Mary Beth Franklin on Maximizing Social Security | Retire Sooner Podcast #16

mary beth about two years ago i remember reading an article about social security uh diving into the same worry that so many people have which is it's gonna run out and it i believe it was it's still the most popular video i've ever done on youtube and it's really just about because there's just such worry about what's going to happen with social security and then let's start with the confusion around social security there's just so many ways to look at doing social security the right way the wrong way do i wait do i start when do i start maybe let's just start with a history lesson of social security and what it was originally set up to do well social security has been around for more than 80 years and frankly this was one of the big projects that came out of franklin delano roosevelt's new deal we were coming out of the great depression there was enormous unemployment and basically they were looking for ways to get old people out of the workforce to free up jobs for young people but there really was no universal retirement system and by creating social security which was always looked at as an earned benefit in the sense that a portion of your payroll was being taxed to fund your future social security benefit and that portion would be matched on the employer as well now in the very beginning of this system which was signed into law in 1935 great deal for those people who were the early beneficiaries they may have only paid into the system for a couple years and was getting benefits for the rest of their lives it is a pay-as-you-go system but the original folks so wait i did not know this so right i every day so my i always thought that because the depression was such a terrible time economically it was the wake up call that we needed some sort of social safety net and i'm sure that's part of it but it's very interesting to hear that economically we were in a position where you just you the the part of this was then to say hey if you're if you're a senior somebody senior at a company we want you to give you an incentive to leave so we get young people and get unemployment down and that was a big part of it right it was amazing i didn't like that let's get younger people into the workforce many of those people who did not have jobs during the depression and older workers were hanging in there because they had no other source of income their you know pensions were not widespread so this created i believe uh fdr said that people could retire with dignity it was never designed to be the sole source of your retirement income but it would give a base and that so that base early on first of all there's a lot of factors that got us out of a depressionary period of time that went into the war however world war ii helped a lot it helped a lot but those early folks got social security even if they may have only been working maybe i guess what was that based on that's fascinating to me so well if for someone who wanted to explore it i wish i could remember all the details but if you go to the social security website ssa.gov there's a tab called history and you can read about the history of the social security program and there i cannot remember the name of the woman but she was the first retirement beneficiary i used to know her name uh but she basically put in 22 dollars and change in her lifetime contributions and received over a hundred thousand dollars in benefits over her lifetime she lived to a a ripe old age i believe she was in her 90s the thing to keep in mind is for a for a program that is so important to american retirees most of us do not understand anything about how this program works all we know is somebody named mr fica is taking money out of our paycheck every week and i guess that's going to be my social security benefit a lot of people think that okay you're taking this money out of my paycheck and someplace in the ether is a savings account with my name with my future social security benefit no your current uh payroll taxes your fica taxes are not funding your benefit tomorrow they're funding your parents and your grandparents benefits today it's reliant on current workers funding the benefits of current retirees and that's why this idea of its paying as you go system and i want to allay people's fears when they hear the system's going broke the system's not going broke in a worst case scenario if congress did nothing between now and approximately 2034 when the excess money that we call the trust funds run out there would still be enough money from ongoing fica taxes to pay about eighty percent of promised benefits now nobody is going to be satisfied with 80 of promise benefits but congress isn't crazy they're going to fix this because oh people vote and they're going to make sure that this gets fixed and and so i want to circle back to that just a minute but the reality here is that there are so it started in the in the mid 30s and then there's been changes along the way and and life expectancy just demographic changes the wealth of our country the the thought of life expectancy has obviously been a big piece of the equation and then and then then the range of when when you can take it the 62 to maybe to then now full retirement age was 66 and now it's 67 and that continues to change so there are all these variables and i guess my question would be what is the most complicated part of this why are americans oh again we get to i heard this over and over again we get the most and i know that one of the interviews you did the the most questions from from the audience was for you because social security is the biggest topic and it's the most confusing and on i we get tons of social security questions all the time and there was just a change a couple of years ago what what is so confusing about social security to begin with well there are more than 2700 rules that govern your social security benefits part of the problem is it started as a simple retirement program in the 1930s and in the beginning it was just for retired workers there was no benefit for spouses there were no benefits for dependents there was no