Secret Advanced Tax Strategies

10/10/2014 AZ Republic by Dr. Harold Wong

This article will cover a number of tax strategies that are little known to most taxpayers who do not have access to very expensive tax CPA’s and tax attorneys who serve the wealthy. I will give case studies where a particular strategy might be used. Future articles will go into more depth about the various strategies and consider other case studies.

Situation #1: You are a self-employed individual (Schedule C unincorporated or with a corporation) who wants to save tax. You feel you are paying too much taxes and want at least $17,500 of tax deductions. You are not an employee with a company that offers a 401k, but need more tax deductions than the $5,500 annual contribution ($6,500 if age 50 or above) limit for an IRA. Solution: You can have a solo 401k, also known as the family 401k plan. The key is that you are a sole proprietor or operate the business with your spouse and have NO non-family employees. Assume that your spouse works in the business with you and is under age 50. She can contribute $17,500 annually to the solo 401k plan and this is called employee salary deferral. In other words, if your spouse was paid $17,500, she could put ALL of $17,500 into the solo 401k plan. If she was paid $12,000, she could put a maximum of $12,000 into the solo 401k plan.

Assume you are age 50 or older and now you could also contribute a maximum $23,000 employee salary deferral to the solo 401k plan. If you have reasonably high profits, you would want more tax deductions. You can also use the employer contribution (remember you are both the employee and the employer), which is calculated as 20 percent of your net earnings if your are a sole proprietor and 25% if your business is a corporation. There are some technical details involving the calculations, but the concept is what we cover in this article. If you are age 50 or older by December 31st of 2014, you can save up to $56,500 in the solo 401k plan. This is a combination of the employee salary deferral and the employer contribution.

Situation #2: You are a parent or grandparent who wants to leave a tax-free legacy to your younger spouse, kids or grandkids. A retired nurse from CA came into my office almost 3 years ago. She had 2 government pensions and Social Security and so had much more income than she could spend. Her daughter was a high-income MD and her son had died. There were 2 grandsons, twins age 9. We structured a Roth conversion of the $385,000 that she had saved and paid the conversion tax. She does not need the Required Minimum Distribution income and this will not be required once we do the Roth IRA conversion. The 2 grandsons will each get slightly over $2 million of tax-free income over their lives. Once she dies at an assumed age 91, each grandson will get $7,000 annually at age 25; $11,000 at age 35; $17,000 at age 45; $27,000 at age 55; $43,000 at age 65, $69,000 at age 75; and $90,000 at age 80. I realize that not everyone has $385,000 in an IRA, but imagine the legacy left if you only started with $100,000 and it became up to $1 million of tax-free income. The multiplier is still 10 to 1.

Free Seminar: “Secret Advanced Tax Strategies” will be given on Sat. October 25, 2014, from 10-12 noon, followed by a light lunch at 12-1 P.M.; and also on Tues. October 28, 2014, from 6:30-8:30 P.M. preceded by a light supper from 6-6:30 P.M. Call (800) 955-1408 or email to RSVP. The location is at Keller Williams University, 2077 E. Warner Road, #110, Tempe, AZ 85284.

Contact Dr. Wong at (480) 706-0177,, or For his archived articles, click on

How to Optimize Social Security & Other Retirement Income: Part 2

9/26/2014 AZ Republic by Dr. Harold Wong

The previous article, “How to Optimize Social Security & Other Retirement Income”, was published 9/12/2014 in The AZ Republic and can be accessed on We will avoid using cost-of-living increases in SS benefits to simplify the article.

Case Study 1: Joe and Mary are both age 66, which is the Full Retirement Age (FRA) for Social Security (SS). Joe’s Primary Insurance Amount (PIA) is $2,500 per month of SS benefits and Mary’s is $1,000 per month. They both will retire at age 66. Let’s look at their financial assets and other sources of income. Suppose Joe had $500,000 in his 401k and all was in high growth stocks that paid no dividends. He also had $200,000 in a stock mutual fund and he received $4,000 of annual dividends. Mary had $100,000 of savings in a 457 tax-deferred plan at her state hospital and earned 1 percent in the conservative option, or $1,000 of annual income. Their total annual investment income is $5,000.

