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Social Security Benefits for Children

  • Written by Jerry Love, CPA

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Social Security is considered by many as one of the most important government programs in American history. Many people think of Social Security solely as a retirement program. According to the Social Security Administration (SSA), about 98% of children under age 18 would be eligible for survivor benefits if a working parent dies. Further, it is estimated over 4 million children under the age of 18 receive monthly benefits because one of their parents is either disabled, retired or deceased. Survivor benefits are available to any child for whom the deceased worker provided at least half of the child’s support.

This was not always the case. The original Social Security Act of 1935 did not allow for monthly awards of survivors benefits.

To be eligible for these benefits the child must be the biological child, adopted or a dependent stepchild of a qualified person. In some instances the child may be eligible for benefits based on a grandparent’s earnings.

The benefits will stop for the child when they turn 18 or if they marry prior to age 18. The benefits can be extended from age 18 to age 19 if the child is a full-time student in high school. In which case the benefits will stop when they graduate from high school or when they turn 19, whichever comes first.

The Social Security Administration will send the child a notice three months prior to their 18th birthday to forewarn them the benefits will end at age 18, unless the child is a full-time student enrolled in the 12th grade or lower grade. If the child is still eligible based on being a full-time student, they will be asked to notify SSA and complete a statement of attendance, which will need to be certified by a school official.

In order to apply, your client will need the child’s birth certificate (or other proof of birth) as well as the social security numbers of both parents. If the deceased was married at the time of death, a marriage certificate will be needed. Also, it may be necessary to have proof of U.S. citizenship or lawful alien status. If you are applying for benefits based on someone passing away, then your client will need a death certificate for the deceased. Your client will be asked for W2 forms or self-employed tax returns for the most recent tax year, because there is a delay in the posting by SSA.

The child will be eligible for up to 75% of the deceased parent’s basic Social Security benefit. However in the cases where multiple family members are eligible there is a limit to how much will be paid to a family, which is from 150% to 180% of the parent’s full benefit amount. If the sum of the benefits payable to family members is greater than this limit, the benefits will be reduced proportionately. There are some unique circumstances in which the family may receive more than the 180 percent.

The amount the child will be eligible to receive depends on the average lifetime earnings of the deceased parent. Similar to the retirement benefits, the higher the worker’s lifetime earnings have been the higher the survivor benefits will be. Basically the SSA makes a calculation in the same manner they would if the person were applying for retirement benefits.

There is also a very small lump-sum death payment of $255. This is normally paid to a surviving spouse who was living in the same household as the deceased worker when s/he died. If there is no eligible surviving spouse, then the lump-sum payment can be paid to eligible children of the deceased.

Generally, in order for your client’s children to receive survivor’s benefits, they must have 40 credits. This is the equivalent of 10 years of work. However, if a parent dies before age 32, fewer credits are required in recognition of the fact the parent had fewer working years. The number varies according to the parent's age at the time of death. The deceased parent must have earned at least six credits within three years of his death for his child to receive monthly survivor’s benefits.

Under a special rule, if your client has worked for only one and one-half years in the three years just before your death, benefits can be paid to your children and your spouse who is caring for the children. Similar to SSA’s rules for a retiree who is between age 62 and their full retirement age, if the child works, the SSA will reduce his/her monthly benefit by $1 for every $2 she earns above the annual limit set by the SSA. The annual limit is 2015 is $15,720.

An application for an ongoing monthly Social Security death benefit should be filed within six months of the worker’s death as no more than six months’ worth of benefits will be paid retroactively. If the deceased was married at the time of death, the surviving spouse is eligible for benefits on their own merits. Furthermore, a divorced spouse of the deceased person who has an eligible dependent child living with them could be eligible for benefits if they have not remarried.

Taxation is the same as for Social Security survivors’ benefits as Social Security retirement benefits. They are fully taxable to the extent of the current laws regarding Social Security taxation.


Jerry Love, CPA is the sole owner of Jerry Love CPA, LLC in Abilene, TX. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Health Insurance Mandate for Employers

  • Written by Jerry Love, CPA

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According to Whitehouse.gov, “Small businesses are the backbone of our economy, but high health care costs and declining coverage have hindered small business owners and their employees. Over the past decade, average annual family premiums for workers at small firms increased by 123%, from $5,700 in 1999 to $12,700 in 2009, while the percentage of small firms offering coverage fell from 65 to 59%. The Affordable Care Act will provide enormous benefits to the millions of small business owners and the tens of millions of small business employees by expanding coverage options, increasing purchasing power, lowering costs and giving consumers, not insurance companies, control over their own health care. Currently, small businesses face not only premiums 18% higher than large businesses pay, but also face higher administrative costs to set up and maintain a health plan. The premiums they pay have up to three times as much administrative cost built into them as plans in the large group market. They are also at a disadvantage in negotiating with insurance companies because they lack bargaining power. The Affordable Care Act will change this dynamic. Starting in 2014, small businesses with up to 100 employees will have access to state-based Small Business Health Options Program (SHOP) Exchanges, which will expand their purchasing power. The Congressional Budget Office (CBO) stated, Exchanges will reduce costs and increase competitive pressure on insurers, driving down premiums by up to 4% for small businesses. In 2014, the Affordable Care Act ends the discriminatory insurance industry practices of jacking up premiums by up to 200% because an employee got sick or older, or because the business hired a woman. In many cases, women can be charged higher premiums than men, simply because of their gender. It will also reduce “job lock” – the fear of switching jobs or starting a small business due to concerns over losing health coverage – by guaranteeing access to coverage for all Americans. This will encourage more people to launch their own small businesses, or join existing small employers.” Without a doubt, these are noble goals and if accomplished, will bring health care to more people.