disability benefits these things have been added on along the way and much like the tax code when you add a level of complexity often existing beneficiaries are grandfathered under the old rules and then the new rules will apply to people going forward so we have all of these regulations right on top of the other and that's what makes it so confusing you made a reference to changes a few years ago back in 2015 congress was dealing with overarching um federal debt ceiling legislation had nothing to do with social security but while they were there they tacked on two amendments that changed the way some people were able to claim their benefits and in one instance they said this one claiming strategy has gone away in six months you have to be at least 62 years old by april 2016 or you're out of luck the other one they said well we're going to phase this in and as long as you're born before 1954 you can do xyz and then new rules apply to new people you can see where this is really confusing and i took great exception to this legislation because of the short time frame for implementing it right it was only like a six month window i remember that period of time getting people kind of under the wire for the new rules and and the fact that so many people had planned to implement these strategies and suddenly found out they couldn't an example i think of of good public policy is to go back to 1983 the last time we had comprehensive social security reform where they did things like gradually raise the full retirement age which was 65 at the time and will ultimately become 67 over a 40-year period that 67 applies to people born in 1960 or later and will not be fully implemented till 2027. you give the american public 40 years to get used to something they can adapt they're not so good when you give them six months i know it it's such a good point so and i'm going to skip to something i wanted to ask you later but i'm going to skip to it right now is that if you had to and then we'll get to spousal i want to talk about spousal benefits because it's a big consideration for social security benefits but if let's go back for a second and if we were to almost start the show on on this note how would you describe so if you had to which again 2700 rules multiple legislative changes over the last call it 70 80 years 90 years how would you describe social security and the claiming strategy of social security so i'm talking to a 60 year old couple and you say look in the next few years here's what you should do but if you had to describe it in like a sentence or two or maybe three i would say for most americans it is the only source of guaranteed income for the rest of your life no matter how long you live taking this in the context of pensions or history for most people unless they're working for a federal or state government at this point um yes there are current retirees that still have traditional pensions but as we move forward and baby boomers and gen xers start to retire the the um access to pensions significantly reduced now people had this image of the golden age of pensions well once upon a time 100 percent of people have pensions no that never happens you know at most you're talking 30 40 right i think it was like the max was like 41 of companies yeah and that was in the heydays of the 1980s um and people say well what happened to pensions well in the old days when you had companies like ge and ibm and these legacy companies and car manufacturers the big three car manufacturers this was an employee benefit and people stayed their whole life at one company they put their time in the company put money for their future retirement and that was their pension the old by the way the olden days that's what my kids say they're like dad in the olden days yes the oldest days right but a lot of things happened and the biggest thing frankly was global competition when you suddenly had ibm a us-based company competing with japanese and korean companies making similar products that didn't have these legacy costs same thing happened to car companies uh they had international competition that weren't dealing with these costs at one point they used to joke that uh gm was basically an hmo a health maintenance organization with four wheels those employee benefits including pensions got so expensive that the companies to maintain uh international competitiveness had to scale back and that's when we see switching to the 401k which meant the employees had to contribute and take the risk and suddenly retirement wasn't secure secure anymore so again i think your fundamental baseline description of social security which is i'm going to pull this word out that you said is that it is the only guaranteed thing that you can that you will have in the future as long as you have some sort of security benefit right so that's the one piece the next sentence i would ask you to distill this down in is this is are you in the camp of take social as soon as you get it or you can get it or should you wait as long as you can can in order to take it it's a very personal decision based on your health and your wealth i tell people the idea of delaying benefits up until age 70 for people who are healthy enough to wait because it's a bit like the lottery you must be present to win if you're not going to make it into your early 80s it may not be a good choice and wealthy enough okay you're choosing to delay to get this huge payoff an extra eight percent per year between your full retirement age and 70 what do you do for money in between if you're one of those baby boomers who say well i'm going to work forever problem solved you have income from a job but there are many people who could still retire at 62 or 66 and still choose to delay social security to 70 to get that big payoff if they have other sources of income and i'll make two comments on that the idea of delaying up until age 70 i think is critically important for married couples for one spouse to delay if possible okay so so i was going to ask you about social security strategies on spouses so let's go into that as an example right you want one spouse so rather than this is a good way to look