14,000 active agents handling customer-service and other calls, hires only 0.5% to 1% of its 4,500 weekly applicants. And Alpine Access, Denver, with 2,800 home customer-service, sales and tech-support agents, hires about only 2% of the 100,000 people who apply each year.

"It takes a lot of luck to get these positions," says Tammie Deweever, Fort Lauderdale, Fla., a home customer-service agent for LiveOps, Santa Clara, Calif. "You have to be good at what you do." Ms. Deweever has a college degree in marketing and worked as a mortgage broker before joining LiveOps last January. For her, job flexibility means being able to be home for her children, 17, 15 and 8; she often works split shifts around their needs, answering calls from TV viewers wanting to buy products from juicers to jeans.

Many skilled at-home professionals and managers earn less than a corporate salary. Less-skilled customer-service or sales work usually pays about $8 to $15 an hour, ranging as high as $25 or more with incentives or premiums. Some companies pay by the minute or hour spent on the phone, while others pay by the shift. The jobs vary by company from full-time employee positions with benefits to part-time independent contractor positions.

And applicants must be wary of scam artists. Ms. Durst, Woodstock, Conn., who screens work-at-home pitches for her Web site, RatRaceRebellion.com, says she is finding only one legitimate job among every 60 pitches she examines. In 2006, the odds weren't quite as bad: She was finding one legitimate job for every 31 pitches vetted.

Many victims of work-at-home fraud have sent money, only to receive worthless products or leads, or nothing at all, in return; others who disclose too much personal information have fallen victim to theft from credit-card or checking accounts.

But those who win the work-at-home lottery reap diverse benefits. Intent on avoiding a long commute, Heather Hedden, a Raleigh, N.C., marketing specialist, spent a year looking for her current spot, as a home-based concierge for VIPdesk, Alexandria, Va. The position was worth the wait, she says. She enjoys using her research skills to help clients find theater or sports tickets, vintage wines or travel services. When a client asked for help looking for Bigfoot, she found an outfitter with a track record of taking like-minded customers on hikes through areas of reported sightings, she says.

After 19 years in private practice, radiologist Steven Brick, Potomac, Md., began working from home for Virtual Radiologic, Eden Prairie, Minn. The setup confers both the freedom to focus on his work, without distractions, and the flexibility to serve as a volunteer at the National Zoo answering visitors' questions, he says. Virtual Radiologic's radiologists, who work as independent contractors reading X-rays and other images for hospitals and other medical clients, have increased to 140 from 34 in 2004, a spokeswoman says.

Home-based work enables newlywed Stacey Anderson, 30, Ballston Spa, N.Y., to tackle numerous roles. Since landing a customer-service post last summer as a contractor for VIPdesk, Ms. Anderson has been able to bend her work hours around her husband's rotating shifts on his job. In addition, she squeezes in a full-time course load as a college student.

Such intangible incentives are drawing skilled, experienced people. Mark Frei, a senior vice president of West, says 80% of West's home agents have some college education, compared with 30% of those who work in office-based call centers.

Vanessa Torres, 35, San Antonio, Texas, had a bachelor's degree in business and 16 years' management experience before signing on last January as a home agent for West. She likes controlling her hours, and works only when her two young children are in school, she says.

Expansion of home-based work is likely to continue. Among the 12 companies I contacted, all were planning to recruit more home workers. Lionbridge Technologies, Waltham, Mass., a provider of multilingual services including translation and product testing, is taking on new freelancers to assess "search relevance"—that is, to ensure Internet searches yield items suitable to particular locales, a spokeswoman says.

Alpine Access, Denver, is recruiting 500 more home agents and expects to add 2,000 in 2010, says Chief Executive Christopher Carrington. Live Ops, with 20,000 home agents for retailing, insurance and other companies, added about 4,000 agents in the past two months. Arise Virtual Solutions, Miramar, Fla., with a home-agent pool of 9,800, is seeking 3,000 agents for the peak holiday and cruise seasons, a spokeswoman says. Michael DeSalles, an analyst with Frost & Sullivan, a research and consulting firm, sees home agents growing by at least 30% a year.

Sites which link clients with skilled freelancers also are seeing a surge in demand for virtual workers with a widening range of professional and technical skills; oDesk.com's monthly postings, including graphic design, software, administrative and other projects, rose to 28,000 in the past 30 days, three times year-earlier levels. Monthly hiring on Elance.com is up more than 40% from a year ago.

As more companies allow people to work from anywhere via the Internet, says a spokeswoman for Lionbridge, "we are convinced that this is the new model of work."

by. Sue Sellenbarger, yahoo finance

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To Act Like the Rich, Be Frugal

If you want to be rich, you need to stop acting like you have money in the bank and start living beneath your means. That's the message in the most recent book from Thomas J. Stanley, author of "The Millionaire Mind" and the "The Millionaire Next Door."

Bankrate asked Stanley to explain what's fueling America's hyper-consumptive ways and unquenchable thirst for top-shelf brand vodka -- among other indulgences.

Q: In your book "Stop Acting Rich...and Start Living like a Real Millionaire," you say that rich people don't necessarily act the way that the rest of us might think they do. In fact, millionaires are more likely to be extremely frugal. Why is that?

A: There are many factors that explain frugality among the rich.

First, their parents tended to be not only frugal, but well-disciplined. Most millionaires today came from middle-class backgrounds. Their parents were not wealthy, but somewhat comfortable. Millionaires tell me that they never felt embarrassed by where they lived or the type of home they had. To a considerable degree, it is the uniquely American upward socioeconomic mobility that fuels much of the hyper-consuming engine of the market for luxury goods, prestige products, upscale brands, expensive homes and so on.

