The 4 Things You Can Control in Retirement

On This Episode

Markets crash. Taxes shift. Congress waffles on Social Security. You can’t control any of that. And stressing over it won’t help. What will? Focusing on the four things that actually move the needle in retirement.

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Disclaimer: 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.

 

 

Marc:

Market crashes, taxes shift, Congress waffles on Social Security, you can’t control any of that, and stressing about it will not help. So, let’s talk about the things this week that we can control in our retirement.

 

Welcome into the podcast, everybody. This is Retirement Planning – Redefined with John and Nick from PFG Private Wealth, and guys, we’re going to talk about a couple of examples of stuff we can control in our retirement world, because there’s a whole lot of stuff we can’t control, right? So, let’s have a chat about some of that this week. What’s going on, John? How you doing, my friend?

 

John:

Doing good. I’m doing good. How are you?

 

Marc:

I’m hanging in there. We were just chatting before we jumped on here about the AI getting crazy. We can’t control that either, so we got to factor that in, right?

 

John:

No, no. I think [inaudible 00:00:50] right now.

 

Marc:

Yeah, we got to factor that in when we’re looking up information and things of that nature, so that’s another piece we can’t control, so be careful out there with that. Nick, what’s going on, my friend? How you doing?

 

Nick:

Good, good. Staying busy. The heat is on here.

 

Marc:

The heat is on. That’s right.

 

Nick:

Yeah, we are inching our way into summer.

 

Marc:

Yeah, well, it’s that time of the year. It’s hot and rainy on a regular basis, but let’s get into this conversation this week here. I got a couple items I want to run through. Like I said in the teaser, you can’t control what happens in the market, guys, right? Look what happened earlier this year. We knew the tariff thing was going to start. Took a bit of a beating for a while, then it started to rebound pretty well, but you can control how you’re positioned, right? That’s obvious, but people forget that. When they see the market taking that dive, they panic, “Oh, my gosh, it’s going down. The S&P is down 12%, that means I’m 12%.” Well, no, John, not really. Not if you’re not 100% exposed to the market risk, right? That’s the point.

 

John:

Yeah, that is. This is actually perfect timing for what’s been going on this year.

 

Marc:

Exactly.

 

John:

We’re doing some of these reviews, and we really kind of pride ourselves on making sure people are invested in the right asset allocation per their goals and their plan and their risk tolerance. So, when people put on the news, it seems like doom and gloom, and we’re doing some of these reviews and it’s like, “Oh, okay, that’s good to hear.” And part of that is you can’t control what the market’s going to do, you can’t control what politicians are going to do and how that might affect the market, but you can control how you at least take a look at your overall investment portfolio and how you structure it to be able to … Not saying you’re going to weather every storm, but to limit some of the volatility that’s happening.

 

Marc:

Sure. Yeah, I can’t even begin to say how many advisors I’d talked to where most of them only had a few nervous Nellies, right, and that’s okay. It’s understandable. A couple would call here there during the height of some of that there in April and saying, “Oh, my God, I see it every five seconds. It’s down 12%. I need to go through my numbers.” And so they’d run through the portfolio with them and they’re like, “You’re only down about two at this moment,” because they’re like, “Oh, well, two’s a whole lot better than 12.” Well, yeah, so that’s the point of not buying into just the straight media all the time and understanding what your risk tolerance is and how much you’re exposed to it, so that’s one area.

 

Nick, another area is kind of the same thing. It’s the great multi-risk multiplier. It’s our longevity. We don’t have a stamp on us that says when we’re going to pass away. It would make things easier and scary all at the same time. But you can control how much emphasis you put into your lifetime income streams, like, how are we setting up these lifetime income streams? And that longevity factors into market risk and all the other stuff too.

 

Nick:

Yeah, for sure. As we kind of start going through the planning process with clients, and then obviously the clients that have been with us for a long time, things will kind of ebb and flow depending upon how well they tolerate things like the market, how focused they are on upsider growth. And we’ve had multiple clients over the last, I’d say, 12 to 24 months where they’ve had substantial run-ups in the market over the last 10 years, and have wanted to carve out a certain amount to just kind of give them additional baseline of income.

 

And I think one of the things that’s really brought that home to people has been the inflation factor that we’ve kind of dealt with over the last couple of years, where it’s like, okay, they were chugging along and things were going great and felt very comfortable, and then prices and inflation really kind of kicked into gear. And we have a conversation about, “Well, hey, if this happened 10, 12 years down the line, are there things that you would do differently than you’ve done previous to now?” And a lot of them have wanted to increase that baseline, especially with Social Security being in the news as much as it is, and for a lot of people, that being kind of their baseline lifetime income stream.

 

Marc:

Yup. For sure. And these four things we’re talking about this week, guys, they all really play with one another when it comes to building that retirement strategy. And of course, if you need some help, please reach out to a qualified professional before you take any action, like John and Nick. Again, you can find them at pfgprivatewealth.com.

 

But John, I’ll kick it back over to you, where we’re still waiting to see what’s going to happen with the passing at the time we’re talking for this Pick the Top Podcast, the Big Beautiful Bill is still hanging out there, and taxation is a piece of that. So, part of what we’re waiting to find out is, are the Tax Cuts and Jobs Act that we’re currently under, are they going to expire at the end of 2025 in just a few months, or are they going to extend that, right? So we can’t control what they’re going to do, but we can start thinking about how to be as tax-efficient as possible.

 

John:

Yeah, this is a big one, because taxes are just an eroding factor in your money, and it’s best to avoid unnecessary taxes at all costs. And the best way to do that isn’t trying to predict what taxes is going to be in the future, it’s positioning yourself where you can adapt to any situation. So, if tax rates do go up quite a bit, you have some tax-free money or some after-tax dollars somewhere that you can take advantage of. So, it’s important to look at, hey, kind of call it asset location, where are my assets and how are those being taxed? And if taxes go up, how do I adjust? Or if taxes go down, maybe that’s a good time to make some moves and make some adjustments.

 

And part of this is, and I found this quite a bit when we’re bringing on prospective clients that maybe haven’t worked with an advisor or working with an advisor, they’re really not projecting what their taxes are going to be in the future. It’s just kind of like, “Hey, what’s my return? How have I been doing?” But with a comprehensive plan, you can actually look at it and say, “Hey, based on today’s numbers, here’s what taxes look like. And if taxes go up, you’re going to be in a bad situation the way you’re currently positioned.” So we want to just stress how important it is to allow yourself the ability to adapt.

 

Marc:

Yeah, and Nick, I’ll keep that conversation going with you for a second, because if they do nothing, the tax code is going to revert back to the Obama administration era, so rates will go up, brackets will change. If they extend the TCJA, which a lot of people are hoping for, then our tax rates will probably stay the same. And if you’re doing Roth conversions, for example, that’s going to be great, because you’re going to have a longer timeline now to Roth over time and do converting, whereas if the tax rates go up, maybe that changes your strategy.

 

Nick:

Yeah, for sure. And I think the biggest takeaway in the biggest point that this proves is that things continually change. And so, having a proactive plan on how you want to address … And really what this boils down to is your distribution plan or your withdrawal plan, and how heavily dependent is your withdrawal plan on current environment?

 

And even just to bring that up, I think one of the things that we’ve found, and we’ve emphasized it with clients, especially over the last 10 years or so, but clients that have taxable investment accounts, so non-retirement, non-traditional, non-Roth, but just regular taxable investment accounts, they really find themselves in a position to be able to adapt to the environment better than people that don’t. So, things that pop up that happen, whether there’s a substantial withdrawal that needs to happen, or just flexibility on cash flows, their ability to be able to adapt to what’s going on is significantly better, because … And we are a fan of Roth conversions when they make sense, but there is a risk there from a timing perspective. There’s absolutely risks, so that’s something that I think is important to point out.

 

Marc:

Well, the fourth one, we said we were going to talk about four items today, guys, and of course you know it’s coming because I hadn’t mentioned it yet, that’s Social Security. We can’t control what these folks are going to be doing up there on Capitol Hill, but we can control our strategy, or least start to kind of look, like, how heavily is it relying on Social Security? Or the conversation, John, of when do you turn it on? When do you not? How does that affect your withdrawal strategy and withdrawal rate from other accounts? So, that’s something you can control.

 

John:

We can control when you take it and when to defer it and what to do with it if you take it. And again, just going back to the plan on this and stress-testing the plan, how does someone’s plan look like if Social Security loses the cost of living adjustments that we’ve seen recently, which have been pretty significant over the last five or six years. What does the plan look like if all of a sudden that stops? Are you in good shape? And if you’re not, how can we mitigate some of that risk? And maybe that does make a difference as to when you take it or how you take that distribution there, but that’s one way to look at it.

 

Or assuming, going back to the Social Security podcast, if people are listening, if they don’t make any changes in 2034, there’ll be about roughly 21% reduction in your benefit. What does your plan look like in that situation? Are you in a good position to weather that storm? I mean, ultimately, we do think they’ll make some adjustments to it, but you just want to just know what would happen in that situation, and how do you adapt to it.

