Current Pension Topics: When to Collect Social Security

Current Pension Topics
When to Collect Social Security

By JOEL L. FRANK

Q.: What is the best age to begin collecting Social Security retirement income?

B.F.

A.: In my opinion, you should start receiving Social Security income as soon as you retire and are no longer paying into the Social Security system. The earliest, however, you can begin is age 62. If you live no longer or shorter than your life expectancy, then the age you choose to start receiving benefits has no impact. If you, however, wind up living longer than your life expectancy (something we do not know in advance), you would be better off waiting until reaching your full retirement age or even later. On the other hand, if you wind up dying before reaching your life expectancy (also something we do not know in advance), you would be better off taking Social Security at age 62, if retired, or upon retirement if you are still working past 62. The Social Security Administration tells us that a 62-year-old has a life expectancy of 14 years. To do your own calculation, take your most recent Social Security statement, which will show the benefits to which you're entitled at age 62, full entitlement age, and age 70, and plug them into: http://www.socialsecurity.gov/OACT/quickcalc/when2retire.html .

Q.: My mother has $80,000 in her 403(b) account. She wants to give me $40,000 toward buying a home. I'm dying to say yes, but I don't know what type of fines/penalties/taxes/etc. will result should I accept. She is 62, makes $30,000 a year and lives alone. I'm guessing there will be a 10-percent penalty tax on the withdrawal and the $40,000 will be added to her taxable income that year. How much money will she end up paying in penalties and taxes?
H.H.

A.: You and your mother should know that the withdrawal is subject to income tax at ordinary rates. Due to her age (62), she is relieved of the 10-percent penalty tax for withdrawals made prior to age 59-1/2. If you require $40,000, she needs to make a withdrawal of $50,000 in order to cover the required 20-percent withholding tax. (This does not cover any state and local taxes that might be due, or any investment contract exit fees that need to be paid). Your mother is left with $30,000 in her 403(b) investment. I assume she has very little in after-tax accounts like savings accounts and mutual funds, otherwise she would gift you the money from those accounts. You should ask yourself: Is this the way I want to treat my mother? Do I want to put her in a possible future position where she may have to come to me for financial assistance? How do I believe that will make her feel? Will I be financially able to help her if that need arises? If I were advising your mother, I would tell her not to give you the money.

Q.: As part of its settlement with the Attorney General, Eliot Spitzer, ING will be refunding $30 million to members of the New York State United Teachers who bought a union-endorsed 403(b) variable annuity (Opportunity Plus) issued by ING. Because of its wrongdoing, NYSUT must pay the Attorney General's office $100,000 as reimbursement for the cost of the investigation. But what about the millions of dollars the union received over the years in endorsement fees from ING. Does the union get to keep this money?
P.G.

A.: I don't know. These ill-gotten endorsement fees collected by the union should be returned to the affected members. Why should ING be compelled to return $30 million to the Teachers while the union that shared in the booty gets off scot-free? It just doesn't seem right. To get a definitive answer, I suggest you write to the Attorney General's office and/or NYSUT.

Mr. Frank is a fee-only Retirement Financial Planner. He can be reached by telephone at (732) 536-9472, or via e-mail at rollover@optonline.net .