According to Treasury.gov, “Approximately 96% of employers are small businesses (5.8 million of the 6 million businesses in the nation) and have fewer than 50 workers and are exempt from the employer responsibility provisions.” http://www.treasury.gov/press-center/press-releases/Documents/Fact%20Sheet%20021014.pdf

It is estimated these smaller firms employ nearly 34 million workers. Whitehouse.gov states, “More than 96% of firms with 50 or more employees already offer health insurance to their workers.” Nearly two-thirds of Americans with health coverage have employer-sponsored health insurance - approximately 171 million people. According to RAND Corporation, “From September 2013 to mid-March 2014 a net 9.3 million Americans gained health coverage. The majority of the gains during this period came from employer-sponsored coverage: 8.2 million people enrolled in employer plans rather than purchasing individual coverage in an exchange. These new enrollees include individuals who previously declined employers' offers of insurance but are responding to the individual mandate to obtain coverage or face a tax penalty. Only 1.4 million were newly insured by exchange plans.”

So they already comply with the employer responsibility requirements and don't have to change anything. In fact many of the smaller businesses with less than 50 FTEs offer health insurance options to their employees.

The Small Business Administration (SBA) defines a small business as one with less than 500 employees (www.sba.gov/content/small-business-size-standards) versus the ACA definition of less than 50 employees.

According to SBA, small businesses make up 99.7% of U.S. employer firms and 49.2% of private-sector employment. In 2010 there were 27.9 million small businesses, and 18,500 firms with 500 employees or more. However, over three-quarters of small businesses were non-employers. https://www.sba.gov/sites/default/files/FAQ_Sept_2012.pdf

71% of firms that employ 10 to 24 workers offered health insurance coverage in 2011. In contrast, only 48% of firms employing three to nine workers offered coverage in 2011.

Health insurance is a significant portion of employee compensation. According to the National Center for Policy Analysis (NCPA) which is a 501(c)(3) nonprofit, nonpartisan public policy research organization, established in 1983 http://www.ncpa.org/pub/st356, “Health benefits are a significant expense for U.S. employers and a substantial portion of workers' total compensation. The Congressional Budget Office (CBO) estimates the required coverage for an individual will cost $5,800 a year or more in 2016 - the equivalent of an additional $3 an hour "minimum health wage." Family coverage could cost more than twice that amount. For instance, the cost of employee health benefits averages $2.70 per hour, according to the Bureau of Labor Statistics, representing 8.5% of private industry workers' total compensation. The Kaiser Family Foundation's annual survey of employer health benefits found the average cost of an employee family plan was $16,351 in 2013.”

The Patient Protection and Affordable Care Act (ACA) as amended has an expressed intention of increasing access to health insurance coverage. ACA was originally scripted to require “large employers” to begin offering health insurance to their full-time employees in 2014 but was delayed until 2015 / 2016. ACA’s Employer Shared Responsibility Provision mandates all businesses with 50 or more full-time equivalent employees (FTE) offer minimum health insurance to at least 95% of their full-time employees and dependents up to age 26 at an affordable cost to the employee, or pay a penalty.

Under what is known as the “shared responsibility health coverage rules” large employers are subject to what is referred to as the “employer mandate.” This means an “applicable large employer (ALE)” generally, an employer with at least 50 full-time employees will be required to pay an excise tax if any full-time employee is certified by the government’s health care exchange as having received “health care assistance” (a premium credit). The ALE is required to:

1. Offer health care coverage for all of its full time employees,

2. Offer a policy which provides minimum essential coverage which is

     a. Affordable and

     b. Provides at least the 10 essential benefits

Employers with 100 or more FTEs and average annual wages above $250,000, are already to the stage they are mandated to offer insurance to at least 70% of their full-time employees. They were required to meet this threshold by January 1, 2015. Further they are required to offer coverage to at least 95% of their full-time employees by January 1, 2016.

Smaller (large) employers with 50-99 FTE will be required to offer health insurance to their full-time employees by January 1, 2016. ACA does not require employers with 49 or less FTE to offer health insurance to their full-time employees.

One of the first elements which is important for employers to understand about ACA is the definitions of 1) full-time equivalent employees (FTE) which determines when an employer is subject to the provisions of ACA versus 2) full-time employees which are the employees to whom the employer must make the insurance available.

A full-time employee is one who is employed for an average of at least 30 hours per week. [Reg. 54.4980H-1(a)(21)] Further ACA defines a full time employee as one who works 130 hours per month. Stated another way, employees who work at least 30 hours per week, or whose hours of service to the employer equal at least 130 hours a month, for more than 120 days in a year are considered full-time. A large employer must offer affordable health insurance to all of its full time employees.

Full-time Equivalent Employee’s (FTE) is used to determine if an employer must comply with the mandate. FTE is calculated by averaging part-time and full-time hours worked. The number of FTEs determines if the employer is a Large Employer.

How is the number of FTEs determined? This illustration is based on determining the FTE on a monthly basis. First identify all the employees who are full-time employees per the definition above because they average 30 hours per week or they work 130 hours per month. To this number of employees, add up the total hours of service for which the employer pays wages to employees during the month (but not more than 120 hours for any employee), and divide that amount by 120. If the result is not a whole number, round to the next lowest whole number. (If the result is less than one, however, round up to one FTE.) I have an Excel spreadsheet that has this formula built into it that can be used to determine the FTE by month. I believe most employers are going to need to know the FTE count by month as they utilize the Look-Back Measurement Method which is comprised of 1) a measurement period, 2) an administrative period, and 3) stability period. I have developed an Excel spreadsheet for us to use. If you would like to see the spreadsheet, you can email me to request it.

