Our daily roundup of retirement news your clients may be thinking about.
Despite slight improvement, we need to fix Social Security now
Although the Social Security's deficit over 75 years dropped to 2.68% of taxable payrolls this year from 2.88% in 2014 and the projected exhaustion date for the trust fund assets moved to 2034 from 2033, Congress still needs to act to address the program's financial woes, writes Alicia Munnell, director of Boston College's Center for Retirement Research. Payroll tax would need to be raised by 3.7 percentage points if lawmakers fail to act before the trust funds run dry in 2034, Munnell writes. Also the Disability Insurance trust fund is expected to be depleted next year, which could result in about a 20% decrease in benefits for disabled workers, Munnell says. --MarketWatch
An unexpected spike for Medicare premiums?
Medicare premiums for Part B are expected to increase by 52% next year for some recipients if the U.S. Department of Health and Human Services opts not to intervene, according to this article in The Wall Street Journal. Meanwhile, other recipients won't see an increase at all. An expert explains that the Social Security Act's "hold harmless" provision prevents Medicare from passing on to most Social Security beneficiaries an increase in premium that is greater than the annual cost-of-living adjustment. HHS Secretary Sylvia Mathews Burwell intends to look for ways to reduce the increase, saying that the final rates "will be based on our preliminary projections today, subject to additional data, and the administrations consideration of policy options." --The Wall Street Journal
Taking Social Security early affects spousal benefit
A client's wife who opted to file for Social Security retirement benefits early is collecting reduced value of her benefits, according to this article on USA Today. Such a decision also means that she would receive a reduced spousal benefit on the client's record. "The spousal benefits are not going to be 50% of your benefit; it will be reduced since she began her own benefit early," an expert says in the article. --USA Today
Personal finance Q&A: Saving for retirement should be primary goal
Clients need to prioritize their retirement saving even if they have student loans to pay, according to this article in Los Angeles Times. There is no need to rush to pay off the debt if it is a federal student loan, since its interest rate is low and tax deductible. Workers should not leave free money on the table if their employer offers a match contribution to their retirement plan, while freelancers can save for retirement through Simplified Employee Pensions, Savings Incentive Match for Employees and solo 401(k) plans. --Los Angeles Times
Clients should consider this strategy for passing IRAs to heirs
A study finds that clients need to consider their tax rate and their heirs' tax rate when deciding how they leave their IRAs to loved ones in order to reduce the impact of taxes on the inheritance, according to this article on Kiplinger. The study says that leaving the traditional IRA is preferable if the child has the lower rate than the spouse, while leaving Roth IRA is the better option if the child has a higher rate. "The widow and heir can maximize their joint after-tax amount by having the person with the lower tax rate pay tax" on the traditional IRA, says William Reichenstein, professor of Baylor University and one of the researchers. --Kiplinger
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