Their total gross annual income would be $42,000 of SS plus $5,000 of investment income, or $47,000 of total income. Assume that their annual federal and state income tax is $2,000 and so they have $45,000 of after-tax income. Also assume that this equals what they spend at age 66.

Now let’s look at the effect of a 4 percent annual inflation, which most retired couples don’t factor in. In 20 years, it will require $98,600 paper dollars to buy what $45,000 buys today. Their SS income would still be $3,500 per month (again, ignoring any cost-of-living increases in their SS benefits to simplify the analysis). Because their total after-tax income will be $45,000 and their shortfall is $53,600.

Options based on 9/5/2014 rates and $500,000 Investment: When looking up Phoenix, AZ CD rates in, the 3 giant national banks pay 0.15% to 0.35% on a 5-year CD. Joe could get $750 to $1,750 annual interest. If Joe loans to the U.S. Federal government, a 10-year Treasury Note pays 2.46% and a 30-year Treasury bond pays 3.24%. Joe could earn either $12,300 or $16,200 of annual interest. Joe next looks at the Bloomberg US Corporate Bond Index, and the effective yield is 2.95%, or $14,750 of interest. However, if interest rates rise sharply, he would lose much of his principal if he had to sell the Treasuries or corporate bonds before maturity.  A 2012 Forbes article said that 3.26% was the average dividend yield for about 6 decades leading up to 2013 for stocks in the S&P 500 index. That would be $16,300 of annual dividends. However, Joe does not want to risk much of his life savings in the stock market, having experienced 2 crashes in the last 14 years. None of these options solves the $53,600 shortfall.

Private Pension Option: Joe, at age 66, deposited $500,000 in a private pension plan and waited until age 75 to take his lifetime income. He decides to use the joint income option and $53,317 of annual income will be paid as long as at least one of the two spouses is alive. Now, they have covered almost the entire projected $53,600 annual deficit at age 86 and don’t worry about running out of money. Assuming there is not a stock market crash, they still have Joe’s $200,000 in a stock mutual fund and Mary’s $100,000 in her 457 plan. They are comfortable that $300,000 of liquid financial assets will cover any future expenses, such as buying a new car every 10 years.

Free “How to Maximize Your Social Security & Other Retirement Income Seminar”: Sat. 9/27/14, 10-12 noon followed by light lunch 12-1 P.M. at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408 or

Contact Dr. Harold Wong at (480) 706-0177,, or

How to Optimize Social Security & Other Retirement Income

9/12/2014 AZ Republic by Dr. Harold Wong

I recently flew to Kansas City and met Mason Morasch and one of the IPG actuaries, who shared some of their strategies on Social Security optimization. This article will use some of their research. We will avoid using cost-of-living increases in SS benefits to simplify the case studies.

Case Study 1: Joe and Mary are both age 66, which is the Full Retirement Age (FRA) for Social Security (SS). Joe’s Primary Insurance Amount (PIA) is $2,500 per month of SS benefits and Mary’s is $1,000 per month. If Joe waits until age 70, he will get 8 percent more for every year he waits past age 66, his FRA. This would make his SS benefit $3,300 per month at age 70.

Spousal Benefit: Mary is entitled to either her SS benefits or half of her husband’s, whichever is greater if she waits until she reaches FRA. If she takes SS earlier, she gets less. Joe will use the “file and suspend” strategy in order to get this spousal benefit for Mary. She can receive $1,250 per month, which is half of Joe’s $2,500 per month SS benefit at his FRA of 66. Because Joe is not claiming his SS benefits at age 66, he will receive the maximum he is entitled to, or $3,300 per month at age 70.

Another benefit for Mary is that her own SS benefits, the $1,000 per month at age 66, based on her work history, will continue to grow by the 8 percent per year factor from age 66 to age 70. This is because she has filed a restricted claim for only her spousal benefits. At age 70, she can claim based on her own work record and switch to a possibly higher benefit. With her $1,000 per month SS benefit at age 66 growing at 8 percent for each year she waits past age 66 until age 70, she would be entitled to $1,320 per month age 70.