at this and again let me let me again back up to to remind you that we are the retire sooner podcast is a group of folks that are trying to get to retirement before 62. this group is targeting their mid 50s their early 60s and they may be our listeners maybe 30 today and we're gonna we're talking about the future of social but also we're saying if i'm eyeing i've got enough i've saved a fair amount of money and then i have the decision to take social security early or not we'll come back to that but to your point the huge piece of the equation is your spouse absolutely spousal benefit so talk that through you want one to wait the whole all the way till 70 and one to maybe take it earlier explain that right because when you have a married couple and let's say the husband and wife each have their own earnings record and consequently they each have their own retirement benefit when one of them dies the larger benefit is going to continue as the survivor benefit so i don't think both spouses need to delay and and i will make the distinction my audience tends to be either in retirement or closer to retirement than your audience and and we can debate where these strategies are appropriate for your younger audience or not but if i'm dealing with someone close to retirement it makes sense for the spouse with the bigger social security benefit i'm going to say the husband not always the case and often in couples of this age near in retirement the husband statistically tends to be a couple years older it makes sense for him to delay till 70 maximizing not only his retirement benefit while they're both alive but he's also statistically likely to die first so instead of getting twenty four hundred dollars a month at 66 he might get three thousand and change he dies that's what his wife steps up to as the survivor benefit regardless of whether she of her benefit she could if it's bigger than her benefit right so and having said all right let's have the husband wait till 70 i then say the spouse with the smaller benefit the wife in this case may want to go ahead and claim her social security early at 62 if she's not working because there's earnings restrictions if you claim before full retirement age my rationale for that is bring some cash flow into the household now to help take the sting away from the husband waiting till 70 and here's something most people don't understand even though the wife is claiming her own retirement benefit early at 62 and her own retirement benefit is now going to be reduced by 25 for the rest of her life it has no impact on her survivor benefit if she is at least full retirement age when she is widowed she can then switch to full survivor benefits a hundred percent of what her husband was receiving when he died for example and this is where things can get a little bit complicated but if you're if if someone listening is in their 60s and they're making these decisions and husband let's say same scenario he's going to wait his social let's say is going to be 3 200 a month wife is saying her wife's social might only be 1800 a month let's just say and she chooses to take that she she can't she can no longer or the second spouse can no longer jump to at least why take it back the second spouse can get at least half of what the higher earning or higher social security spouse would get correct right that a spousal benefit is worth up to 50 of the workers full retirement age benefit even if he waits till 70 her spousal benefit would still be worth half of his age 66 benefit right even though they're even though he's not taking it well under the new rules he'd actually have to take a benefit to trigger benefit for her so in the example i gave you she has her own retirement benefit he has his own retirement benefit she's going to claim her reduced benefit early bring money into the household he's going to wait till 70. now once he claims at 70 it's possible she may step up to a larger benefit you'd have to see how those numbers work out so because of all these issues here you think about the big well what are the top variables you've got your your age your your mental status your health and if you need the money what's your financial situation there are people who maybe had planned to wait till 70 and during the pandemic they either lost their job or because of their health they were afraid to go back to work so they retired early well suddenly they may need to claim social security right now and the bottom line is if you need the money go ahead and take it if you need it go ahead and take it yeah absolutely go ahead and take it and you may be able to undo that decision later there are some reset buttons in the social security system well i remember they're used to again this is why it's so confusing there used to be a way where you could take it and then if you if you wanted to give it all back you could then refile for a higher amount yes um and that rule wouldn't even call that well that's when you withdraw your application for benefits you can still do it but it can only be within the first 12 months of receiving benefits and you can only do it once in your lifetime oh that's right okay so and give us that example that's interesting so tell me why you would want to do that okay so let's say um i'm 62 years old i had planned to work till 66 or 70 and during the pandemic i lost my job i need money i went ahead and claimed my benefit at 62 so instead of getting a hundred percent of my benefit i got 75 of my benefit and now nine months later i got another job well gee i really wish i had held off on that because i'm within the first 12 months of claiming i can contact social security and say hey i want to withdraw my application but the catch is i have to pay back anything any interest or anything i just give them back the money they paid me so that at a later date when i'm older and my benefit would be worth more because i'm older i start as if for the first time at the higher rate so that's one do-over option and then there's another that if you if your your head hasn't exploded yet i'll give you the other yes i love that that's actually pretty understandable that makes a lot of sense