Seven Steps for Making Identity Protection Routine

Ok, this is NOT a myth.  These steps come verbatum from the ever-helpful IRS.

RS Security Awareness Tax Tip Number 3, December 7, 2015                                Español

The theft of your identity, especially personal information such as your name, Social Security number, address and children’s names, can be traumatic and frustrating. In this online era, it’s important to always be on guard.

The IRS has teamed up with state revenue departments and the tax industry to make sure you understand the dangers to your personal and financial data. Taxes. Security. Together. Working in partnership with you, we can make a difference.

Here are seven steps you can make part of your routine to protect your tax and financial information:

1. Read your credit card and banking statements carefully and often – watch for even the smallest charge that appears suspicious. (Neither your credit card nor bank – or the IRS – will send you emails asking for sensitive personal and financial information such as asking you to update your account.)  I would add that it pays to turn on notifications on your credit cards, especially for "credit card absent" charges.
2. Review and respond to all notices and correspondence from the Internal Revenue Service. Warning signs of tax-related identity theft can include IRS notices about tax returns you did not file, income you did not receive or employers you’ve never heard of or where you’ve never worked.
3. Review each of your three credit reports at least once a year. Visit annualcreditreport.com to get your free reports.
4. Review your annual Social Security income statement for excessive income reported. You can sign up for an electronic account at www.SSA.gov.  It's also important to check for zero earnings years when you did in fact receive wages.  That means your employer failed to report, and pay, payroll taxes.
5. Read your health insurance statements; look for claims you never filed or care you never received.  And you might also contest charges that you feel are excessive.
6. Shred any documents with personal and financial information. Never toss documents with your personally identifiable information, especially your social security number, in the trash.  Check my Event Schedule at www.garyduell.com for our annual Document Shredding and Identity Protection event.  The next one is this coming May.
7. If you receive any routine federal deposit such as Social Security Administrator or Department of Veterans Affairs benefits, you probably receive those deposits electronically. You can use the same direct deposit process for your federal and state tax refund. IRS direct deposit is safe and secure and places your tax refund directly into the financial account of your choice.  Even though a physical check may feel more secure, it isn't!

To learn additional steps you can take to protect your personal and financial data, visit Taxes. Security. Together. You also can read Publication 4524, Security Awareness for Taxpayers.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

• IRS Commissioner Koskinen's Statement on the Security Summit Group Public Awareness Campaign 
• Taxpayer Guide to Identity Theft
• Publication 5027, Identity Theft Information for Taxpayers
• www.irs.gov/identitytheft -- Identity Protection: Prevention, Detection and Victim Assistance
• IR-2015-129, IRS, States and Tax Industry Announce New Steps to Help Public to Protect Personal Tax Data  
• Fact Sheet 2015-23, IRS, States and Industry Partners Provide Update on Collaborative Fight Against Tax-Related Identity Theft    
• IRS and Partner Statements on the October 2015 Security Summit Meeting

IRS YouTube Videos:

• Taxes. Security. Together. – English
• IRS Efforts On Identity Theft – English| Spanish| ASL
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish | ASL
• IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish | ASL

IRS Podcasts:

• IRS Efforts on Identity Theft – English | Spanish
• IRS Identity Theft FAQ: First Steps for Victims – English | Spanish\
• IRS Identity Theft FAQ: Going After The Bad Guys – English | Spanish

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Your Constructive Comments are Welcome!

You Can Wait Until You Are 62 To Plan How to Take Social Security Benefits

The title of this post isn't a myth.  It's true.  You can wait until age 62.  It's just a bad idea.  If you are 50, you may still have time to start working on an ideal cash flow plan for your 60's & 70's.

I know.  So much can change over 10, 20 years.  And a well crafted cash flow plan will be organic and fluid, as it should be.  Why start so early in life?  So you don't leave free money on the table.  And to decrease the discipline required to make the plan work.

A cash flow plan becomes more important if you may be subject to longevity risk (outliving your money).  I suggest you use this calculator at Life Expectancy  I took the questionnaire and my life expectancy is 88, higher than I imagined.  For benefit timing strategies under current law, the break even age for delaying Social Security averages 8-12 years at age 70.  In other words, if your life expectancy is longer than 78-82 then you should prepare for benefit timing strategies.

"Can you give us an example about why and how a 50 yr. old would need to start Social Security planning?" you wisely ask.  I'm glad you asked.  Sure.  I wish I had the skill to show this graphically.

Assumptions:

1. Current age 50
2. Life expectancy is 85
3. Expected budget at planned retirement age of 65 is $5000/mo. in today's dollars
4. Expected retirement year budget inflated at 3.3%/yr.:  $8137/mo.
5. Social Security break even age is 78.  This means that by waiting until 70 to turn on Social Security, your delayed retirement credits will have increased your benefit by 24%. So by 78, the income that you lost by waiting is fully recovered.  After that, you're money ahead.
6. Expected guaranteed income at 65:  $5000/mo.
7. Income gap at 65:  $3137/mo. (8137 - 5000).  And let's assume Social Security will make up that gap at 70.
8. Total funding shortfall, with inflation, age 65-70:  $201,059.

So here would be my plan:

1. Set aside enough per month (including any employer matching, if applicable), before tax to accumulate the $201,059.  At 6% APR, this would require about $691/mo.  Use a true target date fund with at least quarterly automatic rebalancing.
2. At 65, roll this into an IRA annuity that guarantees the inflation adjusting $3137/mo. you'll need at 65.  This way you avoid sequence of returns risk.  You will also be spending down taxable money at a low tax bracket.
3. Save as much as you can in after tax vehicles like Roth IRAs, Roth 401(k)s, real estate, that may give you tax-free income beyond age 70, which will likely be your highest tax bracket years.

Every detail here depends on individual circumstances, ever changing tax regulations and many other factors.

Your Constructive Comments are Welcome!

Financial Abuse of Seniors Isn't Really a Problem

I want to remind you again, especially with this title, that the titles of these posts are myths.

A recent article in Financial Planning Magazine detailed the red flags that regulators look for to catch and prevent financial abuse of seniors.  Here they are, summarized by me:

• Taking too much risk with the senior client's money & income.
• "Churning" the account, that is, excessive trading for the purpose of generating fees and commissions.
• Exaggerating benefits and/or falsely minimizing risks
• Failure to disclose fees.  I would also add, failure to justify them.
• Offering "forbidden" inappropriately risky, expensive or complex products to older clients.  Elder law attorney Carolyn Rosenblatt mentions non-traded Real Estate Investment Trusts (REITs) and variable annuities.
• Failure to include- or even consider -family members in recommendations

In my experience, the worst offenses I've come across with new clients are all of the above.

Your Constructive Comments are Welcome!