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The student debt crisis is completely out of hand.  It has become one of America’s biggest financial mistakes not only topping $1.3 trillion, but growing more than $2,000 every second.  This is leaving millions with crippling debt that will follow them for decades to come.  How did we get here? 

We all have financial goals, and one of the most common goals for parents is paying for their son or daughter’s college education.  Although admirable, when someone wants to help foot the bill you can’t, and shouldn’t if you are putting aside your own retirement plans. CollegeCalc, says the average public university in Michigan will cost between $8,000-$12,000 dollars per year which is just for tuition. That doesn’t include the high interest rates backed by the government or any of the extra costs that come with higher education.

If you are considering taking out a loan for a college degree, what kind of income will you make to pay it back? Are you going to step out of college and make a decent earning right away?  Or will it take you a few years to earn that good paycheck?   Maybe, when you finally do earn that bigger salary you will also need to pay for a wedding, kids, or a down payment on a house.  Making uninformed financial decisions, while racking up hundreds of thousands of dollars in student loan debt is only going to generate more long-term problems.  

Parents are also cosigning for loans which automatically puts them on the hook for their child’s poor financial decisions.  It is almost as parents just send their kids off and decide to figure out how to pay for it after they get the bill.  This is becoming detrimental to many people whether you are close to retirement or not.  Rather than retiring when they should, parents are staying in the workforce longer to pay off that debt. 

Make a plan and talk with your kids about being financially responsible and independent. That begins with understanding how much college actually costs, what their field of study will make from a salary, and how you both can contribute.  The lesson here is; you should only help your kids if you can do so without setting aside your retirement or ability to retire. 

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For the first time in its history, changes being made to Social Security law will actually eliminate benefits currently being received by spouses, divorced spouses or children on the work record of a spouse, ex-spouse or parent who has taken advantage of the long used File and Suspend strategy. Those Social Security benefits will only continue when the worker restarts his/her retirement benefit.

This one change alone will cost millions of households tens of thousands of dollars by forcing those who have suspended their benefits in order to collect higher benefits at age 70 to restart their benefits at permanently lower levels. Most will have to do this in order to maintain their family’s living standards.

With more households needing to take their retirement benefits earlier a domino effect sets in which further hurts these families.  They now lose most or all of their spousal benefits.  The reason for this is that retirement benefits typically exceed spousal benefits and you can’t get both when forced to take both at once. The ability to collect a full divorced spousal benefit between full retirement age and age 70 will also be wiped out.  

Life is also going to change for married women and those who are divorced who were married at least 10 years and who earn much less than their husbands or ex-husbands. They are now forced to take their own retirement benefit instead of waiting until 70 to collect. If they are forced to take their retirement benefit at full retirement age and if their spousal benefit exceeds their retirement benefit, they will end up getting absolutely nothing in return for each and every penny of taxes they paid to Social Security over their entire working lives. 

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Some married and divorced couples may face retirement feeling a little less secure in light of some pending changes to Social Security. Congress is fiddling with eliminating two strategies that have been employed for decades that will have a significant effect on couples at or nearing retirement age.

File and Suspend

File and Suspend is a strategy that allowed a married retiree to file for benefits at his or her full retirement age, immediately suspend them, then begin collecting when the benefits reached their highest value at age 70. This allowed the other spouse to collect a spousal benefit. In a single-income household, this was particularly beneficial. The breadwinner could file and suspend, which enabled the stay-at-home spouse to collect spousal benefits while the earner’s social security check continued to grow.

What happens when the proposed changes go into effect? Whichever spouse wants to pursue the file and suspend strategy must be 66 before next May. The spouse that wants to employ the strategy must file and suspend before April 30, 2016. In addition, the individual collecting spousal benefits must be at least 62 to do so, though in order to receive the full spousal benefit, the beneficiary must be 66.  If they are not 66, the amount will be reduced and they will be considered to be taking early retirement benefits.

Deeming

For those now under 62, the new bill extend​s Deeming, which currently ends at full retirement age (age 66), through age 70. No matter how you look at it, the new requirements are going to have you on the losing end of the stick.

With the new proposal, Deeming requires a) that if you take your retirement benefit and are eligible to collect your spousal benefit, you are forced to take both at once and, b) if you take your spousal benefit, you are forced to simultaneously take your retirement benefit. Since Social Security only pays the larger of the two benefits, being forced to take both benefits at once means that you lose one of the two benefits.

Under the current law, you can wait until full retirement age, take just your spousal benefit if you are eligible for it and then let your own retirement benefit grow. Being eligible requires having your spouse file for his or her retirement benefit. But if your spouse is at full retirement age or over, he or she can employ the File and Suspend strategy mentioned above

In order to file a restricted application for spousal benefits only, individuals must be 62 or older by Jan. 1, 2016 or be born Jan. 1, 1954, or earlier. Those retirees are grandfathered in; they can collect those benefits once they reach their full retirement age, even if that is several years from now. Those retirees who turn 62 after Jan. 1, 2016 are no longer eligible to participate in Deeming.

These changes are going to have devastating effects on the lives of millions of retirees. Be sure to discuss any imminent social security changes that may impact your retirement income with your financial advisor.

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