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A Few Years Can Buy a Lot for Retired Couples

Time is...literally money.

By Bob Sabolich

Here’s the deal. There are too many variables in play regarding when a couple should plan to collect Social Security. But after my last client left my office, I had to get this message out . . .

But What if You are Married?

Many couples have a spouse (let’s assume the wife) who will rely on her husband’s earnings history for purposes of computing her benefit payout.  Most likely, the wife stayed at home many years raising the kids, and didn’t have the opportunity to max out her earnings for purposes of determining her SSB.

General Rule

Here is where things get a bit trickier regarding when to start collecting your SSB, especially when you will be basing SSB payout on a spouse’s earnings history.  Most people know the “spousal” rule.  It essentially says that the spouse is entitled to 50% of the benefit that the primary spouse would enjoy.  For example, let’s assume both John and Mary are 2 months past their 67th birthdays.  If John is entitled to $1,000 per month, then Mary gets $500 per month.

What most people don’t know is that the above 50% ONLY applies at full retirement.  So, same facts, but let’s assume that our dear couple opts to start collecting their SSB at the tender age of 62.  John’s SSB drops down to $700.  No surprise here. Most people know that John’s benefit drops substantially (30% in this case).  What about Mary? Does she receive 50% of John’s $700, i.e., $350?  The spouse benefit is reduced downward from 50% for every month below John’s full retirement age.  In this case, Mary’s $500 benefit is further reduced by 35%, resulting in a monthly SSB to her of only $325.

So, waiting until full retirement age results in a $1,500 per month SSB payout, but opting for age 62 results in only a $1,025 payout.  Again, John’s reduction went down by 30%.  But Mary got clobbered with a 35% reduction.  Note that for every month they wait, both John and Mary’s SSB payout is increased.

This may not be the end of the world, but my point is that age 62 versus age 67 computation is a bit more nuanced than some may think, and those nuances seem to point more toward the benefit of waiting until full retirement age, if possible, to start collecting.  Or at least to wait a bit longer if you can hold out.  Mind you, there are other factors to fold into this analysis, such as marginal tax bracket, general health, etc.  But the spousal factor adds an additional twist to the planning – a twist that you cannot disregard.

You do not have to navigate these twists and turns alone. The Huth Thompson team has the depth of knowledge to help you make critical decisions that could put you in a better financial situation. Contact us and we can start the conversation.

Sound like a plan for you? Give me a call or send me an email.

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Robert G. Sabolich, CPA, ChFC, Partner

Bob joined the firm in 1991 and became a partner in 1994. He has served as the head of the tax department since 1991. He received a Bachelor of Science in Accounting from Mesa State College and a Master’s degree in Tax Accounting from Colorado State University. Bob also has a Chartered Financial Consultant designation from the American College. He serves as a board member of the Lyn Treece Boys and Girls Club Foundation and is an active member of Lafayette Reformed Presbyterian Church. Bob can be reached via email or by phone at (765) 428-5000.

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By John Heller

Recently someone asked me: “Can people really plan how much tax they have to pay?”

I gave him my standard response: “Paying taxes in a self-assessment, bail-out levered and stimulus-incentivized economy is a choice and philanthropic. It is not a requirement.”

Then, after the guy picked his jaw up, I gave him the simpler, but no less profound answer: “Yes.”

Depending on a person’s willingness to spend the effort and make tax-incentive investments, there are many, many ways to reduce one’s taxable income and tax liability.

Let me give an example.

A $100,000 investment in a (successful) start-up company involved in new research—let’s say in the Purdue Research Park—could provide the investor with more than $64,000 in income tax reduction benefits. And, when this “successful” company is sold, the gain on the sale can be tax-free or tax-deferred, if certain planning opportunities are followed, such as if the investor reinvests in another start-up company.

And, again, that’s just one example. So, absolutely, yes. People really do have the ability to plan how much they pay in taxes.

Sound like a plan for you? Give me a call or send me an email.

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John W. Heller, CPA, JD, Partner

John joined Huth Thompson LLP in 1978 and became a partner in 1981. He received a Bachelor of Arts degree from Duke University and law degree from Indiana University. John worked for Arthur Andersen LLP for five years before moving to Lafayette. In addition to general tax and accounting work for clients, John works in various specialized tax areas including start-up companies, private foundations, energy partnerships, family limited partnerships and high-end estate planning. He also heads up the Huth Thompson Help Desk at Purdue Research Park, offering accounting and business services to the 180 companies affiliated with the Purdue Research Park. John is a charter member of the Lafayette Daybreak Rotary Club. He is a former elder and current member of the men’s ministry team at Covenant Presbyterian Church. John can be reached via email or by phone at (765) 428-5000

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By Kimberley Morisette

I commonly receive phone calls where people say, “We need an audit.” But the definition of the word “audit” is used loosely, and many people don’t understand the implication of the word. Often, you aren’t really looking for an audit, but for a different level of service.

To the lay person, an audit means someone performs a review of the statements, which is quite different than what a formal audit actually means. To educate the reader on the various implications of accounting definitions, let me explain some widely used terms in the attestation (verification) world; Audit, Review, Compilation, Agreed-Upon Procedures.

An audit is the highest level of assurance an owner or board can receive that the financial statements are not materially misstated. Materiality is “the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement.” In connection with the number side of an entity, we also perform a risk assessment and review the internal control structure – both at an owner/board level and at what happens with daily transactions. (However, a standard audit does not opine on the internal controls of the entity.)

If a board was looking for assurance that the financials were not materially misstated and were looking for recommendations on strengthening internal controls, an audit would meet these needs. Audits are pricy, especially for small organizations with budget constraints, as auditors have to not only test the actual numbers, but also review the control and risk aspect of the entity.

A review is a step lower than an audit. It provides limited assurance as to the accuracy of the financials. A review consists principally of inquiries of organization personnel and analytical procedures applied to the financial data.  Reviews normally do not provide recommendations or review of internal controls.

Compilations are the lowest service in the attest tier. In a compilation, the accountant basically takes the accounting records and creates a financial statement.

Agreed-upon procedure engagements vary with the nature and extent of the procedures performed and is based on agreed procedures with a report stating the findings. An example of an agreed-upon procedures engagement would be to review a set of internal control procedures and report on suggested improvements to the controls.

So, before using the term “audit,” you might want to be sure what services you actually desire. Or better yet contact me and my team can help make sure you are getting the service you need.

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Kimberley R. Morisette, CPA, Partner
Kimberley joined Huth Thompson in 1998, becoming manager in 2001 and partner in 2010, after working as an internal auditor in Maryland for a large not-for-profit organization. She received an Associate of Science degree in Business Administration from Ulster Community College in 1995 and a Bachelor of Science degree in Accounting from the State University of New York in 1997. Her years of experience provide expansive knowledge in auditing, accounting, reporting, and operational issues affecting not-for-profit organizations. In 2005, she was honored with the Indiana CPA Society “Five Under 35 Emerging Leaders in the CPA Profession” Award. She currently serves as the treasurer for the Lafayette Symphony Foundation, Inc. Kimberley can be reached via email or by phone at (765) 428-5000