At age 70, her $1,320 per month is greater than the half of Joe’s, or $1,250 per month she took at age 66. Note: Spousal benefits do not earn Delayed Retirement Credits after the spouse reaches Full Retirement Age (FRA). So, she would switch to her $1,320 monthly SS benefit when she reaches age 70. When Joe eventually dies, Mary is entitled to her widow SS benefit. If Joe died at age 70, Mary would take his full $3,300 of SS benefits.

Assume that they do not know about the “file and suspend” or spousal benefit strategy and they both retire at age 66. In addition to their $3,500 of monthly SS, assume that their $800,000 of life savings only gives them $5,000 of investment income. Their total gross income will be $47,000 and assume their after-tax income is $45,000 and they spend it all.

Now let’s look at the effect of a 4 percent annual inflation, which most retired couples don’t factor in. In 20 years, it will require $98,600 paper dollars to buy what $45,000 buys today. Their SS income would still be $3,500 per month (again, ignoring any cost-of-living increases in their SS benefits to simplify the analysis). Because their total after-tax income will be $45,000 and their shortfall is $53,600.

Summary: By waiting until age 70, they will get $4,550 of monthly SS instead of $3,500 at age 66 (because they don’t understand the spousal benefits strategy). The next article will cover strategies to optimize SS and the cash flow from your life savings to achieve lifetime retirement income.

Free Social Security Workshops: Thurs. 9/25/14, 6:30-8:30 P.M. with light supper 6-6:30 P.M.; and Sat. 9/27/14, 10-12 noon followed by light lunch 12-1 P.M. at Keller Williams University, 2077 E. Warner Road, Tempe, AZ 85284. Please RSVP at (800) 955-1408 or

Contact Dr. Harold Wong at (480) 706-0177,, or

Customer Service Can Make or Break a Business

8/22/2014 AZ Republic by Dr. Harold Wong

Over the past year, I’ve done a lot of traveling and noticed how various businesses either show great, average, or poor customer service. Now that we have the internet and social media, deficiencies in a business can be seen by the whole world. Let me list some examples that I have noticed during the past year or so.

During July and August, 2013, I traveled to N. Dakota to research the Bakken Oil Boom. I gave 12 seminars, including two each at the Minot and Williston Libraries and three at the Bakken Oil Service Expo at the ND State Fairgrounds in Minot. At the Minot library, they put notices of my free seminars in their monthly calendar. In addition, they created bookmarks that contained information of these two seminars at the front desk, where people check out their books. These were great advertising pieces, as people would take them and use them. The Williston Library did put up flyers, but did not do all that the Minot Library did. Partly because of the difference in the marketing effort, the two seminars at the Minot Public Library were full, but almost no one came to the Williston Library seminars.

In early November, 2013, I was flown by a large financial company to attend a financial conference at a famous hotel in Key Biscayne, Florida. This is an extremely expensive area, where individual houses can sell for $20 million. The hotel chain has an international reputation for tremendous service. I was shocked to find that at least four people at the concierge desk did not know much about major tourist attractions. When I asked about the nearby Aquarium and Killer Whale show, they had never attended. If I had been the owner of this Florida hotel, I would have insisted that everyone at the concierge desk attend each of the 5-10 major tourist attractions at least once, even if the hotel had to pay their admission ticket. When guests pay $400-600 plus a night for a room, they expect more. Thank goodness I was not paying for the hotel stay.

Finally, I want to mention what happened to a close friend Debbie in the Tempe, AZ area. She had been shopping at Costco at 1445 W. Elliot Road and had purchased $300 plus of groceries on a Sunday in July, 2014. Her battery died and she was stuck. It was over 100 degrees and the butter was melting. Costco sells batteries, but the normal policy is to NOT install them. However, Hugo Manriqe Morales, one of the service technicians, rolled the battery a long way to her car and did install the battery. When I found out about this, she wrote a thank you card and I slipped a $20 bill inside. I delivered it to the manager Josh Wozniak. A day later, I got a phone call from Hugo stating that company policy does not allow him to receive any cash. So, I stopped by and thanked him personally; he gave me back the $20; but kept her thank you card. You imagine that Debbie will become a lifelong customer and tell lots of people about this “WOW” customer service.

