CONSUELO MACK: This week on WEALTHTRACK, why
2019 is a watershed year for Social Security. Benefits guru Mary Beth Franklin explains
the big changes next on Consuelo Mack WEALTHTRACK. Hello and welcome to this edition of WEALTHTRACK,
I'm Consuelo Mack. Before we dive into this week's topic, we would like you to participate
in an anonymous survey on WEALTHTRACK.com to help us serve you better and also let our
sponsors know just how special our audience is. So please join us on WEALTHTRACK.com for
a brief anonymous survey. Paying attention to Social Security benefits
pays off and needs to be taken seriously from an earlier age than most people realize. Why
start tracking it early? Social Security calculates the highest 35
years of earnings to determine your benefits. You want to make sure they get your numbers
right. So even if you are decades away from collecting, it's important to start keeping
tabs. It's easy to do by opening your personal Social Security account for free at socialsecurity.gov/my
account to check those annual earnings figures. The 78 million-strong baby boomer generation
is already there. According to Maximizing Social Security Retirement Benefits author
Mary Beth Franklin, the oldest boomers turned 70-1/2 in 2016, the age at which they must
start tapping their retirement accounts or else face steep tax penalties. 10,000 people
a day are hitting that number and will for the next decade or more. Many of us underestimate
how important this benefit is. It is the single largest source of income
for the majority of Americans age 65 and older. It accounts for half or more of total income
for 53% of married couples and 74% of unmarried individuals. It is one of the only sources
of guaranteed income that retirees can count on for the rest of their lives. Its cost of
living adjustments help maintain buying power over decades of retirement.
But as Franklin points out, Social Security isn't static. There have been some major changes
in recent years. In addition to being the author of Maximizing Social Security Retirement
Benefits and an acknowledged expert on the subject, she is Contributing Editor at InvestmentNews,
a leading publication for financial advisors and an award-winning personal finance journalist.
I asked Franklin to take us through some of the most important changes in Social Security,
starting with one with an expiration date. MARY BETH FRANKLIN: Well, 2019 is a watershed
year for Social Security. 2019 is the last year that people who reach full retirement
age this year – that means they turn 66 by the end of this year – have this incredible
opportunity. If they are married or they're an eligible divorced spouse, they can say
to Social Security when they claim benefits, "Don't pay me my benefits. Let them keep growing
by eight percent a year." CONSUELO MACK: Until 70.
MARY BETH FRANKLIN: Until 70, "and pay me only as a spouse. Pay me half of my wife's
benefit, half of my husband's benefit." That for a married couple, when you look at their
lifetime benefits over both of their lives and the fact that one of them will get a survivor
benefit at the end, can boost their lifetime benefits by 50, 60, 70 thousand dollars a
year or more. This is huge. Now the only problem is you have to be born by January 1, 1954,
in order to do this. People like me, who were born after that magic date will never have
this option. CONSUELO MACK: So, this year is the last year
that people who turn 66 are eligible for that option.
MARY BETH FRANKLIN: That's correct. Now it doesn't mean they have to exercise it this
year. CONSUELO MACK: Oh, okay.
MARY BETH FRANKLIN: Part of the strategy is your husband or wife actually has to claim
a benefit to trigger a spousal benefit for you. So, say I turn 66 this year and maybe
I'm married to a younger man who's only 64. I can't claim my spousal benefit until he
claims his. CONSUELO MACK: I see.
MARY BETH FRANKLIN: So, two years from now when he's 66 and I'm 68, at that point I could
claim spousal benefits only, get half of his benefit in addition to what he's getting and
then my own benefit continues to grow by eight percent a year up until age 70, and the key
is at 70 I have to remember actually to claim my benefit. Social Security is not going to
track me down and say, "Hey, we owe you money." That's up to me to go claim my own benefit.
CONSUELO MACK: What about people who are divorced? You said as the qualified ex-spouses.
MARY BETH FRANKLIN: That's right. Eligible ex-spouses. The way the Social Security rules
work is if you are married at least ten years, you're divorced, and you're currently single
– now maybe you were married to someone else in between, but if that marriage ended
in death or divorce, you're currently single – you are allowed to claim Social Security
benefits as if you're still married, but all the other basic rules apply. If I'm born by
January 1, 1954, meaning I turn 66 this year, I can claim spousal benefits on my ex even
if he or she has not claimed as long as they're at least eligible to claim. It's an added
benefit that divorced spouses have that married spouses don't.
