Ep 9: Social Security, Part 3

On This Episode

This is part 3 of our social security conversation. This week we talk about what aspects you should consider before you decide to start taking social security. Everybody’s situation is different, but this may help you get a better idea on when you should start reaping your benefits.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Speaker 1: Thanks for tuning in to a another edition of the Retirement Planning – Redefined Podcast. As always, I’m here with John and Nick, Financial Advisors at PFG Private Wealth. Nick, what’s going on buddy? How are you this week?

Nick: Doing pretty well. How about yourself?

Speaker 1: I’m hanging in there, not doing too bad. Are you guys still sweltering down there? We are here in North Carolina. It’s been pretty dang hot the last few days, and it’s in October, so we’ll see how this plays out. You guys still burning up?

John: Yeah, we had two days of a little less humidity.

Speaker 1: Uh-huh (affirmative).

John: And then it just came right back.

Nick: Yeah, yeah, the humidity dropped off and it kind of was a little bit of a tease like taking the dog out in the morning. It was like, “Okay, this is not bad.” Especially even in the shade during the day. But came back with a vengeance the last few days. So hopefully we kind of get back to the… The heat, I don’t mind as much as the humidity, but winters.

Speaker 1: Yeah. When you got to use a butter knife to cut the air, because it’s so thick with moisture and whatnot. Now that was Nick’s voice. The other voice is John’s. John, how you doing buddy?

John: Great.

Speaker 1: Hey, well that’s good. Oh great. I like that. Well, very good. Well good. Then you’re going to be ready to roll on this conversation. It’s part three of our ongoing chat about social security. And we covered a few things the past couple of weeks. If you’ve been listening to us, we talked some mechanics, we’ve talked taxation, we’ve talked funding, some overviews of some of those things there. And if you did not listen, well go sign up at the website. It doesn’t cost you anything to subscribe to the podcast. So go to pfgprivatewealth.com, that’s pfgprivatewealth.com. That’s their webpage. You’ll be able to find lots of things about the team, as well as the podcast. And subscribe to that on Google or Apple or whatever you’d like.

Speaker 1: You can also just call them if you ever have questions, or get tripped up and you want to have a conversation. And you should before you take any action. You should always check with a qualified professional like John and Nick. They are financial advisors. (813)286-7776 is the number to reach them at. (813)286-7776. But again, we’re talking social security. We covered a lot of those things. So now let’s talk strategy a little bit, gents. Big question that always pops up, and that’s usually number one for most people is when should we apply for benefits?

Nick: Yeah, so this is always a good one. My dad actually just hit his official social security birthday. He just turned 62, and of course the thing that he wants to do the most more than anything in the world, is start taking income.

Speaker 1: Turn it on. Right?

Nick: And so the first question that we have to anybody that hits 62, and is interested in potentially starting to take their income is, “Do you have any other earned income?” So the social security system is set up where if you have earned income, so earned income specifically on an individual basis, then there is an earnings test on how much you’re making. And if you decide you want to take your social security benefit, whether or not there’s going to be a reduction. So what we mean that is again, using my dad as an example, he’s a retired fireman, he has a small business, so he has some income from the business, but he has a pension.

Nick: So pension income does not count towards this income test. It’s only the earned income that he gets from his business. At the same time, the income that my mom makes as a nurse, does not count towards his test for his social security. So understanding that it’s based upon an individual’s income, and that it’s an individual’s earned income, that limit is about $18,000, 18 to $19,000. It changes a year-to-year and it’s been inflating up.

Nick: So for every dollar that you earn above that amount, they start to reduce your social security benefit by 50 cents. So it’s about a 50% reduction. So what we’ll tell people is, a lot of these other factors start to come into play on whether or not they need the money, what they’re going to do with the money. And we’ll kind of get into some of those details a little bit more. But understanding that there is a penalty, or a reduction in the benefit that you receive if you take it before your full retirement age. And understanding how they calculate that’s really, really important.

Nick: So a really basic example is, if we say that somebody is going to earn $24,000 of income, so they’re going to be about 5,000 over the limit, and there’s going to be a reduction in their social security. That reduction isn’t nearly as bad as somebody that’s maybe earning 40,000, where they’re almost going to zero out their social security benefits. And since they took it early, there is a permanent reduction anyways. So it does become kind of a more complicated response and an answer, but it does help to get people thinking and understanding and kind of strategizing on what makes the most sense for them.

John: So to jump in here, in the year you reach your full retirement age actually that penalty goes away. So basically, let’s say your full retirement age is 67, and you turn 67 in June, once you hit your birthday, you can earn as much as you want. And from that point moving forward, there’s no penalty on any earned income for that individual. And kind of back to what Nick was saying, very important that people do understand that it’s based on the individual’s income and not household. Because I have run into some scenarios where some clients previous to us got some bad advice, and they actually did not take the social security, because an advisor told them it was based on household income. So there was a couple of years that they wanted to take it and they didn’t, because they got bad advice.

Speaker 1: Yeah, that’s not good. So yeah, you want to make sure-

John: No, that’s why Nick kind of stressed that.

Speaker 1: Okay, so let’s talk about 62 as a magic number, first. If you go as soon as you can, Nick, you mentioned your dad. A lot of people do that. They’re like, “I’m going to run right down and turn it on as soon as I can.” That might be the right decision for you, but it may not, because you could be looking at a reduction in your benefit. Correct?

John: Yeah. So I’ll use my parents’ example here.

Speaker 1: Oh go for it.

John: So once they hit 62 they were done. They were done working, they wanted to retire. And we had the conversation of whether they should take it or not. And we decided that it was best for them to go ahead and take it at 62. So the negative to that is you do get a reduction of benefit, which could be anywhere from 70 to 75%, which was okay for them, because they actually had some pension income.

John: So when we were doing their plan, we looked at it and said, “Hey, we’re going to take a little bit of a hit in your guaranteed income from social security.” But they had some pension income, which helped out, which is why we kind of decided for them that it was okay to take. And again, everyone’s situation’s different, but just understand that when you do take at 62, you get a reduction of benefit, and that reduction of benefit is permanent.

