The Truth About When Should You Take Social Security to Get The Most Out of Your Benefits

but our minds still work that way we're still like what is the rule of thumb that I should use to make this decision and it it it exists it absolutely exists in this social security space and I think it does a disservice to a lot of people all right Zach is back to answer the question of when should you start taking social security benefits now if you've watched our channel before you know that I am not a fan of absolutes if somebody has always recommending just one strategy whether with Medicare or Social Security it likely means that they either do not know they are talking about or they have other motives so I hope you enjoy the transparency that Zach brings to the Social Security decision and the different strategies available to you I was supposed to get a haircut yesterday too and I didn't so we are we Sorry everybody I'll look different tomorrow isn't that funny how that works just baseball games but all right let's get into this um one thing from the Medicare perspective that I want to draw into this is that I hate absolutes so there's always the people should always take an advantage plan or they should never take an advantage plan or always do this or always do that in Medicare and in the world in general I think absolutes just aren't real uh in a sense of they aren't good advice so from a social security perspective the top videos the top things I see all the time are always take it at 62 or always take it at 70 or never take it at 65 take us through the absolutes in the Social Security world world that we need to be aware of for sure okay we both know absolute cell right and it there's also this mentality that we have where our brains are drawn to something called heuristics which are just the idea of like what is the rule of thumb the easy way to make a decision our brains have have evolved to understand how to make decisions quickly um in in you know Generations past survival may have been dependent upon it and it's different now so we're trying to use that framework to make complex multivariable financial decisions and the framework is not as useful in today's environment right but our minds still work that way we're still like what is the rule of thumb that I should use to make this decision and it it it exists it absolutely exists in this social security space and I think it does a disservice to a lot of people the absolutes are tough the answer is there is a strategy probably two or three strategies per person that they could use and so security is not trying to make money off of you they're trying to make that decision neutral for them meaning they don't care whether you take it early or late because they have such a large sample size of people that it's going to work out on average to the average population you know life expectancy for them so really they don't care um but we care cuz our sample size is one right I mean we are who we are and we don't really care what the average death is or the average anyway you get the idea via absolute cell but your financial situation is unique and so you cannot use an absolute across all these unique individual Financial situations which we're going to cover today of course but uh I think you're right you have to back it gets so complicated in all of this Medicare Social Security and so the other thing that I guess what I want to cover here is when should somebody take Social Security that's the main question but there's going to be a lot of stuff before that and then where are they getting their advice right so whether that is a YouTube video like this whether that is their neighbor or their coworker everybody's situation is different so let's go through when should somebody take Social Security and what goes into that decision yeah okay so I'm going to tell you a quick story that I think will show the complexity of this decision and then we're going to fill in the gaps and we'll explain how to make this decision okay so I sat down with this woman and she had been married multiple times and she was asking asking for Social Security help so we sat down and I I asked her a few questions she had been married to a gentleman for 6 years before she had been married to a gentleman for about 12 years and then she had been married to another person for 11 years and she was not married sorry let me start over so she was married to that she is married to that last one okay so this woman has and by the way one of the previous spouses has passed away so this woman has the ability to take a Survivor benefit off of a divorced spouse she has the ability to take a current spousal benefit and she has the ability to take her own benefit so the the absolute if you say take it at 62 it's like which one like which one are you talking about because there's multiple benefits here she could choose from so the answer is not necessarily which one do you or when do you take it it's first which one do you take and what's on the menu see it'd be like walking into a restaurant and saying I want a cheeseburger and and you didn't realize that you're at a tie joint and all they do is curry and rice right it's like that's you have to think through like what is on the menu for me personally and then factor in some of the decisions around when how long do I have to live in order for it to make sense for this decision and then that's the break even analysis we'll get into that as well so again I think the big mistake is that people use Health as their first um triage yeah and that's not the first triage It's usually the last so your first um process of deciding and segmenting or or at least eliminating choices is to figure out what's on the menu for you and is it spousal benefits divorce benefits disability benefits your own benefits and we're going to go through some of these really quick and help people understand but that's the bottom line is process is what's on the menu second is what's on this menu for your spouse if you're married and then third is how do I understand the risks of longevity meaning what if what if I live a long time or what if I die early and then throw a couple into that and you can actually diversify longevity risk between a couple so you can see there's a lot of strategy here and I don't know how you I mean I'm happy to dive in I don't know exactly how you want to get there but we will talk about how when should I file for Social Security but we need to walk through some of those what's on we need to show people the menu yeah yeah and just for everybody watching at this point go to the financial call.com the guided path season 2 talks all about social security so this is going to be a deep dive and there's even more information there so make sure you go check that out but let's talk about that menu what is on that menu for people to understand exists sure and yeah we've run ours as a Audio Only podcast because we've tried to hide and not be on camera but Eric's brought us on camera brought you out of the dark that's right um okay so some of the first things to understand about the menu you you have your own benefits and and I'm going to I'm going to back up and give people a few terms because as you weighed into the Social Security decision you're going to run into some acronyms and until you know what those are you're going to be lost so let's start there primary Insurance amount p a that is your benefit at full retirement age and it's confusing because they use the word insurance in there um it's a social insurance program it's it's designed to provide income for um the elderly so that's that's why insurance is in there don't stress about it all you need to know is when you see Pia or primary Insurance amount that is your benefit at full retirement age there's another acronym you're going to see F full retirement age so your Pia is your benefit at F that's that you can see how this starts to get a little bit confusing right and where can people find their pia on SS s.gov so Social Security Administration that's what SSA stands for and if you go to ssa.gov no matter how old you are if you have an earnings record meaning you've paid Social Security tax you can you can set up your login and you can see what your earnings were per year you can see what your projected primary Insurance amount is and you can get a feel for what your social security benefit will be perfect so I think that's wise for everybody to go and set that up just so you have a feel for what you're looking at especially if you're in the last 5 to 10 years before retirement it's good for you to set that up yeah so you go on social security administration. goov or ssa.gov you get your Pia and now you know what they're going to give you at your full retirement age F and then from there it's that's that's the starting point and from there if you wait until after full retirement they're going to bump it up and if you take it early they'll give you less and that works out to be not exactly but for a quick conversation like this about 8% yeah and we can throw that chart up too for okay that'll be helpful so after full retirement age it's 8% before it's not quite 8% growth so and and by the way that's monthly too sometimes people will say oh I got to wait till my birthday to get that 8% bump and it oh no it's it's every single month they divide that growth per month and they give you a little bit each month so sometimes it may make sense to file at you know 64 and and four months or something like that based on the math and your strategy okay so once you understand your primary Insurance amount then from there um just to give people a rough idea if you filed early you're going to get about 70 to 75% of it and if you wait until 70 you'll get between 124 to 132% of it and the reason I'm giving you a range is because the full retirement age is changed so it used to be 65 many many years ago and then they bumped it up to 66 and then between 1954 and 1960 if years of birth I mean not back then but like if you were born between 1954 and 1960 it's going to be 66 and 2 months or 66 and 4 months and then until you get until you get to 1960 birth years and then you're up to 67 and then the rest of us currently have 67 I mean you and you and I Eric we're going to be full retirement age of 80 right I was going to ask do you think it's going to go up oh yeah absolutely we'll talk about that for sure think