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Personal Finance: The Keys to Understanding Social Security Family Benefits

I recently met with a gentleman, whom I will call Fred, whose situation illustrates the unique Social Security planning opportunities available around family benefits.

Fred is 68 and remarried later in life. His current wife is in her forties and has never worked outside the home. Fred and his wife have two children, ages 13 and 15. Fred is still working and is a high earner. He has not yet filed for Social Security and is projected to eventually receive near the maximum retirement benefit based on his earnings history.

Fred knew about the credits he could earn by delaying his retirement benefit to age 70. By not claiming his benefit at age 66, his full retirement age (FRA), and waiting until age 70, Freds benefit will increase by 8% for each year he delays, resulting in a 32% increase over his FRA benefit. Deciding to delay was a smart move on Freds part since the delayed retirement credits (DRCs) he will receive will allow him to maximize his Social Security income during his life while also maximizing the survivor benefit that he is likely to leave his wife given their significant age difference.

Fred was not aware, however, that he was leaving lots of money on the table in the form of Family Benefits to which his wife and children are eligible.

Caretaker Spouse Benefit

The spouse of a Social Security retirement beneficiary caring for a child under the age of 16 is eligible for a benefit valued at 50% of the FRA benefit of the beneficiary spouse. Freds FRA benefit was about $2,500 month, so his wife is currently eligible for a monthly caretaker spouse benefit of $1,250, or $15,000/year. And because she is not earning a wage, she is not subject to the annual earnings test that withholds benefits if a beneficiary exceeds an annual earnings limit while collecting Social Security benefits before FRA.

Childrens Benefit

Each of Freds children were eligible for their own benefit, also valued at 50% of Freds FRA benefit, until they each turned age 18, or age 19 if still in high school. Since both his children are under 16, they are eligible to receive a combined benefit of $2,500/month ($1,250 each).

What Should Fred Do?

The above family benefits are only available if one of the spouses has filed for their Social Security retirement benefit. As mentioned earlier, Fred is delaying his application because he wants to maximize it by earning delayed credits. Is Fred stuck with having to wait until age 70, thereby forgoing both his own benefit and the benefits his family members are eligible to receive in the interim?

Much to Freds delight, I informed him that it is possible under the Social Security rules, beginning at FRA, to immediately entitle his family to benefits without having to forgo delayed credits onhis own. Using the File and Suspend strategy, Fred is able to file for his retirement benefit now and then immediately suspend it. This strategy allows Fredlsquo;s family to claim family benefits based on his record while still allowing Fred to delay his own benefit to continue to earn DRCs. Given that Fred is age 68, he has already missed out on two years worth of family benefits, costing him approximately $90,000. Fred was determined not to miss out on any more benefits and planned a trip to the local Social Security office immediately.

Maximum Family Benefit Limitation

It is important to be aware that total family benefits are limited to approximately 150-180% of the FRA benefit of the primary worker. Freds family will not be impacted by this for now since he is not receiving his retirement benefit. His family may be impacted in the future once he begins to collect his benefit. However, any reductions will be taken on a pro-rata basis from his wife and or childrens benefits while his own benefit will be unaffected.

Freds case is not typical but is becoming more prevalent given the trend to marry and start a family later in life. Knowing the rules governing family benefits can result in significant additional income to these families, many of whom are often struggling with the task of saving for their impending retirement while also planning for their childrens college education.

Readers with questions on personal finance and Social Security can email Joe Alfonso

Saving money on holiday lighting bills

Related Coverage

SPRINGFIELD, Mass. (WWLP) Holiday lights lead to higher electric bills. Colorful outdoor lights, spotlights, and those inflatable lawn decorations all run off electricity, but there are ways you can save.

First, you can program a timer to turn on and off your outdoor lights so that they run from dusk to dawn, or only as long as you want them on.

Second, you can replace those white or colorful lights with LED lights. On the box, it says they use at least 75 percent less energy and last longer. Employees at Rocky’s Ace Hardware said they’re a very popular alternative, but not everyone agrees.

Western Mass Electric customer Ken Thompson told 22News, We’ve got some inside, they’re not as bright and we really don’t like them as much. We use them inside, but I haven’t got any for the outside, and we just made the decision, I think just yesterday, that we weren’t going to light up the house outside.

