Social Security: A Simple Way to Protect Your Benefits

Looking to protect your Social Security benefits from creditors? If so, then there's one technique that you need to know about today.

Jun 7, 2014 at 2:04PM


If you're in or nearing retirement, then there's one thing you need to know about your Social Security benefits. That is, if you get them directly deposited into your bank account, then those funds are automatically protected from creditors.

Protecting your benefits from garnishment
The issue here relates to garnishment. This is a way for creditors -- say, a credit card company -- to either seize a portion of your paycheck or, in the event you're retired, to freeze your bank account in order to collect past-due debts.

Let's assume, for instance, that you've racked up $20,000 in overdue credit card charges. If the credit card company decides to do so, and they oftentimes do, then it could ask a court to freeze the funds in your bank account(s) and/or require your employer to redirect a portion of your earnings to pay off the debt.

An important exception to this is your monthly Social Security check. Namely, unless a creditor's claim is for child-support payments or past-due federal taxes, then a retiree's Social Security benefits, at least for the past two months, are theoretically protected.

I say "theoretically" because this presents a problem for banks if they're not directly deposited. And, just for the record, this isn't because banks are biased against you. It's rather simply a matter of logistics.

When a bank receives a garnishment order, its initial duty is to determine whether or not the order stems from a failure to pay child support or federal income taxes. If it does, then your account is automatically frozen -- Social Security benefits and all.

However, if it relates to anything else -- again, say, a credit card debt -- then the bank must review your account history from the past two months to determine whether or not any of the funds therein are protected, such as Social Security benefits.

If they are, then only the excess is subject to garnishment. This leaves an amount equal to two months' worth of benefits available for you to use as you deem fit irrespective of any court order.

The importance of direct deposit
Herein lies the importance of having your Social Security benefits directly deposited, as that's the only way a bank can automatically determine if they're a protected source of funds and thus immune to garnishment.

According to consumer advocates, more than 1 million low income Americans have their Social Security and other federal payments improperly frozen each year as a result of such orders.

For the bank this is merely a clerical error. But for the unwitting victims, the net effect is to leave them temporarily destitute.

There's no getting around the fact that this is an unjust tragedy. But there's also no getting around the fact that it's easy to avoid such a fate so long as your Social Security benefits are enrolled in direct deposit.

How to get even more income during retirement
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information