and i think that that's important for people to know i love that okay the second one the second reset two over two do overreach two is called suspending your benefits now to suspend your benefits you have to be at least full retirement age or older and uh at that point the checks you have been receiving i say checks they're actually direct deposits right the money you have been receiving from social security stops but it's now starts earning those delayed retirement credits and so it starts growing and up until 870. so let me give an example of how that would work and who i would suggest using this and the good thing about suspending your benefits is you don't have to pay anything back your checks stop and now they start earning delayed retirement credits so let's say we have a husband and wife the husband collected benefits at 62 because he thought hey why not a lot of people think it's my money i can get it at 62 i'm grabbing it now so he takes his benefits at 62 they're reduced by 25 percent because he's claiming four years early but it never occurred to him that if he claimed his retirement benefits early and they're reduced and he dies first now his widow is going to get a smaller benefit because a survivor benefit in general and of course there's exceptions is worth up to 100 of what the deceased worker was collecting at time of death so he may want to wait until his full retirement age of 66 and say you know let me suspend my benefits so those benefits are going to stop now he needs money from someplace else but his benefit stops now they grow by eight percent a year so the math works like this instead of taking a hundred percent at his full retirement age of 66 he took 75 percent at 62. he takes that for four years he suspends his benefits they stop now they grow by eight percent a year that's 32 percent over four years if i multiply the 75 percent he took originally times 1.32 i come out with 99 he has effectively restored his full retirement age benefit by age 70 and now if he dies that's what his widow's going to get whoa i like that it's it you made it actually sound pretty simple that these are two do-over strategies the ones real simple hey i'm just going to pay the money back and it's going to continue to grow and you don't have to be the full age to do that yes within 12 months within 12 months the second do-over is if you took it a little too early you look up and you say you know i'd really like my benefit to grow from my spouse then when you hit full retirement age you can suspend and it will continue to grow right do you do do over option number two right and the one advanced social security planning by the way this is advanced social security and the thing to keep in mind is let's say you've got a husband and wife the scenario we just went through his benefits stopped as long as she was collecting her own benefits she's good but if she was one of these stay-at-home wives she took care of the kid she wasn't in the workforce her only benefit is as a spouse hers would stop too and the other exception these are always my favorite that does not apply to divorce spouses so if you suspend your benefits and you've got an ex-wife who's collecting on your record it does not affect her benefits but it would affect your current wife's benefits so again i'm just thinking of questions our listeners might have popping up in their heads as they're listening to you let's just say you are divorced your spouse is 65 and hasn't taken social security yet not a full retirement age and you're 62 but you'd like to turn on the clock and you haven't been remarried are you able to do that or do you have to wait to your ex-spouse was taking social well let me give you the basics on social security and and i again this is my favorite part and i say this having been married 43 years myself um i almost thought you were going to say four times i've been married for four different times so i know these rules like the back of my hand i have been married 43 years to the same person but i have two best friends that were each married nine and a half years not realizing that to get benefits as an ex-spouse you must be married at least 10 years you're one day shy of that 10 years you get squat so here's the rule to remember if you remember nothing else from this conversation there must be at least a decade between i do and i don't if your marriage is falling apart in years eight and nine string out the paperwork because the only dates that marry are the date you're married and the day of your final divorce decree now it doesn't necessarily have anything to do so the spousal benefit if you're divorced and let's just let's flip the example here because we always use husband older what let's say say wife is is uh the husband is now wanting to claim on the wife they they were divorced for 10 years they were married for 10 years and a day she's she has social security of 2500 a month she hasn't even started it yet and he'd like to go ahead and start claiming his benefit can he do that well again we got to back up a little bit because of these rule changes congress did a few years ago it used to be you could once you got to full retirement age you could say either based on your currently married spouse or your ex-spouse if you had been married at least 10 years before diverse divorcing it used to be when you got to your full retirement age you could say don't pay me my social security benefit let it keep growing by 8 a year up until age 70. in the meantime pay me only as a spouse give me 50 of my husband's benefit give me 50 of my wife's benefit well now the only people who can do that are people born before 1954 54 yeah and for a currently married couple the one spouse actually has to claim social security to trigger these spousal benefits for the other one in a divorce spouse situation it's different because you can imagine if you had a reason that's not a conversation with your ex hey you really need the money can you start social well now that you asked i think i'll wait yeah right in other words congress thought um if you have a nasty divorce and one ex says to the other i am never going to retire and you are never