that's one of the main tools that they will use to Shure up the program so I think uh we'll talk about you know the risk of Social Security still being around and I I think they've got plenty of levers to pull but that's one of them yeah so you and I need to prepare for that if you are in your 50s and 60s I don't think that's that big of a of an impact For You full retirement age will probably stay fairly similar for you um it has in the past if if history is an example of what the government has chosen to do they do a lot of grandfathering in with Social Security when they make new laws they know their voter population right they know the people that are watching the news and and are informed and that actually are going to do the work to go vote and so they basically that group of people which are probably your listeners they're like you're fine we're going to leave you alone it's these young people over here that don't pay attention that we're going to we're going to bump their full retirement age up so anyway that that gives you an idea on on Social Security with regard to full retirement ages and that sounds like a personal benefit at this point so we're looking at our personal dollar amounts that I could get exactly but I think we're going to move into that's not the only thing that could potentially influence this yeah so that's the that's right that's the starting point and and so you have this Pia and I draw a line in in your mind and then it could be greater or smaller depending on waiting or taking it early and then off of that Pia all other benefits are calculated too so let's say that you're married and your spouse is eligible to take a spousal benefit off of your Pia and we oftentimes get the question of well I don't especially if couples run their finances separately they're like well I don't want to take his income yeah like I don't want him to not get as much because of me that's not what's going on here your husband or wife could get 100% of their benefit and then you can also get 50% of that benefit so really the government's paying out 150% on the primary workers Pia and that happens all the time and I think that makes sense because think about the contribution that a lot of um home you know Homemakers and caregivers and and folks that like have really like done a great job to rear children and good people in the world but may not have had a social security record like the government's trying to figure out okay well they've had they've contributed to society how do we reward them with the social security benefit we'll base it on the spouses so a spouse can get 50% now something to think about with regard to spousal benefits you get again half at full retirement but it's not your spouse's full retirement age it's your full retirement age so let's say that that let's just throw out some numbers here for a second um John and Jane JN has a benefit that's $2,000 a month and Jane has her own record that shows a benefit of 8,000 $800 $ a month sorry 2,800 so Jane has a choice here she can take all of her own benefit at $800 a month or half of John's $1,000 a month and she gets to choose between the two if she files the the law will basically and if she makes it known that she's married to John they will give her the larger of the two so there's not a lot of work there um I anytime I help people file for Social Security I always like to mention in the notes I'm married to John this is his social security number and I would like to make sure I get the spousal benefit off of John's record just so that you don't leave anything to chance I was going to ask that so are they are you specifically indicating that or can the government see that I know you're doing that as a safety but can they see that and they'll make the assumption that you're taking spousal or do you have to indicate that you so um if you fill out the application correctly they will know that you're married to JN because you said in the application who you were married to and they actually they're going to ask a lot of questions in the about your spouse um that sometimes people don't it's funny to talk to people when you're sitting across the table from a couple and helping them fill out Social Security and you ask them okay what day did you get married and you know wife will look at husband really quick to see if he remembers and he doesn't and you this it happens more often than you think I even had a couple once that told they they looked at each other really funny and then they were talking to each other and they kind of in hush tones About which date they were going to provide to me and I'm like I'm so confused and turns out this couple had disclosed to no one that they eloped no one and this was like 40 years ago and I'm the first person to find it was the weirdest thing I felt so honored to be in that tight little circle to have found out that this couple ran off to Vegas they were the most conservative like careful like not the people you would expect to make that type of decision right but anyway so that's what their marriage certificate said so that's what we had to we had to put that on the application so yeah if you fill out the application correctly and you put the spousal information in the government will know but once again we never leave anything to chance when it comes to a government application and there is a notes section at the end of the application where you write in exactly what you're trying to accomplish and and yet and there there will be a human that looks at your application they're going to review the whole thing they're going to read the note and they're going to accomplish what you asked for so even like it's a pretty lengthy process process if you know what you're doing and get through it the application online in 20 to 30 minutes but if it's the first time you've ever seen it i' book an hour of your time or more um the note will save a lot at the end I don't want to tangent too far but there are certain people born in certain times where the spouse may want to take their personal benefit for a time and then potentially take their spousal benefit later so what yeah so okay so and then it's it's flipped it there was this strategy called restricted spousal I think that's what you're referring to and we loved it and they took it away so uh that was back in 2016 I think it was April of 16 was the last time you could do um restricted spousal applications so there was this ability to be able to say okay like let's talk about John and Jane that we just talked about for a second there his benefit's 2,000 hers is 800 it used to be and we probably won't spend tooo much time on this CU it's not available anymore um but it used to be that she would file she'd get 800 he would say I want to restrict my benefit to just a spousal so he would pick up $400 off of her benefit all the while his 2,000 is growing by 8% per year so he would do that from 66 to 70 get $400 a month for waiting until 70 and then he'd pick up you know almost $3,000 a month um in full retirement benefits plus delayed credits so that's what they call it that's another term that as you work through the Social Security process you're going to see the words delayed credits you get what's called delayed credits for waiting Beyond Social Security that's the 8% bump beyond the full retirement age thank you gotcha MH perfect yeah thanks for that tangent just if anybody has heard that before we want to make sure we clarify so another one that went away because because this is the absolute like you're talking to somebody who's a decade older than you and they're saying no you've got to do the restricted spousal B well they probably didn't say it that way you got to take a spousal and then do your own or um file and then stop it and then take the spousal so that's the other strategy they took away it's called file and suspend so you used to be able to file for your own benefit and immediately suspend it which made it really nice because then your spouse could hop on a spousal that's one rule with spousal benefits for a spouse to receive any type of spousal benefit off of your record the first the primary care worker has to have filed got it so filing opened the door my wife to take a spousal benefit I need to have filed m in that case yep so let's talk about for a second so let's say you really want your wife to be able to get this spousal benefit but you would like to wait because you think that you might live a long time and you'd like to get as big a benefit as possible so you file and you immediately suspend it and the suspension of it allows it to continue to earn the delayed credits and the fact that you filed allowed your wife to pick up a spousal benefit so they also caught on to that and shut that down I can't do that anymore so those two strategies went away in 2016 yeah doesn't mean that there aren't plenty of strategies that could be used but those two in particular if you've heard of them um they're no longer available and we're now to the point where um where if you if you were born on January 1st of 1954 or earlier then the restricted spousal benefit is available a lot of people will say just just 20 or sorry if you were born in 1953 but the weird thing about social security and Medicare is the same they take the day before your birthday as your birth month mon so technically it's January 1 of 54 and then you're born in 53 for social security purposes gotcha anyway um okay and then so we just covered where one spouse has a their pia and half of that Pia is higher than the personal benefit of the other spouse just wrapping this up the other option is that half of the Pia of the primary care or primary worker isn't as high as the personal benefit so the spouse has that decision are they indicating that on the Social Security application too or again are they able to see okay personal Pia is higher than spousal we'll give them a higher so this gets the short answer is you don't have to worry about that they're going to give you their your own benefit they're going to give you the larger of the two the slightly longer answer is the reason is because the way Social Security thinks about it is and the way they calculate it is called a spousal add-on so they give you your own benefit in the case of John and Jane she is eligible for a th000 total right so so they give her 800 of her own and then they throw on a $200 spousal