Conclusion: A greatly under-estimated part of the success or failure of any business depends on how knowledgeable and motivated the employees are. Great customer service makes you stand out; the public enjoys the experience; they buy more and come back. Or, if it’s a library, they come more often and vote for your next bond issue request. Customer service studies find that if someone is happy, they may tell 3 friends; but if really unhappy, they tell 27 others. Unhappy customers can’t wait to tell others about bad service.

Contact Dr. Harold Wong at (480) 706-0177;, or

Bermuda is a Total Contrast to AZ

(8/8/2014 AZ Republic by Dr. Harold Wong)

I was recently flown to Bermuda by a financial group. This is an island of 65,000 people that is about a 2-hour plane ride from NY, NJ, Philadelphia, or Miami. There are vast differences from AZ in terms of the climate, social structure, racial harmony, and the economy.

Climate: Bermuda is an island where summer temperatures are in the 80s and there’s a refreshing ocean breeze. In July and August, hurricane season can begin whereas in AZ we’re supposed to have the monsoon season. However, the AZ desert is suffering from at least a 17-year drought and we have rarely had heavy rains during recent years.

Social Structure and Racial Harmony: This was a British-controlled island, going back to the 1600s. During the American Revolutionary War, Bermuda stayed loyal to England. About 9,500 English convicts were brought to Bermuda to provide slave labor. Many died due to disease and malnutrition. There were some African slaves, but not nearly as prevalent as the U.S. South and other Caribbean islands. Britain was politically against slavery before America. Bermuda natives told me that ship-building was one of the major early industries. A British guy might own the company and the main house, but all the workers lived together, whether from England, Africa, or India. Natives claim that there were no racial problems and everyone gets along. Everyone feels safe walking at night anywhere, which we can’t say in AZ.

Tax structure: There is no income tax in Bermuda. However, there are real estate taxes and a stiff 25 percent duty on everything that is imported into the island. Because there are no income taxes, Bermuda for decades has been a center of legal off-shore insurance and reinsurance companies. With the financial centers of the U.S. East Coast only a 2-3 hour flight away, this makes sense. I saw signs of major U.S. insurance companies outside of Bermuda buildings in Hamilton, their main commerce center.

Economy: In addition to offshore insurance and banking, the island relies heavily on tourism. In one island tour that I took, the tour guide stopped where 2 major cruise ships had docked, containing at least 7,000 passengers and crew. It’s an economic bonanza for the local businesses as thousands walk ashore and most buy souvenirs. In addition, Bermuda is known for the scuba diving, as the water is very clear. Offshore reefs about 25 miles outside of the island absorb much of the waves during storms and Bermuda has a number of safe harbors.

Prices: Compared to AZ, most grocery store items are 2-3 times more expensive. A loaf of bread is $6 and a tube of toothpaste is $12. On sale, Hellman’s 30 oz. jar of Mayonnaise is $6.95.  Iced tea costs $3.79 for a quart container, which is 3 times what it costs in AZ.  Peaches are $3.99 per pound. A 2-litre bottle of Coke costs $3.45, vs. $1 in AZ on sale. Gas is $8.50 a gallon.

At local roadside food stands, expect to pay $10-15 for a sandwich. At the Fairmont Southampton resort, lunch for two costs $88 for: a 4-oz. order of wahoo and French fries and 2 tiny wahoo fish sliders and fries. In contrast, one can get 4 much bigger fish sliders and French fries for $9 at an AZ sports bar. A couple from Chicago who earns over $400,000, balked at going out to a well-known local restaurant, because it would be $375 plus a $35 taxi ride each way. The average house can cost $1-2 million.