going to get a dime on my social security congress thought that might be a problem so they added another exception that in addition to being married at least 10 years divorced and currently single if you have been divorced at least two years and you are both at least 62 years old you can collect on your ex even if your ex has not yet claimed you are an independently entitled spouse but now they've layered these other new rules on it keep them going these are you can only claim as a spouse only if you're born before 1954. okay so here's an example you've got um two ex-spouses they're both 68 years old he hasn't claimed yet neither is she because because she's 68 this year she's born before that 1954 cutoff she could go ahead and say to social security i want to collect spousal benefits only on my ex while my own benefits to keep growing till 70. he doesn't even need to know about it and it does not affect his benefits it does not take away from his benefits if he remarried it doesn't take away from his new wife she is the ex-wife is an independently entitled spouse all right you're gonna layer this on one more time two ex-spouses you've built married both of them for 10 years can you choose the higher payment on one of the two or is it the most recent one only highest of the two and let me give you an example i always use this example of how crazy these rules are and you said how did it get to be so complicated as these changes they keep getting layered on top of each other so we have a couple john and mary they are married 10 years they get divorced mary remains single then john marries his secretary susie they are married for 10 years they get divorced susie remains single john doesn't like to be alone goes to the local pub and he meets tiffany tiffany's 30 years old they fall madly in love and get married now they have a little boy johnny johnny's two years old and big john drops dead who gets benefits wow okay how old is little johnny two wow uh tiffany everybody all three mary four all four so mary is married at least 10 years divorced and currently single she gets a hundred percent of john's survivor benefit even if he hadn't been taking social yep got it oh his now right his debt his assuming she's old enough you know you have to be at least um 62 to get a retirement benefit in 60 to get a survivor benefit but even if john weren't taking his social it's whatever it would have been at the upon his death correct upon his death correct okay so it would be mary that's 100 susie gets 100 because she was married at least 10 years divorced and currently single little johnny as a minor dependent surviving child gets 75 every month until he turns 18 18 yeah and his 32 year old mother also gets 75 every month until johnny turns 16. so so if you worry about the long-term financing of social security less to do with trust funds more to do with divorce awesome all right so mary susie tiffany and johnny little johnny all that's a scenario where social security kind of loses out right you call it the johnny carson rule johnny carson roll i like that the uh now if the negation of that is if uh let's say susie wife number two had gotten remarried she could no long if she's married she can't claim on johnny she can't collect on a living x but here's another exception if you wait till 60 or older to remarry you can collect on a dead x but obviously not on both no only the higher the two the higher the two so here's another quick thing to remember a spousal benefit while your spouse or ex is alive is worth up to fifty percent a survivor benefit when they die is a hundred percent so your ex is worth twice as much dead than alive but you probably knew that anyway right oh my god i feel like we're this has become an episode of deal or no deal no security deal or no deal with mary beth franklin the i knew we'd if we'd figure out a way to make this fascinating because it is it's once you start applying it to the real world social security goes from so confusing i don't want to deal with it to oh wow that's pretty interesting it's a little soap operate which is interesting um the all right so let's go back into let's just go back in real world here's a pretty common scenario that people want to know is that they're 62 they love to take social but they still know that they need to save for retirement so they really are going to keep working let's talk about getting social security and working what are the provisions on you not getting penalized but also being able to work at the same time and which scenario doesn't make sense if you're working at 63 and you're making 200 000 a year is it silly to take even to be getting social because it all gets canceled out let's talk about basically impossible yeah now the idea is social security was designed to replace income you lost when you stopped working so in theory you could start collecting as early as age 62 it's reduced because you're collecting it early but there's an earnings restriction which is about 19 000 this year if you earn more than that social security is going to withhold a dollar in benefits for every two you earn over that limit so basically multiply by three it means if you make about fifty eight thousand dollars a year you're going to lose all your benefits temporarily the way it works is once you get to your full retirement age social security is going to review uh your earnings record and say okay mr johnson we see you claimed your benefit at 62 and we cut them by 25 but i also see that over the past four years you've been working and you forfeited um 24 months worth of benefits over that time two years worth of benefits so now that you have reached full retirement age we're going to pretend as if you claimed it's 64 instead of 62. we're going to add back those 24 months of benefits you gave up so going forward you're going to get a larger monthly benefits so if you claim early and you lose benefits due to excess earnings you will eventually get them back once you reach full retirement age in the form of higher monthly benefits but it's an accounting nightmare for example um you're 62 you decide to claim early social security is going to ask you so