 

Marc:

Yeah, I mean it’s certainly a big one that you’re going to wind up. You’re running different stress tests and different kind of scenarios just to kind of see how all this stuff’s going to play in with each other. And Nick, I’ll toss it back to you for a final point. Anything I missed on those four items that we can control? Those are four pretty big ones. Is there anything else you’d like to touch on, or did we tackle it?

 

Nick:

No, I think those are good. I know just one other point, because there’s been some talk about the tax bill that’s going through Congress right now, and there was some initial discussion about making Social Security benefits tax-free, and at least from what I’ve read, that’s not the case in this. I know I’ve had some clients kind of bring that up and ask, and obviously we never know what happens once it kind of works through the Senate and all that kind of stuff. But they did end up, I think, the way that they had handled it was they put in something about an additional credit for seniors, an additional tax credit of, I think, maybe up to $4,000 or something like that, but-

 

Marc:

Yeah, I think that’s where they’re still kicking around. It went through the House, right, so now it’s still got to go through the Senate, and they’re still kind of arguing back and forth about what’s going to be what, so yeah.

 

Nick:

Yeah. And the reality is that the other thing that this tax bill does point out is that from the standpoint of in the future, and the amount of debt that the government has and all that kind of stuff, there are risks of things that will be taxed in the future that maybe aren’t taxed now and stuff like that. So yeah, I think the emphasis is really beyond anything else is that whatever strategy is best today is probably not best tomorrow.

 

Marc:

True.

 

Nick:

And so, the ability to be able to position your assets in a way to kind of adapt, like you mentioned, income streams, have pre-tax money, have Roth money, have taxable brokerage account that’s more subject to capital gains versus ordinary income taxes. Even if you’re in a position where you can invest in something like real estate, maybe when the prices are a little bit more reasonable, but where you can use the tax benefits of real estate, that’s something that could make sense for people. So, it’s just giving yourself the ability to adapt to whatever’s going on is the most important takeaway I think people should have.

 

Marc:

Yeah, at the end of the day, there’s a lot of stuff that we cannot control, but there are many things inside that subsets that we can control, and that’s where working with a financial professional can certainly help. So, if you’re not already doing so, sit down and have a chat with one. Talk about your unique situation on something you hear on our podcast or any other. Don’t just take action without running that through your specific and unique scenario. And of course, John and Nick can help with that. If you’re not already working with them, then reach out to them at pfgprivatewealth.com. That is pfgprivatewealth.com. You can call them at (813) 286-7776. And don’t forget to subscribe to the podcast on Apple or Spotify or whatever podcasting app you enjoy using. It’s Retirement Planning – Redefined, and share the podcast with others that might enjoy the content and get a useful nugget of information along the way as well.

 

So guys, thanks for hanging out and breaking it down. I always appreciate your time. We’ll see you guys next time here on Retirement Planning – Redefined with John and Nick.

Social Security Claiming Tips for Diverse Family Situations

On This Episode

 

Social Security claiming strategies can vary greatly depending on family dynamics. This episode explores how different family situations, such as those with a stay-at-home spouse or a blended family, can impact when and how to claim Social Security benefits to maximize your retirement income.

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Speaker 1:

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.

Speaker 2:

The rules of retirement have changed. No longer can most of us rely on Social Security or a single pension to fund our futures. We’re living longer and retirement doesn’t just last a handful of years anymore. Instead, you might stay retired for 20 or 30 years and maybe even more. We need to look at retirement through a new lens with fresh eyes, with a new approach and plan of attack. Here to answer the call, our financial advisors, John Teixeira and Nick McDevitt of PFG Private Wealth Management serving you throughout the Tampa Bay area. This podcast is Retirement Planning – Redefined, and it starts right now.

Marc Killian:

Time for another edition of Retirement Planning – Redefined with John and Nick, financial advisors at PFG Private Wealth. Make sure you subscribe to the podcast on whatever podcasting app you like using. Just type in Retirement Planning – Redefined, or find it online at pfgprivatewealth.com. That’s pfgprivatewealth.com, and while you’re there, you can book an appointment with the guys right there at the top of the page. Just click on the little tab and get started today. We’re going to get into Social Security conversation this week with the guys, some claiming tips for family situations, different kind of family situations that are out there before we get rocking and rolling. Nick, how are you doing, my friend?

Nick McDevitt:

Doing pretty good.

Marc Killian:

Yeah, hanging in there?

Nick McDevitt:

Oh, yeah. Slightly enjoying the cooler weather, but I always enjoy hoodie weather, so I could use a couple more degrees, but.

Marc Killian:

Okay.

Nick McDevitt:

But not too bad.

Marc Killian:

Not too bad. And John, how are you doing with the herd down there? Everybody doing all right?

John Teixeira:

Yeah, everyone’s good. Everyone’s trucking along. Yeah, my daughters are in karate, so they’re enjoying that.

Marc Killian:

Oh, nice.

John Teixeira:

And debating what the next step is for one of, actually, they run around kicking me all the time now.

Marc Killian:

Yeah, they’re going to ninja flip you all over the house.

John Teixeira:

Nice. I’m trying to get my youngest one into flag football so I just bought her a football and throwing it.

Marc Killian:

Very nice.

John Teixeira:

My wife’s like, “No, no, she’s doing softball.”

And I’m like, “Whatever.”

Marc Killian:

Nice.

John Teixeira:

So we’re trying to get her into some sports here, so it should be fun.

Marc Killian:

Good, good stuff. Good stuff. Well, since we’re talking about families, let’s talk about the Social Security breakdowns on some things. Claiming strategies vary, obviously from dynamic to dynamic. In this episode, let’s just run through some stuff. I guess we’ll start with the broad view, fellas. Social Security claiming strategies, there’s a lot of it. I mean, it can get a little overwhelming, which again is important to work with somebody who has some experience in this. Whoever wants to tackle that, what’s your thoughts on just the sheer number of claiming strategies that are out there?

John Teixeira:

There’s a lot. There’s a lot of them, but it really boils down to a few that you end up doing. I think the most important thing is to understand your current situation, whether it’s the discrepancy of what the income’s going to be for each person. If you’re filing jointly or you have two people taking Social Security and understanding what the need is at the time. Do you need income right now? Can you hold off? But there is a lot of different options to pick from. The best thing is to review what makes sense based on the plan, and then also at this current time what you have going on.

Marc Killian:

Yeah, I think a lot of people view it as, well, we’ve got this collection. We’ve got a 401(k) and this, that, or the other that we’ve personally saved. Oh, and Social Security versus maybe looking at them all together holistically in one overall strategy. It should be thought about and we’re going to talk about that in the way you set up your income structures. Nick, I guess I’ll let you take over and get this first one. Let’s look at it from a single income household consideration. We don’t see this as much anymore, but maybe it’s just one person that goes to work and the other person stays at home, which is totally fine, but what’s some things to consider in that unique situation?

Nick McDevitt:

The timing of the benefits are super important. Number one, the golden rule in retirement planning or financial planning is it depends. From the perspective of I think one of the biggest drivers in a single income household is going to be age difference between the two, and that has the biggest impact on the claiming strategy. Ultimately, any of these Social Security decisions come down to their function of other assets and the impact of the timing of the Social Security benefits and how that’s going to take into account. But if we were to pick one thing from the standpoint of survivor benefits is a good example. A lot of people are under the impression, or I should say the feedback that we’ve gotten from many people is not having a good understanding of how survivor benefits work. The reality is that survivor benefits are when one passes away, the surviving spouse gets to the higher, the two benefits, the lower one goes away.

Marc Killian:

Right.

Nick McDevitt:

Oftentimes obviously if it’s a single income household, the person that hasn’t worked, their benefit’s going to be lower, it’s going to be half or even less depending upon when they take it. We’ll go through and use, we have some calculators that we’ll work with with clients, put their specific situation in there, then use those numbers and overlay them with the plan to help them try to figure out the most efficient way to do it. We always say to them that there’s the top financial strategy and then there’s the we have to try to balance that with the I want my money and I want it now strategy.

Marc Killian:

Right.

Nick McDevitt:

When it comes to Social Security, there’s something to it from the perspective of people putting in the money over years and really wanting to get access to their money quicker. That’s how we go into most of these strategies is overlaying it with the plan and looking at how it’s going to work.

Marc Killian:

Well John, let me ask you a couple of follow-up questions on the single income household side. I think there’s some confusion too. I typed this in the other day when I was putting these together and I saw this, I think it was, I don’t know, Reddit or something feed where people were back and forth and they didn’t seem to, there was a lot of misunderstanding about if you didn’t work, could you get Social Security?

People were saying, “Well, you have to work the 40 quarters in order to qualify for Social Security,” which that’s accurate for your own.

However, and then somebody else would follow up and go, “Wait a minute, my grandmother who never, ever had a job gets Social Security. How is that possible?”

I think there’s confusion out there that if you’re a single income household, if you’ve never worked, you can claim against your spouse, correct? But they have to have already activated it for it to start, is that correct?

John Teixeira:

You get the spousal benefit. Correct me if I’m wrong here, but I believe you have to be married nine months in order to receive that.

Marc Killian:

Yeah, correct.