Nick: So then kind of going from there, that range between 62, which is when you’re first eligible, up to your full retirement age, which is actually determined by the year that you were born. So for somebody that’s in their early sixties now, their full retirement age is most likely 66. For somebody that might be in the thirties and forties, it’s 67 or later.

Nick: But once you hit that full retirement age and your statement that you receive on an annual basis, or when you log in to see it, it does tell you, that’s kind of the point at which you can receive your full benefit amount. There are no earnings tests anymore, there are way less rules, is kind of the easiest way to think about it. However, let’s say that your situation allows you, maybe you have a younger spouse, and your younger spouse is still continuing to work. Their income still is enough to support the household and you don’t need additional income. You can let your benefit continue to grow, and it grows by 8% simple interest. And that number caps out at age 70.

Nick: So once you get to age 70, there is absolutely no point in waiting any longer, because your benefit does not grow at all. So an important thing to kind of take into consideration as far as that goes, is we’re going to have a separate session on spousal benefits and widow benefits. However, spousal benefits do not grow with those 8% increases. Spousal benefits do maximize at the full retirement age. So again, we’ll kind of get into more detail on that a little bit later on. But just wanted to make sure that we took that into consideration. And one of the most common questions that we’ll get, “Should I take it at 62 should I take it up for retirement age? What about in-between?”

Nick: So there isn’t a hard difference between 62 and full retirement age. The benefit will continue to increase. So we’ve used my dad as an example a few times. So although he just turned 62, we looked out over the next year, and we realized that the need to take the benefit this year didn’t necessarily make a whole lot of sense, but we’re going to revisit it next year. So this is something that you can kind of reevaluate on a year-by-year basis, or really even a month-by-month basis. Essentially what happens is that benefit grows by about a half percent per month. So that can does continue to grow. So it’s not like if you wait between 62 and 63 you’ve been penalized or anything like that. It is something that does continue to grow.

Speaker 1: Yeah.

John: So one of the main questions that we get when deciding is really the break even point. So deciding, “Hey, if I take at 62, I’ll have this amount of money versus full retirement age.” And the break even is usually mid to late seventies, let’s just say 76 to 77 years old. Looking at it in a vacuum, without any other parts, that’s when people determine, “Hey, if I waited until 60, my full retirement age, once I hit 77 it would’ve been better to wait for that.”

John: But one thing to consider is that, just looking at a vacuum, really we’re missing a lot of key points here. So a reason to take at 62 could be health. So as far as, I’ll use myself as an example, because I’m currently injured with my back. But in my twenties, I could do a lot more than I can in my thirties. So someone might want to take it at 62, so they can enjoy between 62 and 75, and have more money to go on vacation. So those are things that you really need to consider besides the break even point.

Nick: Yeah, I would say from a strictly planning standpoint. So if we take out some of the lifestyle decisions that factor into this, if we take a look at it from the standpoint of strictly finances, there tends to be, dependent upon people’s situation, there tends to be kind of a magic number for the nest egg. So in other words, dependent upon how much people need to take out of their nest egg, if waiting on social security forces somebody to take an unreasonable or an unsustainable, which are all right from their nest egg, we’re probably going to go ahead and have them take the social security.

Nick: Because maintaining that nest egg for as long as possible is really important. And if that number isn’t there, if they just for whatever reason haven’t been able to save, or get to that number that’s right for their specific situation, a lot of times taking that social security is going to alleviate the pressure on the nest egg. It’s going to help us sustain through maybe some negative points of the market, and allow them to live the lifestyle that they want to live in that early five to eight year first portion of retirement. So that’s a huge driver from a financial standpoint, to kind of make the overall plan work.

Nick: Things like life expectancy come into play, although that can be a little bit tricky from, we’ll kind of refer to that as the crystal ball planning. Where we try to plan for a long period of time not maybe what happened with your parents or things like that. So there are a lot of different factors but that helps kind of bullet point some of the key things to consider when trying to decide on when to apply.

John: Yeah, no I just kind of jumped in with something that just popped into my head about something to consider where, client situation, where they had a really good strong social security benefit and pensions, but they really didn’t have a lot of liquidity. So not a lot of assets.

John: So strategy that we’re using for them, is we’re actually taking the social security once they hit the full retirement age, because they are still working. And instead of letting that benefit build up, we’re actually saving that into some type of retirement plan. So when they do fully retire, in this situation it’s age 70, they’ll actually have some type of nest egg that isn’t just income. It’s actually a nest egg they can pull on. So we are taking the benefit, full retirement age, but we’re actually saving it to provide some liquidity in retirement.

Nick: Yeah. And so maybe a real world example of that is we work with a decent amount of local faculty at some of the local universities, and their plans have structures where they can save money into the different retirement plans. So in that scenario, maybe they have a pension, they’re going to have a good pension when they retire, they have social security benefits. It’s going to cover their expenses. But because of those things they save, let’s just call it maybe like $200,000 into their nest egg.

Nick: So what we can do is turn on that social security, and bump up the savings that they’re putting into their 403(b), or some other sort of employer-based retirement account, offset the taxes from an income tax standpoint as they’re taking that. Because again, going back, that benefit’s going to be taxable or at least includable in their taxes, offset that, build that up, try to really bump up their nest egg by another hundred, hundred plus thousand dollars a year. And give them a little bit more peace of mind when they retire.

Speaker 1: Well, really, really good information here on this podcast edition of Retirement Planning – Redefined. We’ve been talking about really kind of the strategy of taking social security. This is part three of our ongoing series of social security. When should you apply for benefits? A lot of good information covered. The great thing about a podcast is if you’re going through and you’re listening to it and you didn’t quite catch it, or you’re not quite following, you can always back up and listen to it again. Unlike a radio show or something where you just kind of catch it in passing. And especially easier if you subscribe to them.