add-on gotcha so the reason that that you don't have to worry about it is because there's no spousal add-on to be had in that scenario where where maybe she has a $1,500 benefit she's going to take that and 15 is more than a thousand so there's no spousal add-on got it is there anything else from the spousal benefit that we've missed or haven't covered here there are living spouse um there are a couple rules people should be aware of and and we can give some of these I mean the main you can show them if you'd like but the main rules um we talked about one primary worker has to have filed and the um spouse must be at least 62 for a reduced benefit up to full retirement for the full benefit um one key thing that plays into the strategy spousal benefits do not get delayed credits that's huge yeah because people will say I'm going to wait till 70 to file for my spousal benefit it's like you are leaving a lot of money on the table um waiting from full retirement to 70 on a spousal benefit in fact that was my parents situation when they took away the restricted spousal benefit my parents were born in 54 and 55 and they barely missed out like the end of of anyway they they barely missed out by let's call it 10 months so my dad I had planned on him doing I had planned on my mom filing my dad picking up a restricted spousal and then filing for his own later so when they took away the restricted spousal my mom was not going to be able to get as high of a of a benefit until my dad filed cuz her own benefit smaller than the spousal off of my dad yeah and so we ended up having my dad file not not at 70 but not at at full retirement either in between because that unlocked the door for my for my mom to be able to file so so anyway that goes back to like the the idea of he needed a file so that she could get it but we also didn't want to wait till he was 70 because her benefit as a spouse stopped growing at full retirement so that forced it a little bit to the math made sense that once she no longer was getting delayed credits on her spousal it was time for him to file to unlock that door and then his spousal benefits based on The spouse's Pia not The spouse's delayed credits as well yes yes I don't know if that's the third another rule you were going to go no that was a really good point it's not the third rule so um we kind of covered the other one no de delayed credits on um spousal benefits so but yes you're the answer is it is based on the Pia so you take that Pia John and Jane were're using them still as an example his is $2,000 no matter when Jane files and when Jon files Jane's benefit as a spouse is going to be some percentage of the Pia of JN $2,000 let's say Jon decided to wait till 70 thinking I'm going to push my benefit up higher it'll be close to $33,000 and then my wife will get $1,500 as a spousal benefit doesn't work like that it's always calculated on the Pia now we're going to go into survivor benefits different calculation different ballg game but spousal benefits always on the Pia perfect great question great question any other rules that we need to cover for spousal benefits um we need to talk about divorced spouses yes um I want to keep like everyone's still alive so it's like spousal and everyone's still alive divorced everyone's still happily married divorced they're not and they're still alive though and then we'll move into Survivor if they're alive and married I think now obviously there are more rules but I think we've covered what you need to for today yeah okay so move now they're alive and they're divorced okay so if they're alive and divorced the benefits are super similar a couple of the rules change and I think some of these are make make a lot of sense like for example you know how we talked about unlocking the door for your spouse to file you can imagine certain spouses just out of spite ex spouses I should say being like well I know it's good for me to file but I'm not filing if she gets anything you know I could see that happening right um so if uh if your spouse ex spouse is 62 or older the Social Security Administration just counts that as opening the door for you to file as a spouse as an ex spouse so as long as your ex is 62 or older then you have the ability to receive a an ex basically a divorced spousal benefit off of their record again it'll be on their pia even though they're only 62 it'll be on the benefit they would get at their full retirement age gotcha and then your age will determine what percentage of the Pia you get is there a gap between when that divorc happened and when you can do this or is it all just you got divorced yesterday and you're good to go um it is important that um your marriage has to be 10 years long okay so that's probably the first thing but let's say that let's talk about two different a couple different gaps so marriage is at least 10 years long and you were divorced as of 30 years ago doesn't matter you can still get a benefit off of that ex spouse from 30 years ago marriage that H started 40 years ago um if if you get remarried then you cannot like if if you remarry at any time and you try to get a spousal benefit on a living ex spouse you're you can't you just can't they're just basically saying like hey you're married again like this pick you picked your current spouse so so um and I don't know if it's if it's that important to you to like put that on your dating profile what is your what's your Pia and are you willing to I don't know anyway so you get the idea but as soon as you remarry the this the benefits as a spouse off of an ex if they are alive go away I mean we're going to talk about if they die which is really weird conversation to tell people cuz you're telling people like hey I know you don't want any communication with your ex but if you could just keep tabs on whether they're alive that'd be great because if they die it changes your benefits drastically um but don't take any action in that regard either right but anyway um okay if the divorce was more than two years ago um the X X doesn't have to have filed so that was the one that you asked about a question about like can you do it right away let's say that um you are both 63 and you'd really like to get on Social Security the government's trying to prevent people from playing marriage games for Social Security right yeah so you can't just divorce and then immediately hop on Social Security if the X is not on if the x is on Social Security you're good to go but if the ex hasn't filed then you have to wait for those two years you can't just divorce and file immediately now if you guys got divorced at age 60 and now you're 62 or 63 then you're good to go because it's been more than two years and your X is over 62 gotcha and then the last I think you touched on this on the normal spousal benefits but I want to clarify here because my parents are divorced and this came up so if you're taking divorced benefits divorced spousal benefits from somebody they don't have to see it they don't have to approve it they don't it's not taken away from theirs you don't even have to have a conversation with that person right right even to the point where even if you like even if you don't know their social security number anymore happens all the time you can still file and get some help from the Social Security Administration to track some of their information down at least to know what your benefit would be so you are absolutely right in fact um we met a guy who had been married three different times for more than a decade each time he's getting his own benefit and three other women are getting an ex spousal benefit off of his record and usually people at that point are like well no wonder the Social Security trust is struggling right four people are getting a benefit off of this record um it's not struggling that's what they that's what they say but um yeah and it he won't know she won't know like it doesn't matter it doesn't take away their benefit it doesn't reduce their benefit they don't get notified you basically just are good to go and canile what is what's rightfully yours perfect okay let's talk about a spouse has passed away now and there's two versions one it was the your existing spouse has passed away and then we'll go into your ex spouse has passed away yeah so if your if your existing spouse has passed away then is you you will be able to get a Survivor benefit right away but those survivor benefits this is where strategy becomes really important you can start a Survivor benefit at age 60 or later um I'm going to just throw this out there we don't probably won't cover it today but if you have young kids as well I think a lot of people forget that there's child and caregivers Social Security benefits for people who pass away with young children so the caretakers like for example husband and wife tragic either health or accident and one of them passes away in their 40s there's a very good chance that the surviving spouse should be receiving some social security benefits because they have young kids under 16 or under 18 and and there are different rules that play into there whether they're disabled or not or whether they're just minors and that again that's why probably not a conversation for for today it's just I just want to give people the red flags the red flag is if you know somebody who has young children and the parent of those children has passed away and you're the you're the other it's time for you to do a little bit of digging in Social Security and potentially get some money monthly so um that's that's part of the survivor benefits and all the survivor benefits between caretaker and child and spouse they all get added up and there is a family maximum don't see that hit that often um the standard the standard thing we run into and think about is if one person passes away the smaller of the two benefits is going to disappear the larger of the two benefits will stick around and the surviving spouse will live off of the larger of the two benefits gotcha that's that's the key thing if you're going to walk away with anything from Survivor Social Security planning is understand that the larger of the two sticks around now when you think about strategy let's say you have two people that both have a $2,000 social security benefit and they both choose to take it at full retirement age I think that's a mistake or they both choose to take it early also a mistake they