The employer will then add the number of full-time employees to the FTE of the part-time employees to determine their overall FTEs to confirm they have more or less than 50 FTEs or over 100 FTEs. Best practices would be to calculate this monthly if the employer falls under the 50 FTE but is close. The employer will want to have the documentation to confirm they were less than 50.

When making the above calculations, include all hours for which the employee is paid not just the actual working hours: This includes sick pay, military duty, vacation, holiday, jury duty, disability leave, etc.

Note the employer takes all the part-time employees into consideration to arrive at their FTEs which determines the employer must offer health insurance. The employer only has to offer the health insurance to those employees meeting the above definition of a full-time employee.

Standard Measurement Period

A standard measurement period is a three-six month period where an employer can look back. The employer can choose the length of time. The length of time needs to be consistent with employees in the following categories: salaried and hourly employees; employees of different entities; employees in different states; and collectively bargained and non-collectively bargained employees.

Stability Period

A stability period is a period of time where employees determined to be full-time in the measurement period must be offered insurance. The stability period must be for at least six consecutive calendar months and is no shorter than the Measurement Period.

For New Hires

Generally, an employer must cover new employees within 90 days of hire if they expect the employee to be full-time. An employer can use an Initial Measurement Period that is between three-twelve months.

Administrative Period For New Employees

In addition to the Initial Measurement Period an employer can have an administrative period of up to 90 days before the Stability Period starts.

Under a timeline released by the Department of Treasury and IRS, mid-sized businesses that employ 50 to 99 full-time workers will have another year (to 2016) to provide health insurance coverage to employees. These employers will not face fines for failing to provide coverage to workers until 2016, according to the final rule.

Starting on January 1, 2015, employers with 100 or more full-time (or full-time equivalent) employees that do not offer health insurance to their full-time employees (and dependents), or offer coverage that is not affordable or that does not provide minimum value, may be required to pay an assessment if at least one of their full-time employees receives a premium tax credit to purchase coverage in the new individual Marketplace. Employers with at least 50 but fewer than 100 full-time or full-time equivalent employees will generally have an additional year, until 2016, before these rules apply.

ACA requires health plans to cover a package of "10 essential benefits," including ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and rehabilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

Effective for months beginning after December 31, 2014, an employer with 100 or more full-time-equivalent (FTE) employees may be required to pay a penalty if the employer:

  1. Does not offer health insurance for all of its full-time employees,
  2. Offers minimum essential coverage that is unaffordable, or
  3. Offers minimum essential coverage that consists of a plan under which the plan’s share of total allowed cost of benefits is less than 60%.

The penalty applies if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing subsidy is allowed or paid to the employee.

Per Reg. 54.4980H-4(b)(1) an employee is offered coverage for a plan year only if he or she has an effective opportunity to elect to enroll in the coverage no less than once during the plan year. It is important that employers document the entire process of when and how they offer health insurance to the eligible employees and if the employee declines the coverage, best practices would be the employer get the employee to sign a statement indicating they are declining coverage.

The other major consideration to employers who are mandated to offer health insurance to their employees is the policy must be affordable. If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. Because employers generally will not know their employees’ household incomes, employers can take advantage of one or more of the three affordability safe harbors set forth in the final regulations based on information the employer will have available, such as the employee’s Form W-2 wages or the employee’s rate of pay. If an employer meets the requirements of any of these safe harbors, the offer of coverage will be deemed affordable for purposes of the Employer Shared Responsibility provisions regardless of whether it was affordable to the employee for purposes of the premium tax credit. The three affordability safe harbors are (1) the Form W-2 wages safe harbor, (2) the rate of pay safe harbor, and (3) the federal poverty line safe harbor. These safe harbors are all optional. An employer may use one or more of the safe harbors only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value for the self-only coverage offered to the employee.

Delay in Mandate

For employers with 50 to 99 FTE employees, the penalty is effective for months beginning after December 31, 2015.

Penalty Calculation

If an employer does not offer its full-time employees insurance and at least one eligible full-time employee receives a federal credit or subsidy, the employer will pay $2,000 per employee (minus 30 employees). If an employer offers insurance, but at least one employee receives a federal credit or subsidy, the employer pays the lesser of $3,000 per subsidized employee or $2,000 per employee (minus 30 employees).

Exception to the penalty for plan years beginning in 2015 only, the penalty is $2,000 for each full-time employee minus the first 80 employees. For plan years beginning in 2016 and beyond, employers can exclude 30 full-time employees from the penalty calculation.

This article is intended to be an overview. There is much more to know and understand as you work with clients to know when they are a large employer and if they are what coverage must be offered to the employees and when is that policy affordable. Also, this article is written at yet one more time when the ACA is being challenged before the Supreme Court. So if there are specific elements of ACA you find confusing and wish to have covered in future articles, please email us.

Jerry Love, CPA is the sole owner of Jerry Love CPA, LLC in Abilene, TX. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..


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Advanced Preparation for Social Security Retirement Benefits

  • Written by Jerry Love, CPA


Retirement is the goal that most of us look forward to at the end of our career. There is much debate about whether Social Security is already bankrupt or will be completely defunct by the time you are eligible to draw retirement benefits. However, with an estimated 10,000 Baby Boomers per day turning 66 and entering the official “retirement age”, consulting with clients about the best options for them related to drawing their Social Security retirement benefits is a very common occurrence.