Summary: Bermuda has unbelievable beauty, weather, racial harmony, and political stability. However, the high cost of living and lack of enough high-paying jobs cause many of the young to go to college offshore and migrate to other countries.

Contact Dr. Wong at (480) 706-0177,, or For his previous articles, click on

When to Switch from Offense to Defense with Your Investments

(7/25/2014 AZ Republic by Dr. Harold Wong)

Typically, Wall Street financial advisors concentrate on offense and are always talking about how much money you might make on the upside. They rarely stress the downside. In contrast Warren Buffett’s Number 1 Rule is “Don’t Lose Money!” His Number 2 Rule is “Don’t Forget Rule Number 1!” Buffett says “I will not lose even one night’s sleep trying to get extra return by taking too much risk”.

Here’s a real-world example, which is a composite of clients that I have seen over the last 6 years. The couple is 55 and lost their big home during the real estate crash that started in 2006. When you count their down payment, $60,000 to put in a pool and landscaping, and other major improvements, they lost $160,000. At the peak of the real estate boom in 2005, they organized a group of 20 friends to invest a total $2 million in a building project. Unfortunately, there were allegations of builder fraud and then the real estate bust made the project a total loss. Because they had signed as a guarantor for the bank loan, they were forced to declare bankruptcy so that the bank would not try to collect over $3 million from them. They personally lost $40,000 in this investment.

When I met them, the best thing they had going for them was that they both had good jobs and earned a total of $120,000 annually. They spent $60,000 per year and their total Social Security payroll tax and combined Fed and AZ income tax was $30,000. So, it was possible to save $30,000 per year. Their top 2 priorities were tied at “Never Running Out of Money” and “Growing Assets”. When I asked them what they hoped to earn on their investments, they said 10 percent. I asked why and they said that many Wall Street financial advisors had told them they could average 10 percent annual returns in the stock market. The actual returns in the S&P500 index from October 1, 1998 to September 30, 2013 have actually been only 1 percent gross. If you pay 2-3 percent annually in mutual fund or financial advisor fees, your return has been negative over the last 15 years. They were shocked when I showed them the historical chart.

Time to Play Defense: They understood that it takes high risk to make high returns. They were lucky to have $475,000 inside 401(k) accounts, which creditors could not grab during the bankruptcy. I told them it’s time to play defense, given that they only plan on working 12 more years. If they saved $30,000 annually for the next 10 years, and earned 5 percent, they would have $501,389 more retirement savings. This is Part 1 of their plan. By being OK with a 5 percent annual return, they can take much less risk and lower the chance that they lose big during the next stock market crash. Part 2 is depositing $400,000 in a personal pension plan that is not in the stock market. This will give them $51,524 of annual income at age 67. When one adds a combined $48,000 of Social Security benefits at age 67, they will have a total $99,524 of steady, guaranteed income. In addition, they will have $501,524 more savings plus whatever the other $75,000 in their 401k has grown to.

Summary: Wall Street likes to stress offense but once you are 15 years from retirement, it’s time to play defense with your investments. We have had 2 major stock market crashes: the Dot-Com Bust of 2000-2002 and the Real Estate Bubble Crash of 2008 to early 2009. Each time, the stock market declined by half. When you reach 50, you no longer have time to recover from a major loss of your investments.

Contact Dr. Wong at (480) 706-0177,, or For his previous articles, click on

The AZ Real Estate Boom & Bust

(7/11/2014 AZ Republic by Dr. Harold Wong)

This summer, I will be writing about a number of topics about how people view money, manage their money, and the consequences. The same cycle of greed and fear occurs in every market, whether it is real estate, stocks or gold. Of these two emotions, normally greed is dominant and let me prove it. Even the most degenerate gambler knows that when you enter a casino, the odds favor the house in every game. However, that does not prevent millions of Americans from entering casinos.

Among other things, I was in the mortgage industry from 2001 through 2007, and so saw the rise and fall of the AZ real estate market. In 2001 we still had a fairly normal mortgage market, where those applying for a mortgage loan had to prove income with paystubs and also the last 2 years’ tax returns if self-employed. One had to prove sufficient asset reserves with bank and other financial statements. One had to have a sufficiently high credit score, or the loan officer would not even fill out your loan application. Finally, there was the debt-to-income ratio (DTI).

