Social Security Considerations for the Self-Employed

Since my focus is helping families with disabilities, I’m hoping to raise awareness for all those parents out there who may be self-employed. There is, with good reason, a belief the best thing to do is maximize your business expenses to reduce your taxable income. Here’s the catch – your taxable income is what your social security benefit is based on.

In other articles I’ve reviewed the adult disabled child benefit, but as a reminder this benefit is for adult children with a Social Security recognized disability diagnosed before the age of 22. It is 50% of the parent’s retirement benefit when the parent files (and while parent is alive). It increases to 75% when the parent dies.

What does this mean? It means if you are a business owner and you are deliberately keeping your reported taxable income low you’re also contributing a lower amount to Social Security. Social Security uses the average of 35 years of work history to determine your benefit – so one or two low income years is not a big deal.

However, if you’ve been working for 40 years and reporting very low income you need to consider (and plan for) how your child will enjoy their life when you’re gone – if you’re currently subsidizing (paying for things) them. This could mean you have a large life insurance policy, you start increasing your taxable income so you can increase your social security or you’re spouse has been working and you’ll use their benefit.

One last consideration, about you. How are you going to fund your retirement? Again social security retirement is based on what you’ve paid into the system. Hopefully you’ve been aggressively saving into a retirement account – which could be part of why your reported taxable income is so low.

This is not a call to change whatever you’re doing; rather I would like you to pause, evaluate where you are and where you’re going, and then decide what to do. Decisions like this should not be made in a vacuum, hiring a Planner to show you some retirement and life after you’re gone for your child(ren) projections would be worth the money invested.

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Guardianship

Recently I was reading a forum discussion about Guardianship, and I was taken aback by comments like “it’s easy, you don’t need an attorney”. Full disclosure I did retain an attorney, but how “simple” it was or wasn’t my only consideration; nor was cost. I wanted to understand exactly what it meant to be a court-appointed Guardian – for me and my son.

My concern is there are those who consider guardianship as an extension of being a parent – it’s something they should almost automatically do. I’m also concerned there are those on the extreme other side – they don’t want to take away any of their children’s rights.

Me, I’m somewhere in the middle. I was against Guardianship because I thought it meant my son wouldn’t have any legal rights; and I’m big on civil liberties. But what I’ve come to understand is my son needs protection, because he is very compliant and doesn’t have a mature (adult) understanding of the world – and unfortunately it’s very likely he never will.

Yes, there is supported decision making (learn more here), and I believe this to be a viable option for many people with I/DD – but consideration should be given to how much an individual understands. It’s no more a 100% solution than Guardianship is.

I found (and I’m including) a great overview of Guardianship of incapacitated or disabled persons on FindLaw (you can find it here). I’ve included my key takeaways below:

“Guardianships are limited as much as is reasonable in order to allow wards to exercise as much control over their lives as possible while maintaining as much dignity and self-reliance as possible. The desires of the wards are given primary consideration. Also, wards are allowed to do as much of their own caregiving as is physically and mentally possible.”

So when you are considering the Guardianship decision (can’t occur before the child turns 18) don’t take it lightly. It does not mean the same thing as being their parent, they are legal adults and have the same rights/responsibilities as you or me. You will not automatically be consulted or informed about their medical condition; but there are less restrictive methods of getting this information than Guardianship.

I encourage anyone who is considering this decision for either their child or parent to consult with an attorney whose practice focuses on this type of law. Have the attorney provide you an overview of the pros and cons, and talk it over (as much as possible) with the individual you’re considering Guardianship of. Just please don’t think it’s another block to be checked as your child becomes an adult – this is, and should be treated as, a major milestone and decision.

No Barriers

I learned about No Barriers through one of the many podcasts I listen to – it’s guest was Erik Weihenmayer, the first blind climber to summit Mount Everest. Since accomplishing this, he has gone on to successfully climb all Seven Summits and kayak the Grand Canyon. His story really put the challenges I felt I was facing into perspective, and provided me some insight into more constructive ways for me to address them.