As CPAs, we all know the fundamental rules related to Social Security retirement benefits such as: you have to earn credits during your working career, you must be at least 62 and you will get a larger benefit if you delay when you start to draw the benefits. If you are not familiar with these basic concepts, you may want to read the two earlier articles published here in CPA Magazine.

The fundamentals of qualifying for retirement benefits begin with the fact that a person must (in most cases) be at least age 62 and must have earned 40 or more “Social Security Credits” (SSC). In 2014, one SSC can be earned for each $1,200 earned. A maximum of four SSCs can be earned in any calendar year. 

A second important factor is to understand “full retirement age” (FRA). Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits. If a person was born in 1937 or before, the FRA is age 65. If a person were born in 1960 or later, then the FRA is age 67. Those born between 1943 and 1954 have a FRA of 66.  Your FRA varies between those ages if you were born between those dates. The SSA site http://www.ssa.gov/retire2/retirechart.htm#chart allows people to see what their FRA is based on their birth date.

SSA has a booklet, When to Start Receiving Retirement Benefits, that is available at http://www.ssa.gov/pubs/EN-05-10147.pdf.  If someone’s FRA is age 66, they can start receiving retirement benefits at age 62 and will get 75% of the monthly benefit because they will be getting benefits for an additional 48 months. If this same person starts receiving their retirement benefits at age 65, they will get 93.3% of the monthly benefit because they will be getting benefits for an additional 12 months. A link to a web page on the SSA site shows what the reduction in retirement benefits will be based on when a person decides to start receiving them.

The next element to understand is that an SSA retirement benefit is based on that person’s earnings history; basically a person’s entire working career. A retirement benefit is based on a person’s highest 35 years of earnings. I have had some clients who have focused on keeping their earnings low throughout their working career to then be surprised when they go to apply for SSA retirement benefits that they will receive a very low benefit. It is a common misconception that retirement benefits will be based on the most recent few years or perhaps the best five years of earnings. 

I find this discussion to be a difficult one no matter what age the client is at the time. It seems the younger the client, the more skeptical they are that Social Security will be there for them. Then on the other hand, when clients get closer to the age when they want to draw their retirement benefits, they are disappointed that they will be receiving a smaller amount than they expected due to their own tax planning to pay as little Social Security as possible. It is frequently important to remind the client that, “Social Security was never intended to be your sole source of retirement income”.

The next key element to understanding how much you will receive for retirement benefits is the Primary Insurance Amount (PIA). The Social Security Administration (SSA) defines it this way:

“‘The primary insurance amount’ (PIA) is the benefit (before rounding down to next lower whole dollar) a person would receive if he/she elects to begin receiving retirement benefits at his/her normal retirement age. At this age, the benefit is neither reduced for early retirement nor increased for delayed retirement.

“For an individual who first becomes eligible, old-age insurance benefits in 2014 will be the sum of: (a) 90 percent of the first $816 of his/her average indexed monthly earnings, plus (b) 32 percent of his/her average indexed monthly earnings over $816 and through $4,917, plus (c) 15 percent of his/her average indexed monthly earnings over $4,917. While the percentages of this PIA formula are fixed by law, the dollar amounts in the formula change annually with changes in the national average wage index. These dollar amounts, called "bend points," govern the portions of the Average Indexed Monthly Earnings (AIME).”

The SSA explains the importance of the Average Indexed Monthly Earnings (AIME) this way:

“When we compute an insured worker's benefit, we first adjust or ‘index’ his or her earnings to reflect the change in general wage levels that occurred during the worker's years of employment.  Such indexation ensures that a worker's future benefits reflect the general rise in the standard of living that occurred during his or her working lifetime.

“Up to 35 years of earnings are needed to compute average indexed monthly earnings. After we determine the number of years, we choose those years with the highest indexed earnings, sum such indexed earnings, and divide the total amount by the total number of months in those years. We then round the resulting average amount down to the next lower dollar amount. The result is the AIME.”

The amount of retirement benefit a person will receive from the SSA is based on a person’s historical earnings, or more specifically, the “average indexed monthly earnings” (AIME). The calculation of your AIME is a four-step process:

1) Adjust your earnings from prior years to today’s dollars.

2) Select the 35 highest-earning years.

3) Add up the total amount of earnings in those 35 years, excluding any earnings for each year that were in excess of the maximum amount subject to Social Security tax.

4) Divide by 420 (the number of months in 35 years).

The SSA can calculate this for a person. It is, however, important to understand the concept so that you can understand how the benefit is calculated. Also there are software programs available to help with the calculations that are discussed later in this article.

See www.cpamagazine.com for spousal benefits, couples strategies and more.

Another factor that comes to light in this equation is that if you have fewer than 35 years in which you earned income subject to Social Security taxes, the calculation of your average indexed monthly earnings will include zeros for those years. If you have a client who this applies to then it may be beneficial for them to delay when they apply for retirement benefits, and work a few additional years to replace those zero-earnings years with higher earnings. The result may not make a drastic increase, but it is a strategy that may be worth including in your discussion with the client as you evaluate their overall retirement income.  Again, the use of a software program will be of great benefit to determine the increase to their retirement benefit based on the additional earnings.

For the inquiring minds among the Baby Boom generation, a person retiring in 2014 who has been able to record the maximum earning for the minimum of 35 years, their retirement at their FRA of 66 would be $2,642 per month.  If your spouse files for spousal benefit based on your record (50% of yours) the maximum they would receive is $1,321.  This would give the couple a combined retirement benefit of $47,556.