Speaker 1: So make sure you go ahead and subscribe to the podcast at pfgprivatewealth.com. That is pfgprivatewealth.com. But if social security is tripping you up, do not feel alone. It definitely can be that way for a lot of folks. Reach out and call John and Nick and have a conversation with them. Get yourself on the calendar at (813)286-7776. That’s their number if you’d like to reach out to them. (813)286-7776, serving you here in the Tampa Bay Area, at PFG Private Wealth, where John and Nick are financial advisors.

Speaker 1: And with that we’re going to say goodbye this week for the podcast. Tune in next time, when we’re going to continue on with social security, and talk about spousal and widow benefits in part four of our ongoing social security series here on Retirement Planning – Redefined with John and Nick, financial advisors at PFG Private Wealth. Boys, I’ll see you next time. Thanks so much for being here and for everybody listening we’ll talk to you next time here on the podcast.

Ep 8: Social Security, Part 2

On This Episode

We continue our discussion on social security this week. Today’s show will focus on how you can integrate social security in your retirement plan and some variables you may need to look out for when doing so.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Speaker 1: Thanks for coming back in with us. As we talk here on retirement planning redefined, we always appreciate you joining us here on the podcast. With John and Nick, financial advisors at PFG Private Wealth, and we’re going to continue our multi-part series on social security. We talked about a few things last go around on the podcast, and we’re going to continue that on this time as well. John, how you doing buddy? How’s things going?

John: I’m doing good. How are you doing?

Speaker 1: I’m hanging in there. Doing pretty well. I think I’m doing about the same as Nick. At the time as podcast, our teams did not fare well this past weekend in football. How are you doing, Nick?

Nick: Good. While we lost, I’m still cautiously optimistic.

Speaker 1: Yeah, that’s right. That’s good.

Nick: I’m okay.

Speaker 1: That’s how fans do it, right? You still stay optimistic even when they break your heart over and over. We’ll save that for another time, but I do want to continue on our conversation about social security. We had some good chat the last time. We has some good conversation about things to consider, so we’re going to continue this piece on. As we teased the last time, and if you didn’t listen to it, make sure you go and check out the prior episode. You can go to PFGPrivateWealth.com. That is PFGPrivateWealth.com, and you can subscribe to the podcast, Retirement Planning Redefined, you can subscribe to that and listen to past episodes as well as future episodes. Let’s get into this part. We’re going to talk about how to integrate, really, social security into your retirement plan. So what’s a few steps to start and start thinking about when it comes to the integration of it?

John: Yeah, you know, one thing we wanted to touch on with social security is just how important it is in someone’s retirement plan. A lot of people don’t realize it really equates to almost 30 to 40% of their retirement income, and a big factor of why it’s important, it’s actually inflation protected. On average, historically, social security is average about 2.6%. So it’s really nice to have a set of income that’s actually going to be going up with cost of living adjustments. It makes a big difference.

John: Just kind of give a quick example. Let’s say if you’re starting social security now, it’s $2,000 per month. Within 20 years at 2.6%, that’ll be about $3,340 or so, which is a big jump in income. It’s important to understand how valuable that is in how much that really does help out someone’s retirement plan.

Speaker 1: All right, so let’s talk about some taxation and some benefits there. Nick, what are some things to think about when it comes to the benefits of the taxation?

Nick: From the standpoint of I guess making sure that people understand how social security works. From conversations that we’ve had, a lot of people are under the impression that because social security was funded via the payroll taxes that we talked about in the last session, they’re under the impression that there’s not going to be any sort of income tax when you start to receive it.

Speaker 1: Right.

Nick: As many people do know, that is incorrect. The formula that they use to calculate how much of the benefit is taxable to somebody is a little bit convoluted. Essentially what they do is they look at a modified adjusted gross income number, which includes your adjusted gross income, half of the amount that you receive from social security, and then a tax exempt interest, aka, interest from municipal bonds. They add that together, and then they really kind of look at a chart. And then dependent upon if you are single or married, it’s going to determine what percentage of your benefit is going to be includable in your taxable income.

Nick: If we were to say that your benefit amount was 2,000 a month, and your combined, that income formula that we kind of talked about, puts your income over about $38,000. 85% of your benefit, or about 1,700 of the 2,000, is going to be added to the other income sources that you have to determine how much you’re going to pay in tax. We just like to make sure that people understand that although that benefit is coming in, oftentimes they look at the gross amount, and they don’t necessarily understand that, hey, once you’re on Medicare, your Medicare, it gets deducted out of that. You’re probably going to want to have some sort of federal income tax withheld from it. That benefits starts to drop down. So that’s something that we always make sure we focus on and make sure that people understand.

John: When we’re doing planning, and people find out that the social security is taxed, they are not happy.

Nick: Yeah, and sometimes we get asked when did that happen or how did that happen? It really happened in the 80s, during the Reagan administration, is when it took place. Realistically, for most of the people that we’re working with, they’ve been in the working world for 30 years, and that’s been in place. It’s not something that’s necessarily very new or anything like that. There’s really minimal ways that you can actually reduce the impact on taxes. Realistically, the only other sort of income that’s not includable in that is any withdrawals that you’ll take out of a Roth IRA. So dependent upon their overall situation, and dependent upon the structure of what they’re going to have to take out, required minimum distributions and those sorts of things, we may look at different strategies, like converting traditional money to Roth money, and determining if that makes sense.

Nick: I’ll say this, that people do tend to hate taxes, and I know that sounds kind of funny, but the point being is that sometimes they’ll try to make irrational decisions just to try to deal with maybe a tax issue without figuring out that hey, you know, they may only be paying an effective tax rate of 12 or 13% on their income, which in the scheme of things is really low. And so making sure that they understand that, and that they don’t need to make rash decisions with how they structure their decisions is an important kind of thing. Social security just kind of factors in, it’s important for people to understand how it works and how it’s taxed. It’s more of just kind of an FYI sort of thing.

Speaker 1: Well, really good information here. We’re talking about how to integrate social security in a retirement plan. John, did you have another point about the taxes here on this?

John: Yeah, so one thing that we do in planning is we really start to map out someone’s taxes into retirement, and a big chunk of that is their required minimum distribution age 70 and a half. If we can see how much taxes they’re going to pay, we can really make some strategies for someone’s social security based on that. But again, the plan kind of gives you the roadmap so you can make the right decision based on your situation.

