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Optimizing Social Security

When you start taking Social Security can have a significant effect on how much income you receive in retirement and how much you have to draw on savings. Here’s how to find the right time to do it.

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Speaker 1 (00:07):

And welcome back to 30 Minute Money, the podcast that delivers action oriented smart money ideas in little bite size. PEs today joining me in our beautiful studio, Steve Wershing from Focused Wealth Advisors. 

Speaker 2 (00:19):

Hey, doing Scott, welcome back. Thank you. You welcome back. How was your trip? My 

Speaker 1 (00:23):

Trip was very, very, very nice. 

Speaker 2 (00:25):

Awesome. And, uh, you look totally refreshed. 

Speaker 1 (00:28):

I look refreshed and slightly sunburned and 

Speaker 2 (00:31):

 just like you, like 

Speaker 1 (00:32):

It. We'll talk about the flights some other time. , that's a different story. Okay. As it usually is. Um, so today we're talking about optimizing social security, which is, I'm sure we are sure what a lot of people are interested in. 

Speaker 2 (00:46):

It is on a lot of people's minds as they, as they, uh, approach retirement. It's, you know, well, when, when should I file? And, and so, you know, the, a lot of people have that question in their mind and a lot of people think, oh, I I should probably sign up as soon as I can get it. 

Speaker 1 (01:03):

Yeah. And you know, I was thinking about this when I, when I was reading this overview, and I remember someone telling me a long time ago, or, you know, a couple years ago saying, go to the, go to the website and check out your account. Yep. And, um, I completely forgot about that. And I, I wonder if there are a lot of people that don't know that you can do that. 

Speaker 2 (01:23):

Yeah, well, if that's an option, two things. Yeah, two things. So there's, you can go to my social security.gov, I believe it is, and you can, um, you can create an account if you don't have one and log into it. And there are two really important things in that, in that website that you'll wanna look at. First is, uh, the estimate of your benefits. And so it shows you at, at every age that you can claim. It'll show you an estimate based on your earnings up till now of what you would qualify for in each of those years. And the, the other important thing that you can get there is the history of your earnings. And I recommend that clients look at that every few years because if they, if the Social security gets the numbers wrong from the Internal Revenue Service, you only have three years to fix it. So if you made a lot of money in one year, and for some reason the Social Security Administration just has a much lower number on there, you've only got three years before it becomes permanent. And that would, that would affect your benefit. So two good reasons to go to the social security website and establish an account. So 

Speaker 1 (02:24):

Do you mean to cross reference it from your, your W two s from 

Speaker 2 (02:29):

Your tax returns? Yeah, your tax returns or your W two s? Yep, exactly. Um, because, you know, your, your, your benefit is based on the top 35 years of earnings. And so if you have a couple of those years that are artificially low, then you won't be getting a benefit that you deserve. So, but the bigger question that, that is on most people's minds as they start thinking about getting ready to retire is when should they, when should they file? So if you go to the website and you download that, you're gonna see those different in the different years. You can qualify as young as 62. And the question for them becomes, you know, when should I sign up? You know, should I sign up at 62 or should I sign up at some other age? Well, wouldn't it be better to file as soon as you qualify? 

Speaker 2 (03:11):

Well, that is, that is one of those, that's one of those questions, right? Because, um, the question is, is it better to get a lower amount for a longer period of time, or is it better to wait and get a higher amount, but for a shorter period of time? And, and, and what I can tell you is that the answer is not obvious. It's not obvious that you should necess that, that you should wait until 70 when you get the maximum benefit. But I can tell you pretty explicitly that it's almost never the right decision to file as soon as you can at 62 and start getting that. And one of the big reasons is because between, if you file at 62, they take a big discount from your, from your benefit, you get your full benefit at your full retirement age, which is in your mid to late sixties and depends on the year that you were born. 

Speaker 2 (03:58):

But before that, you get a big discount. And every year that you put that off, you get like an 8% raise for life for waiting for that. So it's not necessarily always the best idea to wait to 70. Um, but it's almost never the right idea, um, to, uh, defile as soon as you can. And what we, what we wanna look for is, uh, when we, so we analyze that, and this is one of those areas where professional help can really, uh, can really pay off. What we do is we analyze it and we, we do scenarios for each of the different ages at each of the different amounts, and we look for what's called the crossover point. So if you take a, a, a lower amount earlier, if you file at 62, for example, and you're collecting that well by the, let's say that, let's just compare 62 to 70. 

