Smart Money: Social Security rules complex, far-reaching

Dear Bruce: From time to time, I hear or read of various persons receiving Social Security benefits that make no sense people in prison, spouses and children of prisoners, religious people who never contributed, some because their spouses have benefits. Is everyone in the United States eligible? Who is eligible to receive these benefits? B.F., Topeka, Kan.

Dear B.F.: I don't think that I could list all of the eligible beneficiaries and the restrictions that may or may not apply if I were given the entire newspaper. The rules are complex and, in some cases, just don't seem to make sense. That said, if you are truly interested, contact the Social Security Administration and request part or the entire act. It will take a significant amount of your time and energy to read. Social Security has wandered so far from its original intent back in the 1930s as to be unrecognizable by its authors. While it certainly has done amazing things for many people, some heavy-duty rebuilding is very much overdue.

Dear Bruce: At age 50, I was single, employed full-time, living rent- and debt-free with $15,000 in the bank. At age 60, I am married to a retiree on Social Security with no pension. I work part-time with no benefits. We live in a home valued at $160,000, have $100,000 in the bank (CDs and IRAs) and are debt-free. My husband is concerned that we may have no money left in 10 years due to rising costs of health care. (We have health insurance and long-term care insurance.) Currently, we are both healthy. Should I worry more or should he worry less? G.M., Shoemakersville, Pa.

Dear G.M.: I don't know which of you is correct. Are you digging into your savings? If you are not reducing your savings, things seem under control. If, however, you are reducing the monies, then your husband has every right to be concerned, because sooner or later these monies will be exhausted. If you are contributing right now with your part-time job, there is always a question of how long that can go on. On balance, I would tell him to worry a little bit less and perhaps you should worry just a little bit more.

Dear Bruce: Recently, an insurance salesman suggested that I take my entire savings in the amount of $75,000 and put it into annuities. He told me that I would get a higher return for my money than I currently receive. I cannot afford to lose any money. I'm retired and depend upon this interest to supplement my small income. M.S., Sapulpa, Okla.

Dear M.S.: An annuity is an insurance product and, of course, the salesman is going to show you where there is a possibility of you earning a higher rate of return in order to persuade you to buy. However, in most annuity contracts, if you withdraw your money before an agreed upon period of time which can be as much as seven years or more there are substantial penalties. Generally speaking, for people in your circumstance, annuities are not a good choice.

Dear Bruce: I recently retired and receive a modest pension plus Social Security. I do not own any property, but I have $5,000 in a savings account. I would like to know where to invest any or all of my money to get a better return, but still have access to it. Currently, I am able to deposit $200 to $300 monthly into the account. J.S., Park Hills, Ky.

Dear J.S.: Unfortunately, in today's world, unless you're prepared to take a reasonable risk in things such as well-rated corporate bonds and tie your money up for at least a couple years or more, getting even a modest return on your investment is difficult. Most money market funds are paying under 2 percent, as are savings accounts. You might get a little more money in CDs, but then you are obliged to tie it up for a period of time with a penalty for early withdrawal.

Dear Bruce: The recent $300 million pot in the Powerball lottery created some discussion at work. As a department of 12, we each contribute $10 toward the purchase of group tickets with the pot to be split evenly should we actually win. Someone said we could save on taxes by setting up a trust fund that would become the actual winner and disbursing from that fund. Someone else pointed out that we should just appear as a group and take our share of the payout. Another person said that the time to set up a trust fund is if an individual won, and they wanted to share it with friends or relatives. Can you shed some light on the situation? S.S., via e-mail

Dear S.S: In most cases of multiple winners, each gets a share of the lump sum payout, which is oftentimes a fraction of the $300 million. In the case of the Powerball lottery, they don't have $300 million to give you. They buy an annuity, which pays off over a 29-year period. If you consider the real cost of the annuity, which is the lump sum payment available and then subtract the taxes, you will find that the $300 million is greatly reduced. If you do win, the appropriate thing to do before you tell anyone, including the lottery officials, is to consult a well-schooled tax accountant to determine the best road to take.