Double Dipping Social Security – The Little Known Loophole

I interviewed Pam Villareal from the National Center for Policy Analysis (www.ncpa.org) about a recent white paper that they put together. It was about Social Security and the little known loophole. The basis of this loophole is that someone can start taking their Social Security payments at age 62 for the reduced amount. Then at age 70, they can reapply for the higher amount.

The couple would have to pay back the benefits that have been paid to them for those eight years. It is basically getting an interest-free loan. In the article, they give an example of a couple that is taking out a benefit at age 62 that totals $13,250 each. However, if they had waited until age 70, they could take out $20,693 a year. That is a pretty big jump.

So they take out the benefit at age 62 for the next eight years. Then they pay back that benefit and then get a $7,000 raise. If you didn’t need that benefit, you could have taken the money and put it in an interest bearing account, made money off of essentially an interest-free loan from the Government, and then started collecting a much higher benefit at age 70.

Keep in mind, there are a lot of assumptions being made and this isn’t for everyone. However, it might be a good deal if the assumptions fit.

For more information, go read Double-Dipping Social Security.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Politics are Working Against Some Very Good Credit Card Legislation

Regulators are finally doing something about the abusive practices of the credit card companies. The Federal Reserve Board has a proposed set of rules that should level the playing field and make things a little easier for the highly indebted consumer. These new regulations could go into effect by the end of the year.

Here are some of the proposed rules (a sampling):

- Prohibit credit card companies from raising interest rates on money already borrowed with the exception of variable rate cards, the ending of promotional periods, and the minimum payment being made more than 30 days late.
- Prohibit credit card companies from charging a late fee if the bill is mailed to the consumer less than 21 says before the due date (a trick used by the industry).
- Prohibit two-cycle billing (another trick credit card companies use that creates additional interest charged to the consumer).
- Prohibit credit card or overdraft fees where the fee itself creates the overdraft.

If you ask me, that is a good start for regulating the credit card industry. Unfortunately, due to the high probability of these new regulations going into force, there are reports that credit card companies have started to aggressively raise rates on credit balances for no good reason at all.

Of course, they can get away with this because of the universal default clause, which states that the credit card company can basically raise rates for any reason. Unfortunately, consumers sign off on this in most cases when they sign the dotted line of a credit application.

The clause was originally intended to protect the credit card company against the risk of a default. If the credit card company suspects that the consumer is getting in trouble due to late pays on other cards and the accumulation of too much debt, then they can raise the rate. Essentially, this would do away once and for all with the universal default clause.

This set of regulations is also good in that it gives the consumer a full 30 days in the event that a bill does not arrive on time. Unfortunately, life does happen and sometimes mistakes are made. A consumer should not be punished for an occasional mistake.

Ironically, the Office of the Comptroller of the Currency, who regulates and supervises all national banks, is urging the Federal Reserve Board to not be so harsh with these rules. In other words, they want the Federal Reserve Board to soften up regulations so that banks and credit card companies can continue abusive lending practices. They maintain “that restricting these unfair practices would hamper the ability of banks to offer credit to consumers.”

One of the regulations that they want changed as to do with the late payment period. Credit card companies have been making a fortune because of raising rates to penalty rates when a credit card payment is one day late. They want the 30-day window to be limited to 5 days.

So, here we go again with a prime example of why things don’t get done in Washington. This is politics as usual. You would think that the Office of the Comptroller of the Currency would encourage these new regulations since it is their job to regulate the banking system. Of course, if the Office of the Comptroller of the Currency would have been regulating the banking system in the first place, these abusive practices wouldn’t be taking place.

Another one of the agency’s objectives is to ensure fair and equal access to financial services for all Americans. It really does appear that yet another Washington agency is taking care of big business rather than looking out for the best interest of the American consumer.
Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

Is Children and Identity Theft Overblown?

The identity theft stats show a large percentage increase. Identity theft solution companies are marketing that you need to protect your kids from identity theft through a monitoring service. Yes, it is true. Identity theft can occur with children. Yes, the statistics show a large percentage increase. However, the total number of cases of identity theft with children is low.