Beyond income, one's vocation has much to do with accumulating wealth. Educators, engineers, business owners and retail store managers have a tendency to live below their means and to be quite efficient in transforming their income into wealth.

It is the home/neighborhood environment that most explains one's ability to accumulate wealth. It may be useful for people to understand that there are 1,138,070 millionaire households living in homes valued under $300,000. This is far more than the 403,211 who live in homes valued at $1 million or more.

Q: You describe different levels of wealth in the book. There are the glittering rich, the income (statement) affluent and the balance sheet affluent.

A: The glittering rich make up a small fraction of 1 percent of the household population. They have a minimum annual household income of seven figures and a net worth of eight figures and more. They are extremely wealthy people, and they spend accordingly.

But, as I said in "Stop Acting Rich," no matter what they spend their money on, it is just a fraction of their overall net worth. In other words, even the glittering rich spend below their means. There are no more than 80,000 glittering rich households in a nation of more than 115,000,000 households.

The income statement affluent are those with high incomes and relatively low levels of net worth. They are not very productive in transforming their incomes into wealth. Many of the people in this category are highly compensated physicians, attorneys and executives. Many are driven to hyper-consume by their need to display high social status.

Farmers are found in high concentrations among the segment I refer to as balance sheet affluent. The balance sheet affluent are highly productive at transforming their income into wealth.

Among the most productive of this group are educators, engineers, owners of small businesses, and as mentioned, farmers.

Q: Who is buying most of the top-shelf brand vodkas, extravagant cars and homes and why?

A: The question of "who" really has two answers.

Status products and homes are more likely purchased by people who have higher incomes. Look at three socioeconomic measures: net worth or wealth, household income and the market value of a home. Which of these variables is best at predicting consumption of the items mentioned? The value of a home ranks first, income ranks second and wealth ranks third.

Again, while it is true that the people at the upper level of these measures have a higher propensity to consume prestige products, it is not necessarily the most significant market.

For example, most prestige makes of cars -- 86 percent -- are driven by nonmillionaires. Yes, people with very high incomes, high levels of wealth are more likely to drive status automobiles. But in sheer numbers, the largest consumer segment for pricey cars, vodkas and homes is not the millionaire population, it is the aspirationals. These are people who think they are acting rich via their adoption of prestige brands, but in most cases they are only acting like each other.

Why do these people act this way? In large part, they are trying to imitate economically successful people. They take their cues from Hollywood and the advertising industry. The problem is that most aspirationals know few, if any, really wealthy to emulate.

Would they still continue to drive prestige makes of cars if they knew that the No. 1 make of automobile among millionaires is the Toyota? Along these lines, would they still crave living in a $1 million home when they find out that nearly three times more millionaires live in homes valued at under $300,000 than live in those valued at $1 million or more?

Q: Should financial freedom be everyone's ultimate goal, and where does that leave the people whose life goals are simply to have some of the trappings of wealth, such as the nice house in the tony suburb and a European sports car?

A: America is often referred to as the land of the free. But most people in this country are not really free. They are tied to debt and a treadmill existence in terms of earning a living.

At this moment, our federal government has promised future social benefits in excess of $50 trillion. That figure is approximately the same amount of the total personal wealth held by Americans.

In the future, it is very likely that the government will not be able to provide the promised social benefits to our seniors. The typical household in the United States has a net worth of just over $90,000. That is about the same annual cost of a decent quality nursing home.

Also, if home equity and equity in motor vehicles is netted out of the $90,000, then the typical household's net worth drops down to about $30,000. That is only about 60 percent of the typical household's annual income. Therefore, it should be everyone's goal to provide for their economic future by being fiscally responsible.

Otherwise, what will happen when millions of seniors are no longer able to work and have little or no wealth accumulated? Many of them will become completely dependent upon their adult children or become destitute. The money that they spent on the trappings of wealth yesterday (the house in a tony suburb or a European sports car) will not pay for tomorrow's food, clothing and shelter (possibly a nursing home).

Q: How do you recommend that people become prosperous if they would prefer to get off the consumer treadmill?

A: The simplest way is to live below one's means.

The typical household should be able to put away 5 percent of their annual income while they are in their 30s, 10 percent when they are in their 40s, and 20 percent when they are in their 50s.

This is also related to satisfaction with life overall. There is a highly significant correlation between satisfaction in life and living in a home and neighborhood which are easily affordable.

What is a good rule if you are determined to become wealthy?

The market value of the home you purchase should be less than three times your household's total annual realized income. Also, if you are not yet wealthy, but want to be someday, never purchase a home that requires a mortgage that is more than twice your household's annual realized income.

Q: Do you have a sense that American consumer values are shifting from aspirational luxury purchases that seemed to be heavily marketed in the early 2000's asset bubble days to more frugal ones?

A: No, I don't think that the values are shifting.

The only reason that people aren't spending as much as they did prior to the current economic meltdown is that they don't have as much money to spend right now. We are a nation of hyper-consumers. We encourage our children to major in consumption and minor in frugality!

The smartest people in the world are in the marketing and advertising industries in this country. How else can you explain that 300 different brands of vodka coexist in our domestic market? In 2009, about 2.3 million American seniors will pass away. What did they do with the more than $2 trillion in income that they earned in their lifetimes?

I estimate that only 2.3 percent will leave behind a gross estate (all assets included) of $1 million or more. What did the other 97.7 percent of the decedents do with all of their income? If they did not save their income, invest it or allocate it to things that appreciate, where did the money go?

Beyond the basic necessities, an awful lot of it was spent on things, many things that now reside in landfills and thrift shops. We are and will continue to be a culture of hyper-consumption.

by.Sheyna Steiner, yahoo finance

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