Nick: And to kind of add on to that. More specifically, when we map that out and we look at it, what we’re looking to see is when those required minimum distributions are due at 70 and a half, because people, by default, like to put them off as long as they can. Sometimes it will actually make sense to start taking money out of their IRAs first and wait on social security. Whereas the default for most people is take social security first, and then take out the money for the required minimum distributions. Structuring those decisions together as one is a really important way that you can kind of add in some tax planning into your overall retirement planning.

Speaker 1: All right, so we’re going to continue our conversation on the next podcast as well, part three if you will, about social security. But before we get out of here for this particular episode. Any other thoughts about some of the things we’ve covered today, gents?

John: Yeah, so it’s kind of going back to what we first talked about with social security being important in someone’s plan and inflation. The reason that is is when you have a portion of your retirement income that’s guaranteed, it really helps us kind of map out how we should invest or basically implement a distribution strategy from the rest of the assets. So having that base of, let’s say, 30,000 guaranteed income coming in, that’s going up with cost of living, helps us really map out the rest of the investments and how we should strategize behind that.

Nick: I think another good tool or, you know… Because as an example, my father has a pension, he’s a retired fireman, and I have to constantly remind my mother what kind of the equivalent of a lump sum of dollars would be if he would have a lump sum versus the amount that he gets every single month through the pension. If we’re saying on average the social security benefit amount for somebody that’s been working for their full life, and waits until their full retirement age to take it, is around 2,000 per month. Let’s say it’s a dual family household, so we’re talking about 4,000 per year. That’s really the equivalent of a safe withdrawal rate and a million bucks.

Nick: One of the super common questions that people ask us is how much can I take out of my retirement account each year? The safe withdrawal rates around 4%, so 4% on a million, $40,000 a year. 2,000 a month times two is closer to $48,000 a year. So we’re talking about one plus million bucks. If that money was sitting in an account at least generating income, even though you couldn’t invade principle, that sometimes gives people some perspective on how valuable that social security income really is to them in our overall planning.

Speaker 1: Well again, we are talking about social security. We’ve gone through a couple of pieces the last couple of podcasts. We’re going to do another one coming up in just a couple of weeks here, and continue on with our conversation with John and Nick, financial advisors at PFG Private Wealth, around social security. If you have questions and concerns, and you probably do because social security can be quite confusing to a lot of us who don’t deal with this every day. Well then reach out to the guys, give them a call and let him know, because they do obviously work in this arena every day. Having a conversation, getting a second opinion if you’ve already got one, maybe you have no plan at all, or maybe you’ve had no conversations around it,. Well, just reach out and let them know that you’d like to talk.

Speaker 1: 813-286-7776 is how you can reach out to them if you’d like. here in the Tampa Bay area. 813-286-7776. And of course, you can also just go to the website, PFGPrivateWealth.com. That is PFGPrivateWealth.com. Check out the team on the website there as well. You can also subscribe to the podcast on whatever platform you choose, Apple or Google, or so on and so forth, and listen to past episodes as well as future episodes. So guys, I’m going to say bye this week for you, and we’ll be back next time here on the podcast, so make sure you tune in for more Retirement Planning Redefined with John and Nick from PFG Private Wealth. We’ll see you next time.

Ep 7: Social Security, Part 1

On This Episode

Today is the start of a multiple part series on social security. We’ll be discussing topics such as the state of the fund and reforms that are aimed to help the program and more, so tune in and catch up on social security.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Mark: Hey gang, welcome into another edition of retirement planning redefined with the boys from PFG Private Wealth Financial Advisors, John and Nick, once again here on the program with me as we talk about investing, finance and retirement. Always go to the website and check them out at pfgprivatewealth.com that is pfgprivatewealth.com. While you’re there, subscribe to the podcast. Give us a like and check us out and all that good stuff. Subscribe to it for past episodes as well as future episodes. And of course anytime you hear anything, you’ve got a question or concern, give them a call before you take any action. 813-286-7776 is the number to call. If you hear a useful nugget of information and you want to learn more, again, reach out to them at (813)-286-7776. Guys, I hope you’re doing well this week. Nick, what’s going on man?

Nick: Yeah, we’re doing well. Staying busy for sure. Today what we wanted to do is kick off a multi session on social security.

Mark: Okay. Cool.

Nick: And we just want to let everybody know. We know that some of the people that’ll be listening to this will have become familiar with us through either the more comprehensive classes that we put on around town or via a financial wellness workshop. And social security has been one of the hot topics for a long time and it continues to be as it is more in the news with the different pressures and some of the funding issues and those sorts of things. And then obviously with everybody, so many people and so many baby boomers getting closer to retirement, although we will be getting into it fairly comprehensively in this session, we just wanted to make sure that everybody knew that if they were interested in having us come in, whether it’s some sort of association or an employer based kind of program, we like to do the lunch and learns or some sort of financial wellness workshop.

Nick: And we’ve got about a 50 minute session that we’ll do on social security. And from the feedback that we’ve gotten, it’s been one of the most positively embraced sessions that we’ve done. So we just want to let people know that if they wanted a more comprehensive overview on this or they thought it might be beneficial for their employer or fellow employees or coworkers, that that’s something that’s available.

Mark: Awesome. Yeah. When we get into that we’ll have this multi-part series on the podcast regarding social security. And again, as Nick mentioned, if you want to talk with them, (813)-286-7776, (813)-286-7776.

Mark: John, how are you man? You doing all right?

John: I’m doing great. How are you doing?

Mark: I’m doing very well. Thank you for asking. And you know, Nick got us all set up there for the conversation. So what do you say we dive into it? How does it work? I mean, what’s the crux of the whole social security situation here we’re looking at?