both wait that's a mistake the idea is if you have a similar social security benefit between husband and wife you should be diversifying a little bit and you should be doing something different maybe one of you files early and the other at full retirement or one of you files at full retirement and the other waits till 70 because the math works out that instead of 2,000 each maybe you're getting 3,000 on one and maybe around a, 1,500 let's called 1,500 on the other so if one person passes away the Survivor is left with 3,000 instead of being left with two yeah so that's important to understand how those survivor benefits work and that's a difference from what we've been talking about because it's all been based on Pia but Survivor sounds like it's based off of what they attain so delayed credits do come into this equation exactly so another story father turned 62 and you hear a lot of those absolutes like get it while the getting is good file right at 62 right um he filed right at 62 got sick got two months worth of soci security benefits and passed away and most people at that moment would say like well that's two months more than he would have gotten otherwise right well the problem is that his wife lived into her 90s so so she spent about 30 years on on a reduced A reduced benefit because the Survivor benefit is going to factor in delayed credits whereas the spousal benefits always use the Pia Survivor survivor benefits like you said use whatever they obtain so you you want to try to really think carefully about if you think even just one person in a couple is going to live a long time then one of those benefits should be maximized for survivor benefits or at least considered yeah um you can run the math and if it doesn't make sense for either of you to wait totally fine with that but you should at least do something slightly different and and I'm not saying wait in fact um I find that more often than not as a wealth adviser I'm one of the few that when I'm talking with clients that surprise clients by saying you should be filing as early as possible and and I I think that sometimes financial advisers make a mistake here because we have have calculators and tools and so we run the tools when we run a tool to not to to ensure people won't run out of money you should use a really long life expectancy but when you run a tool for Social Security analysis you should use an average to slightly shorter than average because your risk is that you actually die too soon with Social Security right with not running out of money your risk is that you live a really long time yeah so it's a different risk and in order to manage those risks it makes sense to use a slight different age and life expectancy so anyway I think a lot of financial advisers throw 90 to 95 in the tool and if you throw anything above 87 it's going to recommend you wait till 70 every single time yeah so that's part of why some of those absolutes come around is because people because financial advisers throw that in the tool and then they tell everybody everybody should wait till 70 the reality is if if you if you're a couple this is a team sport you should be having one person maybe five a little bit early that's a little defensive from a like let's get as much as we can because that benefit will go away if someone dies and the other spouse tries to grow theirs a little bit in order to get as big of a Survivor benefit which is what we're talking about right can I clarify on the one thing just to make sure I understand correctly of when he filed at 62 he lived a couple months and passed away MH because he filed at 62 she's getting the amount that he was obtaining through that plus whatever colas are happening but had he not filed and passed away then she would have have gotten his full Pia is that what what I'm understanding M okay and then it's based on also when she files okay so so then yeah so she could have waited until 66 was her full retirement age and then she could have gotten his full Pia at that time um but as soon as he files he locks in that Survivor benefit gotcha now it with survivor benefits there's this really neat opportunity and I and I I want to say ne opportunity to help someone in a surviving surviving spouse situation obviously it's tragic difficult um this might be a little bit of a silver lining in in all of the difficult situation that you're in as a as a Survivor you can file at 60 and we know a lot of couples and helped a lot of couples where one person passes away we file for a Survivor benefit at 60 and then they get benefits as a Survivor for a decade and then at 7 they switch over to their own benefit and because they waited on their own benefit they get 132% of their own benefit so they're they think of them as like completely separate benefits the Survivor and spousal and own like spousal and owner in on in the same park does that make sense they're within the same park but Survivor is like entirely different so you can do one and then the other if their own benefit is going to be the largest typically what we'll have people do I say typically cuz we always get surprised somebody is going to come into the comments Eric and say like well no this is how it works and and they're probably right okay but we're just saying often here's what happens someone should if their own benefit's going to be larger they file for the Survivor at 60 get it for a decade and then they file for their own they were they weren't going to get the Survivor benefit anyway right because their own benefits bigger they'd rather get more money so you might as well get as much of the Survivor benefit as possible as early as possible possible but let's flip it let's say that the person who passed away was the primary bread winner in the family and their survivor benefits going to be quite large the Survivor benefit stops growing at full retirement age that's it's kind of like spousal benefits that way where you would never wait Beyond full retirement age to elect a Survivor benefit if that's the plan if you're going to take a Survivor benefit so in that case you file for your own at 62 you take it 70 75% of your own at 62 for about 4 years and then you switch over to the Survivor benefit at 66 or 67 whichever is your full retirement age that's awesome so depending on which one's bigger you actually flip it's either 62 and then 66 or 60 to 70 and then you're either way you're doing one strategy and then the other with this um Survivor benefit how does a remarriage come into play if if my spouse has passed away and I get remarried oh that's you you just hit a really so I have an entire episode on this where we had this couple that she got so the rule is 60 that's an important age if you get remarried before 60 then you are not eligible to claim a Survivor benefit off of your ex spouse so I want to be I'm going to tell you this story because it's it's kind of crazy but want to be really clear to differentiate this isn't this is a point where people get really confused if you remarry and you try to get a spousal benefit off of an ex and the ex is still alive can't do that right we talked about that you can't remarry and get a Sur a a living ex spouse um spousal benefit but you can remarry and pick up an ex spouse Survivor benefit you just need to be married after age 60 that marriage needs to start after age 60 gotcha the problem we run into is someone will get married before age 60 in fact case of one couple came into the office they're they give the wedding announcement to one of our advisers and the adviser looks at it and you know like a financial adviser does he's doing math and and he says you sure about this date and and they say yeah yeah you're the last one to get the invitation he's like what would you how would you feel about pushing this out 3 months because if you get married right now at 59 and 10 months old then you're forgoing all of the survivor benefits that you're eligible for on your previous spouse forever and so they actually delayed their wedding two months so that she could pick up survivor benefits now that that's an important rule if you get remarried before 60 you lose the survivor benefits if you get remarried after 60 you can still pick up a Survivor benefit and at that point again you're choosing and for that person she might be choosing between three benefits her own a spousal benefit on her current living spouse or an A Survivor benefit on the previous marriage gotcha so she has three choices two of which um the the current living spousal benefit and her own benefit she can't really like that's that restricted spousal thing you can't control which of those if you go to that that side you're going to get the larger of those two but the Survivor benefit you can pick between the Survivor and one of those other two yeah and then as the Survivor she's getting whatever her percentage based on her full retirement age of that deceased spouse's Pia yeah well if they didn't file or yes exactly so it gets super confusing right so you everything you said was exactly perfect um the only thing I would add is or maybe alter is at the very end she's going to get a percentage of the Survivor benefit just I would just call it the Survivor benefit because it could be the Pia but it also could be a little bit bigger number through delayed credits gotta yeah my assumption is if they're 60 he had passed she had passed before they reached it but yeah crazy all right so that's Survivor benefit is it the same for ex spouse Survivor benefit is that a similar different as long as that marriage lasted 10 years okay yeah so as long as your as long as your marriage lasted 10 years then um then you're good now if if you get married and um and the government's trying to play fairly Fair here and but they're also trying to get get it so people can't gain the system yeah so you can't go marry someone on their deathbed and then pick up their their survivor benefits um you you must have been married at least nine months at the date of death unless it's an accident what's an accident I don't want to Define that Eric I don't know actually but don't go do anything rash here people um the point is if you get married and then they passed away in a car accident like 2 months later then that nine rule N9 Monon rule doesn't apply but you need to have been married at least 9 months so anyway that takes away the idea of like marrying people on