Up until a few years ago the SSA would mail an annual benefit statement, which contained a summary of an individual’s earnings history and estimated retirement benefits at various ages.  However, in 2011 SSA suspending mailing these due to a combination of the cost to mail them and concerns over identity theft.  However, you can still get this information by going to the following the instructions at: http://www.socialsecurity.gov/myaccount/.  The client should set up their online access or go into an SSA office to obtain the most accurate and dependable way to ascertain a solid estimate of their retirement benefit.

Of course, the closer the client is to applying for their benefit the more accurate this will be.  But sometimes it can be beneficial for a client to take a look at this information as much as 10 to 15 years from when they expect to retire especially if they have some degree of control over the amount of income they receive.

Spousal Benefits

For a more detailed discussion of spousal benefits, you should read the article published on this topic earlier by CPA Magazine.  However, as a very short refresher a spouse is entitled to a retirement benefit based on the larger of their own earnings record or 50% of their spouse’s record.  The spouse must be at least 62 or have a qualifying child under their care.  If the spouse begins to draw the benefit prior to their own FRA, they will receive a reduced benefit.  However, if a spouse is caring for a qualifying child, the spousal benefit is not reduced.

In order for a spouse (Bill) to make a claim on their spouse’s (Jane) record that spouse (Jane) must have already filed for her own benefits.  Furthermore, if a Bill files for retirement benefits based on Jane’s record prior to his FRA, it is considered that he has filed on both his own record and Jane’s.  Bill would then receive the larger of his own or half of what Jane’s is entitled.

With this foundation, we can begin to discuss strategies on how to maximize the retirement benefits.  Much of the following discussion is based on what a person considers their life expectancy to be. Very fundamentally, the longer the client expects to live the more benefit there will be from delaying when they apply for their SSA retirement benefits.  Or to refine this fundamental concept if they are married, they should consider the life expectancy of both spouses as they develop their strategy.  According to SSA statistics, life expectancy for a 62 year old is age 81.4 for a man and 84.3 for a woman.

Strategies for Couples

Similar to a single person, the starting point is based on life expectancy but instead of just the one person, you need to consider the life expectancy of both spouses. Basically a married couple will maximize their joint retirement benefit over their joint life expectancy if they coordinate the dates they begin drawing retirement benefits. The primary goal is to boost the benefit for the surviving spouse, since the surviving spouse will get greater of 100% of the higher earner's benefit or their own benefit.  The benefit will include any of the higher earner's delayed retirement credits and cost-of-living adjustments.

According to research by William Meyer and William Reichenstein, principals of the consulting firm Social Security Solutions, “One of the most important rules of thumb for most married couples: If just one spouse is expected to live well beyond age 80, the couple's cumulative lifetime benefits will usually be highest if the higher earner delays claiming his benefits until 70”.

One hitch to a spouse drawing their retirement benefits based on the other spouse is that the other spouse must have already begun to receive their benefits. Based on the strategy the higher wage earning spouse delays until age 70 to begin drawing their retirement benefit to allow the maximum benefit over the joint life expectancy.  So the solution would be for the higher earning spouse to file for their benefit which would allow the low earning spouse to begin drawing based on their higher record. Then the higher earning spouse will suspend their benefits which will allow their benefits to increase to the maximum amount allowed at age 70.

Restricted Application Strategy

At FRA, a married couple has the option of claiming the higher of their own record or half of the spouse’s benefit.  When both spouses have similar earnings records but Jane is slightly higher than Bob, then at FRA, Jane files Restricted Application for just her “spousal benefit” and then at age 70 Jane files to claim on her own retirement benefit.  By doing this, they are able to receive Bob’s full benefit from his FRA and Jane can claim on his record to receive 50% of that amount.  Meanwhile, Jane’s benefit is increasing up to age 70 so that her retirement benefit will be larger.

File and Suspend

In this option, assume that Jane is the higher wage earner. For Bill to receive benefits based on Jane’s record, she must have filed for her own benefits. So in this strategy, Jane files to receive her benefits so that Bill can file and receive a benefit based on 50% of her benefit.  But Jane wants to allow her benefit to increase to the max at age 70. So immediately after filing for her benefits, Jane files to suspend her benefits. This way Bill is allowed to receive a benefit based on her record and Jane is allowed to wait until she is 70, which allows hers to grow to the maximum amount. This will generally be beneficial when the higher wage earner has a PIA that is two and half times greater than the other spouse.

Combining Restricted Application with File and Suspend

In this strategy, both spouses make about the same amount and are both about the same age.  Jane files and suspends her benefits so her benefits will increase until she turns 70 when she will start taking payments.  This will allow Bob to file a restricted application at FRA for spousal benefits only based on Jane’s record.  Then at age 70 they both apply to receive their full benefits based on their own records which have incremented to the maximum allowed.  This strategy is especially attractive to spouses very similar in age with earnings very similar in amount and both may have long life expectancy.

Summary: Six Fundamental Rules of Thumb

1)  The longer your life expectancy – it is better to delay when you begin to draw your SSA retirement.

2)  For a single person who will be applying for SSA retirement based solely on their own record and is considering whether to start at 62 or as late as age 70 – break-even is approximately age 80.5. 

3)  Married couples benefits from having the higher earning spouse to delay, assuming either spouse will live beyond 80.5 or 85 depending on estimated inflation.

4)  For married couples having the lower earning spouse to delay, only increases the amount received while both spouses are alive.

5)  Combining File/Suspend with Restricted Application can produce a very attractive outcome.

6)  However, the higher estimated after inflation rate of return you can earn on your investment portfolio the better it would be to begin drawing your SSA retirement earlier than later.

The important thing for CPAs as financial planners is to know the fundamentals as outlined in this article. You may be well served to invest in one of the following tools.  Some of the resources below are free but most of them will require you to purchase a license.  However, using one of these tools can give you confidence that you have considered the best available options.