Nick: Most people are obviously familiar with the fact that they are eligible for social security and they pay into the system, but not a lot of people are familiar with how it all works and ties together. We always like to start off in explaining people how the program is funded. A lot of people have seen on their pay stub where it might say FICA and they’re not really quite sure what that is. But out of that 7.62 that comes out of your paycheck for those FICA tax is 6.2% of that is for social security. And one of the things that we have found over the years is that many people are not familiar with the fact that the employer also pays in 6.2%. Some people have this idea that the program is fully funded by the government and really it’s fully funded by them and their employer.

Nick: Letting them know that about 12.5% of their income each year is going into the program towards them is something that is important for them to understand. And for some of the higher income earners, they may have noticed at a certain point of the year that their paycheck gets a little bit bigger. And usually that’s because payroll tax is capped, so people no longer pay in on earnings over … In 2019 on earnings over $132,900. And as we talk a little bit about some of the things that’ll change over time with the program, one of the things that’s in the news the most is that cap and removing that cap so that it’s similar to Medicare where people will pay on, no matter what their earnings are, they will continue to pay into the system.

John: That cap’s actually been going up aggressively. You know, I think a few years ago it was $112 Nick, and I think now they’ve jumped it up to one $132.

Nick: Yeah, yeah. They’ve definitely been indexing it up faster than inflation, that’s for sure.

Mark: Yeah. And depending on what happens in the elections coming up next year, you know, depending on who gets in, there’s conversations that that 6.2 could be raised as well. So if you’re still working, so that could go up substantially as well.

Mark: How much can somebody expect guys? I imagine that’s a big question that always comes up is, what are we looking at? I know you can get your estimates, obviously, from the website. They don’t even send those little papers out anymore I don’t think. They used to send them out every year, then it went to every five years. I’m not sure if they even still do that.

John: They do occasionally, and I’m not sure the exact how often, but I know that from our classes we’re starting to have guests say, yeah they’re getting the statements. But it’s based off of your earnings record. And one thing that’s important to understand, it’s actually your highest 35 years. So a lot of people when I first started working, I think the first year I was 18 I made like $12,000.

Mark: That’s pretty good for 18.

John: You’re [crosstalk 00:05:20]. Yeah, exactly. Your highest earning years are really later in life, once you hit your 50s and 60s. So that’s important to understand if someone’s thinking about retiring early to make sure that they look on the statement and see, Hey, what years do I have that are significant in here? Because if I stop working my last seven years, you know the benefit that I’m seeing on my statement’s actually going to be less.

John: Because when you get your statement, what it shows if you continue to work up until that age, not if you stopped. So that’s important. Another thing we tell our clients and anyone that comes to our classes is to make sure that you look at it, see if there’s any zeros in there. Because if you do have zeros in your highest 35 that will actually bring down your benefit and that’s something you may want to consider maybe working a couple of extra years to make sure that you maximize your social security retirement benefit as best you can.

John: And you’re right, you can go on social security.gov and pull up your statement. They’ll ask you a lot of funny questions. What was the color of your first car? Most likely most people get locked out unfortunately, but it’s good to go check it out if you haven’t done that in awhile.

Nick: Yeah. Another thing to just make sure that people know from the standpoint of those highest 35 years is that’s in relation to the cap. And so you know that cap that we mentioned earlier, that $132,900, it’s in relation to that. Just because there may have been a period of time, we’ve seen it in some circumstances, where maybe somebody took some time off to stay home with the kids and then they’re returning to work and before they took time off they were making a higher income. And although, from a pure dollar standpoint they may be making more dollars now as in relation to the cap, that may not necessarily be the case.

Nick: That highest 35 earning years is in relation to that cap. And with how social security date change the mailing out of the [inaudible 00:07:04] and that sort of thing, we absolutely recommend that people, although it can be a little bit of a pain from the process, to really get logged into the site, make sure they understand how to access that statement, make sure they understand how to read that statement. Especially from the standpoint of people that we have that are self employed. We have them double check their statements to make sure that their income is being correctly recorded because they may be paying in their self employment tax, which is essentially payroll tax. Making sure that that’s recorded properly so they’re going to get the benefits that they’re entitled to down the road.

Mark: Yeah. Now guys, I’ve heard through the years that if you see those zeros on there like John mentioned that that’s not really on the social security to fix that. That falls back on you in trying to follow up possibly with past and employers. Like if you know you earned something in a given year and you’re seeing a zero, is that still how it is? Is that the way that it goes? Do you need to talk with the social security office about that or do you need to track down that past employer?

John: You do need to reach out to them and Nick’s, I believe, grandfather did that and Nick can share that story.

Mark: Oh, all right.

Nick: And this was years ago, so I don’t know any details on it, but my grandfather was from Cuba and so he had a natural distrust for the government. And when he was a professor at the University of Rochester and when he went to retire and file for social security, he did not agree with the amount. And due to his non-trusting nature, he happened to have every pay stub that he ever had in the basement. And so he was able to figure that out. Luckily now we have things that are more electronic and we do have people try to keep some sort of record and haven’t had anybody recently deal with that in any sort of deeper way.

Mark: That’s good.

Nick: But usually a tax return will help. And tax returns are one of the things that we have people … We’ve got a portal for clients and we have them upload those tax returns so that they can be a really good resource down the road in case there’s any issues.

Mark: Well that’s cool. Yeah. I mean I’m 48 and I think about myself and I think God, if I had to go back and figure out who I worked for when I was 20 and what they owed me or whatever, or what I paid in, I don’t know where I’d start. So that was awesome that your grandfather actually kept all that stuff. Because I know that for a lot of people that would be definitely a challenge. But that’s just something I thought about and I wanted to bring that up and get your guys’ opinion on that.

Mark: So if you’re talking about things that are really important to people, obviously a big question for boomers, and I’m sure you get this at the wellness events that you do and just in general is the constant question of the health of the fund. Is it going to be around?

John: Yeah, that is a 100% the main question we get at the workshops and also when we’re doing planning for clients. But as it states today there’s actually a surplus and the fund is actually growing. There’s roughly $2.9 trillion in it and when you say trillion it doesn’t really in reality mean much, we have no idea what that actually equates to.

Mark: It sounds like a lot.