The typical DTI limit in the 1970s was that monthly housing expense should be less than 25 percent of monthly income and there was no codified limit for the back-end ratio (which includes housing and all other debt). The back-end ratio limit was left to the discretion of lenders on a case-by-case basis. The rule of thumb was that one should not spend more than one week’s pay on total housing expense. Over time, this DTI ratio allowed by lenders increased.

On April 13, 2005, HUD (Housing Urban Development, a government agency) increased the allowable DTI for manually underwritten loans to 31/43. The first number, 31, is the front-end ratio and represents the percentage of the borrower’s income that will go to his new housing expense of principal, interest, taxes, insurance, and homeowner association dues. The 43 is the back-end ratio, which is the percentage of total monthly income that goes to total debt, including all housing, credit card, car, student loans and alimony and child support payments. With the use of automated system underwriting approvals, a borrower’s debt-to-income (DTI) ratios can exceed the guidelines and may go as high as 50 percent of more.

Around 2002, innovative products led to totally relaxed mortgage underwriting standards. If one had a very high credit score, one did not have to prove one had a job or a specific amount of income or assets. This was called a NINJA loan (No Income, No Job, and No Assets). There were even popular negative amortization mortgages, where the true rate of interest might be 7 percent, but you only had to pay 2 percent for the first 5 years. The extra 5 percent interest that you owed, but did not pay, was added to your loan balance every month. So, at the end of 5 years, your initial $400,000 mortgage loan would now have a balance of over $500,000.

The relaxed mortgage underwriting standards gave homebuyers this choice: I can buy my $450,000 brand-new dream home in a gated community, with 3,000 square feet, 5 bedrooms, 3 baths, 3 car garage, and swimming pool; OR I can buy the 30-year-old $225,000 home that has 3 bedrooms, 2 baths, and no pool. Investors jumped in and bought houses with hopes of quick and big profits. Greed won out and led to the big housing boom. When the value of homes started dropping in 2006, it led to massive foreclosures and over 500 banks going under. All of this eventually led to the 2008 stock market crash and The Great Recession, where 10 million jobs were lost. Excessive greed always has consequences.

Contact Dr. Harold Wong at (480) 706-0177,, or For his archived articles, click on

When You Start Social Security Matters!

(6/27/14 corrected version 2 AZ Republic by Dr. Harold Wong)

Let me cover the dramatic difference in taking SS at age 62 instead of 70. Waiting until age 70 really matters if you are married and both have long life expectancy.

Your expected life expectancy is one of your key factors in deciding when to take SS. Let’s compare taking 100% of SS benefits at age 66 versus 132 percent at age 70. Mathematically, it takes you 12.5 years (if you take SS benefits at 70) to make up the difference of not collecting 4 full years of SS from age 66 to 70. Here’s where many Baby Boomers make a mistake: they plan by average life expectancy instead of the life expectancy of the longest-surviving spouse. On average, Baby Boomers will live until 83. However, in year 2000; the Society of Actuaries study showed some startling statistics. If a married couple is 65, there is about a 50 percent chance that at least one will live until age 92 and about a 25 percent chance that at least one will live until 97.

Example 1: You are a single Baby Boomer born in 1950 who earned $50,000. When the Great Recession started in 2008, you looked at your SS monthly benefit choices: $1,070 if took benefits at age 62; $1,489 at 66; or $2,047 at 70. If we ignore any future cost-of-living increases, here’s the total SS benefits would have by age 83: $269,640 if took SS at 62; $303,756 at 66; or $319,332 at 70. One argument for taking SS early is that you can invest the money and so your total income is the same, no matter what age you chose to take SS. That’s a logical argument, but it assumes there is no risk from stock market crashes and being victims of scams. However, you can take the position “I’ll live or die with the consequences if I lose money with my investments”.