Who They Are 

I’m copying, verbatim, No Barriers Mission statement, because I feel it’s so powerful. “To unleash the potential of the human spirit. Through transformative experiences, tools and inspiration, we help people embark on a quest to contribute their absolute best to the world. In the process, we foster a community of curious, brave and collaborative explorers who are determined to live the No Barriers Life.”

What They Do 

No Barriers has several Specialty Programs – Veterans, Students & Educators, Corporate Leadership and an annual Summit. The intent is to help individuals overcome pre-conceived notions of what they can’t, and more importantly, can do – through others sharing their stories and guiding individuals through their own journeys.

They don’t “specialize” in working with any particular type of disability, reviewing their website and testimonials participants have visible and invisible injuries. The only common theme I’ve been able to find is a willingness to let nothing stand in your way; they are looking to help those who not only want to help themselves, but are also willing to put in the work necessary.

What Else Should I Know

When you visit the website take some time to really explore each of the tabs at the top – there is too much content for me to capture here, and IMHO it’s all relevant and valuable.

For example – there is detailed information about expeditions for each of the Programs cited above (Veterans, Students & Educators, and Corporate Leadership); an online course taught by No Barriers Ambassadors (who have overcome their own barriers); Events (like the annual Summit) and a podcast (which I’ve started listening to and highly recommend).

Disclaimer

I am not an employee of No Barriers; and any errors noted are my own.  If I have misrepresented, or misstated anything please provide constructive feedback so I may make the appropriate change(s). All opinions and views are my own.

Can Tech Help You?

In my lifetime I’ve been amazed with how evolved technology has come. I’m familiar with Moore’s Law, so I shouldn’t be surprised – however it’s one thing to “know” processing power will double, and another entirely to see it happen. What excites me the most is what this means for individuals with disabilities – the ways it can allow them to experience the world and integrate with their societies (become truly inclusive).

Think of all the apps for smartphones – there are tools providing a voice to those who previously were non-verbal, apps to help track and locate individuals (elope risks) and new ways to travel without personally engaging a taxi driver (Uber, Lyft). These barely scratch the surface, think about what’s on your phone and how these apps have changed your life!

Next let’s look at Alexa and what it can do. Full disclosure – although I wouldn’t consider myself a Luddite I do not have one of these devices in my home. However, I can (and do) appreciate how much freedom they can bring to individuals. Imagine having limited mobility and being able to control much of your house by talking out loud – I can see this being a great equalizer.

For lower tech options – what about teaching your child how to use a dishwasher? Maybe start with how to load it, breaking the steps down according to your process. For example, when I used my dishwasher I would rinse the dishes first (which is a big reason I no longer use it) and then place the dishes in the dishwasher.

If you are teaching someone who has trouble with multiple steps, perhaps have them rinse and place in a dish strainer next to sink. Then, when all dishes are rinsed, have a second step to place dishes in dishwasher – with a picture of a loaded dishwasher laminated to counter as a guide. Eventually you can move to inserting the soap and pressing run. Sure – it may take time and feel like you’re taking too many extra steps; but once they’ve mastered it they can now do their own dishes. Huge step!

My point is you don’t have to wait for some magic tech to be designed to help your child(ren). I believe most of what our children need has been built, it’s up to us to think outside the box about how to incorporate it. Shift your view from how something can make your life easier to how can something decrease your child’s dependency upon you.

As you make this shift, you will undoubtedly find new areas your child will come to rely on you. Please don’t stop innovating, in my opinion the goal should always be to help our children lead lives as independently from their parents as they can. We all have supports – neighbors who watch our pets when we take trips, the friend who calculates the tip at dinner, etc. Your child shouldn’t be any different – although they may need different tools.