do you plan to keep working and a lot of people say no i i just won't tell them i'm working well they talk to the irs it may take two or three years but then you'll get a letter in the mail saying hey mr johnson looks like we overpaid you by thirty three thousand dollars we'd like that back right now in a lump sum do you remember oh i've never you know what that's a good so you social security can come back oh yeah you if they paid you more benefits than you are entitled to because of your earnings you need to give that money back um so yeah you don't want to mess with social security in the rules no no so my number one rule is if you plan to keep working don't collect benefits before full retirement age it's not worth it but say you retire at 62 and you're working part time and make fifteen thousand dollars a year yeah sure go ahead if you want you're under the earnings cap speaking of where do you go do you i i know that there's always talk of going to the social security office calling social security on the phone to try to get some nuanced advice for this where do you come down on would you ever recommend anybody actually go to the social security office and ask them a question first of all covid19 those offices have been closed since march 2020. there is no face-to-face public meeting with social security reps on for the foreseeable future the only way you can contact them is uh either online to apply for benefits or by phone um i the social security administrative administration job is not to tell you when to claim your benefits that's your decision and you should be consulting with your financial advisor your accountant do some online calculations read aarp read me read my book whatever the social security's job is to process your application and the way most of there's more than 60 000 social security reps hard-working people incredibly overworked during all this and many of them have been there for 30 years or more and tend to think in a very old-school way of grab it as soon as you can and and when asked they will often tell you to grab it as soon as you can things have changed over the past decade mainly because of this eight percent per year delayed retirement credit did it not used to be that i legitimately when did that come into play it feels like it's been that way for a long time it's not it's not though in 1983 when i was a very young reporter for united press international covering the social security reform um it was headed by a guy that we all know his name now alan greenspan but this was long before he was chairman of the federal reserve board he chaired the bipartisan commission on social security reform and they did a lot of smart things back then and one of the questions they raised was you know americans are living so much longer but everybody is collecting benefits at 62. what can we do to get people to delay collecting their benefits when they're worth more well the problem was back in 1983 those delayed retirement credits that i've been talking about they were not eight percent a year they were three percent a year it wasn't a huge huge incentive to wait and the problem was in 1983 interest rates were 18 why in your right mind would you delay claiming for three percent when you can stick your money in the bank and get eighteen percent come on greenspan greenspan should have known better than that that that wasn't well that was the law he inherited he was the one who raised the question what can we do to incentivize people to delay so this 18 member bipartisan commission came up with a great idea okay let's increase the delayed retirement credits let's gradually increase them by five percent half a percent each year until we get to a certain point and we'll cap it off at eight percent yeah eight percent it sounded you know that was minuscule in 1983. the eight percent a year took full effect for people who were born in 1943 or later when they reached their full retirement age of 66 1943 plus 66 2009 first it's only been so it's only been since 09 that you get the full 8 and what happened in 2009 at the time it was the worst stock market crash since the great depression and suddenly the government was going to pay you eight percent a year to wait that's why this discussion of delayed retirement credits has become such a big deal over the last few decades it wasn't always like this the other thing the idea of coordinating spousal claiming strategies that was not an option before the year 2000 the citizens right to work act changed the rules about filing and suspending benefits and claiming spousal benefits only so these strategies were not in the public consciousness because they weren't always there these were some of these laws that have been changed along the way the let's go into let's go into the thought around medicare costs and how they relate to social security and i guess really how that also relates back to your agi which can impact your medicare and you're also a medicare expert and we'd love to have you back to talk about medicare another complex subject but let's talk about that relationship okay there are the abcs of medicare since your audience is younger and they probably don't have a clue generally when you turn 65 you are eligible to enroll in medicare a lot of people mistakenly think it's free furthest thing from the truth part a is covers hospitalization that monthly premium is quote free because you have paid for it your whole life through your fica taxes part b which we think of as health insurance doctors fees outpatient services that has a monthly premium most retirees are paying 148.50 a month for part b in 2021 but depending on your income you might be paying 500 a month for that exact same service and that's per person so if both spouses are over 65 that's a thousand bucks a month just for medicare part b plus your medicare part d drugs costs are also um income tested and then you still need a medigap policy so high-end people could be spending fifteen thousand dollars a year in just medicare and medigap premiums before they see a doctor or fill a prescription because part c and or d or a medicare supplement plan will be the the piece of the