Example 2: You are a married Baby Boomer husband and don’t worry about your spouse. Suppose you had consistently earned the higher income and your wife is 6 years younger. Suppose you decide to start SS at age 62 and get $17,000 a year versus $32,000 at age 70. Suppose your wife did not work long and discovers that taking half of your (once she becomes age 66 Full Retirement age) SS benefit is higher than what she would receive on her own earnings history. You live until 88 and she lives until 97.  If you took SS at age 62, you would collect $17,000 each year for 26 years, or a total of $442,000. Starting when his wife became age 66 (Full Retirement Age), she collects half of your SS, or $8,500 each year for 16 years from her age 66 to age 82, or a total of $136,000. Once you die, she can collect your full SS benefit (but not both yours and hers) of $17,000 for 14 years from her age of 83 until she dies at 97, which is a total of $238,000. The total this couple will collect is $816,000.

Example 3: You actually love your spouse and wait until age 70 to collect your SS. Assume the SS benefits are the same as Example 2. You would collect $32,000 for 18 years, a total of $576,000. Your wife would collect $16,000 each year for 16 years, totaling $256,000. After you die, your wife would collect $32,000 each year for 14 years, totaling $448,000. The grand total for the couple would be $1,280,000. This is $464,000 more than if he took SS benefits at age 62.

Conclusion: Waiting until age 70 to take SS benefits really protects a younger spouse who has not earned much during her career. Receiving 85 percent more SS protects against future inflation and unexpected expenses.

Contact Dr. Wong at (480) 706-0177,, or For his previous articles, click on

Social Security & Baby Boomers’ Retirement Plan

6/13/2014 AZ Republic by Dr. Harold Wong

For Baby Boomers born between 1943-54, Full Retirement Age (FRA) for full Social Security (SS) is age 66. This contrasts to the age 65 that was FRA for decades since the Social Security Act was passed in 1935. For those born in 1955, FRA is 66 plus 2 months. For every year after those born in 1954, FRA increase by 2 months until FRA is 67 for those born 1960 and later. For those whose FRA is 66, you get 25 percent less if you start SS benefits at 62. For every year after 66, you get 8 percent more for every year you wait until age 70. Note: only 1.2 percent of men and 2 percent of women wait until age 70 in order to get 32 percent more than if they took SS benefits at age 66. Example: if you would have received $2,000 monthly with FRA of 66, you receive $1,500 at 62 or $2,640 monthly if you wait until age 70.

There is a major difference in sources of retirement funds for those retirees versus nonretirees. Among those already retired, 49 percent said that a major source of funds was from a work-sponsored retirement plan; 48 percent from Social Security (SS); 38 percent from a 401k, IRA, or other retirement savings account; 32 percent from the equity in their house; 30 percent from individual stock or mutual funds; 25 percent from other savings such as savings accounts or CDs; 19 percent from annuities or insurance plans; 7 percent from part-time work; and 6 percent from inheritance money.

In contrast, for nonretirees, 74 percent said that a major source of funds for retirement was a 401k, IRA, or other retirement savings account; 40 percent from individual stock or mutual funds; 39 percent from a work-sponsored pension plan; 36 percent from home equity; 30 percent from other savings such as a regular savings account or CDs; 28 percent from SS; 17 percent from annuities or insurance plans; 16 percent from part-time work; and 7 percent from inheritance. Source: Wells Fargo Gallup Poll: Investor and Retirement Optimism Index, February 1-8, 2011.

Retirees rank as virtually a dead heat their major sources of retirement funds being from a work-sponsored pension plan and Social Security. In contrast, nonretirees expect their major source of retirement funds to come from what they have saved in a 401k, IRA, or other retirement savings account and their individual stock or mutual fund investments. Nonretirees have seen a drastic drop in workers covered by old-fashioned defined benefit pension plans and understand that their retirement income has to come from savings. Nonretirees rank SS as only their 6th major source of retirement funds, a striking contrast to retirees who rank it as their 2nd major source. Unless one is a government employee, most Baby Boomers, Generation X and Y workers will never enjoy an old-fashioned employer defined benefit pension plan.