John Teixeira:

In reality, most people will get that as a spouse.

Marc Killian:

Sure.

John Teixeira:

I had one situation actually where someone got married, they didn’t qualify and the spouse died after eight months.

Marc Killian:

Oh, wow.

John Teixeira:

So they did not qualify anymore. You do have the spousal benefits, which is half of the earning or the qualified spouse’s, what they call full retirement amount.

Marc Killian:

And they have to turn it on first, right? That’s a bit of a sticking point. If you’re the worker, you have to claim Social Security before the spouse who never worked can also get their half, correct?

John Teixeira:

Yeah, Marc. That is accurate. To receive a spousal benefit, the spouse that is qualified has to be drawing on benefits. The person receiving the spousal benefits has to be past 62. The big confusion on this was in the past, you could do some strategies like file and suspend where the person didn’t have to be drawing it just yet, so you do some strategies. But they closed those loopholes about six or seven years back, which ultimately was a loophole that needed to be closed to help the longevity of the program but a lot of people weren’t happy because it was probably the best strategy out there to use. But good news is it helps longevity of the program. Bad news, you can’t do it anymore. But some of the confusion comes into play where people that have already done the file and suspend are grandfathered in.

Marc Killian:

Gotcha.

John Teixeira:

Circling back to the spousal benefit, spouses are entitled to half of their spouse’s full retirement benefit. They can drawing at 62, and their spouse has to have started drawing on it themselves.

Marc Killian:

Yeah, gotcha.

Nick McDevitt:

And if they do receive the benefit, if the spouse that hasn’t worked and is receiving the spousal benefit, if they take it before their full retirement age, then there is a reduction.

Marc Killian:

There’s a reduction as well, right.

Nick McDevitt:

There’s a function there. The only other thing I want to mention for the single earner is, single income is if somebody was married for at least 10 years and then are divorced and not remarried, they are eligible to, and maybe they never got their 40 quarters, they are still eligible for a spousal benefit.

John Teixeira:

To jump on that, because this has come up quite a bit with clients, if you’re divorced and you’re eligible for spousal benefits, you do not have to wait for the person to be drawing. As long as they pass the age of 62, you can draw. Part of that is because you might have some vindictive spouses that are waiting to draw to make sure their ex doesn’t get the spousal benefits.

Marc Killian:

Well, and we’re going to talk about that in a minute as well. There’s a couple little things, little caveats there. To our point, kicking this off, there’s a lot of nuance to Social Security. We’re going to try to keep it high level a little bit and not get too confusing. Again, it’s important to talk to somebody, but those are some basic things to think about from that single standpoint.

Let’s go to the dual income households, which is most people, guys. John, you talked a little bit about file and suspend and while it’s no longer an actual strategy, what I know a lot of advisors often talk about with their clients who have dual income is if one person is making more, then maybe you’re letting that one grow to 70, right? To the max out. And then the person who’s maybe making less, especially if they’re the same age, maybe then you’re looking at turning that on earlier, whether it’s full retirement age or even 62 depending on the money needs. That’s a workaround I suppose, to the file and suspend a little bit. That’s some things to think about. So what’s some other things to think about and dive into wherever ever you want on dual incomes there?

John Teixeira:

Again, rule of thumb is just overview versus individuals, but it does make sense to always suspend the higher benefit, whether if you’re dealing with a survivor benefit, there’s some strategies. You have the dual income spousal benefits, you want that extra compounding on the higher amount is basically why you want to do that.

Marc Killian:

Right.

John Teixeira:

Another strategy for that and why you might want to delay the higher benefit is the survivor benefit is going to be higher. You can in essence defer someone’s benefit till age 70, and if they were to pass away, the survivor benefit now has that increased amount so that is one option you could do. As you mentioned here, you could take a lower benefit earlier, let the other one go. If you have two working spouses, but let’s say someone’s benefit isn’t as high as their spousal, you could look into someone taking their own benefit at 62 and then switching to the spousal later. There’s definitely a lot of different things you can do. And a reminder of what Nick said, anytime you take early, you are going to get a reduction of benefits.

Marc Killian:

Yeah, 30% currently, right.

John Teixeira:

Yeah.

Marc Killian:

That’s a big haircut-

Nick McDevitt:

Depending upon your full retirement age.

Marc Killian:

From your full retirement age, yeah, it’s a big haircut, 30%. To your point earlier guys, when you’re building a strategy, because I guess Nick, part of this is looking about where are you taking money from, right? You’ve got your 401(k), you’ve built up your personal, then you got your Social Security, and it’s like, okay, when are we turning on what and where so that we can maximize this? It’s like, which horse are you riding? The one you brought or the one the government brought kind of thing.

Nick McDevitt:

This might be a little bit too detailed, but really, what we do from our standpoint as an advisor is we use the withdrawal rate as the test to figure out. When we look at the overall portfolio and we go through the expenses and we figure out how much income a client’s going to need on an annual basis, let’s say that delaying Social Security is going to force them to take a 10% withdrawal rate. For three years, they’re going to have to take out 10% of their money out of their portfolio a year to cover expenses to delay. That number’s probably too high. For most people, that number’s probably too high.

If it’s something around a max of a seven or eight, and it’s only going to be for a couple years, depending upon the size of the portfolio, that can make sense. But when there’s just too much pressure on the portfolio to perform, then oftentimes just at least getting one of those Social Security benefits and that’s why staggering the two oftentimes makes sense. It’s like, okay, well if a 10% withdrawal rate is what’s needed, then if we can reduce that down to a seven for a couple of years by taking one and then drop it closer to a four and a half, five after a couple more years and stagger it, that’s the ideal.

Marc Killian:

Gotcha.

Nick McDevitt:

It really is a function of portfolio like the nest egg number, the expenses and what we need to take out to cover those expenses and what the gap that Social Security benefit’s going to provide.

Marc Killian:

Gotcha, okay. Yeah, so I mean, again, there’s really a lot of nuance to figuring out. Most of us are going to probably fall into this dual income household planning strategy. You want to make sure that you’re working with someone to just maximize things based on what you’ve built yourself, plus what we’re going to get back from Social Security. Can we talk about a lot of money over time?

John, you talked about ex-spouses earlier, so let’s talk about special considerations for blended families or people who have gotten a divorce and remarried or whatever. I’ll throw this out there as well. So my mom found, and Social Security, people that work there, they’re not supposed to, typically they’re not going to help you with their claiming strategies, right? They’re going to give you the options available for you, but it’s not really their job and they’re not really supposed to be diving into the weeds. But I will say, that said, there was a lady that helped my mom. She was asking her a question, and she informed her, and a lot of people don’t know this, that you could claim on an ex-spouse, right?

To John’s point earlier, and so she found out she could actually get a higher benefit, she’s in her eighties, by claiming from her first husband who she hadn’t been married to in a very long time. But there are some caveats and rules to that. It could be something that you consider doing in your claiming strategy as well, especially if you’re a widow or you’re single. You have to be single obviously in order to do that, that’s one of those caveats. But talk to me a little bit about some of that stuff. It was interesting, she found out she could get more money. And to your point about the vindictiveness, they don’t ever know.

So when you claim, they don’t find out, they don’t get to come to your house and go, “You’re claiming against my Social Security.” They don’t even know.

John Teixeira:

Yeah. That’s something that comes up where I guess some misinformation or I don’t know how this comes up, but it’s somewhere out there where I’ve had clients ask, “Hey, is my ex-spouse drawing on my Social Security going to affect mine?”

The answer’s no. What you just said there, you would never know when they draw on your Social Security, it’s not going to affect yours whatsoever. And vice versa, where it’s like, “Hey, will they know when I start drawing my spousal benefit?”

Marc Killian:

Yeah, can I stick it to them? Like, “No.”

John Teixeira:

No, you cannot. And then one thing you mentioned earlier, Marc, when you were going through that is you can draw an ex-spouse as long as you are not remarried.

Marc Killian:

Correct. And I think you had to be married 10 years, right? To the prior person. Yeah.

John Teixeira:

Yeah, you have to be married 10 years and you cannot be remarried. I’ve had situations where people did not remarry to take a spousal benefit. They just let it ride and said.

Marc Killian:

Mom being in her eighties, she was like, she’s not getting remarried anyway. But she was like, “Huh, I didn’t know that.”

To your point about not knowing, one of my siblings was like, because we’re half siblings, “Well, that’s not cool. She’s drawing against my dad’s.”

I was like, A, he’s never going to know. B, actually, he’s never going to know because he’s passed away anyway, right? It’s a weird little loophole, but it is one that could be beneficial, and a lot of times I think it does benefit widows sometimes who maybe have been, maybe their second marriage and then that person passed away. It is something to consider if they had a prior husband who maybe made more money. It could be an option to look into, but there’s some rules and there’s some things, so you want to make sure you’re talking with somebody about that.

John Teixeira:

Yeah, the most important thing is let’s say you are in that situation where you have an ex and currently doing this right now, you have to go to Social Security and provide them with the information so you can determine what their benefit actually is. And if you have multiple exes that qualify for you get to pick and choose whichever one’s higher if you’re going to be doing a-

Marc Killian:

But you do have to have the paperwork to your point, yeah. You have to show-

John Teixeira:

You have to have the paperwork and everything like that.