their deathbed to try to get survivor benefits uh people do crazy things so they've got they've got all these weird rules to account for that got the practice on like we've got the menu of what's available to you right your per your own benefit you've got your spouse will benefit you've got a ex spouse I mean all of that's kind of wrapped into the spousal benefit and then you've got a Survivor benefit so understanding you've mentioned a couple of examples where they had three options there so that we have the menu down mhm what's next so the second step is okay so we let's say we have the menu and then as a social security planner at that point I'm going to document a few of the other things we're not going to completely Factor them in perfectly yet but I want to at least know like what is a life expectancy for you I met a I met a lady yesterday her mom's 98 and her dad died at 97 so it's like you have serious longevity in your jeans um and she looked like she was 62 and she's 70 so you you you're thinking like she's she's going to do well super healthy that's a factor she needs to factor that in but again I think people jump to that a little bit too quick we want to know that but that's going to come in a little bit later our next our very next step is to model out three strategies we think could make sense for their situation so the idea is do you file like right away as early as you can and then a mid-level strategy and a later strategy now the the mid- level and later strategy usually we're going to incorporate one of the spouses filing a little bit early in order to get and usually the smaller of the two so the smaller of the two filing a little bit early because that benefit is gone if one of you passes away it's gone so get as much of that as you can right so one of the spouse is filing a little bit early and then the other spouse it might might be close to full retirement or all the way till 70 but that's where we need a conversation to say like okay what is your life like and what kind of income do you need and how much other assets do you have so if you have no other money anywhere else then like no 401K no pension or anything like that that's going to change the Social Security Options that are available to you because you may need to file no matter what as early as possible just because you need the income but if you have other income and other assets that you could use to bridge the gap then now you've unlocked a door where okay it may actually make sense for us to wait a little bit and and increase your social security benefit for a little bit and then maybe we withdraw from your portfolio to fill that Gap so that's step two um and the break even is is interesting there are I think we dive into Break Even analysis next don't you think well as you were talking about like taking assets out to bridge the gap I immediately started thinking like wait a minute like break even analysis has to come in here because this is it worth it or not so yeah let's dive into Break Even analysis because there are different ways that people do this some think it's a very simple math problem but as you dive into it there are a lot of other variables that are happening here so let me throw out the way that most um most people that try to run the math on their own do it and then you need to enhance that a little bit to get the math right so the simple way that people do it is they throw into an Excel file all of the payments they would receive starting at 62 and they just sum them up over time right yeah and then they do the same thing starting at 66 or 65 whatever the other whatever the waiting strategy is for them and they sum up those and when those two numbers match they figure out how old they are and that's their decision around break even the problem is there there are a couple math errors there that that might lead you a little bit astray and one of them is cost of living adjustments so we've experienced some really decent cost of living adjustments on Social Security over the last year so um the average long-term has been about 2 and a half to 3% I say long-term like multi-decade averages back in the 80s there was a 14% year and then uh we saw an 8 point I think it was 8.1 uh last year they're they're projecting in the 4% range right now for next year so you can see like that changes the monthly benefit if they give each retiree a little bit of a bump and cost of living adjustments need to be factored in to that so that's one two is the team sport aspect of it so people oftentimes forget they they'll run husband's analysis his break even wife's analysis her break even but if you're playing a team sport and one of you is filing early so that the other can delay it changes the whole analysis so what you actually need to do is say Okay strategy one is husband does this wife does this strategy two husband wife does this and strategy 3 and then run the collective like analysis against each other of each strategy summed together so the team sport aspect the reason that I think that's important as you've been talking about I think a little bit but just to bring it a little bit more clearly here is that when you're doing a break even analysis I'm thinking okay what if I I need to make it to 87 for this to make sense but really it's one of us needs to make it to 87 for this to Mak sense not just me and so I think as we talk as this whole spell soul and Survivor benefit conversation comes into play it's not just about me it's about right the other person so often you're absolutely right and here's the crazy thing for the larger of the two benefits just one of and I'm generalizing here there are individual scenarios that are going to break this rule that I'm about to give you but people like rules of thumb we talked about that earlier so if just one of you lives to that break even that is accurate for the larger of the two benefits however both of you have to live to the break even for the smaller of the two benefits so not it's not if if one of you makes it both of you have to because as soon as one of you dies that that smaller one's gone yeah so it it's weird that's the that's the weird part is people often times that's another mistake is people oftentimes generalize it and say oh this is the break even age for us or the year in 2040 and at that time we're going to be this age and this age the problem is that it you got to think about it like yeah if one of you makes it that far for the larger but both of you have to make it that far for the smaller which often times lends itself to recommending take the smaller one as soon as possible cuz saying that one of you will make it to you know late 80s that's actually a pretty high probability between a couple right yeah um you got two lottery tickets there um but if you if you're saying that both of you have to make it into your L late 80s you're saying neither of you have a chance of getting sick having an accident like you both want to guarantee you're going to make it to that age that's a that's a lot harder to ask and anyway so okay so that's that's a break even analysis error here's the biggest one though that I've yet to see like really wealth planners um financial advisers because usually what happens is the public does a really good job of analyzing things and then Wealth Advisors will throw on you know a little bit more sometimes a little more sophisticated math into it um but even in that space there's a massive error that I'm finding which is in one scenario if you file early you do you get to leave your portfolio alone a little bit more we talked about that right that's what triggered this thought in my head is where you're going right now yeah you get to leave some money in your account now what is the effect of leaving that money in your account well it's probably going to make some interest I mean you hope you'll make money over time it will either grow or get some interest or dividends so the question we're talking 401ks we're talking IRAs we're talking investment accounts or any money that I mean even I guess the bank account could count you know any money that you get to not touch because you got Social Security right so then the question is well how much am I going to earn on that if it's a bank account you're probably not earning much um but now at least interest rates are decent so maybe it's three or 4% right at the bank um that means that money exists in one scenario where you filed early but if you wait to file that money doesn't exist that that 3 to 4% of Interest doesn't even exist because you spent that money from your bank from your 401k from your IRA no chance of ever experiencing that growth so in these two Social Security strategies we have one strategy that creates a little bit more interest in your Investments and one strategy that never gives it the chance to earn that interest and that it's that opportunity cost that that lost interest is really not being factored in by very many in the break even analysis and I think it's hard because how do you factor it in without knowing how much interest they're going to earn yeah but I'd rather make an approx I'd rather make a guess and be approximately right instead of completely wrong you know so let's let's at least throw in an assumption in there and see what it does right um so the way that we do the analysis is we run the break even without considering the growth and then we run it considering the growth and get two different Break Even ages and the break even considering the growth basically what we do is we say okay in this scenario where you filed early you have this much interest it might have created over the course of four years maybe they were able to save $2,000 a month of withdrawals from their accounts well that's about $100,000 over four years and each year they're earning interest on those on those dollars not withdrawn so maybe that that hypothetical balance of 100 that truly exists in the portfolio is actually worth about 130 yeah so then the question is well how much longer do you have to wait to make up the 130 in a addition to it's really just the difference because the standard Break Even calculates the the cor the the cost basis or the balance of it right it's the growth that the standard Break Even doesn't calculate so it's that extra $330,000 how much longer do you need to to live in order to make up the interest as well when you wait on Social Security