CONSUELO MACK: So just run that one by me again. Even if your ex has not claimed, you
can claim spousal benefits. MARY BETH FRANKLIN: Right. Let's look at it
this way. Let's say you had a particularly nasty divorce and one ex says to the other,
"And I am never going to retire, and you're never going to get a dime of my money." Well,
Congress thought that might be a problem. So in addition to being married at least ten
years, divorced and currently single, if you have been divorced at least two years and
you're both at least 62 years old, meaning you're eligible for Social Security, you can
claim on your ex's record even if your ex has not yet claimed, but the big caveat under
these new rules is you must be born by January 1, 1954, in order to do this when you reach
your full retirement age. Unfortunately, that's only available to people who were born at
the right time, but there is a silver lining for those divorced spouses. Guess what. If
your ex dies, you are entitled to survivor benefits and, as a refresher course, a spousal
benefit is worth up to 50 percent of the worker's benefit whereas a survivor benefit is worth
up to 100 percent of the worker's benefit. So yes, your ex is worth twice as much dead
than alive, but you probably knew that anyway. Now here's another little tip for you. I usually
tell people, now put this in perspective. There are more than 2,700 rules that govern
Social Security benefits, and many of them are exceptions, and many of the exceptions
apply to divorce. It's very complicated. I say the first rule people need to remember
there must be at least a decade between I do, and I don't. If your marriage is falling
apart in years eight, nine, and ten, string out the paperwork.
CONSUELO MACK: Exactly. Stay married for ten years.
MARY BETH FRANKLIN: Right. The only dates that matters are the day you were married
and the day of your final divorce decree. I have had financial advisors send me paperwork
that showed their clients missed this by one day, by two days. Really pay attention to
the dates. CONSUELO MACK: Right, and they can't claim
the spousal benefits. MARY BETH FRANKLIN: Correct. Now the other
thing is these are all crazy rules. I don't write to them. I just interpret them. If you
wait until age 60 or later to remarry, you can't collect on a living ex, but you can
collect survivor benefits on a dead ex even if you're married to someone else. So, the
second rule is if you're going to take a second trip down the aisle, wait till 60 to do it.
CONSUELO MACK: Widows and widowers. I know you had kind of a startling statistic about
the advice that they were getting and some sort of a test as to how inaccurate it was
from the Social Security offices. Will you explain that?
MARY BETH FRANKLIN: First of all, widows and widowers who are also entitled to their own
retirement benefit, really can access two different pots of money at different times,
your own retirement benefit and your survivor benefit. They are two different pots of money,
and it doesn't matter when you're born. The Social Security Administration did an internal
investigation, an audit about two years ago that found in a very small random sample of
people who were entitled to both retirement benefits and survivor benefits that the Social
Security rep gave the wrong or less than optimum advice in 82 percent of the cases. That's
pretty startling. So, to your audience, I say if you are a widow or widower, and you're
also entitled to your own retirement benefits, be aware the rules are different for you.
They're more beneficial for you, and the best thing I can do is say go to the Social Security
official website which is ssa.gov, Social Security Administration dot government, and
in the search box just put "widow" or "widower" or "survivor," and these wonderful, easy-to-read
publications will come up explaining all your benefits and what you can get at different
ages and how you can switch benefits. Print it out and take it with you to your Social
Security office. Now, most of the Social Security reps do a great job. Some get confused, but
to have that document in front of you. By the way, while many people can apply for Social
Security benefits online which I do encourage, divorced spouses and survivors must go in
person. CONSUELO MACK: Oh, they must. Some of the
basic rules, let's just go over those because it does get confusing.
MARY BETH FRANKLIN: Right. Now the earliest eligible age for Social Security retirement
is 62, and that may be appropriate in some cases. Unfortunately, the majority of people
still do claim benefits before full retirement age.