John: [crosstalk 00:09:56] Surplus, it is a lot. But the surplus is about $3 billion a year between money that’s coming into it through the payroll taxes and also the interest earned on the balance. Just to kind of give some people some numbers because they’re always asking. In 2023, 2024 that surplus actually will stop. So it’s actually going to be going into a deficit and then in 2034 the fund’s basically exhausted and then it’s just going to be paid through basically money coming in through payroll taxes and then the money’s going to come out. An then in 2034 when that happens, based on the numbers, the estimates, is looking like there’s going to be a 21% reduction of benefits. So you’re going to get 79% of the benefit owed to you. And again, that’s if no changes happen, which we’ll we’re going to go into shortly. Nick will start it up where we’re talking about some of the reforms that already have been happening and that will continue to happen.

Nick: And we do tend to … Some of these will probably be repeated throughout the series about social security. And earlier I mentioned the increase in max earnings, removing that cap. That’s probably one of the lowest hanging fruit from the standpoint of people getting on board with making higher income earners continue to pay into the system. Right now, the earliest retirement age that somebody can collect benefits from is 62. So that’s an age, especially with the longevity of people’s lives and people just living longer overall, that 62 will probably start to increase. I’m sure people will be grandfathered in at a certain age or certain, your worth and before it will be grandfathered in, but-

Mark: It seems like that’s a really-

Nick: John and I suspect that our-

Mark: Yeah, that seems like the easiest one too for a lot of things. Right? Just push it back for people under a certain age, like 50 and under or something, just push it back.

Nick: Yeah. And social security … The trickiest thing and probably one of the biggest reasons that not much has been done with it is because, frankly politicians are worried about not getting voted back into office, so-

Mark: Yeah, it’s a political poker chip for sure.

Nick: They [inaudible 00:11:53] can down the road and try not to tick people off at least to a certain extent. So raising that initial retirement age from 62 probably upwards of … They’ll probably ease it in, but I wouldn’t be surprised if John and I, our initial retirement age is closer to 65 or higher.

Nick: They’ve talked about doing means testing from the standpoint of if people have a certain amount of income on that they wouldn’t collect their social security. I think that one will probably be a little bit more difficult because usually that’s income focused and honestly there’s a lot of ways around that.

Nick: But another thing would be that cost of living adjustment, and that’s been tinkered with a little bit really over the last decade as inflation stayed low for a little while and interest rates were really low. But that could be something that they adjust. But realistically what we think will be the easiest things to do will be to take up on the payroll tax, potentially have employers put in a slightly larger percentage than the actual employee. It’s something that they can do. Increasing that cap or the earning cap or removing the cap in general, and bumping back that initial retirement age, are all things that we think will be a big deal.

Nick: The other thing could be the, really the increases, the percentage increases that social security provides for people that defer taking their benefits. So if they wait, any year after full retirement age, there’s an 8% increase. And so that’s something that’ll probably drop as well.

Nick: The good news is that this is pretty actuarial and really all you have to do is math to figure it out. It’s just going to take people being willing, people being the government, being willing to make the changes.

John: Yeah. And they’ve already, in 2015 they actually closed some of the loopholes which we’ve been seeing a lot of in planning some strategies that people were using are going away, which helped the program out. They’re already doing some things. And the big thing that … One of the things Nick talked about was the cost of living adjustments. To me that’s one of the ones we need to keep an eye on because when we’re doing planning, it really helps out the plan when you have some type of guaranteed income that actually goes up with inflation.

John: Historically, social security has gone up about 2.6%. It’s been low over the last five or six years due to inflation, but that’s actually a pretty nice benefit when you look at what you start with at let’s say 66 and what you end up with that age 85. It’s a big amount. When you look over that 20 year period.

Nick: Probably the one people want to fight for the most to maintain from the standpoint of anybody that’s likes to be active or have a vested interest in the topic, that cost of living adjustment’s really, really important for them.

Mark: Absolutely. Well, let’s take that point and segue into an offer for you guys. If you’re listening and you want a free maximization strategy and the social security guide to anyone who emails in, just email john@pfgprivatewealth.com that’s john@pfgprivatewealth.com. Again to get that free maximization strategy and social security guide here on the program.

Mark: And I that’s going to do it for us this week on the podcast guys. Really good information to start this week, talking about social security here on the show. We’re going to continue on, as Nick mentioned earlier on, and do a multi-part series on this next time here on the program. We’re going to talk about integrating social security into your retirement plan, making that part of the plan and some things to look for and think about in regards to that.

Mark: You’ve been listening to retirement planning redefined with John and Nick financial advisors at PFG Private Wealth. Again, that’s PFG Private Wealth and that you can find them online at pfgprivatewealth.com and subscribe to the podcast while you’re there. Don’t forget to email John if you’d like to get that social security maximization or give him a call at (813)-286-7776. If you’ve got some questions about your own social security, get on the horn with them. Come in for a consultation and a conversation. (813)-286-7776. This has been retirement planning redefined for John and Nick. I’m Mark and we’ll see you next time.

Ep 3: Why The Role Of Your Financial Advisor Isn’t What It Used To Be

On This Episode

As the financial industry has changed, the role of the financial advisor has also changed in order to fit the needs of today’s retirees and pre-retirees. So let’s talk about some of the crucial elements that your advisor should be providing you with in a retirement plan, as well as how you can spot an advisor that may not have your best interests in mind.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:

Marc Killian: Hey everybody, welcome in to another podcast edition of Retirement Planning Redefined, with financial advisors John Teixeira and Nick McDevitt of PFG Private Wealth, an independent RIA serving you in the Tampa Bay area. Their office there is in Tampa Bay. If you want to get on the counter and come in for a consultation or a conversation, or you know someone who needs a little help, give them a jingle at 8132867776, that’s 8132867776 to give them a call and always, you can check us out online, check out the team and there’s some good tools, tips, and resources to be found at PFGPrivateWealth.com, that is PFGPrivateWealth.com. You’ll be able to click on podcast and also subscribe to the program, catch past episodes, and future episodes as we continue to put these out. Hopefully you’ll extract a useful nugget or two of information to help you along your retirement journey. PFGPrivateWealth.com.