So let’s get out there and re-imagine what we thought we “know”. Think about what you already own, and how it may be re-purposed. Work with your child, whenever possible have them tell you what they need help with. They may not know immediately, especially if you’ve always been there for them. So you may have to let them try and not succeed – it’s only a failure if you give up. Start small, and celebrate your wins – they will occur. And celebrating them will help you through the times you don’t succeed right away.

Try, Review, Train, Repeat

Are our children/siblings truly “helpless”, or have we become too comfortable helping them? I worry we are not allowing them the opportunity to grow, because we don’t want to see them fail; yet failure doesn’t have to be a negative. Instead, take the time to understand what went wrong, and then help your child/sibling understand. And vary how you teach them, just because they don’t get it right away doesn’t mean they never will.

When my wife died my son was completely dependent upon her for everything – toileting (he still wore adult diapers), showering (could/would not bathe independently), etc. It’s been almost 7 years since she passed and although he is not (and may never be) completely independent we’ve made significant strides – he gives me a grocery list (which I edit), brings his laundry downstairs (still not using washer/dryer), makes his own meals (has 4 go to’s, it’s a start), and not only bathes himself but also tells me when he needs body wash, shampoo and deodorant.

Did we get here overnight – I wish. No, it’s taken a LOT of work (and even more patience). What I’ve learned is I need to be ok with getting incremental steps mastered, one at a time; instead of him learning a whole new process. And I need to set him up for success. For example, he learned how to cook raw chicken using the small portions (not sure what they’re called); when I brought home a package of breasts he wasn’t comfortable cooking them because they were “too big”. He had learned how long to cook the chicken for, but the breasts did not meet the same criteria – now I know better. Unlike you and me, the skill doesn’t necessarily transfer.

The grocery list is my favorite example to use, because I think it’s one almost anybody can get started with. Again, start with small steps. I started with having my son make a list of things he likes to eat and drink (whether we had it or not). Then I asked him to check to see if we had it – if we didn’t I told him to circle it. This has evolved into him telling me when he’s almost out of something (toothpaste, hand soap, orange juice, etc) by leaving a list on the dining room table on Friday night.

At first I would take the list at face value (again, my mistake). I quickly learned he would add everything he likes, whether we needed it or not. Now we are working on how to identify what is in cabinets, because he knows how to look in the fridge. We’re also working on him telling me if he wants something from the freezer (like chicken or hamburger helper) the night before so I can defrost it. He’s not making hamburger helper yet, too many steps – but I believe we’ll get there.

Our children/siblings are capable of so much more than what I believe we give them credit for – we just need unlock their potential. And to be completely transparent, I’ve asked/hired others to help me because patience is something I’m working on. So instead of making a “resolution” for the New Year; let’s ask our child/sibling which (1) skill they would like to master. Make it fun, and don’t stress the failures – I don’t want to believe I’m the only one who has burnt dinner or pink “whites”.

FREEZE (your credit)

Let’s all get ready for the new year by adding a layer of protection – freezing not just our credit, but if you have Guardianship or a Durable Power of Attorney, do it for the individual(s) you represent as well.

Why – because it prevents ANYONE from opening new credit cards or taking out new loans in your name. Yes, if your card is stolen the thief can still max it out or drain your bank account; but if your information is compromised (and let’s be real, nowadays whose hasn’t) the thieves cannot run rampant. Best of all, it is now FREE to do so.

What if I need new credit? If you’re considering a home or car purchase in the next month then sure, delay the freeze. But if you’re just “thinking about it” then freeze your credit – you can always put a temporary thaw when you’re ready to move forward with the purchase. The only thing I encourage you to do BEFORE freezing your credit is open a Credit Karma or Credit Sesame, especially if you’re concerned about your credit scores.

How do you freeze your credit? See below, I’m breaking it out by credit agency (x3) – courtesy Clark.com.

