April 29 is the Last Day to Suspend Retirement Benefits Under Current Rules

The Social Security Administration recently announced a major shift for retirees that is slated to take effect this spring under the Bipartisan Budget Act of 2015. Under current rules, retirees aged 66 and older have the option to defer Social Security retirement benefit payments until the age of 70 without deferring others’ benefit payments, such as those paid to a spouse or child. Starting on April 30, however, those who voluntarily suspend their retirement benefits will no longer be permitted to have other beneficiaries, such as a spouse or child, receive benefits during the same period. Anyone who suspends his or her benefits after the age of 66 will also no longer be eligible to receive benefits on another’s record.

Here are the specific changes that will take effect on April 30:

The Social Security Administration will no longer allow the suspension of retroactive benefits when an individual applies for benefits, but when no determination has been made regarding his or her entitlement. Those who voluntarily defer their retirement benefits will no longer be permitted to have other beneficiaries on their record, such as spouses or children, receive benefits during the same time period. The only exception is for divorced spouses who were married at least 10 years.  Those who voluntarily defer their Social Security benefits will no longer be eligible to receive benefits on someone else’s record. Part B premiums cannot be deducted from suspended benefits. Any requests for voluntary suspension of benefits on or after April 30 will begin the month following the month of the request.

Here’s what will not change:

The new rules also have no impact on survivor benefits which are separate.  Divorced spouses married a minimum of 10 years may still collect benefits on an ex-spouse’s earnings record. This will not change even if the former spouse files to defer payments after the April 29 deadline.

How to File Under Current Law by April 29:

All requests filed by April 29 are subject to current rules, which allows individuals to request a lump sum payment of suspended benefits instead of deferred retirement credits, so those looking to take advantage of the current regulations should act soon.

The simplest way to request a suspension of retirement payments, excepting other benefits such as spousal benefits or those paid to a dependent, is to file online at www.ssa.gov by April 29.

In the past, online forms from the Social Security Administration have not clearly indicated that suspension of payments is possible through online submission. The simplest way to bypass this issue is to request that benefits begin at age 66, then clearly state in the remarks section that you wish to defer retirement benefits until a later date. This may seem a bit paradoxical, but the method accomplishes the desired goal of filing for some benefits while deferring retirement payments.

We also recommend that those seeking to delay retirement benefits but trigger spousal benefits check “yes” beside the question that reads “If you are eligible for both retirement benefits and spouse’s benefit, do you want to delay receipt of retirement benefits?” It should be noted that those who file in this manner will need to apply for individual retirement benefits when they wish to start receiving them.

You may also email the Social Security Administration to voice your thoughts on how the online form can be improved by emailing open.government@ssa.gov.

If you have any questions about how this new rule impacts you, contact FMB Wealth Management, and we would be happy to assist you navigate the new rule changes in the most beneficial way for you and your family.

The Short-Lived Success of Active Fund Management

The higher they soar, the harder they fall

or

Why Pay a Premium for Underperformance?

Making a case for low-cost passive management

Many active fund managers measure their worth and justify their high fees based on their ability to beat the market and outperform their peers. Considering the latest data in the S&P Dow Jones Indices’ “Persistence Scorecard”, however, these claims are short lived. As soon as active fund managers are boasting outperformance in the market over the last year or quarter, they are likely already tumbling fast in terms of performance.

The Persistence Scorecard report shows that very few fund managers can consistently deliver above-average returns over multiple periods. In fact, the data showed that the highest performing funds are actually more likely to become some of the worst performing funds than to stay at the top year after year.

Here are a few key findings in the report, which studied top performing funds over a three-year and five-year period ending in Sept. 2015:

• Of 678 domestic equity funds that were in the top quartile in Sept. 2013, only 29 remained in the top quartile over a two-year period.

• Over a three-year period, fewer than a quarter of the funds in the top quartile were even in the top half.

• Over a five-year period, no large-cap or mid-cap funds remained in the top quartile, and fewer than 6% remained in the top half.

The data clearly indicates that there is a severe lack of persistence in actively managed funds generating high returns over a long period of time. Of 715 funds tracked by the S&P Dow Jones Indices since 2010, only two – AMG SouthernSun Small Cap Fund and the Hodges Small Cap Fund — remained in the top quartile over the next five consecutive years.