Thompson heats with electricity too, and said it’s going to be too costly this year to decorate with lights. 22News also heard from others who said they were still going to pay more so they could decorate as normal.

National Grid raised its electric rate on November 1st. Western Massachusetts Electric Company will start charging customers more on January 1st.

Bankruptcy judge approves Reichhold’s $106M financing plan

A Delaware bankruptcy judge has approved a $106 million debtor-in-financing package that allows Durham-based Reichhold Inc. to continue its resin and coatings plant operations in Durham.

The judge, however, also granted permission to sell many of the chemical companys assets through a sale scheduled for Jan. 6.

Reichhold Holdings US Inc., the US-based branch of the Reichhold Group, filed for Chapter 11 bankruptcy protection in September. Reichhold affiliates outside of the US are not included in the bankruptcy petitions.

The petition, filed with the US Bankruptcy Court for the District of Delaware, listed more than $500 million in debt that the company owed and less than $500 million in assets.

At a Dec. 3 hearing in Wilmington, Delaware, US Bankruptcy Judge Mary F. Walrath approved a revised debtor-in-financing order that allows the company to continue operations.

She also established the bidding procedures establish senior secured noteholders as a stalking horse for a January auction. A stalking horse bid allows the debtors (noteholders) to test the market ahead of the auction. The intent generally is to maximize the value of the assets up for auction.

For more information about Reichholds restructuring plan, click here.

Reichhold is one of the worlds largest suppliers of unsaturated polyester resins used in composites and coatings in a variety of products and applications, including paints used for architectural coatings, automobiles and heavy machinery. Its products are sold under brand names like Polylite, Hedrex, Dion, Norpol and Advalite.

The Durham-based company in January r elocated its operations from its longtime headquarters campus on Ellis Road near Research Triangle Park Durham to a smaller flex building on Swabia Court in Durham where it employs about 100 people. Worldwide, Reichhold employs about 1,300 people according to the companys website.

Amanda Jones Hoyle covers commercial and residential real estate. Follow her on Twitter @TBJrealestate

ASIC survey reveals saving patterns of men and women

Saving money is not easy and according to an Australian Securities and Investments Commission (ASIC) survey conducted this year, men and women approach saving differently.

MoneySmart senior executive leader Miles Larbey said women were more likely than men to save for more than one thing at a time.


He said 36 per cent of men who saved considered themselves fast and determined savers because they were focused on saving as quickly as possible.

On the other hand, 39 per cent of women say they are slow and steady savers in that they save small amounts regularly to reach their target, he said.

Young people were often criticised for their spending habits, but ASIC MoneySmart senior manager Suzan Campbell said parents should encourage their children to save money from an early age.

One of the most valuable skills a young person can have is good money management, she said.

Showing your kids the basic steps, such as how to budget, save and shop around for the best price, will establish good money habits for life.

Ms Campbell said discussions between parents and teenagers about financial transactions and debts were important conversations.

As a young adult, its never too early to start managing your money.

A great idea is to draw up a spending budget for your wages, allocating part of your money to spending and part of it to saving. Running out of money before payday is a great lesson in the value of sticking to a budget but it is best avoided, Ms Campbell said.

But if you ask 20-year-old Sam Marshall and 18-year-old Amelia Flynn, they may tell you a different story.

How did my lawsuit end up in bankruptcy court?

As business bankruptcy filings have become more routine, companies may be involved in litigation with a business that files for bankruptcy protection. In such circumstances, there is a strong possibility that the litigation may be removed to the bankruptcy court. It is therefore important to understand what that means.

Removal based on bankruptcy filing

28 USC. sect; 1452(a) addresses the removal of bankruptcy matters and provides in relevant part:

A party may remove any claim or cause of action in a civil action . . . to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under Section 1334 of this title.

28 USC. sect; 1334, which is referenced in Section 1452, provides jurisdiction to the district courts over all civil proceedings arising under, arising in or related to cases in bankruptcy. (This statute refers to the district courts. Bankruptcy matters are referred by the district courts to the bankruptcy courts). Accordingly, the jurisdiction granted to bankruptcy courts is very broad. Such jurisdiction covers any matters that are related to the bankruptcy case, which includes any matters that could conceivably have any effect on the bankruptcy estate. Therefore, any litigation matter that could have an effect on the bankruptcy case is subject to removal under 28 USC. sect;1452.