Marc Killian:

Yeah, to show.

John Teixeira:

Definitely there’s a lot of options, information out there, and it’s important to do your due diligence. And if you do call Social Security, and we’re going to say this every single time we do a Social Security podcast, sometimes they give you bad information, unfortunately. It’s important to make sure you’re working with the qualified professional that knows it, and you might want to call multiple times to confirm what you’re hearing.

Marc Killian:

Well, speaking of, that might be a good time to bring up the fact you guys got something going on. What’s going on there? You got an event or a class or something?

Nick McDevitt:

Coming up at the end of the month in January, a fair amount of our clients have come to us through the classes that we do around at different educational institutions. But starting on January 30, it’s a two night course, so two and a half hours on the 30th, and then two and a half hours on the following Thursday. And then concurrently, we also run day one of the course on the 4th and the 11th of February.

Marc Killian:

February, okay.

Nick McDevitt:

It’ll be at Pasco Hernando Community College, the Porter Campus up in the Wesley Chapel area. We’ve got clients that originally went to the course and then sometimes like to go back and freshen up. We have other people that have come to us, whether it’s a referral or heard the podcast or whatever, and they find out that we do the class and they like to join. So more than welcome, just reach out to us if it’s something that you’re interested in.

Marc Killian:

What’s the best way to go about doing that? Just go through the website or call a number?

Nick McDevitt:

I would either call our office, (813) 286-7776. Or they could email either John or myself, it’s nick@pfgprivatewealth or john@pfgprivatewealth.

Marc Killian:

And again, that number if you need to, folks, is (813) 286-7776. Or email John or Nick and then @pfgprivatewealth.com. All right, that’s going to do it for this week on the podcast. Thanks so much. So yeah, great. If you’d like to attend that event, I mean at the time this podcast is happening, you want to jump on the February one. But definitely reach out to them ASAP, don’t delay and get yourself in there because a lot of stuff that goes into Social Security. Make sure, as John said, that you are talking with the professional who can help you with this and you can reach out to them at pfgprivatewealth.com or the information we just gave. Check the show notes below for links and information that way as well. Don’t forget to subscribe to us for future episodes of Retirement Planning – Redefined with John and Nick from PFG Private Wealth. We’ll catch you next time. Thanks guys.

 

Ep 60: Top Social Security Myths, Part 2

On This Episode

This is part 2 of our Social Security conversation. We will be debunking the remaining 5 myths on today’s show.

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More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

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: Back for another edition of the podcast. This is Retirement Planning redefined with John and Nick from PFG Private Wealth, serving folks all around the area here. So reach out to them on the podcast, pfgprivatewealth.com is where you can find them online for a lot of good tools, tips, and resources. You can subscribe to the podcast, book some time with the team, all sorts of good stuff. Again, stop by the website if you’re not already working with them at pfgprivatewealth.com. And if you haven’t subscribed to the podcast, consider doing so while you’re there. We’re on Apple, Google, Spotify, and all that good stuff. So you can check that out. And this week we’re going to follow up with the second half of our social security myths. We did the first five on the prior episode. You don’t have to have listened to that one to listen to this one, but it certainly isn’t a bad idea to go back and check that one out. So that one came out a little bit earlier in April. So we’re going to drop this one here and get into the second half of this, the next five myths. Guys, you doing all right this week, John? How are you buddy?

 


John: I’m doing good, having a little contract work done at the house, which is, as you know Mark is –

 


Marc: Challenging.

 


John: I’m dealing with that. It’s always a challenge and fun.

 


Marc: That’s right.

 


John: Looking forward to the project being complete.

 


Marc: Yes, we need more contractors, we need more people who are in the trade services. That is for sure as there is a major shortage all across the country, really I think globally actually as well. But Nick, what’s going on with you bud?

 


Nick: Staying busy for sure.

 


Marc: Spring is here and the weather’s nice. That’s always good.

 


Nick: Yeah. Although it has been warmer here than I feel like typical this time of year.

 


Marc: Could be a hot summer then.

 


Nick: Yeah. So hopefully it cools down just a little bit for the next month so we can enjoy the end of spring.

 


Marc: Have an actual spring, not skip it.

 


Nick: Yeah, that’s all I’m asking for.

 


Marc: There you go. Well, let’s jump into some myths here and see if we can help some folks out with some more of these. Again, we did the first five, which are kind of the big five I think that many people hear often, but I’ve got some other unique ones as well. So these might appeal to some folks who are thinking about social security or getting close to that age and are wondering about some of these things that they’ve heard maybe online or on the news or whatever. So let’s jump in, talk about a few things guys. Myth number six, out of the total 10 we were doing, you can’t work and receive social security benefits at the same time. I think this myth revolves around the fact that if this applies to people who take it early, because there are some limitations. So Nick, why don’t you break this one down a little bit?

 


Nick: Yeah, just like everything else, the devil’s in the details. So essentially the way that SSA, Social Security Administration, looks at this is kind of from a tiered perspective. So they break it down in essentially three sections. So from when you’re first eligible which is 62 up through essentially before the year that you reach full retirement age, and then the year that you reach full retirement age has its own section, and then the period of time after your full retirement age. So as an example to bring that all together and make it make sense, you can have income while collecting social security before your full retirement age, but there is a limit. That limit is about $21,000, little over $21,000. And for every $2 that you make over that amount, you have a $1 reduction or penalty on your social security.

 


Marc: So almost like part-time, you could do part-time work if you took it early, so to speak, right?

 


Nick: Yeah. And a lot of times that’s kind of the ticket for some people is to work part-time, keep them busy, help them transition into retirement, and to help prevent them from having to dig into their nest egg. They might file and collect social security and those numbers kind of balance out, they have income less than the amount that would cause a penalty, and so it works out for them. In the year that you reach your full retirement age, that amount goes up to about 56,000. So essentially what they’re saying is we understand that birthdays range and that from a calendar perspective it can get a little bit tricky. So they say that you can collect your benefit and earn up to the 56,000 without any sort of penalty. Once you’ve reached your full retirement age, there’s no income limit at all. So you can do a full double dip per se in that scenario.

 


Marc: Yeah I mean if you make $1,000,000 a year and you’re 69 years old, that’s fine, right? Let it rip.

 


Nick: Yeah. What you’re giving up per se is the 8% increase per year on the social security benefit. So there is some sort of give up, but whether or not that has a big impact depends on somebody’s situation.

 


Marc: If you’re waiting till the 70, right?

 


Nick: Correct. Yeah. If you’re to wait until 70. So some scenarios that we see this work out really well are somebody hits their full retirement age, they plan on continuing to work, but maybe the mortgage isn’t paid off, so they’d like to turn on the social security with the goal of, when they retire at 70, these social security payments that are coming in, will go directly towards paying down the mortgage and they can retire without having a mortgage. Or maybe they’re behind on their retirement funds. And so they want to make sure that they can really maximize retirement savings, so they’ll collect and save it or just put the money away. So it’s like, I’m going to take this benefit, but instead of just spending it, I’m going to go ahead and save it and then I’ve had people say, this is going to be my vacation fund for our first five years of retirement. We’re going to save as much as we can, and then we’ll use that to pay for our vacations for those first five years where we’re most active in retirement, that sort of thing. So you can get strategic, but that’s kind of the breakdown of how it actually works.

 


Marc: Yeah and John, I think for many people that that’s where that confusion comes in, like my brother, for example, he’s already 65, but he is retiring before full retirement age, so he has to wait, so he can work part-time make up to that limit that Nick was just describing. But I think that’s where the confusion comes in. At least that’s what I’ve seen from my perspective. How about you?

 


John: Yeah, I’d agree with that. A lot of people confuse 65 Medicare eligible age to full retirement age and social security, so I’d agree with that. Something else that people typically miss with this or maybe just don’t fully understand is that this is based on the individual’s earned income, not household. So I’ve seen some scenarios where someone was thinking about drawing social security, they were retired, the other spouse was not, and I said, well, I can’t draw yet because our income is higher and our household income is much higher. It’s not based on household income, it’s based on the individual’s earned income.

 


Marc: Yeah, good point. All right, so that was myth number six. Myth number seven, I don’t think I’ve really heard this one before. Social security benefits are only for US citizens. This seems kind of like a no-brainer. That’s basically the case, wouldn’t it be?

 


John: Yeah this is definitely a myth, it doesn’t come down to whether you’re a citizen or not, it comes down to have you met the requirements to be eligible.

 


Marc: Okay, which is that 10 years, 40 quarters thing.

 


John: Yeah, 10 years, the 40 quarters there, and once you hit those, you are eligible for social security.

 


Marc: I wonder if some of this is for folks who retire abroad, so there’s some confusion there, because I even thought about it myself. My wife and I were joking. We were going to retire and live in Aruba part-time, and I asked myself, I wonder if you live in Aruba, can you still collect social security benefits? And I think if you have dual citizenship, I think you still have to maintain citizenship is my understanding. But it’s certainly something that you can have a conversation. That’s some of the questions that might make more sense when you’re going to the social security office versus saying, Hey, when should I turn it on? They’re probably better equipped to answer questions like that than they are answer questions about when’s the best time for you to activate it.