and this is the crazy thing depending on the filing strategy the spousal benefits how you set it up and their risk tolerance see people don't understand your risk tolerance on how you invest impacts how much interest you would earn which impacts when you should file Social Security but depending on all those factors I've seen it add anywhere from one year meaning if you're the type that's going to put your money under the mattress it's not going to change the calculation much because you're not earning interest there's no interest to to be made up right yeah but um I met with a guy who super highrisk tolerance very comfortable with fluctuation in his Investments pretty comfortable that he thinks he can make a 8 9 10% average annual on his portfolio you throw that in the analysis and he needs to live to like 140 to make up like that's the type of person that throw all the other factors out the window Health everything else that guy needs to file about as early as possible because he's confident enough he can make more on those Investments so anyway that's an important factor and the average I see is about six years so it it seems to add at a at a modest growth rate so if you in like 4 and 1/2 to 62% growth rate on the money not withdrawn it's going to add somewhere between 4 and 8 years to the break even which changes it drastically if you thought you had to live to 81 and now you have to live to 87 to 89 that's a that's a pretty different calculation so the main let's recap some of the main mistakes that we see and one of them is not cost not calculating a cost of living adjustment not doing it as a team sport misunderstanding who has to live that long right is it both is it one or is it you how does that work and then the big fourth one is not factoring in the Lost growth or interest on money you had to spend because you chose to wait yeah and and I don't want people to take away like oh that guy on Eric's Channel saying everybody needs to file early because waiting is terrible no no no no no it's it's very individualized and in many cases you diversify in many cas you have someone file early and someone file late in other cases both file early and in other cases both wait and and all these factors will help determine that you just have to Think Through Math I I love having you on here because of the math part of that right even our last conversation around IAS and both traditional and Ro not just Ira but Roth and traditional accounts I love I love the way that you break math down and so it sounds like in this case again not recommending it for everybody but if you have assets that are growing interest it it lends itself to maybe take taking social security early so that you can continue to grow that interest because it pushes your break even age later by removing the interest you could have earned that opportunity yeah you're on the right track the only thing is having the assets doesn't so I don't want people to walk away and be like I have a 401k therefore I should file early having the assets is not the the factor it is the growth rate on the assets like how aggressive are you of an investor and that should be factored in awesome do you think that you're ready to answer my question of when Z when should I take Social Security yeah okay so and and we'll start with 62 because I have heard all of this I need to take it get while I can and is Social Security even going to be around for me when I when I get to that AG yeah that's funny actually was when you before you said that I was thinking we need to at least address the idea the elephant in the room the yeah that what if Social Security disappears and none of this matters right um let's talk about that for a minute and then jump into how do you decide when so we've been working with Social Security planning for over a decade and we watch the numbers very carefully and there are trillions of dollars in this trust fund but when you're talking about big government issues like this that may not be as much money as as it sounds right um it used to be that in that by 2035 that that money would be used up because you have all of these uh all the Baby Boomers retiring so they flip from contributing to the fund to taking from the fund right yeah and we have a large number of people transitioning from work to retirement right now so as they as they switch from paying in to taking out um that's changing the cash flow on that fund a decent amount to the point where it is projected that it will go down however here's the interesting thing like the bottom line if I was in my 50s or 60s I would count on Social Security in its current state to be there for my lifetime that is the bottom line answer and here's why one they're saying that even in 2035 the payments in will cover 80% of the payments out so even if the trust fund goes to zero that's a common misconception people say this thing goes to zero we're done I get nothing it's what they think right this is all over the news by the way because this comes up in this year it's going to Social Security will be gone and it's like no as I'm reading this or watching this it's like no it's 80% or it's a percentage of it it's not all gone I mean right now the worst case scenario and I and I hate to sit here on a logged video saying this is exactly how it's going to work out OB based on the current information we have today that today the projections show that they'll be paying out 80% of benefits starting in 2035 but the interesting thing is that number used to be 75% and it used to be a lower number and every year that we watch this that number creeps up a little bit because the trust fund is actually getting better over time than it was so although that's a little bit of a concern I don't have much of a concern for it because there are so many things they can do they push the retirement like I've seen proposals out there if they push the retirement age up a little bit fixes the issue like you got to believe there's there's a massive we talked about this this active voting population ahead of us right I say ahead of you and me right um they do a good job and I think that that they can change make a couple tweaks in full retirement age the thing solved um another thing to think about a few years back they they change well every year they change how much income you have to pay social security tax on you know a decade ago or so it was around 100,000 now it's 160 and some people a lot of people don't know this but you pay social security tax up to $160,000 of income and then you're done paying Social Security tax that year and then in January you start over again and you as you we're talking about workers not not retirees um they keep pushing that number up if they push that up to $200,000 of annual income once again pretty much done fixed right and so there are so many levers um during during the time when you know Biden was talking a lot about that $400,000 Mark and really trying to create greater tax on those making over 400 one of the proposals was to reinstitute social security tax at $400,000 and then up if they did that solves the issue because you got people making millions of dollars and that would be an incredibly steep tax bill for them at 12% of everything over that for those self-employed people so you get the idea lots of things like that now a few years back they increased that that number from it was like 1 130 something to 147 and Geeks like me do the math and I can't remember exactly but I do remember the increase was 7% roughly that same year they gave my parents a 0.3% increase on their social security benefits and I I'm calling foul a little bit there right I'm like wait a second I thought inflation was the same for me and my father my father and mother right um how is it that that the government thinks he's only experiencing .3 and that I'm experiencing 7% right so that's a little way that didn't even have to be talked about in Congress and most people who aren't running the don't even notice but they're getting a little bit of a better buffer in the fund so that's a long answer to basically say they have a lot of levers to pull and and if you are in your 50s and 60s I don't know if I would stress too much about it um if you're in your 30s and 40s I would plan Social Security plan without Social Security and you'll be I think you'll be pleasantly surprised because everybody we talked to who's in their 80s now said the exact same thing they said yeah we're not going to have social security when we get to that age yeah so I'm not trying to say the government's doing a perfect job I'm not trying to say that it it's a perfect system but it is what it is and I think those who are close to it should count on it and I think those like personally I think because you and I we will end up planning well for for retirement and I think another option is they could means test us out of it like if you make a certain amount or have a certain amount in saved in retirement you don't get Social Security or you phase out of Social Security would be totally I would be I would not be shocked at all if that happened to us so I just plan without it so for those watching this now or in the next 10 years if your decision to take Social Security at 62 is solely based on the fear that it's not going to be around anymore probably isn't if you're that close to it I think that's I think I don't want to like discount anybody's feelings and concerns about ever we stand on such different uh parts of the Spectrum in terms of our trust in in political parties and things like that right and let's just throw that out there but just like betting on what we think will happen I would count on it if I was in if I was in those in that situation okay so when again let's go back to when should I take Social Security when does it make sense at 62 full retirement age 70 other yeah okay so this is where I'm going to throw in a couple variables okay let's say that you are super conservative individual with no Investments for retirement conservative financially yeah well great great clarifying Point conservative financially in the aspect of how you invest okay whether you're conservative and how you spend your money I'm not really talking about that right politically too it's not oh that's I wasn't even going there that's a really gez so many not a political so many ways you can use that conservative word okay let's say you are a