November Newsletter

he Social Security Administration recently announced a 1.7% increase in benefits for 2013. Unfortunately, this news will be tempered until Medicare insurance premiums for 2013 are announced next month. In the meantime you still need to prepare for the planned end of the temporary 2% drop in the employee portion of Social Security tax. Outlined in this issue is a recap of the recent Social Security announcements, an update on the states’ sales tax burden, and other useful information.

State and Local Tax Burdens Announced

Where does your state rank?

Each year the Tax Foundation announces the results of its State and Local Tax Burden study. The results are an estimate of the tax burden paid by residents of each state. Here are the findings:

State Tax Burden study

Sources: Tax Foundation calculations using data from multiple sources, primarily Census Bureau, Rockefeller Institute, Bureau of Economic Analysis, Council on State Taxation, and Travel Industry Association.

Notes: As a unique state-local entity, D.C. is not included in rankings, but the figure in parentheses shows where it would rank. The local portions of tax collection figures for fiscal year 2010 rely on projections of local government tax revenue.

Some Observations

Circle Ironically, a number of states with low sales tax burdens are also states with no individual income taxes. This includes Texas, Alaska, Wyoming and South Dakota.
Circle A number of states receive much of their revenue from non-residents. This includes Alaska (oil extraction revenues), Florida (tourism) and Nevada (tourism). It also includes states where mining is a primary activity. This lowers the effective tax burden for residents within each of these states.
Circle The range of burden varies dramatically from a low of 7.0% in Alaska to a high of 12.8% in New York.
Circle This information can be helpful in understanding the cost of living in an area, but should be taken in conjunction with other factors that are important to you such as health care, income taxes, safety, and the environment.

Want to learn more? The full study is available at

Social Security Benefits set for 2013

Social Security Benefits have been set for 2013 with the release of the September 2012 Consumer Price Index. The benefit increase will be 1.7% above the 2012 levels. While Medicare insurance premiums have not been released, here is what is known:

Employer Investment

What does it mean for you?

Circle $3,600 more of your wages could be subject to Social Security tax in 2013. This equates to paying $446 more in tax.
Circle The average Social Security retirement beneficiary will receive an additional $252 in 2013.
Circle For all retired workers receiving Social Security retirement benefits the average monthly benefit of $1,240/mo. in 2012 will become $1,261/mo. in 2013.
Circle SSI (Supplemental Security Income) is the standard monthly payment for people in need. To qualify for this payment you must have little income and few resources ($2,000 if single/$3,000 if married).
Circle A full-time student who is blind or disabled can still receive Supplemental Security Income (SSI) benefits as long as earned income does not exceed the student exclusion amounts listed above.

Warning: There’s also a 2% withholding increase!

Remember to plan for the expiration of the temporary payroll tax cut at the end of 2012. This will be automatically reflected in your paychecks beginning in 2013:

Employer Investment

Note: The above tax rates are a combination of Social Security (4.20% in 2012; 6.20% in 2013) and 1.45% for Medicare. There is also a Medicare .9% wages surtax that is scheduled to begin in 2013 for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in the 2013 figures. Please recall that your employer also pays Social Security and Medicare taxes on your behalf. These figures are reflected in the self-employed tax rates, as self-employed pay both halves of the tax.

When Should You Start Taking Social Security?

Some things to think aboutEveryone Wants a "tiny" Piece of Your Income

Many experts suggest it is more beneficial to wait as long as you can to start pulling Social Security retirement benefits. Is this always the case? Here are some things to consider.

How it works

You have a choice of when to begin taking Social Security retirement benefits. For every year you delay the start of receiving your benefits, your monthly benefit amount increases. The amount you receive maximizes when you reach age 70. Here are the basics of how it works:

Circle You may start receiving reduced retirement benefits when you reach your minimum retirement age (currently 62 years old).
Circle Full benefits are received when you reach your “full” retirement age. This is currently around age 66.
Circle Each year you delay, your monthly payment benefit goes up around 4-8%.
Circle Your benefit maximizes when you reach age 70.

What are people currently doing?

According to a recent study conducted by the Urban Institute, 27% of the eligible recipients started taking benefits in 2011. This is reported to be a 35-year low. Reasons given for this trend:

Circle Delaying payments is beneficial in a low interest rate environment.
Circle The decision to wait hinges on your financial condition. The less you need the money, the more likely you are to delay receiving the benefit.
Circle If you’re still working, the likelihood of benefit delay goes up.