 


Nick: Yeah. One example that goes in with that too is you’ll have people that are considered permanent resident alien. So I can even give an example where in my family, my grandparents came from Cuba. My grandfather work was a professor at State University, and he spoke English and Spanish, but my grandmother had different issues and she never fully spoke English, so she never was able to do the citizen test, that sort of thing. But my grandfather was here his whole adult life and paid into social security, and so she was eligible for a benefit as a spouse and she has permanent resident alien status. So there’s different things like that that kind of come into play.

 


Marc: Yeah certain non-citizens then.

 


Nick: For sure.

 


Marc: Yeah. That’s cool. That’s a great example. Thanks for sharing that. All right, so myth number eight. This one is interesting, and I don’t know if this is state by state or why this myth is around, but see what you think about this one. If you have a pension, you’re not eligible for social security benefits. This just seems weird to me. I don’t think that one precludes the other.

 


Nick: Yeah, so I can kind of explain this as well. So what some states used to do with their pension system, and a lot of times it was, again, in certain states or even certain kind of counties or municipalities in certain states, they would allow, or their structure would be, instead of the person who was working for them paying into social security, they would pay into the pension. And so it was both they and the employer were paying into the pension system in lieu of paying into social security. And there’s a clause for this, what would happen. I know I for sure had some people in Illinois that dealt with this. And so because of that issue, there was this calculation that would offset the amount that they were eligible for social security. And so where people got in trouble would be sometimes what people would do is they would say, I’ll use a teacher for an example. So this whole program is called the windfall provision. And so what they would do was, so say a teacher, they knew that they weren’t going to be eligible for social security because of the way that their pension was structured, so they might work a summer job so that they could start to build in their 40 quarters and be eligible for social security, but they didn’t realize that there was an offset with how this worked. So the windfall provision, or it’s called windfall elimination provision, is something where if this sounds familiar, it’s something that you want to look into. And it was because the main part wasn’t paying into the social security, but unfortunately when they would get the scenario with the second job or something like that, that’s where it would almost penalize them because they would subtract the amount that’s coming from the pension out of the amount that they’d be eligible for social security.

 


Marc: Interesting. Okay. So the windfall provision, interesting. All right. John, any thoughts on that one?

 


John: No, run into the same scenario in Massachusetts where I’ve had some clients up there that have paid into the pension system up there, and basically they got reduction of social security benefits.

 


Marc: So it sounds like it doesn’t preclude you, it just may alter benefits.

 


John: There’s different situations.

 


Nick: Significantly. Yeah.

 


Marc: Okay. Good to know. Interesting. You never know sometimes, there’s always some sort of kernel to these things which kind of gets distorted and pulled out. So again, if you’ve got questions around this, and especially if you’re on a pension, you may want to certainly talk with your financial professional about that. And John and Nick are here to do so. So again, reach out to them at pfgprivatewealth.com. All right. Good stuff. Let’s do myth number nine. Social security benefits, John, are based on your income and assets. This one’s an interesting one, I think because I guess the confusion of thinking, if you have a, I don’t know, whatever your salary is, but then if you have a $5 million home, it’s somehow different than someone who has a million dollar home.

 


John: Yeah, that’s not the case. I mean, it is based on your earnings, which I guess some people could say, well, is that my income? And we’re going to talk about this later, it’s based on your highest 35 years of earnings.

 


Marc: But it’s not means tested, at least not now, not yet anyway.

 


John: Not means tested, but I’m glad you mentioned that. That is something that has been discussed as doing some means testing to basically help the program out where let’s say if you’re above a certain income or asset level where they start to reduce your social security benefit.

 


Marc: I mean, could you see Elon Musk ever needing or Oprah Winfrey ever needing social security? but technically they’re eligible, right?

 


Nick: With the means testing, that’s a tricky thing because the way that it goes kind of hand in hand is that people that exceed the cap, which I think right now is around 150,000, something like that in income, they no longer pay into social security. So there’s almost like a built in kind of means testing.

 


Marc: But doesn’t that have a donut hole, Nick, where it kicks back in again after a certain higher amount, you start paying again after $400,000 or something?

 


Nick: They’re discussing that, but not currently for social security. And it’s that way for Medicare, so for example, the Medicare portion of the tax is in perpetuity, and then there’s an additional amount over a certain amount of income. So what could be interesting is almost giving people an option of, and again, this is just speculation, but hey, you have the option to over this cap, you can continue to pay social security or have a means test later on when you retire. That’s something that could be interesting, almost like one or the other, or just remove the cap completely and then just have a maximum amount that could be paid out. So going back to what we had talked about in the other session, there’s definitely a way to figure this out, but somebody’s got to have the guts to do it.

 


Marc: Well for us, regular folk, I guess. So to John’s point, it’s not really based on those things. Not exactly anyway, it’s more based on your work history and your salary through the years, right?

 


John: Yeah. How many years you’ve paid into it and what those numbers were.

 


Marc: And so that just walks us into the number 10 here. So we’ll do that one. John, I’ll let you start with it then. So your social security benefits are based on your last jobs salary. And you kind of alluded to it, it’s really based on the highest 30 years, correct?

 


John: 35 years of earnings.

 


Marc: Sometimes I hear advisors say, hey, make sure you go to ssa.gov and take a look and make sure that your numbers are being reported correctly. Heard a lot of this during COVID, especially for folks who may have been laid off or things are kind of wonky to make sure those numbers do get reported correctly because that kind of thing can make an impact. And if you think about your highest earning years, John, many of us, that’s going to be between the ages of 40 and 60 or 45 and 65. So you want to make sure those numbers are correct.

 


John: Yeah, typically those are the highest earning years, and it’s always good to do a checkup every two or three years, especially after you’re hitting the 40-50 mark you really want to take a look at what did they put in there for me last year? I’d say more often than not, it’s accurate. If there are any issues, sometimes we’ll see them with someone that’s self-employed, so this comes always to the person that is self-employed and I don’t want to say determine their W2 income. It’s kind of like, how much income do you want to show for social security when you’re talking to your accountant? But that could be a negative if you’re doing some accountant stuff and showing lower income.

 


Marc: It could bother you for your earnings later, for your social security draw later on. I think about the highest 35 years when you’re talking about that, you could hear someone saying, well, I don’t remember what I made at Wendy’s when I was 16, 40 years ago. That one probably gets dropped off. So the idea of being the highest, again, 35 years versus maybe that first job way back when.

 


Nick: Just to kind of add to that context, because that social security cap has continued to go up over time with inflation it’s the highest 35 years in relation to the cap. So that’s something to understand because effectively your income income today, let’s say in theory, for example, $100,000 today compared to $75,000 20 years ago, that 75 may actually be a higher percentage compared to the cap. So there’s a little bit of nuance in there, but that’s just in general, that’s how it works.

 


Marc: Okay. All right. Well, some good stuff. John, any other thoughts as we wrap up this podcast on Social Security myths? Anything else you’d like to chime in with?

 


John: No I think we’ve hit all the points. I think we’re good. I think we did a good job debunking all these myths.

 


Marc: Certainly some good stuff in there. I think there’s a few things that might catch people by surprise. Nick, anything else before we go?

 


Nick: No, just the additional emphasis that it is a complicated decision and the good part of that is that there’s usually strategy involved and that you can do things to improve the overall planning for yourself. So just like a lot of things, the gift and the curse per se, but we’d rather have people have the ability to be able to adapt their decision making process to help make this a decision that improves their overall situation than be forced to do just the same old thing.

 


Marc: I like on the prior episode we were talking, John said that you guys can break things down a couple of ways. You can look at social security in a vacuum, but then also look at it as it applies to everything else that you have going on from a retirement standpoint. And I think that’s going to be a real advantage when folks are trying to sit down and figure out the best ways to handle something that can be actually a lot of money. I mean, social security could be a lot of income, total dollars applied to your retirement nest egg. So you certainly want to make sure you’re getting it right, and that’s what the team can help you with. So again, if you got some questions, need some help. As always, we appreciate the time on the podcast, but don’t forget to subscribe to them. And so you can catch new episodes and check out past episodes. But also just in case you need some help, stop by the website and schedule some time. Have a conversation with John, Nick and the whole team there at PFG Private Wealth. Find them online at pfgprivatewealth.com. That’s pfgprivatewealth.com to get started today. A lot of good tools, tips, and resources. And of course you can also, again, find the podcast and subscribe there on the website as well. Find us on Apple, Google, Spotify, under Retirement Planning Redefined. Guys, thanks for hanging out. As always. I appreciate your time. I’ll sign off for us. But for John and Nick, I’m your host, Mark. We’ll catch you next time here on Retirement Planning Redefined.

Ep 59: Top Social Security Myths, Part 1

On This Episode

Have you ever wondered if the Social Security system will run out of money before you retire? Or if claiming benefits as soon as you’re eligible is the best decision for your financial future? In this episode, we’ll be debunking common myths about Social Security and answering the questions you’ve been curious about.