conservative investor then um you don't have any other savings then and you probably need to try to work a little bit longer probably need to try to stay employed closer to full retirement age and try to get as much as you can out of Social Security we haven't really talked about it but social security has cost of living adjustments I mean we mentioned it but we didn't emphasize the point that very few pensions do yeah and you can't outlive this source of income you know as long as it sticks around like we talked about but you can't outlive this thing so you get a cost of living adjustment that you can't outlive you should try to work a little bit longer and maximize that so for that person they need to wait a little bit longer they need to try to make it to full retirement age or after and and I'm isolating it to a single person who is a conservative investor and has no other Investments yeah okay we throw in Investments now also talking to the single person still a conservative investor they probably still need to wait because um they are not really going to save they're not really going to make much money by taking social security early that near 8% or up to 8% growth rate they get on Social Security is going to be better than what they're earning in their portfolio they should probably wait and spend down some of their assets that person maybe should wait till 70 you know this is where I'm I'm feeling a little bit like nervous to just throw out like this is what you should do because I think people will take that and say great I know what my decision is do not make your decisions based on YouTube video I say it in a lot of my videos don't make your decisions based on YouTube videos sit down with that's fair um okay now if you but if you're married that is an incredibly difficult question to answer how many times have you been married you know what I mean is the ex still alive is the ex uh were you married for more than 10 years to the ex um how do you have a deceased spouse that you weren't married for very long to maybe 3 years but they passed away while you were married that counts that's an option right so like I I feel a little bit concerned about just know if you are a couple or have been married in the past you need to assess your menu first and then you need to diversify longevity between you and a spouse and try to get as much of the benefit that you can that is going to end up disappearing as early as possible and then try to maximize the Survivor benefit so while that doesn't say file at 63 for your spouse and then file at 67 like I'm not saying that but that is the that is the rule-based logic you need to use you need to say okay what's on the menu what benefit disappears if one of us is gone what benefit sticks around if one of us is gone and how do we get as much of that the one that disappears as early as possible how do we how do we get as much of that Survivor benefit for as long as possible and if you can use that logic and then sprinkle in okay let's not forget about cost of living adjustments and let's not forget about the growth we would get on investments when we get to leave our accounts alone then you'll be in great shape like that's that's more than what I would say 99% of people out there who say they're experts on Social Security are going to tell you yeah um if you can factor in all those you're good well I I appreciate you saying that because again switching over again to the Medicare side of things is people ask us to make recommendations on the big one is should I get a supplement plan or an advantage plan and it's like well where do you live right because the costs are a lot different how is your health what doctors are you seeing there's there's a lot of factors that come into this so for somebody to come into you and say should I take it at 62 should I take it at 70 it's like well let's talk for a minute and there's so much more that goes into that than I I just never feel comfortable saying yes 100% this yes 100% that and my parents got their Medicare through you guys and they ended up going a different route like same location same family but different situations and they did it individually my parents did the same one's on one one's on the other one sense so this as you were talking it raised another question that I have is if I am eligible for Social Security and I can take it but I am still working does that impact how much I can make or should make if I continue working and I'm taking social security benefits does that make sense yes um it absolutely does so the benefits that are affected by that would be your own benefits a spousal benefit and sometimes people forget a Survivor benefit so we talked about that whole like file at 60 get the Survivor benefit go to seven to get your own if you're working it throws a wrench into most of these strategies right um there you go there's another variable like I didn't even think about at the moment but that's such a great question if you are working and you are full retirement age or later it no longer is a factor like they're good the Social Security Administration says you waited till F or full retirement age and you can earn as much money as you want without any reductions in Social Security and I use the word word reductions on purpose because Social Security Administration calls it a penalty and it's not really a penalty and I'll explain why okay let's go through the simple answer of let's say you file for your own benefit and you earn $6,000 a month that's too much they're going to pull back all of your social security benefit that that and they do it by month so they look at how much you earn per month and for every couple dollars you earn over a limit and you know for the sake of trying to make this video last as long as possible for you it's it's close to it's just under $2,000 a month um it'll grow over time they they adjust that every year but if if that person is earning $6,000 um a month they're $4,000 over the Ben over the limits right so they're going to pull back a dollar for every $2 over that limit and they're going to lose most of their social security benefit they'll call it a penalty um the hardest situation is when somebody has received all that money spent it and then they get a little love note from the Social Security Administration that says we need $20,000 back and it's a huge shock and they don't have it and that that can be really tricky um the way that it works is they pull that back and then they redistribute it to you at full retirement over the rest of your lifetime so they divide it up and give it to you over the rest of your life after full retirement age so this is what I mean by it's it's not really a penalty it's just like we're just going to hold on to that for a little bit Yeah and then give it back to you at full retirement age and I've even met people who who filed early they felt like they made a mistake they filed early and made a mistake they purposefully went out got a job and earned as much as possible so that it would um bring that benefit down and redistribute at full retirement age so they could get the delayed benefit of having waited it's it's very similar to having waited okay um so something that's just something to be aware of if you're if you are getting penalized um as they put it for having worked and received Social Security benefits before full retirement age I would just try to get rid of some of like that that negative feeling associated with it it's going to be fine you're going to get that back um but it's it's unfortunate because most people who file and work they're doing both because they need all that income yeah that makes sense yeah the last thing that I kind of want to touch on on this and we can go as deep into it as you want we do have a video on this but social security income is potentially taxable and so maybe you can shed some light on that for people we do have a video that's going crazy I was just going to say I don't know if we can do better than your video on that but I will give you quick answers and then really the answer what is it like 20 minutes video the video yeah that you did so while he's looking that up like Eric has taken what would have taken me a lot longer to explain condensed it down 12 and A2 minutes 12 and A2 minutes so you can understand basically the entire social security taxation landscape in 12 and A2 minutes I would say go watch the video um but since we're already on the topic um they do a two-part calculation to figure out how much of your Social Security will be taxed as you receive it uh again try not to confuse this with the 6.2% FICA tax that you pay on earned income that goes into the Social Security trust fund right this is as you receive it in retirement you're getting the money back out so real quick before we go because that just reminded me of something a common misperception that people have about social security is that I have paid into it it's sitting in an account for me so that later when I get older I get a draw from this account and that is not the case Right comes in goes out right and there lots of jokes about about situations where you're taking new deposits to pay old investors but you know that's we won't go too far into that but the point is they um they run it with current workers paying in and paying out current retire IES with those funds right we talked about the trust fund being large and and so they're they're not paying out all the dollars every year right but you are absolutely right it's not like a 401k account that you're saving into that you can see a balance and that you'll get later well in the comments we hear like oh I've earned this this should be around for me forever because I paid into it and I get the sentiment however what you paid into it went to pay your parents or grandparents it didn't go into your account and now what you've touched on earlier is the problem that we're having is there are fewer workers paying in then there are baby boomers retiring and our payments are going to pay their P anyway yeah and I think um you and I are not saying that it's right or wrong or set up the best way or not set up the best way right uh I think our job is to basically explain how it is and help people maximize their benefits right so that's the way it is and let's use that and get the most for you that we can sorry I I interrupted your taxable social security thing great