Removal under 28 USC. sect; 1452 versus removal under 28 USC. sect; 1441

Bankruptcy related matters can also be removed under 28 USC. sect; 1441, which allows for removal of any civil action brought in a State court of which the district courts of the United States have original jurisdiction to the district court . . . where such [State] action is pending.

There are key differences that make Section 1441 a less attractive option for removal of a bankruptcy matter than Section 1452. For one, under 1452, any claims or cause of action may be removed, while Section 1441 only allows removal of the entire lawsuit. Additionally, any party may seek the removal under Section 1452, while only the defendant can seek removal under Section 1441. Most significantly, removal under Section 1441 must occur within 30 days after service of process. Section 1452, however, allows for removal, in cases where the action is pending at the time of the bankruptcy filing, within the longer of 90 days from the bankruptcy filing, 30 days after entry of an order terminating the automatic stay, or 30 days after appointment of a chapter 11 trustee, but not later than 180 days after the bankruptcy filing. If the lawsuit is commenced after the bankruptcy filing, removal is timely if it occurs within thirty days of service of the summons and/or complaint.



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Process of removal under Section 1452

A lawsuit is removed by filing a notice of removal in the federal district court (or bankruptcy court) in the jurisdiction where the lawsuit is pending. Therefore, if the lawsuit is pending in the same district in which the bankruptcy case is pending, the matter may be removed directly to the bankruptcy court. However, if the lawsuit is pending in a state court in a different jurisdiction, then the lawsuit is removed to the district court within that jurisdiction, and then must be transferred to the bankruptcy court through motion to transfer venue under 28 USC. sect; 1412.

The notice of removal must be served on all parties to the removed action and a copy filed with the clerk of the court from which the action was removed. After such removal, the district court or bankruptcy court to which the case was removed has jurisdiction, and, subject to the case being remanded, the lawsuit will proceed in that court.


Upon motion, the court to which a matter is removed may remand such action to the original court on any equitable ground. Courts have found that an equitable ground is one that is fair and reasonable.A variety of factors have been considered in determining whether remand is warranted, including:

  1. The effect on the efficient administration of the bankruptcy estate
  2. The extent to which issues of state law predominate
  3. The difficulty or unsettled nature of the applicable state law
  4. Comity
  5. The degree of relatedness or remoteness of the proceeding to the main bankruptcy case
  6. The existence of the right to a jury trial
  7. Prejudice to the involuntarily removed defendants

Understanding the process and effect of removal is important in developing litigation strategy when litigating matters that involve a bankrupt party. In certain instances, removal of case to the bankruptcy court may be a strategic advantage to the non-debtor party, if the current litigation forum is less than favorable.

Why Detroit’s Bankruptcy Spared Retirees

This surprised many people. Over the past decade, as the true costs of pension commitments have become clearer, many assumed that the inevitable end result of expensive pensions would be to eliminate them in bankruptcy. When Detroit and Stockton filed for bankruptcy, they assumed it was only a matter of time before retiree pensions came on the chopping block and retirees lost their pension plans.

In practice, such a result is rare and its likely to remain so. Heres why.

In order for society to work at all, commitments must be honored, whether they are to lsquo;love, honor and obey or to lsquo;pay you Tuesday for a hamburger today. Pension commitments especially require this: they are a commitment by an employer, who gets the benefit of years of work now, to pay for it in part after the employee retires. In this sense, retirement benefits are deferred compensation. Once the employee is gone, however, so is his or her leverage to demand that compensation. Thats why pension commitments, entirely appropriately, are safeguarded by law.

Of course, the world changes and sometimes commitments cannot be kept. Thats why we have bankruptcy. Bankruptcy is a process by which people and organizations who cannot afford to keep their commitments can be relieved of some of them. But bankruptcy is not a lsquo;get out of jail free card. Its a process under which people, businesses and local governments first show they really cannot keep their commitments and then work out a fair way to reduce them. That means that changes in bankruptcy must be both necessary and fair.(State government pensions are in a different situation, because the US Congress hasnt chosen to legislate a bankruptcy process for states.)

Although lawyers and philosophers have devoted thousands of pages to trying to define fairness, in practice, judges do what theyre supposed to do: make judgments. Everyone involved has interests. Many are important; some are crucial to their survival. Furthermore, each situation is different: Employee compensation and former employee compensation can be greater or lesser. Bondholders can be large financial institutions with the ability to take the risks involved, but they can also be individuals who are counting on bond income to fund their own retirements.