So what is your plan?

Here are some things to consider:

1 If in good health…consider delay. You will need to live longer to make up for the lost benefits each year you delay receiving payments.
2 Consider your “health” opportunity cost. A dollar when you are 62 might be spent much differently than a dollar spent when you are in your 70s. If you are very active now, will you be as active when you are 70? Using this philosophy, some retirees choose to receive benefits earlier.
3 If you are working…delay. Remember Social Security retirement benefits are taxable until you reach your full retirement age. Pulling Social Security early and then paying income tax on it may not pay versus delaying the benefit.
4 If do not need the money consider delay. Assuming you live a long life, the increased benefit amounts are currently set at a rate high above the returns received through traditional savings accounts and CDs. But you should know what your living expense needs are and understand whether you will need the additional income that Social Security can provide.
5 If taking Social Security early allows you to keep from touching your IRA’s and 401ks then maybe take it now. Remember, money pulled from traditional IRAs and 401(k)s is subject to ordinary income tax. In addition, this retirement money is no longer able to compound as an investment.
6 Do the math. Some say the breakeven for delay can be as long as 10 to 12 years (depending on your benefit amount). So it makes sense to use the numerous financial calculators available to determine your personal benefit for each year you delay receiving benefits.

Remember, delaying Social Security benefits is always a bit of a gamble. If you live a long life, you will receive payback on the benefit delay. If you die prior to receiving benefits, you will receive nothing for all the funds you placed into Social Security.

Fuel Surcharges Charge Ahead

Fuel SurchargesOver the past few years businesses have latched onto a new trend that tends to act like an unwanted guest at a dinner party. They show up and just never leave. It is the fuel surcharge phenomenon. And while on the surface it appears to be a reasonable way to ensure a business’ long-term viability, it is becoming a profit center for many of them.

The Problem

With the rapidly changing price of fuel, it became nearly impossible for certain business providers like freight companies and airlines to price their services. As a solution, these businesses introduced a fuel surcharge to be added to their bills. So what is the problem? There would be none if the billing for excess fuel costs was transparent and fairly assessed. Unfortunately, this is often not the case. Here are some of the major problems:

Shield The fuel surcharge is often based on a per gallon cost that has not been seen for years. By keeping the base charge low, the company is able to “understate” their hourly cost. This makes them appear cheaper than their competition.
Good Insurance Airlines like more of their airfare applied to fuel surcharges because they do not have to pay commissions on these fees.
Shield UPS, Federal Express, and other freight companies charge the fuel surcharge on a per package basis, not per location. So if you have three packages delivered to your home on one day, there is an equal fuel surcharge on each one. Extra profit for them? You bet. This is equally true for businesses in a multi-tenant building. Each location is paying the fuel surcharge fee to get the driver to a single address.
Tell Others Fixed fuel surcharges. Some local businesses simply charge a fixed fuel surcharge per trip whether they are traveling 5 blocks or 50 miles.
Documents Table-based fuel surcharges have miles per gallon (MPG) assumptions. Even those companies that publish a transparent chart of fuel charges based on cost of fuel have the ability to overcharge. Why? The cost charged is based on their miles per gallon assumptions.

What can you do?

Shield Ask for reduction or elimination of the charge. If the worker only drove a short distance to provide service, ask for the charge to be eliminated. If the worker is not authorized to eliminate the surcharge, ask for a reduction in the general bill to eliminate the fuel surcharge “profit”.
Good Insurance Look at your bills. You will be surprised to find some suppliers are surcharging you a lot while others have no fuel surcharge what-so-ever. Bills to look at include garbage haulers, lawn services, plumbers, electricians, and other home repair services.
Shield Shop around. Let the supplier know you are unhappy with the fuel surcharge and will actively look to replace them.
Tell Others Consolidate shipments. If shipping multiple packages, consider sending one larger one. Remember shipping surcharges are per package and add up quickly.
Documents Be vocal. When fuel costs go down, expect your fuel surcharge to go down as well. Most consumers have become complacent about this charge.

While fuel surcharges may be with us for quite some time, shouldn’t the application of it go up AND down? At some point should it not go away? Historically, fuel costs were a part of doing business and built into the price of the service. Shouldn’t we expect this practice to return?

As always, should you have any questions or concerns regarding your situation please feel free to call.

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