Marc Killian: And guys, welcome in this week. Thanks for being here, I hope you’re doing well.

Nick McDevitt: Doing well. And how are you doing, Marc?

Marc Killian: I’m doing very well, thanks I appreciate you asking me that. John, how are you, buddy?

John Teixeira: I’m great, how are you?

Marc Killian: Doing pretty good. How’s the weather been here lately? It’s been pretty hot in my neck of the woods. You guys are starting to roast a little bit, or at least it’s coming anyway, right?

John Teixeira: It came.

Nick McDevitt: You know, it’s actually pretty nice and then all of a sudden the next day it’s like mid-90s.

Marc Killian: Just bam, huh? Out of the blue? Well that’s Florida, right? And as they say, if you don’t like the weather wait five minutes, it’ll change.

Nick McDevitt: Winter’s not coming here right now

Marc Killian: Yeah, winter’s not coming. That’s right. A little Game of Thrones thing there, uh-oh. So let me ask you guys a question this week if you caught our previous podcast last week folks you know we talked a little bit about industry overview, just, I guess, how things have changed in the last decade. I kinda threw this bull market we’ve been on, honestly it’s been a lot going on the last ten years so we’ve teased up the fact that we were gonna talk about how the financial advisor’s role itself has changed. So let’s kick it off and talk about that. Over the last decade what have you guys seen that’s changed for your specific role as financial advisors?

Nick McDevitt: Yeah, so, in the classes that we teach, one of the things that we talk about quite a bit are that seeing that the majority of the clients, and the majority of the people that come through our class, are kinda that and that, 50-55 years and up range. Many of them have, at one time in their life, maybe earlier on but maybe still, have worked for an employer where there was a pension plan or maybe a significant benefit packages, and their lives are very closely, have been very closely touched by one company’s head pensions for everybody and one really employer took on the major amount of risk from the standpoint of a person having a respectable retirement. So, [inaudible 00:02:43] transition from the worker having a pension plan, having really good benefits, to them becoming more responsible for their retirement.

Nick McDevitt: So that’s kinda driven the changes as an advisor where maybe before, the advisor really only had to worry about managing the investments, where now it’s much more planning and strategy focused. And really it’s trying to take all of these different decisions that have to be made like maybe it’s a couple situation, one of them has a pension, they’re both in the social security system, they haven’t paid off the house yet, they’re trying to determine, “Do I pay off the house? Do I save? What age should we retire? Shall we both take social security at the same time or should one of us wait? What sort of options should we take on our pension plan?” And so it’s taking all these different decisions and putting them together, and then making sure that the risk that they’re taking with their investments lines up properly with what they’re actually comfortable taking as they approach retirement.

Nick McDevitt: That transition of what we’ll kind of talk about as accumulation, where they go to work, they save money into their retirement plan, and now, all of a sudden, they’re starting to realize that, “Hey, I need this money to start to generate income for me. How do we work through that transition and how do we give ourselves, how do we empower ourselves with the information that we need to make the right decisions, and also feel comfortable so that we don’t derail that plan if, let’s say there’s a pull back in the market or something like that.”

Marc Killian: I gotcha. Okay, so, if we’re gonna talk about some of these variances when it comes to how these roles have changed, let’s talk a little about advice and planning versus investment management.

Nick McDevitt: Sure, so it’s always an interesting kind of experience as we will go through and teach these classes where just like any sort of situation you have certain people that are very comfortable asking questions that are particular to them, and other people are quiet. So, we’ll have people that will raise their hand and will say to us, “Oh, I’m going to retire in two years, and I’m a teacher, and I’m gonna have my pension. And how much should I take out of my retirement account?” And John and I kinda typically joke with them, and we just oftentimes say, “It may be frustrating for you to hear it, but what you’re gonna hear from us a lot is it depends.” And that’s where we really try to shift people into having that mindset of building that plan and trying to walk through the decisions that they’re trying to make in the basis of a plan, and then that plan then dictating how they manage their investments. And even if they’re gonna have us managing investments or they’re gonna manage them themselves, they need to have a broad based plan and we want the risk that they’re gonna take in the investments to be dictated by the overall plan.

Nick McDevitt: We’ll oftentimes make a joke that, “I’m sure that your mailman, or your plumber, or your electrician, or your cousin, or your brother have great advice for you but their situation is different than yours. And they may have a much higher ability to handle risk, they might have a pension, they may not have kids that they want to leave money to, they may have a house that’s paid off. And so everybody’s situation is different and how they develop their investment strategy should be based upon that plan first. Where, in the past, most people have just said, “Hey, I wanna achieve some arbitrary sort of way to return their investments.” And there’s no rationale or rhyme or reason behind how they’re doing that.

Marc Killian: You’re listening to Retirement Plan Redefined podcast with John and Nick from PFG Private Wealth. And so John let me get you in on this conversation a little bit. Let’s talk a little bit about focus on the strategy and broad based planning and how that’s changed over the last few years.

John Teixeira: Yeah, so, most people that we meet with we like to call if they have the financial junk drawer.

Marc Killian: Right. [crosstalk 00:06:46]

John Teixeira: It’s kinda going through work and they’re really just purchasing financial vehicles and there’s really no rhyme or reason to it. So we make sure that whenever we meet with someone or we’re going through the classes, that we really focus on A) establish what your goals are, let’s put a strategy in place to hit those goals; and then second, is really then let’s put the investments in the products that are appropriate to make sure that you do [inaudible 00:07:10] those goals versus vice-versa where a lot of people will just end up, “Hey, let me get all these things.”

Marc Killian: Right.

John Teixeira: And then really no strategy to make it happen. The negative to that, or what could be bad is that you back yourself into a corner where you can’t adjust. So it’s important, when you’re doing the plan, as Nick mentioned, the plan really dictates how you should be investing your money, what type of rate of return should you shoot for. So example, we’ve seen some people where their plan looks good and they’re investing very aggressive, shooting for 9%, and in reality they can hit all their goals with a 4-5% expectation in the portfolio. And what that does is if your plan works at 4-5%, why take the risk of 8-9%? [crosstalk 00:07:51] We really want our clients to be able to sleep at night. So that’s kinda part of focusing on the strategy, which ultimately will let you focus on what investments in your strategy to go into.