CONSUELO MACK: Let's talk about who it is appropriate to claim your benefits as early
as you can, which is at 62. MARY BETH FRANKLIN: I would say if you're
in poor health. The idea of delaying benefits until they're worth more is generally that
you're going to be around to collect them. If you don't think you're going to make it
till average life expectancy, maybe you should claim early. Or you need the money. That's
what it's there for. Maybe you lost a job at 62. You had planned to work till 66. You
need the money. Go ahead and take it. There are actually ways to undo that decision in
some cases. I would also say that people who retire early at 62 and maybe work part-time,
they're subject to earnings restrictions which are about $17,000 and change this year, but
if you're working part-time and not making a whole lot of money, it may make sense to
claim benefits early. For married couples it often makes great sense for one spouse,
the one that's got the bigger Social Security benefit, to wait up until age 70 to get the
maximum benefit, but then the other spouse may want to claim early. If he or she is not
working because of these earnings restrictions or, if they are, waiting till their full retirement
age when earnings restrictions go away. The reason I say this coordinated strategy is
that you're bringing some money into the household to take away a bit of the sting of having
the other spouse wait till 70, and even though the person who collects Social Security retirement
benefits early and those benefits are permanently reduced for the rest of his or her life, it
has no impact on her amount of survivor benefits. If he dies first and she's at least full retirement
age at the time, she is still going to get 100 percent of what he was collecting or entitled
to collect at the time of death. So, it's a great way for married couples to coordinate
their claiming strategies. CONSUELO MACK: So, the other side is for most
of us we probably should not be collecting at 62 when we're first eligible. Give us the
reasons why we shouldn't be. MARY BETH FRANKLIN: Well, there are several
reasons you don't want to claim early. If you claim at the earliest age of 62, say versus
your full retirement age of 66, your benefits are cut by 25 percent for the rest of your
life. They do not bounce up to the full amount once you reach full retirement age. If that
works in your situation, that's great, but a lot of people will retire early and continue
to work and not realize there's this very strict earnings cap. In 2019 if you earn more
than $17,640 a year, Social Security is going to withhold some of your benefits. They're
going to take back a dollar in benefits for every two over that limit. Essentially if
you make about $55,000 a year or more, all gone. But it's temporary. When you get to
your full retirement age, Social Security is going to recalculate your earnings record
and say, "We see we cut your benefits by 25 percent, but we also noticed that over the
last four years you forfeited 24 months worth of the benefits to the earnings cap, two years
worth of benefits. So now that you've reached your magic full retirement age ..."
CONSUELO MACK: Which is 66. MARY BETH FRANKLIN: "... which is 66 at the
moment, we're going to pretend as if you claimed at 64 instead of 62. We're going to add back
those two years." So yes, you'll get a reduction. CONSUELO MACK: Not the full four years, but
two years. MARY BETH FRANKLIN: Correct. Only what you
forfeited to the earnings cap. So, you will get a larger monthly benefit going forward,
but frankly, it's an accounting nightmare. A lot of people think they're going to put
a fast one over on Social Security. They'll never know I'm working. Well, guess what.
They do talk to the IRS. It might take a year or two to catch up, but then you get a bill
in the mail that says, "Oops. Look. We overpaid you by $33,000. We'd like that back in a lump
sum." Why do that to yourself? I say if you plan to keep working, simply don't claim early.
If you want to claim at your full retirement age of 66 and keep working, that's fine, but
here you've got this great opportunity. If you're able, if you're healthy enough and
wealthy enough to delay, if you have other assets, you can draw on, or you plan to keep
working, you're getting this enormous bonus of eight percent per year.
CONSUELO MACK: That you wait until you're 70.
MARY BETH FRANKLIN: Seventy. That bonus stops at 70. So, it doesn't make sense to delay
beyond that. CONSUELO MACK: At 70, you have to take Social
Security. Is that correct? MARY BETH FRANKLIN: Well, you don't have to,
but there's no reason not to because there's no bonus after that.
CONSUELO MACK: I see. MARY BETH FRANKLIN: You get this big bonus.
The reason it's so significant is we have been living in a virtually zero interest rate
environment for the last decade. So, in the old days, people say, "Well, I'll just claim
my benefits early, and I'll invest it." Well, maybe that made sense, but right now I say
you have to "invest" it in a risk-free investment which is essentially putting your money in
a bank account where you're getting zero. CONSUELO MACK: Or Treasury bills or something
where you're getting very little. MARY BETH FRANKLIN: Versus the government's
going to give you eight percent a year. It is a smoking hot deal. So, if you can afford
to delay, and I don't think everyone should do it, but again within a married couple,
I think it's a great strategy to have one person wait. I just wrote about a brand-new
study that just came out today in fact where only four percent of retirees wait until 70
to claim benefits. CONSUELO MACK: Wow.