Conclusion: When the Social Security Act was passed in 1935, men’s average life expectancy was less than 65. Social Security never envisioned a situation where people would be taking SS for 20-30 or more years in retirement. In 2014, the average monthly SS benefit received by 39 million retired workers was $1,294. Social Security will still be a major source of Baby Boomers’ retirement income because they have not saved enough. Any interest-bearing investment pays very low, whether it is bank instruments, U.S. Treasuries, or bonds. The average dividend yield for the stock market is only about 2 percent. Baby Boomers best strategy is to work until 70 to maximize their SS benefits and to save a big chunk of the extra 8 years of job income from age 62 to 70. Quite a few also plan to work part-time while collecting SS.

Contact Harold Wong at (480) 706-0177,, or Visit for his previous articles.

How Social Security Strategies Affect Your Retirement

(5/23/2014 AZ Republic by Dr. Harold Wong)

The Social Security Press Office has published a Fact Sheet that gives some interesting numbers. In 2014, There 39 million retired workers who receive $1,294 in average monthly benefits; 8.8 million disabled workers who receive $1,146 in average monthly benefits; and 6.2 million Survivors who receive $1,244 in average monthly benefits.

Social Security is the major source of income for most of the elderly. Nearly 90 percent of individuals age 65 and older receive SS benefits. This represents about 38 percent of elderly income. Among elderly SS beneficiaries, 52 percent of married couples and 74 percent of unmarried persons receive 50 percent or more of their income from SS. Among elderly SS beneficiaries, SS is 90 percent or more of the income for 22 percent of married couples and about 47 percent of unmarried persons.

Many workers take SS too early, given their retirement goals. An April 22, 2014 article by Mandi Woodruff found on, cites new data released by the SS Administration. For 2012, 37.2 percent of men and 42.4 percent of women took SS at age 62, the earliest age that non-disabled individuals can take SS. Only 5.2 percent of men and 11.4 percent of women waited until age 66 (considered your full retirement age for workers who turned 65 after year 2008) to start taking SS benefits. Only 1.2 percent of men and 2 percent of women waited until age 70, when one gets 32 percent more than age 66.

Example: I met Helen about 4 years ago. She was a divorced real estate agent in Oregon, but the market fell apart. Luckily, she was able to move to the Phoenix area and got a job at a hospital where she earned about $50,000 annually until age 70 and then took SS. Her benefits were $2,400 a month, instead of only $1,250 a month had she taken SS at age 62. Note: in virtually all incomes that I have seen, one gets almost double the SS benefits at age 70 compared to age 62.

She owned her home free and clear, but had to pay $600/month to the community park owner for the land rent, given that she owned the manufactured home but not the land. If we add all utilities, including cable TV, high-speed internet, and phone, it was another $250 per month. If she had taken SS at age 62, she would only have $400 per month to cover all other expenses, including food, healthcare, car, and fun. Life would have been very grim. Because she was receiving $2,400 a month SS, she was able to lead a normal life, such as buying the groceries she wanted and going out to lunch with her girlfriends.

Private Pension Plan Offsets Future Inflation: Helen had only $150,000 in her IRA and about $30,000 of cash in the bank. She understood that with only 4 percent annual inflation, what cost $25,000 today will cost $37,006 in 10 years when she is 80. She deposited $100,000 of her IRA in a private pension at age 70 and it will generate $10,256 of annual income, starting at age 77, for the rest of her life. The 10.256 percent of annual cash flow is guaranteed and her principal is not at risk in the stock market. This is substantially more than what her IRA was generating.

Free Seminars: “How You Can Maximize Your Social Security & Other Income” will be given Thursday June 5, 2014 6:30-8:30 P.M. following a light supper 6-6:30 P.M.; and Saturday June 7, 2014, 10-12 seminar followed by a light lunch 12-1 P.M. Both events will be at Keller Williams University, 2077 E. Warner Road, Suite 110, Tempe, AZ 85284. To RSVP, call (800) 955-2490 or email

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