In addition, the vast majority of these cases involve a family member and/or someone close to the family. Most of the cases that are being reported occurred at a time when it was much easier to have your identity stolen. Although still possible today, it is a little tougher for that to occur.

Having said all of that, this doesn’t mean that we shouldn’t be pro-active as parents. In fact, it is a culture that we should all create within our families. So, here are some tips to make sure that your children don’t become part of the statistic.

1) Don’t give your child access to his or her Social Security number. Besides, what good is it for your children to have that information?
2) Don’t carry any Social Security numbers with you in your wallet, purse, phone, or PDA. I see this all the time. With clients, we need Social Security numbers for establishing accounts. I cannot tell you the number of times someone has just reached into their wallet and pulled out that information. If you lose your wallet, you will have major problems.
3) If asked for a Social Security number, make sure that the person or entity you are giving that information has a secure system. Also, be careful of the manner in which you give that information.
4) Always shred any personal information about your children.
5) Keep all personal information about your children in a secure place. Don’t leave papers lying around in the house.
6) Attempt to run a credit report at the end of each year. If something has occurred, it will show up. If the child is over the age of 13, you can get a free credit report through www.annualcreditreport.com.
7) Be suspicious if pre-approved credit offers start arriving in the mail. That might mean some credit activity has been occurring.

When monitoring your own credit reports, do as much as possible which includes credit monitoring. As for your kids, I have never felt it made sense to pay a company monthly fees for any type of identity theft monitoring for kids. In all cases, being aware and pro-active is always the key.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.

The Category 5 Hurricane That Has Not Yet Hit

By the grace of God, we dodged a major bullet with Hurricane Gustav. It was great to see the country come together, to see the levies hold, and to see the Government pull off a successful massive evacuation. Unfortunately, there are still people who are negatively impacted by nature’s wrath and our hearts and prayers go out to those affected.

Anytime a massive hurricane builds in the Atlantic, the forecasters are pretty gloom and doom. Fortunately, we have continued to dodge major bullets. New Orleans under water would have been a major bullet. It makes you wonder, “At what point, do we face the big one? At what point are we not so fortunate?”

I feel the same way with the banking system. We see all of the ingredients for the Category 5 hurricane. We have thus far been able to dodge the big bullets. Yes, we have had some casualties (to name a few…Bear Sterns, Country Wide, and the list of banks that have not made it). However, we have been fortunate to avoid facing anything horrific.

We are right at the height of hurricane season. With two other major storm systems in the Atlantic, this has the potential to be a tough stretch. At the same time, we are also entering into a tough stretch for the stock market with all of the ingredients of a Category 5 hurricane.

The last four months of the year have the potential to be explosive one way or another. In bull markets, the last four months of the year have proven to be great investing opportunities. In bear markets, the last four months have proven to be problematic.

This should be an especially interesting four-month stretch. Let’s take a look at the dynamics going into the last four months.

- A barrel of oil has dropped -25% in about 1 ½ months. This is the bright spot as gas prices continue to fall. Ironically, politicians complain about the speculation effect driving up the price of oil. What about the manipulation effect of politics driving down the price of oil?
- Banks remain in crisis mode. Last week, the FDIC reported that their list of problem banks increased by 30% in the second quarter.
- Going into this Friday’s job report, we have had seven straight months of job losses. Call it what you want – with or without the official negative growth numbers, this is a recession.
- The S&P and the Dow Jones are down roughly -11% for the year.
- Most importantly, we have one of the most important and tightest elections in our history in November. We are also a nation that is extremely divided.
- We have what looks like 3 monster storm systems that have developed in the Atlantic. This looks to be an active hurricane season.
- We are locked firmly in a bear market.

What is my take? Although there remain many factors to be concerned about, my greatest concern is the banking system. Banks are having a tough time raising capital. Banks have billions of dollars of debt coming due in the final four months of the year. The ability for an economy to produce and supply credit to individuals and businesses is crucial for future development and growth.

Therein lies the problem. The credit markets are still in lock down mode. There has never been a greater need for credit. The only credit available comes with high interest rates. Thus far, we have been able to get by in this high risk situation. How long does that continue?

This is the financial storm that concerns me the most for those who are not prepared.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.