MARY BETH FRANKLIN: The estimate was some mind-boggling that if more people waited until
70, they're leaving more than $3 trillion of retirement income on the table.
CONSUELO MACK: On the table. MARY BETH FRANKLIN: Which would go a long
way to helping with the retirement crisis we're facing. So many people are collecting
smaller benefits early where they would be in a much better position to wait if they
could to get a bigger benefit. CONSUELO MACK: Wow. So, strategies for married
couples. Let's talk a little bit more about them.
MARY BETH FRANKLIN: Generally, married couples should coordinate their benefits. Now you
want to look at the marital status. Okay, married people can do more things than single
people. Let's look at your health. Are one or both of you likely to live a long time?
Let's look at your income. Do you have other sources of income? If you check all those
boxes, that's when I would say let's have one of us wait till 70, and maybe the other
one claim earlier. I turn 66 next year, meaning I can't do anything fancy, but he can. He's
older than I am. So, our new plan is when I turn 66 in 2020, I'm going to go ahead and
claim my Social Security benefits even if I'm still working. It doesn't matter. The
earnings restrictions go away at full retirement age.
CONSUELO MACK: They go away. MARY BETH FRANKLIN: Now I'm triggering a spousal
benefit for my husband who would be 68. He, because he's born before that magic birthday
of January 1, 1954, can file a restricted claim for spousal benefits. That means he
can get half of my benefits for two years and then at 70 he will claim his own maximum
benefits. So that's what I plan to do, and I think if people are in similar situations,
it's a good strategy. MARY BETH FRANKLIN: Let me say one thing about
coordinating benefits. We're talking about spouses where they're both alive. What happens
when one dies? Now we get into the survivor situation, and I'm going to give you an example
from my own family. My brother, Bobby, died ten years ago this month, way too soon.
CONSUELO MACK: I'm sorry. MARY BETH FRANKLIN: When his widow, Lillian,
turned 62 a few years ago, she said to me, "Which Social Security benefit should I collect,
my retirement benefit or my survivor benefit?" I asked, "Well, which one is bigger?" "Oh,
Bobby's is much bigger than mine." I said, "Okay, you're 62. I know you're working part-time.
Are you making much money?" "No. Haven't felt like it since he died." "All right, I want
you to claim your own reduced retirement benefits at 62 even if you lose some money to the earnings
cap. Don't worry about it, because when you reach your full retirement age at 66, you're
going to switch to survivor benefits, and even though you're retirement benefits were
permanently reduced. It will have no impact on your survivor benefits. When you switch
at 66, you'll still get 100 percent of what Bobby was entitled to when he died," and that's
what she did, but ironically in the past ten years, she's become a very successful real
estate agent, making a lot of money. Had she asked me that same question making $100,000
a year, I would have said, "Don't claim any benefits before full retirement age. You're
making too much money. You'll lose all your benefits, but I still want you to collect
survivor benefits at 66," because this is important. Survivor benefits are worth the
maximum amount when me, who's collecting them, is full retirement age. They do not get any
bigger, but my own retirement benefits continue to grow by eight percent a year. So, I would
have said take the survivor benefits at 66 and at 70 check to see if your own retirement
benefits are bigger and, if they are, switch at that point.
CONSUELO MACK: An important point just to reiterate again that you can go to Social
Security, ssa.gov, and get the information about all of these and take them to a Social
Security office just for backup if you need to.
MARY BETH FRANKLIN: Correct. The Social Security website is just a wealth of information. They
really have a lot of terrific educational pamphlets.
CONSUELO MACK: You have a wonderful book as well, an e-book called Maximizing Social Security
Retirement Benefits that is also a terrific resource.
MARY BETH FRANKLIN: Thank you. I'm very proud of that, and I update it every year, so it's
the latest information. CONSUELO MACK: I'm looking at the connection.
If you look at the connection between Medicare and Social Security, they are joined at the
hip. MARY BETH FRANKLIN: Absolutely.
CONSUELO MACK: So, explain some things that we should know about that connection and how
interrelated they are. MARY BETH FRANKLIN: Well, in the old days
65 was the magic number. You enrolled in Medicare. You applied for Social Security. Well, now
there's a bit of a disconnection because the full retirement age for Social Security is
66 or higher depending on your birth date, as high as 67, but the enrollment age for
Medicare is still 65, and this is really confusing to people because there's no natural trigger
of when do I enroll in Medicare. Medicare has four parts: A, B, C, and D. A covers hospitalization.