At least as important is the fact that different institutions have different routes to recovery: Detroit had a lsquo;priceless art collection it could sell; most cities do not. In some instances, higher taxes are a possibility; in others, they are not. Some employees can afford to sacrifice a portion of future wages and benefits; others cannot. In all cases, there are dozens, even hundreds, of judgments about which activities can be cut back, and by how much.

No judge has all of the knowledge that, ideally, they should have to make these judgments. They know this, and thats why they encourage those affected by a bankruptcy to negotiate among themselves. In corporate bankruptcies, these negotiations have been undertaken repeatedly for decades, so there are established rules, practices, and precedents. In the public sector, there is much less such experience, but the goal is the same: try to reach agreements, not that necessarily make anyone happy, but with which most can live.

Retirement benefits enter this complex calculus with several important arguments in their favor. First, retirees dont have alternative sources of income. Unlike most of the financial institutions that hold municipal bonds, retirees cannot offset their losses in Detroit with earnings from other bonds. Neither, as a practical matter, are judges likely to force 75-year old retirees to re-enter the workforce.

The second reason why retirement benefits are special is because they are employee benefits. Institutions, particularly distressed institutions, recognize that they need their employees to survive. Those employees usually feel a kinship, not a competition, with former employees.

When American Airlines filed for bankruptcy, the airline was clear that it needed to reduce labor costs and proposed to do it in part by eliminating its pension plans. Americans unions, however, decided not to sacrifice their former members interests, and chose instead to make contract concessions in other ways. The bond between current and retired employees is by no means limited to members of a union or to the private sector.

As a result, even cutting retirement benefits is legal and some cuts are clearly necessary, retiree benefit cuts are usually seen as unfair. Municipalities that need cuts to reorganize will end up looking elsewhere.Even though taxpayers (and editorial writers) may wish it, in most cases talk about public pension cuts will remain just talk.

Oakland schools’ bad credit costing homeowners millions

OAKLAND — A decade of sloppy financial record keeping in Oaklands schools is now costing city homeowners and businesses more than $29 million in extra property taxes after the district lost its credit rating for borrowing money, according to a new report to the Alameda County grand jury.

Rating agency Standard amp; Poors withdrew its credit rating of the district in 2011 and Moodys removed its in 2012, driving up the cost of current borrowing on bonds that are repaid in residential and business property taxes.

The credit ratings were removed because the district has not been able to complete any financial audits mandated by the state since 2003 due to missing records, a lack of internal accounting controls and books that are basically in shambles, according to a spokesman with the State Controllers Office.

4 Savvy Tips for Saving Money While Holiday Shopping

Its Sunday night, and youre likely looking at your week ahead. Inevitably, youll notice that Thursday is Thanksgiving, followed by Black Friday. And right about now, youre probably thinking about all of the holiday shopping you still have to do, because only people with their lives truly together start shopping early in the year. Sorry we cant all by Gwyneth Paltrow, ya know?

In order to not blow money that you dont need to this season, its important to plan ahead. The more of a frenzy you find yourself in, the more youll spend on things that you can wrap up and put under the tree, even if your loved one doesnt need it. These gifts are usually purchased at Brookstone; beware.

So, weve gathered a few useful tips for saving money this season. Youre going to spend enough already, so its best to be smart and pinch pennies when you can. Who wants to start off 2015 with credit card debit?

1. Take advantage of flash sale sites

Even if the future of the flash sale site is in up in the air, sites like Rue La La, Gilt City and Wayfair give us great ways to find designer products without breaking the bank. Whether you need accessories, shoes, clothing, home goods, or even city experiences like restaurant deals, these flash sale sites are the perfect place for gift hunting.

2. Use money-saving tools to make the smartest buys

Thinking about buying something but arent sure about the price? Your smart phone holds the answer. Poach It will show if there are better deals for the same item existing on the web; RetailMeNot scours the Internet for coupons and deals that you can save to your phone before you shop. In addition, iBeacon tools like Shopkick and Swirl connect your smartphone with special deals as you shop in-store.