Tools to use in Planning for Social Security

- Social Security Analyzer by Social Security Solutions

   - https://www.ssanalyzer.com/analyst/

- Maximize my Social Security by Economic Security Planning, Inc.

   - https://maximizemysocialsecurity.com/welcome

- Social Security Administration

   - http://www.ssa.gov/myaccount/

Additional Tools

- Life Expectancy Calculator-SSA site

   - http://www.socialsecurity.gov/planners/lifeexpectancy.htm

- Social Security Timing

   - https://www.socialsecuritytiming.com/


Jerry Love, CPA, is the sole owner of Jerry Love CPA, LLC in Abilene, TX. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Paying for College and Finding Means to Do So

  • Written by Jerry Love, CPA

mug jerry loveOver the last 50 years, going to college has become an expected rite of passage for a large majority of high school seniors. According to the Bureau of Labor Statistics, in 2013 two-thirds of those graduating from high school enrolled in college. Of those students who enrolled in college, about 60% were enrolled in a four-year college. (http://www.bls.gov/news.release/hsgec.nr0.htm)

The National Center for Education Statistics reported that “in fall 2013, a record 21.8 million students are expected to attend American colleges and universities, constituting an increase of about 6.5 million since fall 2000. Nearly 7.5 million students will attend public two-year institutions, and 0.5 million will attend private two-year colleges. Some 8.2 million students are expected to attend public four-year institutions, and about 5.6 million will attend private four-year institutions.”

The National Center for Education Statistics also has reported that based on the 2011-2012 academic year “the average annual price for undergraduate tuition, fees, room, and board was $14,292 at public institutions (including $5,500 for in-state tuition) and $33,047 at private nonprofit and for-profit institutions. In this year, the average annual price for undergraduate tuition, fees, room, and board was $16,789 at public four-year institutions, $37,906 at private nonprofit four-year institutions, and $23,364 at private for-profit four-year institutions. Charges for tuition and required fees averaged $7,701 at public four-year colleges, $2,647 at public two-year institutions, $27,686 at private nonprofit four-year institutions, $14,193 at private nonprofit two-year institutions, $13,819 at private for-profit four-year institutions, and $13,834 at private for-profit two-year institutions.” http://nces.ed.gov/fastfacts/display.asp?id=372

HowToGetIn.com is an Edvisors company and is a leader in college search, college preparation and financial services. On their website (http://www.howtogetin.com/financial-aid-101/cost-of-attendance.php) they report the cost per year to attend a Prestige school (Ivy League or near-Ivy League) will be $44,592 per year.  The cost to attend a private four-year university is estimated to be $26,226 per year compared to attending a State university or public school of $18,452 per year.

According to Van Thompson in the article “What Percentage of High School Students Attend College After Graduation?” (http://classroom.synonym.com/percentage-high-school-students-attend-college-after-graduation-1423.html), “A number of factors play a role in a student's decision to attend college. Family environment is particularly important; children whose parents don't value education, don't encourage them to go to college and don't help them with the college application process are less likely to choose higher education. Poverty is also a significant factor; the cost of a college application can be prohibitive for some students, and many of these students are concerned that they will be unable to afford college or are worried about getting a job to help support their families. Teen pregnancy, learning disabilities and academic difficulties during high school can also decrease the likelihood that a student will attend college.”

In an article published in Forbes this summer, Robert Farrington reports that because “98% of American families agree that college is a worthwhile investment (and) as a result, more than eight in ten families indicate they are willing to stretch themselves financially to obtain the opportunities afforded by higher education.”

Further, Farrington reports, “students and families are realizing there are alternatives to student loans to pay for college. While families spent about the same amount on college this year compared to last year, the way they covered the bill changed. In general, families borrowed less and paid more out of pocket. This year, families reached into their pockets to cover more than 40% of college costs.”

It is also interesting to see the alternatives that Farrington reports that families are using to reduce the cost of college:
- 69% Opting to attend institutions in-state
- 61% Attending school closer to home to reduce travel expenses
- 54% Living at home or with relatives
- 42% Filing for education tax credits
- 41% Getting a room-mate
- 34% Choosing to attend two-year public institutions
- 28% Accelerating the pace of coursework

The following is an example of how one family has addressed the challenge of paying for college. This is a financial planning client of mine that has given me permission to use their story. The names are changed.

This is a single mom (Jan) with one child (Johnny). When Johnny was two years old she decided to begin setting aside money for his college fund. She was told at the time that she should set aside $400 per month to have enough to fund the future expected cost of his college. However, as with most young families, that was more than she could fit into her budget and she could not imagine that college costs would actually inflate by that large of a margin in fifteen years. But to her credit she did the best she could and began to save $100 per month and invested it for growth.

Johnny did his part over the years by being an outstanding student. He made great grades throughout school and managed to graduate in the top ten out of a senior class of over 400 students. He made excellent scores on his SAT and ACT. In addition to great grades, he was a well-rounded student. He was in Boy Scouts and in high school he lettered in basketball, band, drumline, academics and debate. He also began a part-time job when he turned 16 and had the self-discipline to save most of his earnings.

As he got into his high school years, they began to pay more attention to the cost of college. They made a strategic decision that he would keep his options open and they hoped to be able to have multiple universities that would accept his application. Their hope was to have options among them to help make college more affordable. During high school Johnny concluded that he wanted to major in physics (more specifically astrophysics) and that it was highly important to him to play on the drumline in an awesome band.