It's essentially free because you paid for it your whole like with payroll taxes. B covers
outpatient services, doctors' fees. That has a monthly premium. Most retirees are paying
$135.50 a month for Part B. If you're collecting Social Security, that Part B premium is deducted
directly from your Social Security benefits. CONSUELO MACK: Regardless. I mean that just
happens automatically. MARY BETH FRANKLIN: Correct, if you're receiving
Social Security benefits, but if you've decided to delay Social Security to get a bigger benefit,
but you still have to enroll in Medicare at 65, now you're going to have to pay out of
pocket. The confusing part for a lot of people is they don't realize that in most cases,
they have to enroll in Medicare at 65 or face lifelong penalties.
CONSUELO MACK: Is there another hitch as far as your income as far as Medicare benefits
are concerned? MARY BETH FRANKLIN: Exactly. Medicare is means-based,
which is means-tested. It's one of the great shocks of retirees. A lot of people that I
talk to think they're going to turn 65 and will never pay a penny for health care the
rest of their life because they're on Medicare. Well, I hate to disappoint you, but Medicare
generally covers about half of your costs. CONSUELO MACK: Hospitalization definitely.
MARY BETH FRANKLIN: Right. Outpatients with your deductible and co-payments at which case
most people buy a supplemental policy called a Medigap policy to fill in those gaps, or
they go the all-inclusive route, and instead of having Medicare A and B and a supplemental
policy, they have a Medicare Advantage plan which is like an HMO. It's a network where
everything's included, but you have to use specific providers, and it tends to be cheaper.
But what people don't realize is while most Medicare beneficiaries are currently paying
$135.50 a month for Part B, depending on your income, you could be paying a whole lot more,
and I'm talking $460 a month per person if both spouses are over 65, and your Medicare
Part D prescription drug plan is also tied to income. The thresholds are if you are single
and your modified adjusted gross income, which is essentially everything on your tax return
plus any tax-exempt interest like if you invest in muni bonds. It's not tax-exempt when it
comes to Medicare. You add your adjusted gross income and your tax-exempt interest. That
creates your modified adjusted gross income. If it's over $85,000 if you're single or over
$170,000 if you're married, now you're going to pay more for Medicare.
CONSUELO Mack: At the end of every WEALTHTRACK, as you know, Mary Beth – you've been a guest
many times we always ask you if there's one thing we should invest in, in a long-term
diversified portfolio, what should it be? Or if there's one action we should take to
help our long-term diversified financial planning, what should it be? What would your response
be? MARY BETH FRANKLIN: I would say invest your
time either going to the Social Security.gov website to really learn what benefits you're
entitled to or to invest your time meeting with your financial advisor, with your tax
accountant to say, "What can I do to take advantage of these opportunities over the
next few years to really secure my retirement in the future?"
CONSUELO MACK: Mary Beth Franklin, it's always such a treat to have you on WEALTHTRACK. Thanks
so much for joining us. MARY BETH FRANKLIN: Thank you.
CONSUELO MACK: At the close of every WEALTHTRACK, we try to give you one suggestion to help
you build and protect your wealth over the long term. This week's action point is: know
what your specific Social Security benefits are. They are valuable. As Mary Beth Franklin
just told us your individual circumstances matter. And for some of us, time to take advantage
is running out. For example, if you were born by or before January 1, 1954, you can still
claim spousal benefits if you are married or are an eligible divorced spouse. You need
to take advantage of these expiring benefits. If you are a widow or a widower you are entitled
to important survivor benefits, even if you were divorced, you might be eligible.
As Franklin said, there are thousands of rules pertaining to Social Security. You can go
to ssa.gov for information pertaining to your individual circumstances. I also recommend
franklin's annually updated e-book Maximizing Social Security Benefits. It is really short,
concise, and simple to use. It pays to take advantage of Uncle Sam's inflation-adjusted
annuity. You earned it. In this week's EXTRA feature, franklin discusses
why the rules for claiming Social Security can be quite different if you are single.
Please continue to share your comments with us on Facebook and Twitter, and don't forget
to watch our YouTube channel. Thank you for taking the time to visit with
us. Have a lovely weekend and make the week ahead a profitable and a productive one.