3. Skip Black Friday and shop these holiday events

If the thought of shopping on Black Friday gives you hives, but you dont want to miss out on all the deals, sleep in on Friday and mark your calendars with these local holiday shopping events instead. Local shops, like Madewell and Alex amp; Ani, are hosting events with discounts and promos, and neighborhood-wide events also yield plenty of percent-off sales you can shop without fear of getting trampled.

4. Think ahead and shop online

If you procrastinate and wait until the week before Christmas to do your holiday shopping, you throw any possibility of taking advantage of online sales out the window. Because, shipping. But if you get started now, you can knock off items on your list without even leaving the house. Already, holiday sales are all over the web from major retailers, and theres plenty of free shipping surrounding the season as well.

Image via Shutterstock

College Class Gives Freshmen Lesson in Personal Finance

A Brooklyn College class is teaching both students and teachers about the basics of personal finance. NY1’s Tara Lynn Wagner filed this report.

Nick Clements has been going back to college, not as a student, but as an instructor. His mission: give freshmen an intro to personal finance.

“For the first time in their lives, large multinational, multibillion dollars companies are targeting them with advertising. It starts the minute they arrive on campus. And so we need to arm them with the information so that they can become savvy consumers and their hard earned money stays in their pockets as opposed to the banks,” says Clements.

The class is a collaboration between his company, MagnifyMoney and Brooklyn College. The curriculum focuses on things like choosing a bank, building your credit score and the dangers of credit card debt. And yes, there is math involved. Clements told the students to imagine they had charged $5000 on a credit card with a 21 percent interest rate.

“If you pay just the minimum due, how long will it take you to pay it off and how much interest will you pay. You all have phones with calculators so take your best guess,” says Clements.

The answer is 21 years and almost 8 thousand dollars in interest.

“Now keep in mind, guys, thats on top of the $5000 that you’ve already run up on your credit card,” says Sara Crosby, director of Brooklyn College’s First College Year Program.

The truth is Clements is not teaching the kids. He is teaching teachers like Crosby to take over the lesson plan he has developed and create a program that can be sustained on-campus by the faculty.

“Its a lot for your average, I mean its a lot for me and Ive been exposed to the content a lot. So we wanted to simplify it and make it sort of bite-sized and easy to understand,” says Crosby.

She says the training itself has been an eye opening experience for herself and her colleagues.

“Everybody says ‘I never had this,’ ‘Nobody ever talked to me about this,’ ‘My parents never talked to me about this,'” says Crosby.

The same can be said for this latest crop of students.

“No they havent. So this is really good opportunity for me to learn about that,” says one student.

In fact, less than 30 percent of Clements students say theyve had any form of financial literacy training before arriving in his class.

“But when we ask them, 90 percent said that they wish they would have had that, so theres a hunger for knowledge, he says.

If all goes well, he hopes to feed that appetite by expending the pilot program to other colleges in the next few years.

Forcing Americans to Save Money

Its hard to believe, but there was a time when wealth was growing faster for the bottom 90 percent than for the top percentile in the United States. This remarkable period in American history was called… the twentieth century.

Between 1929 and 1986, the bottom 90 percent saw its wealth grow at real annual rate of 3 percent, compared with 0.3 percent for the top percentile, according to new research released last month. Since the 1980s, the story has flipped. Wealth is growing at an extraordinary pace for the rich–3.9 percent over the last three decades–and not at all for the rest.

Related Video

Why Are Americans So Bad at Saving Money?

The math of wealth is simple. There is income (the money you make), savings (the money you dont spend), and returns (the growth in value of the money you save). The problem facing the bottom 90 percent–not the rich, but the rest–isnt merely that theyre making less money than they used to, but also that they are saving none of it–virtually, none of it.

In the last 30 years, the savings rate of the rest has fallen from 6 percent to negative-4 percent. It now hovers a whisker away from zero. The rich are different. They save. And the really rich really save, even more than they used to, according to a new paper from economists Gabriel Zucman and Emmanuel Saez.

Saving Money: Rich People Do It


As you can see, thanks to a century of making more, saving more, and passing along the inheritance, the picture of wealth inequality in America today makes old-fashioned income inequality look like a socialists dreamscape. (I elongated this graph until I could see a teensy fleck of red for the bottom 90 percent, a trick some of you might consider gratuitous, but theres nothing here a Piketty reader, or Piketty-summary reader, would find surprising).

Wealth in 2012


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