They researched the rankings of the physics departments of the universities in Texas. Johnny applied to several universities and was accepted by three Division One universities in Texas (I will refer to them as D1, D2 and D3). From a financial standpoint, this will afford him a smaller price tag than a private university like Jan had been able to attend. Because of his SAT/ACT scores and grades, he was offered varying amounts of scholarships. He had no expectations of playing basketball in college or earning a music scholarship.

Jan looked at the current balance of the college fund and it appeard to be enough to pay for one of the upcoming four years for his bachelor’s degree and he expects to need to attend graduate school to some magnitude. So they begin to evaluate the financial packages from his top three picks. D1 is the largest of the three and is a very competitive university to gain admission. However because of those factors, they do not need to offer much assistance to recruit students. Therefore, it should not have been a big surprise that they offered a financial package that had very little in scholarships or grants and was comprised mostly of student loans.

D2 and D3 were much more competitive and offered more in their packages for scholarships and grants. They both seemed to “put their money” on the table and offered enough to get Jan and Johnny’s attention. 

It should not be surprising that as they began to make their decision of which school to attend that two non-financial factors came to the table. All three universities have outstanding marching bands. However, it became apparent that at D1 and D2 it would be a long shot for Johnny to march in the band since he is not planning to major in music. Also, a significant number of Johnny’s close high school friends have chosen D3. So now the commitment has been made, the application from D3 accepted, deposits have been made for a dorm room and a close high school friend is confirmed as roommate. Then the story takes a big turn!

Jan is taking her mother to a doctor’s appointment. Jan is having a casual conversation with the doctor’s nurse who has a son in high school who is one year behind Johnny. They are sharing stories about the high cost of going to college and where is Johnny planning to attend. Then the nurse tells Jan that her son is going to get his tuition and fees paid in full as long as he attends a state supported college in Texas.

So Jan is all ears. The nurse tells Jan about the Hazlewood Act. The Hazlewood Act is a State of Texas benefit that provides qualified Veterans, spouses, and dependent children with an education benefit of up to 150 hours of tuition exemption, including most fee charges, at public institutions of higher education in Texas. This does NOT include living expenses, books, or supply fees.

The Hazlewood Act was written to afford a benefit to any Veteran who meets the following criteria:

- At the time of entry into the U.S. Armed Forces the person designated Texas as Home of Record; or entered the service in Texas; or was a Texas resident;

- Received an honorable discharge or separation or a general discharge under honorable conditions;

- Served at least 181 days of active duty service (excluding training);

- Have no federal Veteran’s education benefits, or have no federal Veteran’s education benefits dedicated to the payment of tuition and fees only (such as Chapter 33 or 31) for term or semester enrolled that do not exceed the value of Hazlewood benefits;

- Not be in default on a student loan made or guaranteed by the State of Texas;

- Enroll in classes for which the college receives tax support (i.e., a course that does not depend solely on student tuition and fees to cover its cost), unless the college’s governing board has ruled to let Veterans receive the benefit while taking non-funded courses; and

- Meet the GPA requirement of the institution's satisfactory academic progress policy in a degree or certificate program as determined by the institution's financial aid policy. (Effective fall 2014)

Jan immediately begins to confirm all the elements. Jan’s ex-husband (Johnny’s father) was in the Army. However, that was prior to Jan meeting him and she had the impression that he had joined the Army in another state. A conversation later in the day, revealed that he actually enlisted in the Army with Amarillo as his point of entry and had lived in Texas at that time. Jan calls the financial aid office at D3 and confirms the eligibility and gets more information including what she needs to obtain and send to the financial aid office.

As it turns out, this one casual conversation at the doctor’s office gave Jan the one piece of information that no other source had provided.  This information did not come from any of the high school counselors or any of the financial aid offices. To give them some credit all of them had been very helpful to Jan and Johnny and one can easily conclude that a family would likely know if they were eligible for the Hazlewood Act without being told about it. Furthermore, all of the high school counselors and the staff in financial aid offices of universities have hundreds or thousands of students they are attempting to give information.  However, the lesson for everyone to learn is that each family should ask everyone involved in the financial aid aspect questions to explore what may be little known benefits.

This story is on its way to turn out like a fairy tale. The take away for anyone reading this article is that we all know that college is very expensive. We also know that only a small percentage of families have successfully saved enough to pay for it. Every family with a person about to enroll in college needs to be faithful in exploring all their options and carefully listen to explore options available to you.

Jerry Love, CPA is the sole owner of Jerry Love CPA, LLC in Abilene, TX. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..


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Advising Clients Over Social Security Disability

  • Written by Jerry Love, CPA


According to the Social Security Administration’s Fact Sheet in February of 2013, 25% of the 25-year-olds today will become disabled before they retire. Further, according to the US Census Bureau survey in 2011, approximately 12% of the US population is classified as disabled. Of this estimated 37 million, over half are between the ages of 18 and 64. According to the US Social Security Administration’s report on Disabled Worker Beneficiary Data in December 2012, 8.8 million of these disabled wage earners were receiving some amount of Social Security Disability Income (SSDI).

It is estimated that only about 12.5% of workers will be disabled for five or more years during their working career.  Many articles have been written that imply unemployment is higher among those who are disabled than the general workforce. Some suggest that unemployment is around 14% for those with a disability. It has also been indicated that many of those who cannot find a job, then turn to the government for assistance and apply for SSDI.

According to Council for Disability Awareness Long-Term Disability Claims Review 2012, the leading causes of new disability claims were musculoskeletal/connective tissue disorders (28.5%), cancer (14.6%), injuries and poisoning (10.6%), mental disorders (8.9%), and cardiovascular/circulatory disorders (8.2%). The study further states that 90% of disabilities are caused by illness rather than accidents.