Marc Killian: Yeah, and I think that makes a lot of sense. Especially when you’re talking about time horizon because as you’re aging and getting close to retirement, if you don’t need to reach for those higher return rates, I mean I get it, everybody wants to make as much as they can make but why take the risk? Especially as you’re getting closer if you don’t need to.

Nick McDevitt: Yeah and where planning can actually help with that is, so let’s say for example, because people tend to think about all of their money in one pot, so there will be times where we’ll have conversations, and sometimes it’ll be referred to as bucket strategy or something like that, and so while we’re having our conversation we’ll say, “How about we carve out, let’s say, 10% of the overall nest egg and that 10% we can invest for a long term growth and that’s gonna have a little bit more ups and downs, but that’s gonna replace the money you’re gonna spend in the meantime.” So that lets them get that kind of exposure that they may want just on a smaller scale. And it makes the whole transition a lot smoother for them.

Marc Killian: Okay. Well I think we’ll finish up this week’s podcast, we talked about some of the financial advisor role changes here. And a lot of times, guys, people just are a little overwhelmed, as we touched on. There’s the kind of wondering, well this person has this designation, and that designation. All the little stuff that goes on your business card, right? And so it can get a little overwhelming. So John, is there some things we can do when we’re doing a little research, when we’re looking at people we want to talk to, maybe sit down with, some ways we can kind of do our own homework on if it’s maybe the right fit or not?

John Teixeira: Yeah, so we always recommend that if you’re interviewing or looking at advisors, you wanna do a broker or adviser look up. So you can look at Finnvera.org, you can look up, put in their last name, their location, and you can do a broker check and then also the SEC advisor website has an advisor lookup that you can do. And what that will tell you is where have they worked? So you can kinda see how long they’ve been in the industry, where they’ve been, and more importantly are there any complaints or any issues with that advisor.

John Teixeira: So we like to tell stories, and Nick and I had a meeting with someone and something wasn’t right. It was an initial consult to really get to know who we’re sitting with. We could tell that something was off, and Nick likes to google quite a bit, so he went on there and pulled up the advisor’s history and there was a lot of complaints and there were actually, Nick, jump in if I miss something, they were actually kicked out of the industry. So it raised a lot of red flags, had those people looked him up prior they would have saw that and maybe not backed themselves into a corner kinda going back to just focusing on what we were talking about, just focusing on products versus strategy. It’s just important to really know who you’re dealing with.

Nick McDevitt: And more specifically, when you do that lookup you can see what sort of license they have, and that license will tell you what kind of role that they can have as far as, are they able to provide advice or are they simply a broker where they’re just selling products? And so as John mentioned, you can see if there’s been suspensions, you can see if there’s been complaints, you can see if they’ve had to settle financially, if they’ve had to pay out money to maybe a past client that’s complained about them.

Nick McDevitt: And it will also will show if they’ve had any personal financial issues. So a lot of people, especially back through kind of the 0809, one of the things that popped up that we’d have questions on from people where they or their advisor had gone through some sort of bankruptcy or something like that. And that doesn’t necessarily mean that that person’s no longer a good person or they’re not trying to do what’s best for the client.

Nick McDevitt: But, they way that we approach it and they way that we think about it is that it’s important for people to arm themselves with as much information as possible to help them make smart decisions. So being able to look up that information, seeing what kind of licenses they have, see if there’s been any complaints, see if they’ve been at a different firm, if they’ve been at five different firms for one year at a time then that’s usually a red flag [crosstalk 00:12:01] that’s something they should be asking questions about. Again, it’s just one of those things where it’s good to know things like that.

John Teixeira: Yeah [crosstalk 00:12:09] sorry, so one thing I do wanna mention on this and I kinda feel passionate about, so I do wanna jump in on it. We’ve run into some people where they thought they were working with an advisor that, let’s say, had all the licenses, but they were only insurance license. So basically, what I mean by that is, they can only sell certain insurance products so, specifically, certain types of life insurance and annuities. And basically, what they did with this one person I was working with is they just jammed him into all annuities and life insurance because they couldn’t sell anything else or offer advice for anything else. So important where you are looking up someone, make sure that they can offer you everything that comes into the financial planning world.

Marc Killian: Yeah, and I think, when you’re doing your homework, folks, do a little bit of research again, it’s one of those situations where it’s your money, it’s your retirement obviously you need to care about it more than the person you’re hiring. But you wanna hire someone who is gonna have your best interests at heart. Which is we talked about that last week as the fiduciary versus the suitability. But do a little homework, check some things out. The guys gave you some good places to consider to take a look when you’re kinda checking someone out. And because we all are gonna have that gut feeling as well. So when you sit down and talk with someone, you’re gonna also be able to decide if they give you the warm fuzzies, so to speak. So do a little bit of homework, sitting down and checking out some different people, certainly a good way to go when you’re trying to find that right advisor to build that relationship with.

Marc Killian: And if you’d like to come in and talk with John and Nick, and have that conversation with them, feel free to do so. Give them a call at 8132867776, again 8132867776. They do classes throughout the year as well, there’s more information you can find on that at the website PFGPrivateWealth.com. You can learn about when those are gonna take place, and how to get involved, and all that good kind of stuff. And while you’re there make sure you subscribe to the podcast on iTunes, Google Play, and whatnot.

Marc Killian: And, John, Nick, thanks for your time here on Retirement Planning Redefined. I hope you guys have a great week or two, and I’ll see you the next time we do one of these.

Nick McDevitt: Thanks, Marc.

John Teixeira: Alright, thanks. Have a good one.

Marc Killian: Take care of yourself and enjoy yourself, and have yourself a fantastic day, and we’ll see you next time here on Retirement Planning Redefined, with John Teixeira and Nick McDevitt of PFG Private Wealth an independent RIA. We’ll talk to you next time, bye bye.