Subscribe On Your Favorite App

More Episodes

Check out all the episodes by clicking here.

 

Disclaimer:

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: Welcome into another edition of the podcast, it’s Retirement Planning-Redefined with John and Nick from PFG Private Wealth. Got a little two-parter going on this podcasting episode. We’re going to spend this one and the next one talking about some social security myths, some of the top social security myths. Some of these certainly, I’ve heard and many of the guys have heard, and maybe even the listeners have heard, but there’s a few in here maybe you haven’t, and hopefully it’ll help you out a little bit if you’ve ever wondered some of the questions or things that we hear on the news all the time. Now we’re constantly making the rounds online. So again, we’re going to break this into a two-parter. So if you have not yet subscribed to the podcast, make sure you do so at pfgprivatewealth.com. That’s P-F-G privatewealth.com. Just hit the subscribe button or heart button or whatever it is on various different apps you might have already on your phone, like Apple Podcasts or Spotify or Google or whatever the case might be in that regard. So with that said, we got a lot to get through. We got five this week and five for the next episode as well, so let’s dive in. Get started. Nick, what’s going on buddy? How are you?

 


Nick: Good, good. Just staying busy. I had some family in town this weekend, which is nice to visit, which tends to be a trend this time of year.

 


Marc: Yeah. Yes, we’re taping this right after Easter, so yeah. Yep.

 


Nick: Yep. And then tax season is always entertaining.

 


Marc: Oh, busy. Mm-hmm.

 


Nick: So yeah, so we’re just plugging.

 


Marc: Good, good, good. John, how are you my friend?

 


John: Doing good. Doing good. Just celebrated my oldest daughter’s seventh birthday and I’m like, “Man, she is…

 


Marc: Where does it go?

 


John: When she hit school, it’s like, “Man, this is going by much faster than I anticipated.”

 


Marc: Yeah, it always does.

 


Nick: Yeah.

 


Marc: Mine is 25. She’ll be home this week, actually, for a couple of days from the Navy. And yeah, I’m like, “God, 25. Really? Stop.”. It only speeds up my friend, so good luck with all that.

 


John: I believe it.

 


Marc: But happy birthday to her. All right, let’s get into some social security myths. Neither one of our kids, John, will need this anytime soon, but for a lot of our listeners, social security is certainly a big topic of conversation, whether you’re, I think, you’re 50 plus. I think anything financially related from a retirement standpoint, we start paying a little bit more attention, maybe getting a little bit more nervous about some things that we see in here. So let’s jump in and talk about some of these myths. Number one, whoever wants to tackle this, I’ll let you guys go. The Social Security Administration will help you make the best decision about when you should start your benefit.

 


Nick: I’ll jump in on this one. Although I have heard some reports from clients, recently, where some of the information and/or slash, I wouldn’t call it advice, but information has been more comprehensive when they’ve had appointments with Social Security. It’s definitely not going to be the primary resource that one wants to use, as far as helping them to make their decision. Ultimately, this is one of those things where the social security decision should be heavily, or for most people at least, is heavily dependent upon the rest of the parts of the planning and the scenario. Is there a pension involved? When is retirement? Is one spouse still working while the other is retired? So there’s a lot of different factors that go into deciding and figuring out which options, scenario are best. And a lot of times, one of the things that’s come up quite a bit, with people, is we try to explain to them that it’s almost a two-part decision, where three to five years out, we have a good outlook and projection of when we expect to take it. But at the same time, in reality, what ends up happening is that the shorter-term, or more of a micro, decision tends to be impacted by factors that come up. So for example, a spouse gets laid off and retirement for them happens sooner than expected, or the market’s going haywire, and we want to dial back on withdrawals that were taken from investment accounts, those sorts of things. So having the ability to be able to pivot is important, but having a broad, overall plan in general when you want to take it is obviously the most important.

 


Marc: Yeah, and to your point, they just don’t know your personal, complete situation, so they can give you some ideas on, I’m sure, the best overall… Well, I mean not the best overall, but just looking at some of the claiming options that you have available to you, but how that’s going to play with everything else, they’re going to not have any clue to that, because they don’t know your financial situation. Now that’s the first one. Myth number two, John, you want to tackle this one? You won’t get any social security if you’re a stay at home mom. That’s not exactly right either.

 


John: Yeah. I’ll jump on this one, and then also I want to go back to myth number one. One thing I have also noticed, that people need to be wary of, is calling Social Security and getting wrong information. I’ve actually had multiple calls with clients and the representative didn’t necessarily know exactly, maybe what was being asked and they basically gave the client bad information, where we had to call up together and ask. And it really affected the client’s strategy that they were going to use, because at first they were kind of like, “Well, this is what Social Security told me.”. And we did our due diligence, realized like, “Hey. No, that’s not accurate.”. So we called up once, continued to got bad information, then we had to call back again. There’s actually specialists that we were able to talk to, that basically gave us the right information, which in her case ended up being quite a bit of money that she ended up gaining, by able to do some widow benefits where…

 


Marc: Oh yeah. That’s good to know.

 


John: Otherwise, she wouldn’t have known. So yeah, I just wanted to add that in, because I’ve seen it happen a couple of times.

 


Marc: No, absolutely. Yeah.

 


John: And as far as not being eligible as a stay-at-home spouse, basically that is a myth. There are spousal benefits and if you qualify for those, you’re eligible to get half of the other spouse’s full retirement benefit. There’s different strategies that one can implement in that situation, but you are eligible for some spousal benefits, even if you were not working and have earned credits into Social Security.

 


Marc: Yeah, and so I think some of the confusion, and a lot of times how these myths is usually it’s kind of close, but maybe a little off. So if you’re talking about your own individual benefit, you have to work, what is it, 40 quarters I think, through your lifetime, which is 10 years total, in order to qualify. But, to your point, if you’re married, and I think there’s a caveat there too, is it not that you have to be married at least 10 years. Is that what it is to get the spousal?

 


Nick: Correct. Married 10 years is the case.

 


Marc: Yeah, so there’s a couple little caveats, but I think that’s how myths get started and get skewed out of proportion. So yeah, if you’re married and you’ve been a stay-at-home mom raising the kids the whole time, you are still eligible for your spouses. So it’s certainly good information to know there as well. All right. Myth number three, you won’t pay taxes on social security, since you already paid taxes on that money when you paid it into the system. Once upon a time, that was true, but it’s no longer true, right?

 


Nick: Oh yeah. If you want to get somebody fired up, this is the way to do it. Yeah. So what we try to explain to people, is that for most people, most households, kind of middle class and up, about 85% of their social security income is going to be includable in their taxable income. So there’s a chart and it is dependent upon the other income sources that are coming into the household. But, like I said, for the most part, most people are going to have their income, up to 85% of their social security income, includable in the amount of taxable income that they have. So it is important for people to understand that there’s a difference between that, “Hey, it’s taxed at X amount rate.”, or something like that, because there is confusion in there. So that 85% of the number just is tax at whatever effective tax rate they’re in. So for most people, they’re going to fall into the 10 to 12, 13% effective rate. So it’s not a huge overall impact, but because it is considered a payroll tax that funds it, there is a little bit of firing up that happens when, from an emotional standpoint, where the thought process is, “Well, hey, I paid taxes into it.”

 


Marc: Yeah.

 


Nick: Yeah.

 


Marc: I mean it is… I was going to say, just didn’t mean to cut you off, but I think where people also don’t realize this is a good place where strategy comes into play, because how you’re pulling your income, it’s your income levels that’s going to determine how much that this could get hit. So again, social security should be part of an overall strategy and not just, “Oh, I’m pulling money out of X, Y, and Z account and then also I have this social security thing.”. You want them all working together, right?

 


Nick: Yeah, and the reality is, and people don’t necessarily want to always hear it this way, but the reality is, is that social security payments through your payroll, while you’re working are essentially, I try to tell people, essentially you’re paying into a pension, is kind of what you’re doing.

 


Marc: Sure.

 


Nick: So you’re kind of paying it into a pension, so it is done via payroll tax, but in reality that’s kind of what’s happening.

 


Marc: Yeah. John, anything you want to add on that one?

 


John: Well, I guess the one thing would be, as you mentioned, strategy. If you find yourself in a position where your social security is going to be taxed, maybe you have to take extra income in a given year, Roth IRA would be a great spot for it, because that does not count towards your modified, adjusted gross income in this case for the calculation.

 


Marc: So, maybe looking at ways to lower your taxable income limit, so just to help with that strategy?

 


John: Yeah, yeah. And that’s why it’s important. And if you tune into this podcast, often you hear Nick and I always say, you want to put yourself in a position to adapt to any situation and have balance, so that’s where that’s important, where it’s like, “Hey, I have to take some money out this year. Health, whatever, house.”. As we were chatting offline of house issues and contractors. Roth could be a good spot to take from, where it doesn’t affect your income.

 


Marc: Okay.

 


John: To get off-topic, same thing goes with Medicare. As you have too much income, your Medicare premiums might go up, so planning is very important.