equation that pays the other 20 that medicare doesn't pay correct that's what the medigap policy they fills the gap now this is what we call original medicare a plus b a medigap policy and a drug policy d other people and you hear this advertised all the time about medicare advantage plans they're also known as medicare c think of it as the the hmo of medicare it's all inclusive they throw in extras that regular medicare doesn't like maybe hearing aids or vision tests or a gym membership or extras like that but the flip side and it tends to be much cheaper you pay your basic medicare premium but maybe no additional premiums but you have to use their network of healthcare providers so the difference with medicare advantage you may not get to choose your doctor right and it may be just for your geographic area so if you're a snowbird you probably don't want to do that because it might work in minnesota but not in arizona the let's go into you had mentioned this early we talked about this just briefly but there is the worry that social security is this big pool of money and it's paying you and yes we've got some money coming in every every two weeks from people's paychecks but then it's also going out every every month in the form of payments and the the the sink if you will that was full at one point is now draining and it's getting very close to empty even though the faucet might be running still people don't like the visual of hey the sink's empty that overflow bucket is empty yeah so where do we and and realistically how much of a haircut will people should people count on worry about and or do you think it gets gets fixed i definitely think it gets fixed again because social security is the most popular and uh successful federal program in history and old people tend to vote in higher percentages than younger people but when you look at right now there are 64 million people receiving social security benefits and a large percentage of them that is the largest source of their retirement income and in some cases the only source of their retirement what are the statistics around that i i hear often that it's like two-thirds of people that or half of everyone in america that's getting social that really is their only income is that do you believe that is that no i would say the the two-thirds it probably represents more than half of their retirement income and i say it's a smaller percentage and the statistics are out there i just don't remember but i'd say it's less than a third where it's their only source of income what happens is you find as people get older something like 90 percent of the people 85 and older social security is their only source of income because they've run through all of their other oh wow okay social security is the one source that you can't outlive and that's why it becomes such an important issue of don't you want to get the biggest benefit you're going to get for the rest of your life yeah you can afford if you can afford to win if you can afford it if you can afford it it really is the um that's a i think that's probably the right way to think about it is that it's not the only source if you're 65 for many people but it's the only source for a lot of people in their mid-80s who outlive the rest of their cushion think of it this way social security is not so you can buy a boat at 62 it's so you're not eating cat food at 82. yeah okay i like that i'm going to make that as the headline of our show social security is not to buy a boat at 62 to make sure you don't eat cat food when you're 82. right all right so what our last question or two here what are some actionable steps today so today we have again broad audience on retire sooner any ever anywhere from 25 to 65. okay and they're they're wondering maybe the 65 year old still hasn't taken started social security what are some steps that anybody at any age we can take to let's call it prepare or and or maximize our social security first thing everybody should do is create their own social security account at ssa.gov that stands for social security administration.government that will give you access 24 7 to your personalized estimated benefit statement that we all used to get in the mail until a few years ago that's right that went away or is it every five years you get in the mail or is it totally online now it's pretty much totally gone unless you're 60 or older have not collected benefits and have not signed up for an online account but it's a critical financial planning document because it shows you your annual earnings for your entire career and more importantly how much taxes you have paid for both social security and medicare throughout your entire career and while it's your employer's responsibility to report your earnings to the irs and consequently to social security each year it's your responsibility to check it at least once a year to make sure it's right because let's make say that two years ago you know you made sixty thousand dollars and there's a zero on your earnings report the way your earnings are reported and the fica taxes that you pay are going to affect your future benefits don't you want to make sure that your earnings are correct to get those benefits the other thing is um i identity theft there's only one online account per social security number don't you want to make sure you're the one who set it up for your own social security number so search ss.gov set up an account make sure that no one that there's no money there's no income reporting missing and make sure it's you that's getting reported and for as we for for some of our younger listeners on the retire sooner podcast is it still 40 quarters to qualify and do we take is the math still they take your top 35 years on average is that to just give us a quick general calculation how they arrive at that number the the first way to become eligible for social security benefits is you have to have at least 40 credits and you can earn four credits a year so essentially you have to work at least 10 years to be eligible for social security the actual amount you receive is based on what they call your lifetime earnings they take the top 35 years of