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Managing Your Social Security Income Five Common Mistakes That Can Shrink Your Check ROCKVILLE CENTRE, N.Y. - Social Security beneficiaries received a 2.1 percent cost-of-living increase as of January 2004. The boost is up from 2003's increase of 1.4 percent, but still reflects an economy with low inflation according to the Wall Street Journal. Some might think their check will be enough to live on. Many don't know that for the average couple receiving benefits, the monthly check is just over $1,500. Even more don't realize they could be making financial mistakes that will shrink their check significantly. On the topic of Social Security, most Americans are either concerned, confused or don't bother to think about it at all, according to Robert A. Sagar, president of The Senior Financial Center, Inc.® "Among younger Americans, there is the casual assumption that Social Security is something they'll deal with far in the future," says Sagar. "Next, there are those Americans approaching retirement who believe Social Security will provide a steady, unassailable source of retirement income. Finally, there are seniors now receiving Social Security who are very concerned about their ever-shrinking Social Security income, and they have every right to be." Social Security has undergone some major changes. Created by The Social Security Act of 1935, Social Security began making benefit payments around 1940. At that time, the U.S. Treasury ruled that these benefits payments were gifts that could not be taxed by the U.S. Government. In 1983, Congress changed the law and commenced taxing individual's Social Security benefits by up to 50 percent. In 1993, the law was changed again to tax benefits up to 85 percent. "Under current tax laws, 85 percent of Social Security income is taxed when a specific amount, called 'threshold income' is exceeded," explains Sagar. "Many seniors planning to rely on Social Security income to live are surprised to find that their other investments, including pensions, CDs, savings accounts, bonds, money markets, mortgage income and others are all included as threshold income. If you aren't careful, those little investments can quickly add up to a sizeable -- and totally unnecessary -- increase in IRS taxes." According to Sagar, there are five common mistakes people make that result in lower Social Security income. They are:
According to some experts, Social Security will be completely bankrupt within a decade. Others argue that Americans are putting money into a system that will end up paying them 75 percent less than the current benefit rate. Is it any wonder people are confused? "Over-reliance on Social Security is risky," says Sagar. "The only real way to ensure you will have sufficient income to live out your "golden years" is to plan for it. And when it comes to retirement planning, five or 10 years from now should not be viewed as the distant future." |
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