 


Marc: Exactly. Strategy is completely important in how it might affect that particular myth. All right. Let’s do the last two. Here are some of the big ones, and these are the ones that get people most concerned or whatever. Myth number four, there won’t be any social security left by the time you get to retirement. I just don’t feel like this is probably going to… I can’t see any politician standing up there and doing it. It’s too much of a hot potato. They’re going to continue to kick the can down the road, and I think there’s going to be something, in some form or fashion. Could changes be coming? Sure, but the whole concept of it’s just going to go away, just seems like a lot of fluff to me.

 


John: Yeah, I would agree with that. Changes are already happening. We already see the cap limit for income going towards social security. That’s been increasing. So there are some updates that we see happening, and this is really an actuarial problem, so it’s a matter of just being like, “Okay, this is what we need to do to fix it and it will be fixed.”. What most people… What’s interesting, is I just got a question last week on this from a client, because they read an article about the trust fund will be exhausted between 2032 or 2034, if no changes happen. So their concern was, “Hey, is the money going to be there?”. And the answer is, your benefits will still be coming in, because it’s funded through your payroll, so there’ll be people paying that system, while people are drawing out.

 


Marc: Right. And we do have a problem there. That is a concern, right? If you look at those numbers, there’s way less people paying in now than people pulling out, which is why some other changes may need to come into play. But yeah, I think that’s where the confusion comes in too.

 


John: Yeah, exactly. And I believe a couple.. And you can look this up, if nothing changes, there will be roughly a 20 to 24% reduction in benefits, if they don’t change anything. But we feel confident that they’ll make some adjustments to the program-

 


Marc: Last minute, yeah.

 


John: … to get everyone whole. But again, it comes back to planning correctly. So, are you positioned yourself to adapt to this, if this were to happen? If social security benefits were to get cut, how does that affect your plan and what are you going to do?

 


Marc: Yeah. You hear all sorts of strategies out there, Nick, right? I’ve heard the one that if they just eliminate the early, at 62, and even moved it to 64 or just said, “No, we’re just dropping the early and you’re 66 or 67, depending on your full retirement age.”, it could fund it for another hundred years. Then they’re talking about means testing. So there’s a lot of things on the table, they just haven’t pulled the trigger on any way to actually replenish it yet.

 


Nick: Yeah, it’s pretty frustrating, because like John said, there is kind of a science to calculating this when you’re talking about this many people, from an actuarial standpoint. Literally from, like you had mentioned, increasing the initial, early retirement age from 62 or even starting to phase it in, like they have in the past as far as what they consider full retirement age, starting to move that towards an average of 65 would make a huge difference. Adjusting the cap, as far as the maximum amount of income that you pay into social security on, if they adjusted that up. So it’s frustrating, because like so many other things, and without going on a rant, it tends to be quite political. And unfortunately what tends to happen is instead of it being the small adjustments, that can make a huge difference, what tends to be in the news is more of like, yes or no. Will it be there or will it not? Versus like, “Hey, we can start to just adjust these numbers and make these… People are living longer, so we can figure this out.”.

 


Marc: Well, the doom and gloom makes a better headline too.

 


Nick: Yeah, for sure.

 


Marc: I mean, look at what’s been happening in France for the last month. They’re totally upset over pushing their pension there, which is basically the same thing that we have, back two years. There’s options there, it’s just a matter of what’s going to be acceptable. And I think for many of us, if you’re probably 50 or over, the chances of it affecting you greatly are probably diminished. I can certainly see though, changes to the ages or things like that affecting people. They say, “Okay, born from this date down, for sure you’re going to see some changes.”. So possibility, but just the quote on quote, “Well, it’s empty. It’s gone. No one gets a check ever.”, I think is just kind of silly.

 


Nick: Yeah.

 


Marc: All right. Final one guys and this kind of rolls into that prior one, as well. Number five is go ahead and claim it as soon as possible, turn it on as soon as you possibly can. And I think, again, whoever wants to answer this first, but if you need the money, that’s one thing, right? Turning it on, because the strategy makes sense, because you need the money, but turning it on, because you think it’s going to run out is maybe not the best way to look at that.

 


Nick: Yeah, we tend to agree. Taking it when you’re first eligible is very rarely a best bet. You give up significant benefits by taking it when you’re first eligible at age 62. And it kind of dovetails a little bit into what we had talked about, just on the previous question, where people that were at the point in time where their full retirement age was 65, so 62 is only three years before that period of time, the reduction, which is about a half a percent per month before your full retirement age, it didn’t have as big of an impact. But now with full retirement age, for many people, being 66 and a half to 67, now we’re talking a wider gap of years, four and a half to five years. So that the compounding effect of that early benefit is significant. So it has a really big impact for people that take it really early, when they don’t necessarily have to. And I get more regretful responses from people that took it early, not understanding the full situation, than I do from people that waited and had more of a strategy for when to take it.

 


Marc: Yeah. Any thoughts on that take it as soon as possible, John?

 


John: Yeah. I think it comes back to, like we said, what is the person’s situation? I really see situations where if someone doesn’t need it, taking it early makes sense. The only time is if there’s significant health issue or something like that. But then you also have to think about survivor planning. So there’s a lot of variables that you got to think about and does it make sense?

 


Nick: And just to dovetail off of that, John mentioned the survivor planning, where sometimes, as an example, one person in a couple taking it earlier and using that to leverage the other person waiting much longer, that combination can work out sometimes, work out-

 


Marc: Yeah, a couple’s strategy.

 


Nick: … really, really well. Yeah, yeah, so factoring in both strategies, letting one ramp up and using the other one to make it easier on the overall nest egg, sometimes that can make sense, but this is always something that we use. We have different calculators to strategize for social security and that sort of thing, and so we try to be as strategic as possible.

 


Marc: And John, I think you’re referring to the break point, so you’re talking about when you’re turning it on, you can run some calculations and see what that break even point would be if you turn it on early versus waiting. Obviously health plays a factor, but you guys can kind of stress test those numbers as well to see the best chance or the best option.

 


John: Yeah, so we have different programs, which is great, where one, we just look at social security in a vacuum and basically it’s, “Hey, let’s look at taking now versus 67.”, if that’s the person’s retirement age, and we can go look at their break even, which typically is mid-seventies in that scenario. Then we have our comprehensive planning tool, which takes into account other factors of, “Well, if you take it early, your investments can build up a little bit longer. What if you take it early and save it, so you can really put in different factors on it.”. But one thing people really think about if they take it early, and we’ve seen this lately, is the cost of living adjustments. So those in the last few years have been pretty significant. So when you take it early, you’re still going to get those cost of living adjustments, but they would’ve been much greater had you waited, because the balance is bigger that you’ll be getting monthly.

 


Marc: Gotcha. Okay. So again, there’s a lot to the social security strategies, the conversation. These were some of the bigger ones. We’re going to do a second part, with five more myths in a couple of weeks here. So make sure you tune in and check that out. But as always, if you’ve got questions, if you need some help, especially when it comes to claiming strategies and maybe running a maximization strategy to see what the best option’s going to be, don’t just run out and do something. And also don’t treat it as a separate entity from everything else that you’ve set aside for retirement. It really is about them all working together in a cohesive plan. And that’s what John and Nick and the team can help you out with. So if you need some help and you’re not already working with them, jump onto the calendar at pfgprivatewealth.com for a consultation and a conversation. That’s P-F-G private wealth.com. Get yourself some time onto the calendar, subscribe to the podcast. You can do so while you’re there as well, so there’s a little dropdown tab for podcast. We’re on Apple, Google, Spotify, all that good stuff. So again, P-F-G private wealth.com is where you can find them online. And we always appreciate your time here on Retirement Planning-Redefined. For John and Nick, I’m your host, Mark, and we’ll see you next time for more social security myths.

Ep 11: Social Security, Part 5

On This Episode

Today is part 5 of our social security series and we will focus on the survivor benefit option. We will talk about a few situations that can arise and share a couple of client stories that have revolved around this topic.

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Disclaimer:

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: Back here with us for another edition of Retirement Planning Redefined, the podcast with John and Nick from PFG Private Wealth. Gentlemen, how’s it going? Nick, how are you today, my friend?


Nick: Doing pretty well. How about yourself?


Speaker 1: I’m hanging in there. Not doing too bad. We are into December. Moving along nicely on this. John, how are you doing? You doing all right?


John: I’m doing good. I’m doing good. No complaints. It’s a getting a little cooler here in Florida, which is nice. It’s been been hot, so it’s nice to get a little a cool, no more humidity.


Speaker 1: Yeah. Yeah. Now, as planners, you guys plan a lot of things, but are you the same way when it comes to holiday shopping? Have you kind of gotten some of this knocked out? We’re at about the middle of the month here now in December. So you guys ready to roll for Christmas or are you last minute?


John: I’ll take that one first. No, I do a lot of Amazon shopping [crosstalk 00:00:49].


Speaker 1: Me and you both. But how about you, Nick?


Nick: Anything I can do to avoid going to a store, I do, so the majority of my shopping [crosstalk 00:00:59].