A large majority of families in America are dependent upon both spouses working. According to the U.S. Federal Reserve Board Survey of Consumer Finances 2010, 48% of American households report that they do not save money annually. Furthermore, 68% of these families report they have no saving earmarked for emergencies. Additionally, according to Council for Disability Awareness Disability Divide Consumer Disability Awareness Study 2010, two thirds of American families report they could not cover normal living expenses for as much as a year if they lost their jobs. In fact, 38% say they could not pay their bills for more than three months.

The Census Bureau reported that in 2012, the median annual earnings of all full-time, full-year workers between ages 25-34 is $37,950. Contrast that with the average SSDI payment of $13,560 ($1,130 per month). This reinforces the fundamental principal that families need to develop their own financial plans for contingencies that may be critical to their financial well-being. SSDI, just like Social Security retirement benefits, was not designed to be your only source of income if you were to become disabled.

Based on this information, one could conclude that applying for SSDI would be a last resort and motivated out of necessity. So when you have a client or family member who may be facing this grim reality, what do they need to know to navigate the process?

The first matter is to determine if they have enough work credits covered by Social Security to qualify. Second is to determine if they have a medical condition that will meet the definition of disability by Social Security Administration. The Social Security website www.socialsecurity.gov is a valuable source of information.

A person may be eligible for SSDI if they cannot work because of a physical or mental condition that is expected to last at least one year or will result in their death. More specifically, the person must be unable to perform substantial work. Generally, this means working and earning a certain amount of income. The Social Security Administration (SSA) has its own criteria to determine if the person is disabled. The fact that an insurance company or other governmental agency has declared a person disabled is not sufficient for SSA. Furthermore, having a statement from a medical doctor indicating the person is disabled is not in and of itself sufficient for SSA. It would be appropriate to note that the process of applying and qualifying for SSDI can take months, and it could be denied at least once before you are finally successful.

On the Social Security Administration website http://www.socialsecurity.gov or http://www.ssa.gov/ you will find the following links to give you more specific guidance to applying for disability:

1. Applying for Disability Benefits for Myself http://www.socialsecurity.gov/info/isba/disability/firstpartydib.htm

Note, you can start an application and come back to it to finish.

2. Checklist for Online Adult Disability Application http://www.socialsecurity.gov/hlp/radr/10/ovw001-checklist.pdf

3. Disability Planner: How We (SSA) Decide if you are Disabled http://www.ssa.gov/dibplan/dqualify5.htm

4. Link to Other Disability Publications


5. How the Disability Application Process Works http://www.socialsecurity.gov/hlp/radr/10/ent001-app-process.htm

6. Frequently Asked Questions https://faq.ssa.gov/link/portal/34011/34019/ArticleFolder/305/Apply-for-Disability

Among the documents that may be needed are medical records with dates of treatment from doctors, hospitals, clinics and others. Also, lab results, a listing of all medications, and contact info for all your medical providers may be requested.  In addition to the medical type records, they may request a list of all the employers you have had in the previous 15 years, including a description of the type of work you performed. Other items that are likely to be needed would be proof of citizenship (including birth certificate), marriage and divorce papers, records related to military service, and information supporting your education and training.  http://www.ssa.gov/disability/professionals/bluebook/evidentiary.htm

The SSA will review the relevant documents to determine if they provide evidence of a physical or mental impairment that prevents the applicant from working, which is known as functional limitations. In this assessment, they may be rating the person’s residual functional capacity. Among the elements considered could be combinations of how much the person can lift, how long can they sit or stand, how well they can reach overhead or reach forward, they can crouch, stoop or bend, how well they can grasp objects, perform dexterous finger movements and how well they can see and hear.

SSA has a handbook known as the Disability Evaluation Under Social Security. To some, this handbook is known as “the Blue Book”.   http://www.ssa.gov/disability/professionals/bluebook/AdultListings.htm

This handbook has a listing of impairments of the most common medical conditions considered to be severe to qualify the person for SSDI, because their impairment would keep them from working. If the application falls within the definitions and guidelines of this handbook, then the application may move along more quickly and easily.

SSA has two programs for people who have become disabled.  The first, which we describe above, is SSDI which is designed for people who have worked and qualify in part because they have paid taxes into the Social Security system. If such a person is deemed to be disabled, they will receive SSDI benefits regardless of their assets or other sources of income. The second program is Supplemental Security Income (SSI). SSI is a needs based program and is designed to pay benefits to disabled people who need assistance with basic living costs. A person can qualify for this benefit even if they have never paid into the Social Security system.  However, much like Medicaid, the person will only qualify if the family assets and income are below a certain threshold.  It is strictly a need-based program.   In fact, in many cases if the person qualifies for SSI, they may also qualify for Medicaid as well as other government programs, such as food stamps.

If the person is applying for SSDI, they should understand that there is a five-month waiting period. This means that SSA will not pay any benefits for the first five months after the person is determined to be disabled. At times, the question will be whether the person will be able to go back to work and then have to start all over in the process. The answer is that SSA encourages the person to attempt this transition and has an expedited reinstatement process as a safety net if the transition is not complete or successful.

As we can see from this brief article which is intended to give a broad overview of qualifying for Social Security Disability, disability is one element of financial planning that can be very intricate and an area which you would benefit from consulting with a professional who has handled previous cases. This research also gave me a renewed perspective about the need to discuss the contingencies for disability with our clients.



Jerry Love, CPA, is the sole owner of Jerry Love CPA, LLC in Abilene, TX. Contact him at This email address is being protected from spambots. You need JavaScript enabled to view it..

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