TransUnion

  • Online: Visit the Credit Freeze page here
  • By phone: 1-888-909-8872
  • By mail: Request your credit freeze by certified mail using this sample letter. Please note the attachments you must include.
    • Use the following address:
      • TransUnion LLC
        P.O. Box 2000
        Chester, PA 19016

Equifax

  • Online: Visit this page to freeze your credit with Equifax. Important note: With such high traffic to the website, if you can’t get your request processed, just wait about a day and try again.
  • By phone: 1-800-685-1111 (NY residents please call 1-800-349-9960)
  • By mail: Request your credit freeze by certified mail using this sample letter. Please note the attachments you must include.
    • Use the following address:
      • Equifax Security Freeze
        P.O. Box 105788
        Atlanta, GA 30348

 

Experian

  • Online: Visit the Credit Freeze page here
  • By phone: 1-888-EXPERIAN (1-888-397-3742). When calling, press 2 and then follow prompts for security freeze.
  • By mail: Request your credit freeze by certified mail using this sample letter. Please note the attachments you must include.
    • Use the following address:
      • Experian Security Freeze
        P.O. Box 9554
        Allen, TX 75013

A Few Planning Rules of Thumb

This week will be short and sweet, I’m addressing a few questions I get quite often.

1. Is there an average amount most people spend on groceries? How do I know if I’m spending too much?

First – I will never tell someone they are spending too much on anything, it’s not for me to say. What I will continue to do is help them understand what they have available and work with them to weigh what their priorities are. From there we sort out what to they should be spending.

But if you’re just starting out with and would like a good baseline to estimate how much you may be spending on groceries, I recommend USDA’s cost of food plan (https://www.cnpp.usda.gov/sites/default/files/CostofFoodJan2018.pdf). It’s a PDF, and breaks it down by family size, ages and a range of plan types (thrifty to liberal).

2. We want to have children, how will this affect our plan? 

USDA has another great tool – the Cost of Raising a Child Calculator (https://www.cnpp.usda.gov/tools/CRC_Calculator/default.aspx). What I really like is the feature asking where you live, because it can help those considering a move understand in real terms what will happen to their cost of living. Down side, it doesn’t consider the cost of raising a child with a disability.

Given the broad range of disabilities, from physical to intellectual/developmental, I haven’t found a single rule of thumb to use. This is because calculators like the USDA’s consider a child’s care until age 18 in most cases, and when you have a child with a disability you could be caring for them for much longer.

So I ask parents to calculate how much they are paying out of pocket for therapies and other disability specific costs per month. This gives us an annual expense, which is then multiplied by the number of years they reasonably expect to care for their child – in most cases I encourage them to expect to transfer the responsibility around age 70. Not being cruel, but realistically how able do many of us think we will be to perform very physical tasks for our adult children?

3. How much should I spend on a house? 

Lenders will almost always offer more to my clients than I am comfortable with them taking on. I encourage families to spend no more than 30% of their gross income (so if you make $100k don’t spend more than $30k/year) on housing expenses. Where do I get this number from? From HUD’s website – “Families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care.” (https://www.hud.gov/program_offices/comm_planning/affordablehousing/).

I’ve lived in the DC Metro area, I completely understand how difficult it can be to find housing within this price range. But I’m also aware it can be done, and in nice neighborhoods as well; provided you’re willing to be realistic about what you can afford. Unfortunately I’ve seen too many cases where someone’s wants win out over their needs, and they sacrifice saving towards retirement to pay their mortgage.

But Eric, aren’t homes investments? They can be, if they are bought for this purchase – your primary residence should not be considered an “investment”. In my opinion, an investment property is a property which will generate you income – that’s it. Money put into your primary residence can only come back out in the form of a loan (you owe someone else interest) or when you sell (and you will need someplace to live so at least some of that money is going away).

These are my rules of thumb, I’m certain other Advisors/Planners have their own. I’ll gladly consider opposing view points, but please provide supporting documentation. Although I respect opinions, I’m not willing to shift my position on just a persuasive argument, I need data and numbers to make a decision.

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