index earnings over your years so if you made i don't know you made twenty thousand dollars in 1978 when they index it it might be sixty thousand dollars now but they take your lifetime earnings they add up those top 35 years they divide it by 35 they divide that by 12 to come out with your average index monthly earnings and then they apply a formula to that that's what your benefit would be if you claimed it at your full retirement age but then you can choose to claim earlier as early as 62 but you're going to get less money because you're collecting four years early and here's an example if you live to average life expectancy it doesn't matter if you collect smaller benefits early or full benefits at your full retirement age it's all going to work out roughly the same over your lifetime but the longer you live the better off you would have been to delay benefits yeah so it's a longevity insurance policy to some extent again not eating cat food at 82. that's what it comes down and and to look at your audience your younger audience again i tend to talk to people who are in or near retirement and i'm dealing with people who generally have 66 as a full retirement age and i talked about these strategies of one spouse delaying till 70. it makes perfect sense for them because again interest rates have been virtually zero for a decade and they're going to get eight percent a year to delay now if someone who's born in 1960 or later whose full retirement age is 67 says to me well should i wait till 70 and i'll say i have no idea it all depends on what interest rates are like at the time if by the time you get to 67 interest rates are like 5 probably not worth delaying you might want to take the money and bank it but for right now in a zero interest rate environment it's a smoking hot deal the what about not working a full 35 years if somebody works 25 and they don't get the full 35. how big of a penalty is that that's a great missing ten years because well let's say you work 20 years social security is always going to divide by 35 so you've got 15 years of zeros and that means your average lifetime earnings and consequently your social security benefit is going to be smaller but social security is a very progressive program in the sense that lifetime low earners get a higher replacement rate they are probably going to get about 40 percent of their pre-retirement earnings as opposed to you and i we might only get maybe 25 percent our dollar amounts are going to be higher because our income our lifetime income was higher but it's going to represent a smaller percentage of our working year income compared to lower income people so really working poor social security is going to replace a chunk of their earnings and for a lot of those people that's all they're going to have it was never designed to be the sole source of retirement but for many people it is so again social security though not going to run out completely you think for your constituency let's say someone in their 60s at age 85 you can say to them with comfort look you might be getting 2 000 a month on social today worst case scenario uh well what you've said is congress will fix it but if but if they don't and they allow the train to go right through the brick wall even then the math is that you would still end up getting around 80 of what you were currently getting well first of all um congress very seldom does things retroactively so i think people who are receiving benefits should be fairly confident that those benefits are going to continue even though in theory if the trust funds ran dry and there was only enough fica revenue to pay 80 of promised benefits technically social security can't pay any more than that but congress could say all right we're going to borrow money from the general fund until we fix it that's a dangerous road because social security has always been self-financing money coming in from payroll taxes is what pays benefits but i think if push came to shove and they're looking at 64 million people taking a 20 cut of benefits i don't think congress is going to do that i think they're going to say we're going to fill in the gaps until we figure this out yeah if you put it in that context you think of 64 million people that and that's the date yeah getting a pay cut whoever's in office is no longer in office right right particularly in a world where politicians seem to love to just pay pay pay pay now for your younger audience and and this is i wish i had the url to give you but there's there are all these um software companies that help with social security claiming decisions and one of them is called covisum c-o-v-i-s-u-m if you go to covisom.com they have a free social security calculator that tells you what would happen if your benefits were cut by 25 20 to show you what the impact would be and basically what that would do to your lifetime social security income and the bottom line in most cases is yeah this would hurt but you're still going to be better off waiting because if you claimed your benefits early at 62 and you get a 25 cut you're going to have a heck of a lot less money than if you claimed it at 67 or 70 and took a 25 cut interesting okay we'll we'll do a link it's designed for consumers to use it's a free thing and again the bottom line is yeah it's unlikely and yes it would hurt but i tell people that claiming benefits at 62 because they're afraid the system's going to run out of money is like cashing out of your stock part portfolio in a down market the only thing you've guaranteed is you've locked in a loss if if you need the money go ahead and take it but don't take it because you're afraid it's going to run it oh i'm going to leave it there i love that don't take it just because you think it's going to run out that's not the strategy it's if you need it take it right don't take it just because you think it's going to run out because that's probably not going to happen for somebody getting benefits you

Channel: Retire Sooner Team

Views: 149,768

Keywords: wes moss, retire sooner, retire early, early retirement, clark howard

Id: L--vMWe9oPg

Length: 57min 2sec (3422 seconds)

Published: Mon May 24 2021