Speaker 2 (04:48):

So you file at 62, you're collecting social security for eight years before the, before the alternative in the scenario. And so when you file at 70, you know, you've got this eight years of benefits to catch up on. But at some point, because when you file at 70, you're getting gonna be getting a lot more at some point, if you live long enough, you actually get more by waiting until you're 70 than filing at 62. And that's the crossover point, that's the point at which waiting pays you more in benefits than, uh, than filing early. And that's, like I said, that's not an obvious solution. It's something that has to be analyzed. And, and we would look at each of those ages and project it out and look for what the different crossover points are. A lot of it has to do with life expectancy. 

Speaker 2 (05:33):

Yeah. So if you think back to your parents and your grandparents and other people in your family, if you tend to live a long time, well that would tend to argue for waiting and, and filing later because you'll end up getting more total in retirement than if you would have otherwise. If you know, if you've got a health condition or if you know there's some reason to think that, that, you know, you may not live into your eighties or nineties, well then it might be a better idea to file at 62. So that's, that's, um, you know, that's part of that equation. 

Speaker 1 (06:03):

You know, what bothers me is, is I'm getting to the point where I have to start thinking about how long I'm gonna live to, uh, decide on , what kind of benefits I'm gonna collect 

Speaker 2 (06:13):

. Exactly. 

Speaker 1 (06:14):

Exactly. So, so should you file for benefits even if you're still working? 

Speaker 2 (06:19):

Yeah. So it kind of depends. Um, it depends on, uh, what age you're thinking about filing at. So if you wait until full retirement age, then um, you can file for your social security benefits. You'll get the full benefit as well as your paycheck. But if you file before that, they actually start taking that benefit back from you if you make too much money. And when I say too much, I'm talking about $21,240. I'm, it's not a big amount of money. Yeah. So one thing, you know that the, to answer your question, you, you generally should not file while you're still working, until you're at least full of retirement age. Because if you do and you make more than $21,000 a year, they will start taking away a dollar of your benefit for every $2 that you earn. And, you know, and that's not deferred, that's not something that you'll get back later. It's not something that translates into a raise on just gone. It's just gone. It's just taxed away. It's just taken away from you. So generally, um, if you are still working, it's a better idea to put it off. And if you're still working at your f uh, uh, you know, before your full retirement age, it's almost certainly a better idea to put it off. 

Speaker 3 (07:30):

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Speaker 2 (08:54):

To sign up today, 

Speaker 1 (08:56):

What is the actual retirement age? Is it 68 or 70 or 72? 

Speaker 2 (09:00):

Full retirement age. Yeah. Depends on when you were born. 

Speaker 1 (09:02):

Oh, it does, it 

Speaker 2 (09:03):

Does. So, um, it, it's different for, for, for every, every year that you were born. So it used to be sixty's five a long time ago. Now, you know, for people who are approaching the age now, it's like 66 and two thirds ish or thereabouts, but 

Speaker 1 (09:19):

So the so the age of retirement, retirement depends on the actual year wh where it was in the law the year you were 

Speaker 2 (09:26):

Born. Yeah, well there, so there's a schedule in the law and if you were born in this year, then this is your full retirement age and it's different for people for every 

Speaker 1 (09:33):

Year. Do you have it memorized? You tell me what 

Speaker 2 (09:36):

 I have mine memorized, but I don't have the table memorized. 

Speaker 1 (09:39):

You don't have the table memorized? Come on. 