Okay so they're they're calculating how much let let's put it this way they used they originally said that Social Security would not be taxable they originally said you get all your social security income when it was first set up tax-free and then you know things change in politics and so they introduced taxes on Social Security income which feels like a double tax cuz the F tax is a tax going in and then you pull the money out and some of it gets taxed on the way out once again not here to defend anything I'm just telling you how it is and how to maximize it um the way that it works on the way out is they have two calculations they run simultaneously in your tax return these are run for you in your Social Security taxation worksheet and I would say don't read through the worksheet unless you love that type of stuff because it's it's it's a lot of lines and but we can break it down into two simple calculations one you take your Social Security and you multiply it by 85% then you're done done with that one that's the easy one and what that tells us is that 15% of your Social Security income is disappearing from your tax return which is nice so the worst case scenario for somebody making a crazy amount of money is they at least get to just make 15% of their social security disappear and that happens on your tax return and then it shows up on the first page in in the 1040 and you only have to include the taxable amount so the question is is okay it could be better how okay that's the other calculation they take half your Social Security and let's say somebody's has somebody has $60,000 between a couple that's a lot but say somebody had $60,000 between a couple of Social Security they take half of that so there only 30 then they add on all the other income that they might have let's say they have another $20,000 pension and another $20,000 of withdrawals so so far we have $30,000 of Social Security plus 20,000 of pension plus 20,000 of account withdrawals we have so there's 40 other income so that's $70,000 total of income and that that number that we just got to half of Social Security and all of everything else and once again I just feel like I have to keep saying there's some technical aspects like little things Municipal income things that get thrown in here but trying to keep it simple it's half a soci security and everything else and we have this person that has $70,000 of what's called provisional income that's provisional income so they they basically say Okay $70,000 of provisional income depending on whether you're a single person or a married person we're going to run it through two thresholds and we're going to have to include a percentage of the amount over the first threshold and a percentage of the amount over the second threshold add those together how much of that is how much of how much is that number what percentage of your Social Security benefits if it works out to be 95% of Social Security benefits they're going to pick the lower of the two and the lower of the two would have been the 85% if it only works out to be 10% of your benefits they're going to pick that 10% in the tax return and so you only have to show 10% of your Social Security so that your video again does a much better job but here's the common misconception I hear all the time you're going to pay zero 50% or 85% in taxes yeah and that's not the truth like it could be just about any number in between 0 and 85% because of that provision income calculation but people get confused because the threshold it's you have to include 50% over the first threshold and anyway so you get the idea that's that's how it works it it the important thing about that is if you are between let's call it $30,000 of income and $100,000 of income you might be sitting in a spot we call the tax torpedo where if you do a Roth conversion or take another $20,000 whatever from your accounts and it shows up as income it could be super costly for you yeah because it might include $220,000 of Roth conversion but it might also snag another $110,000 of your Social Security so to get $20,000 over to Roth you may actually be reporting $30 or $40,000 of total income and that comes as a surprise to people a big surprise because often times they say I was in the 12% tax bracket and then I did the math and and put in Turbo Tax this $20,000 verion and the taxes on it work out to be 20 21% why like I don't understand it's because more Social Security is being thrown in yeah well and all those start to play eventually into a Medicare conversation around Irma and your part B premiums too so just be careful around your yeah luckily those numbers are higher so luckily you're you're closer to 100 to 200 obviously it's it's a little bit under those but um we find a lot of retirees have to really focus on that tax torpedo Social Security tax torpedo there a lot of people end up with taxable income between 50,000 and 100 120 well and again when we talk about 85% that is taxable it's not the tax so a lot of people have that problem too of I get $110,000 8 and this is not a real number but $10,000 85% taxable and they think oh $88,500 is gone no not how it works it's yeah I mean think of it like you've you've got all of those coins in a bucket you get to take 15% of them and just put them in your pocket and then you get to show the other the other 85% to the government and decide how much is taxed and the tax rates are usually we talk about this too but tax rates are actually pretty good for a lot of people in retirement we talked about that in the Roth and traditional conversation that I know a lot of retirees that pay 10 12 and 22% tax on different portions of their income and average somewhere in the low you know maybe 10 to 15% average tax rate that's people with1 $200,000 of income like it's not as bad yeah as a lot of people think if you strategize right yeah well I think that you've covered this amazing uh and again they can go to the financial call.com season two for even more information around weapon GPO penalties and all kinds of other stuff that happens with Social Security topics um why or what is the role of an adviser in all of this and I think you've sold me on that just in this hourlong conversation hour and a half con conv oh my gosh have we gone that long yeah oh well so and you may even not even to answer this but an an adviser when it comes to this is important yeah uh I find that the adviser a good Social Security planner can show you what's on the menu that you didn't know about yeah that's probably the role number one second role of a good Social Security planner is to help you make sure you get the right math yeah and then the third role is to match up your personal preferences your beliefs your health your values to that decision now if you start with that um it's it's probably it's a little bit of a disservice to the client because they need to know like even if they feel a certain way if the math is screaming at them that they shouldn't do it I'm okay if they still do it but I just want to show them like I we just need to know you know that hey you're giving up a really good benefit by doing it this way or that way that's something to go through so that's that's the role of a good adviser is to help someone walk through those three steps um and and something to understand I mean capita we we talk with people across the entire country we do Zoom we do in office we do whatever we're here in Utah and this has been part of our public like education process we do presentations like this at employer groups we we basically feel like we throw good things out into the world from a social security stand Social Security planning standpoint and we'll probably find some people that long-term would like would be interested in capita as a financial planning firm long term but but you don't need to be to get some help from us is the point like if somebody says I would just love to have a 15 minute 30 minute conversation whatever it may be with a financial adviser we'll take that phone call every day and we'll feel good about our lives sending someone away in a little bit better place with more accurate financial planning help and no big deal and maybe they decide that they want to have a long-term relationship with us great maybe they don't maybe they want to talk to their friend and say their friend comes to us and then they want to have a long-term relationship with us you get the point it's like it's just like what you do you just throw out good information here I I feel bad because I do not know of a software out there that will calculate the break even calculating the opportunity cost of growth I don't or else we'd be paying for it and using it yeah we've had to make build our own tools I don't know a software out there that accurately can figure out what's on your personal Social Security menu so I get a little bit concerned about just saying go talk to any anybody um and so we feel good about helping people and sending them on their way and feel like we're taking care of people just clarify that's at no cost for them to have that conversation because our same way people ask well how much is it going to cost for me to talk to you yeah and that's obviously not why we're here today we're here today to throw out really good information and make sure that people people get what they need um but then again like I also feel a strong need to if you feel like you're missing a couple of those things like that you're not getting the help that calculates colas or cost of living adjustments and break even on growth and all that give us a call we'll run through at 1530 minutes and then if you decide you want to learn more great if not we're happy to you're in a good spot you're fantastic ma'am thanks for taking the time I know we took a long time but uh let's do this again on a different topic for sure thank [Music] you

Channel: The Retirement Nerds

Views: 186,461

Keywords: at what age should i take social security, should I take social security at 65, should I take social security at full retirement age, should i take social security early, social security, social security at 62 and still working, social security at 62 vs 67, social security at 70, take social security early or wait, taking social security at full retirement age, when should i take take social security

Id: KXFqGra9qHI

Length: 82min 42sec (4962 seconds)

Published: Fri Sep 29 2023