Timing Retirement a Delicate Gamble

Clarification: The following column gave an incomplete answer to a reader's question about finding the price his late father paid for DaimlerChrysler stock so the heirs could establish a cost basis for income-tax purposes. The answer should have pointed out that, in general, the cost basis of inherited stock is stepped up to the market value at the time the death occurred.

Q:

I was born in 1943, so under current Social Security law, my normal retirement age will be 66. According to my latest Social Security statement, my benefits would be reduced by 25 percent from the normal amount if I retire at age 62, by 20 percent at age 63, 13.33 percent at age 64 or 6. 66 percent at age 65. When is the best time for me to begin taking payments?

A:

Do you know when you are going to die? Most people don't, which is why choosing the date to begin receiving Social Security payments is normally a gamble.

In your case, if you were to live into your late 70s, you would receive more money overall by starting payments at age 66 than you would by starting earlier.

However, even if you are awesomely healthy, have high-quality genes and expect to live into your 80s or beyond, you might have good, nonfinancial reasons for retiring before age 66.

On the other hand, your Social Security benefits could be reduced if you receive them before normal retirement age and continue to work. If your earnings from work exceed certain limits, which change from year to year, you will lose part of your benefits until the month in which you reach normal retirement age. You should consult a tax professional about that.

By the way, you would be entitled to greater-than-normal benefits if you retire later than age 66. For details, go to the Social Security Web site at www.ssa.gov and click on the link labeled "Calculate your benefits."

Q:

Is there such a thing as a state death tax in California?

A:

There is and there isn't.

If federal tax is due on the estate of a deceased person who owned property in California, then California generally is entitled to levy an estate tax of its own.

The California tax, which applies only to property located in California, cannot exceed the maximum credit for state death taxes allowed on the federal tax form. This means that the federal and California estate taxes taken together cannot exceed the amount of federal tax that would be due if there were no California tax.

To help determine whether an estate is subject to federal tax, see Internal Revenue Service Form 706 and the instructions that come with it. The California tax is filed on Form ET-1, which can be downloaded from the Web site of the state controller's office at sco.ca.gov.

Q:

Can you tell me how to obtain a history of stock purchases made by my late father during the 1960s and 1970s? He was an engineer with DaimlerChrysler and bought stock through its employee stock purchase program. My mother owns the stock now, and my sister and I are listed as secondary beneficiaries. None of us knows the prices at which the shares were purchased, so if any were sold, we wouldn't have the cost basis for income tax purposes.

A:

If you haven't already done so, you should search whatever financial papers your father left behind. At some point, he probably received documents that confirmed the prices of the shares he bought.

Don't forget to adjust for stock splits that have occurred since the purchases were made. You can get historical split information from the company or through financial research Web sites such as www.yahoo.com.

If your father didn't keep all the necessary documents, you should get in touch with Bank of New York, the transfer agent that deals with DaimlerChrysler's North American shareholders. The toll-free telephone number is (800) 470-7418.

Source: sfchronicle.com - 08-2004