Even Michael W. Cook, the lead manager of the AMG SouthernSun Small Cap Fund — which is now closed to new investors – advised investors to lean heavily on passive investments.

“Index funds deserve to be core holdings for many investors,” he said. “One thing you don’t want to do is just read about performance numbers — ours or anybody else’s — and put money into an investment. Chasing past returns doesn’t make sense.”

Active funds charge internal management fees ranging anywhere from 0.6% to 1% in exchange for their “expertise” in selecting funds for clients. Passive investments, such as index funds or ETFs (which typically track indices), on the other hand, skim much less off the top, offering internal management fees as low as 0.1% to 0.2%.

The numbers tell it all. Outperformance among active funds is rarely sustainable. So why do so many investors rely so heavily on high-priced active fund managers instead of letting the markets deliver better returns at a lower rate, as they historically do? Perhaps its the thrill of the chase, conviction in some “get rich quick” scheme, or force of habit. In any case, this report reveals that reliance on actively managed funds over a long period of time is much like one’s chances of winning the lottery – few and far between.

If you are a long-term investor saving for retirement or a child’s college education, this data is an important reminder not to get wrapped up in the hype of active fund management no matter how enticing it may seem at the moment. For steady, long-term gains with low fees, stick with a proven passive investment strategy and rest easy knowing your nest egg or savings are secure.

As your parents age, it may become more difficult for them to handle financial responsibilities on their own. Relinquishing independence, especially on financial matters, is often a sensitive topic and should be broached carefully, but it is also important not to delay this important conversation until it’s too late. Ensuring your loved ones are financially secure grants peace of mind to all parties involved.

Here are a few topics to consider in your conversation:

1. Legal Matters: Discussing legal matters, such as whether or not your parents have an estate plan and power of attorney, knowing your parents’ attorney, and understanding the legal documents in your parent’s possession are vital to prevent any undue stress if your parent is incapacitated or passes away.  
2. Healthcare: Health problems are a fact of life that comes with age. Understanding your parent’s medical insurance plan, long-term care plan, and all coverages involved are key to ensuring your parents have the finances they need for any possible health problems that may arise.
3. Financial Accounts: With the help of a financial professional, go over income and expenses with your parent and help make adjustments to financial portfolios or living expenses as needed to ensure your loved one can live comfortably and securely. Make sure you also know where they store essential financial information, such as bank account information and tax returns, to protect them from identity theft.

Here a few tips to approach assisting an aging family member with financial responsibilities:

1. Be Alert: If you notice your parent is missing appointments, forgetting dates, or losing things with increasing frequency, these may be signs of declining memory, dementia or depression. Ask about attending doctors’ appointments with your parent. Also look for signs of neglect around the home such as unpaid bills or untended rooms.
2. Be Sensitive: Finances and independence are personal, often delicate subjects. Rather than assume full control, offer guidance to your parent by offering to assist them with online banking or bill pay. This gives you inside knowledge about your parent’s financial situation, but grants a certain level of independence to your parent as well.
3. Share the Burden: Reach out to other important people in your parent’s life such as your siblings, family friends, church members, or trusted neighbors. Caregivers and others close to your parent can provide important information about changes in behavior and can help everyone keep track of your parent’s wellbeing.  Sharing responsibilities with other family members and trusted individuals requires clear and constant communication to ensure all of your parent’s needs are met, but sharing the burden with others can greatly assist in maintaining your own mental, physical, and emotional health at the same time.
4. Have a Power of Attorney: In case important legal decisions must be made, it is critical that you have power of attorney or know who does. Particularly if a parent’s decision-making ability declines, you should know who has access and control over important decisions that affect your parent’s wellbeing according to his or her wishes. Keep lines of communication with other family members open so there is as little conflict or confusion as possible. Be clear about who has power of attorney and how certain issues ought to be approached.

Aging comes with many challenges, whether it is dealing with dementia or suddenly realizing your parent cannot pay his or her bills. Waiting until it is too late often has unfortunate consequences that cause undue stress on the entire family and exacerbates the situation, so the most important thing to do is start discussions with your parent as soon as possible should the worst come to pass and offer peace of mind to the entire family.