Speaker 1: I think so many of us are that way, right, which obviously we can see in the death of brick and mortar, for sure. But yeah, absolutely. I agree with you there. Well, hopefully, folks, you’re out there getting your shopping done. Maybe you’re checking out this podcast while you’re driving around doing some shopping or walking around in the malls or whatever the case might be. That is kind of the beauty of podcasting. It’s not like traditional radio obviously, so you have more options, and hopefully you’re subscribed to the podcast Retirement Planning Redefined. Do it at Apple, Google or Spotify, and a couple others as well, and you can find the links if you want, and podcast episodes on their website at PFGPrivateWealth.com. That’s PFGPrivateWealth.com.


Speaker 1: All right, part five. I think this is going to probably wrap it up, too, for our series on social security. We’re going to talk about survivor benefits. Guys, give us some things to think about here. Survivor benefits are available to children and surviving spouses, correct?


John: Yeah, so it is available to children and surviving spouses. For today’s session, we’re going to focus more on surviving spouses because that comes into play more when we’re doing retirement planning.


Speaker 1: Okay.


John: So we always like to actually joke around with the survivor benefit. Not many people are aware, but they get a nice $255 lump sum death benefit if the spouse were to pass away.


Nick: Obviously has not been adjusted for inflation.


Speaker 1: Yeah, no, that doesn’t cover much of anything, does it?


John: No, no it doesn’t. But they do get a monthly benefit as survivor and when it comes to planning, that does help out quite a bit when we’re talking about strategies and trying to figure out a plan for a survivor. Kind of some rules that go with that. A survivor can actually start drawing social security at age 60 versus 62, which is kind of the normal first spouse, which we discussed last week.


Nick: It is important to note that as a reminder, even though they’re eligible to draw at 60, there are still the income tests from the standpoint of reductions. So if that person is working, then it may not make a whole lot of sense to get that early.


John: Yeah. What Nick’s referencing, we talked about the earnings penalty if you start taking social security before your full retirement age. That does still apply age 60, so if you’re still working, most likely that will wipe out any social security benefit you’re going to get as a survivor.


John: Some other things to consider, and I’ll kind of give some examples of this. Survivor benefit is not available if someone remarries before age 60, okay, unless of course that marriage ends. So we’ve had situations where we were planning for clients and we were talking about doing some survivor strategies and they actually … Let’s just give an example. They were 57 and were considering getting married and actually deferred their marriage until age 61 to be safe, which I don’t think the spouse is too happy with us on that because it deferred the marriage, but it made sense because we actually get some pretty easy strategies, which we’ll talk about later, to maximize the social security.


Nick: For the widow to the eligible for those survivor benefits, they had to have been married for at least nine months. There’s a caveat to that where the death was an accident, that could come into play. So essentially, that’s pretty lenient, but it is important to understand the nine month rule as well.


John: Yeah. And we stress a lot on just understanding what your situation is. Just kind of give you an example of that, I had a client that thought she’s eligible for social security because she was married, but he passed away when they were within eight months of marriage. And she was shocked [inaudible 00:04:23] the whole time, let’s say the last seven years, she was planning on it and then didn’t qualify for it. So it was shocking, and unfortunately for her, she was hitting 62 so it made a big difference to her overall plan.


Speaker 1: Gotcha. Okay. So good information there. Surviving spouse’s benefit is based on what?


Nick: So essentially kind of the caveat to this is whether or not people have been collecting. So if both spouses are receiving their benefits and there is death, then the surviving spouse receives the higher of the two.


John: Not both.


Nick: Correct. Not both, which some people will be surprised about how that works. But it’s important to understand that they receive the higher of the two, not both. And one of the big factors that gets calculated into the firm calculation of the amount of money that the widow will receive takes into account when the deceased spouse originally claimed their benefit. And it gets a little bit confusing, quite frankly, for most people, but it factors in essentially whether or not they took it before or after their full retirement age. So John will walk us through an example on that. But it is important to understand how this works.


John: Yeah. Again, we like to do everything in the realm of planning. So this is where doing the social security maximization strategy is very important. Social security is a big part of someone’s retirement income. So you want to make sure that you’re making the best decisions available to you, because the last thing you is to look back 10 years ago, it’s like, “Oh, I wish I did this. I could have had X amount of dollars or really been enjoying my [inaudible 00:06:05] a little bit more.”


John: So just going to touch on an example of that. We’ll call them Jack and Jill. We talked about some survivor strategies last week, but let’s say Jack’s up for retirement benefits, 2,400. Doesn’t take it [inaudible 00:06:20] 70. Basically, Jill can jump on and actually take … Let’s increase it to 2,976 increases. That will be her new basically benefit for social security, so she gets a nice increase and that’s where we talked about really trying to protect the spouse and giving them more income for life. And if she tries to draw early, let’s say she takes it at 62, which anytime you draw early, you get reduction of benefit or a reduction based off of now the higher amount that he deferred, which is a nice little caveat. We have to really do some planning for a spouse.


Nick: And one of the things too from a comparison standpoint is when we discuss the spousal benefits and how the spousal benefits do not grow past full retirement age, the death benefits does, or the widow benefit, survivor benefit does grow past [inaudible 00:07:15] age, so another reason why that’s really a big factor.


John: Yeah. And one thing that we’ll always do, if we’re incorporating strategies, you always typically want to delay the higher benefit. So if you’re looking at an opportunity to take a widow’s benefit or my own, rule of thumb, and everyone’s different, but rule of thumb is defer the higher ones. I’ll give my family as an example. My father-in-law, his wife passed away young and basically age 60, he was able to actually draw her social security benefit at 60, which a reduced amount. Most of his income is from real estate and investment income, so an earnings penalty didn’t apply to him. So the plan is he’s taking the widow benefit at 60 and he’s deferring his, and then at full retirement age, he’s going to switch over to his and get his full retirement benefit. So from 60 to 66, he was actually able to get some type of benefit and then at 66, will jump to his own and he gets the full amount.


Speaker 1: Yeah. So there’s some good strategies, some good things to think about, good information here when we’re talking about these survivor benefits. So a couple of final key points or key takeaways, guys, just to think about?


John: Things to consider is a reminder that basically when the person passes away, their social security benefits stop. And if the surviving spouse is going to take one, they’ll take either their own or the deceased spouse, whatever one’s higher, just making sure that it’s important to plan and make sure the strategy is best for you based on your situation. Social security … This is everything, not just survivors … it’s very confusing, and there’s a lot of different things you can do, so if you’re working with an advisor, just make sure that they have the capabilities to stress test your decisions, to make sure you’re making the correct decision based on your situation and not your neighbors or as Nick likes to say, up north, his clients, they’ve talked to their plumber.


Nick: Yeah. Everybody likes to get an opinion from somebody else. We will talk about opinions. But so anyways, I think the biggest kind of overlying thing, and we talk about it a lot, but we can’t emphasize it enough, and even when we do overemphasize it, people still ask, but this is not a decision to be made in a vacuum. So many other factors tie into this decision.


Nick: And even when we plan … As an example, I was walking somebody through a plan this week, and they are three or four years out from retirement, and even though we have a strategy set up for social security in the plan on what we plan to do from a baseline standpoint, they asked and I really had to emphasize that realistically this decision doesn’t really get made until maybe three, six months before their retirement.


Nick: So we may plan for a certain strategy for four or five years, but the importance of planning and updating your plan every single year cannot be understated, because especially with social security, if we’re in the midst of a recession, if we’re in the midst of a 2008, we’re not going to have somebody take a bunch of money out of their nest egg even though over the last five years we planned to do that. We’re probably going to have at least one of them take social security, protect the value of the nest egg, give it time to bounce back and then adjust accordingly. The planning is via kind of a living, breathing thing and we always have to adapt and adjust.


Speaker 1: Nope, I think that’s a great point. We’ve said that many times here on the podcast that you’ve got to have a plan and then you have to realize that that plan needs to evolve much like your life’s going to. A lot of times we kind of get a collection of things. We have some investments, we have some insurance vehicles, we think about social security. Maybe you’re lucky enough to have a pension and you say, “Okay. Well, I’ve got this collection of things. I’m good to go. I have a retirement plan.” No, you have a collection of things. So pulling them all together in a full retirement plan is really important.


Speaker 1: That’s what John and Nick do every day at PFG Private Wealth, so give them a call if you’ve got questions or concerns. Get on the calendar at 813-286-7776. That’s 813-286-7776. Don’t forget to go to the website, PFGPrivateWealth.com. You can always subscribe to the podcast and get new episodes, check out past episodes, things of that nature on Apple or Google or Spotify. So check them out online as well@pfgprivatewealth.com and also share the podcast with folks that you think might benefit from it as well.


Speaker 1: This has been Retirement Planning Redefined. Thanks so much for staying tuned into the show. John. Nick, thanks for your time, as always. I hope you have a happy and safe holiday and we’ll talk actually I think in 2020.


Nick: Sounds good.


John: All right.


Speaker 1: You guys-


Nick: Thank you.

Speaker 1: Yeah, absolutely. Take care and enjoy the holidays, everybody, and we’ll see you next time right here on Retirement Planning Redefined.