Speaker 2 (09:41):

I, I got plenty of tables to memorize. I'm 

Speaker 1 (09:43):

Sure that 

Speaker 2 (09:43):

One, that one's not in my head. Sorry. I got the income tax rates memorized, but that, that one's not in my head. Fair 

Speaker 1 (09:48):

Enough, fair enough. The 

Speaker 2 (09:50):

Other, the other thing that you wanna worry about besides earned income, besides what you make, you know, potentially while you're filing for Social security, is the taxability of Social security. And whether you make pension income or take money from your retirement plans or you're making a paycheck, um, you know, you can make more of that. You can make some more, more of that benefit, uh, taxable. And so that's something that we want to keep in mind too, cuz you know, a lot of people think that, you know, you've paid into this all, it's been a tax all your life, you know, you should really get it tax free and below a certain level you do. But once you make a certain amount of money, and it's not a lot for a married couple, it's like $33,000. Um, some of that benefit, some of that Social security starts getting taxable. And when you hit that first threshold, 50% of your social security becomes taxable. And when you hit the next threshold up, 85% of your social security becomes taxable and it's taxable at your highest marginal rate. So, um, that's something that you want to keep your eyes on too. And unfortunately, just to make things more complicated, because it's the 

Speaker 1 (10:59):

Federal Go Federal government 

Speaker 2 (11:00):

, um, uh, the calculation for that taxation, you know, what, what, you know, how much you can make before it becomes taxable is a separate calculation. It's called provisional Income and it includes all the stuff on your tax return, but it also, you know, it, you get rid of the preferential treatment for capital gains. You add back any tax free income you're getting, and then you also add in half of your Social Security benefit. So it's real easy to hit those limits with Social Security and have a bunch of it become taxable. It becomes a little more complicated to try to plan it in such a way that you can either lower your tax on Social Security or outright prevent the tax on Social security. 

Speaker 1 (11:41):

I, I, my history in, in employment has been sort of, uh, back and forth between actual W two s and 10 99. So, uh, gig work is very big now. There's a lot of people doing gig work, working 10 90 nines and stuff. Um, that's, that can't be good if you're looking to collect Social Security at some point because there's many years where you're not actually paying into it. 

Speaker 2 (12:06):

No, you're paying into it. If you get a 10 99, like, so, like you have this business here, this lovely Rock Fox Studios, um, and I'm assuming that, that, you know, you're self-employed that way and so you probably file a Schedule C on your, on your tax return. 

Speaker 1 (12:19):

Uh, I don't know. Is it a k K one? I think we're an S corp here. Okay, so is that, 

Speaker 2 (12:25):

So one way or the other it shows up on your right. Yeah, it shows. So if you, if you draw a paycheck from here, then you are paying into the Social Security Trust fund. Yeah. And if you're self-employed, if you're getting a 10 99 or if you're otherwise self-employed and you're filing a Schedule C, you have to pay something called self-employment tax. Ah, that's the social security tax right there. Okay. Okay. Yeah. So you're still paying into it as long as you're filing all of your income on your 10 40, you're getting credit for it in Social Security. 

Speaker 1 (12:49):

Even if you have such a great accountant that throughout the year they still, you still, you don't end up paying at the end of the year and you're 10 99 the whole time, you still end up, uh, paying into it. Well, 

Speaker 2 (12:59):

Let's put it this way, if your, if your accountant is so good that you end up with no taxable income, then yeah, you're not gonna get any Social Security. 

Speaker 1 (13:06):

That's what I thought. Yeah, 

Speaker 2 (13:07):

, that's what, that's what it's all based on. But that's why you should go to the Social Security website and look to make sure you're getting credit for what you have done. 

Speaker 1 (13:14):

Yeah. What's the, uh, what's that website? 

Speaker 2 (13:16):

It is, uh, ssa.gov/my account. And 

Speaker 1 (13:21):

Of course you could see it right there on the screen ssa.gov/my account. Uh, 30 minute action item 

Speaker 2 (13:28):

Is to go to social, the social security website, get your benefits report, and, uh, calculate your crossover year for, uh, figure out which year it's most optimal to file for Social Security. 

Speaker 1 (13:39):

There you have it. Anything else that we wanna touch on for this subject? 

Speaker 2 (13:43):

That's it. That's, that's Social Security in a nutshell. So 

Speaker 1 (13:45):

In a nutshell, well thanks for joining us on 30 Minute dot Money. Of course, the website is 30 minute.money if you haven't found it yet. And if you have any podcasting needs or any reason to call me or get in touch with me, just uh, reach out@rockvox.com and of course, my friend Steve here is available at focusedwealthadvisors.com. We will see you next time on 30 Minute Money.