Planning your retirement can be a maze, but knowing when to claim your Social Security benefits might just be the key to unlocking a secure future. Ready to make the most pivotal decision of your retirement journey?
In this episode, April Schoen, dives into the intricacies of Social Security, outlining strategies to ensure your golden years are actually golden.
You’ll discover…
How to determine if you and your spouse qualify for Social Security benefits.
Various timing strategies for claiming your benefits to maximize your income.
The critical differences between spousal and survivor benefits.
How your work history and earnings impact your Social Security payments.
The often-overlooked tax implications of taking Social Security benefits.
April Schoen: Hello and welcome. My name is April Schoen, and I'm glad you're joining me today. I'm a financial advisor with over 10 years helping clients not just get to retirement, but through retirement with confidence. And today we're going to be talking about one of the most important subjects when it comes to planning your retirement, and that's going to be Social Security.
When you start taking your Social Security benefits is going to be the biggest decision you make when it comes to your retirement. Not only is it going to impact your income for the rest of your life, but if you're married, it's going to impact your spouse's income for the rest of their life, too.
So I'm glad you're here. I'm glad that you're diving in to learn about this important topic. Now this is actually going to be part three in a series that we're doing about retirement planning for people over 50, called your path to a secure future. So if you haven't watched episode one and two, I encourage you to hit pause, go back, watch episodes one and two, and then jump back into today all about Social Security.
Now I know this is not going to surprise you, but people who have more guaranteed streams of income in retirement are happier. They feel less stressed. They're happier. And Social Security is one of those benefits that's going to provide you with that guaranteed stream of income. And Social Security is really this cornerstone for retirement income for many Americans.
We consider it part of your baseline for retirement, and then you may have a pension, which is going to increase your guaranteed income. You're going to have investments, retirement accounts. All of that added up is going to create your retirement income. But Social Security is one of those cornerstones. It's one subject that we get the most amount of questions on. People are always asking when's the best time for me to take Social Security?
So let's get into it today. As I said, this is gonna be one of the most important decisions that you make about your retirement. I think the two questions we get most often have to do with Social Security and also healthcare in retirement. That's another big topic of discussion. What are we going to talk about today? We're going to go through and talk about, how do you qualify for benefits?
Just going to give some high-level basic information about how do you qualify for benefits. Because sometimes there's some questions around that. We're going to talk about, when can you claim and how do you maximize your benefits under Social Security? There's some different claiming strategies. And then also understanding spousal benefits and survivor benefits as well. Let's get into it.
First, let's talk about how do you actually qualify for Social Security? It's pretty simple. As you're working, as you're paying into Social Security, you earn what are called credits. And you essentially need 10 years of work history to be able for you and your spouse to qualify for both Social Security and Medicare. Now one of the things I encourage everyone to do is review their Social Security statement.
They used to send them in the mail, but now you have to go online to see your Social Security statement. And the Social Security website has got a ton of great information. We'll make sure that we link the Social Security's website in the description box, but it's got a ton of great information. There's some calculators actually out there too on their website. But I encourage you to create a login.
Go look at your statement. You're going to see your earnings history, which we're going to talk about in a few minutes. You're going to see the different benefit amounts, showing if you took Social Security at 62, your full retirement age or age 70, and every age in between there. You want to go and take a look at that and review that about every year or so as you're getting closer and closer to retirement.
How are benefits calculated? What is this amount going to be? How much am I going to receive from Social Security, and again, your statement is going to tell you all of those options. But let's walk through it. Benefits are based on your average indexed monthly earnings, and they look at your highest 35 years of work history. Let's talk about this for a second. Couple things I want to note here.
If you don't have 35 years of work history, they put in zeros for those years that you don't have. So be careful of that, because that's really going to pull down your average if you don't have 35 years of work history. The other thing I want to point out here is it's your highest 35 years of work history.
And for most people, when we're getting towards, close to retirement, that's when we're earning the most amount that we've ever earned. So the more years that we have of those higher earnings, what happens is something from early in our career, say, in your 20s or so, falls off of that average. The longer we work, earning more income, a higher salary, the higher those Social Security benefits are going to be.
They use a formula using your highest 35 years of work history to determine what they call as your PIA, your Primary Insurance Amount. And really, all this is, is this is the amount that you receive if you claimed Social Security at your full retirement age. So again, we're going to talk about that in a few minutes as well. What is that? How do you figure that out? How does that play into your Social Security benefits? So we're going to go through that in a second.
But like I said, you can see how a working longer is going to increase your benefits, because the more income you have at these higher levels, it's going to replace those earlier earnings history when we didn't make as much. So what are some things that we can do to increase our benefits, to maximize our benefits? That's really what most people want to know. How do I get the most out of it? I've been paying into Social Security all these years. How do I squeeze every bit out of it that I can?
First know you've got some different claiming options, and you can start benefits as early as 62. That's the earliest that you can claim Social Security. But if you do that, you're going to have a permanent reduction in your benefits. So if you're not taking it at your full retirement age, you take it early.
Now, full retirement age for most people, is between 66 and 67. I'm going to show you a chart in a minute that's going to show you exactly what your full retirement age is, but I just wanted to point that out to you as a point of reference. We think of three stages of Social Security. The earliest I can take it is 62, I have my full retirement age when I receive 100% of my benefit, and then I could also delay to age 70, where I get a higher benefit.
Anyway, so you can start it at 62. Also, like I said, your full retirement age, that's going to be based on the year that you were born. And then you can delay taking benefits until age 70. And every year that you delay past your full retirement age, you're going to get an 8% increase. Let me say that again. 8% increase. It's pretty big. So here's how you figure out your full retirement age. It's based on the year that you were born.
So if you were born in 1960 or later, your full retirement age is 67. So when I'm going through and talking about some examples today, I'm going to assume someone's full retirement age is age 67. But again, like I said, you can take it early at 62 so let's talk through that. What if you say, hey, April, I'm retiring. I'm not going to be working anymore, because there are definitely some key considerations you want to take.
You want to think about if you take it early. But let's get into a little bit about claiming strategies and what are some benefits of taping it early? Well, one of those is, you're gonna get immediate income. This might be, if someone has, maybe they've got some health concerns, they may want to go ahead and start taking their benefits early. But you're gonna get that immediate income.
This may also mean that you can delay tapping into your retirement accounts. Your investment accounts. Some clients say, Hey, I would rather take Social Security and let my investment account, my retirement account, continue to grow on my balance sheet. Kind of like keeping your powder dry. We want to keep money on your balance sheet growing for your future, and then tap into this Social Security benefit instead.
Coordinate it with your spousal benefits. It might be that one spouse takes it early and another spouse lets theirs grow until age 70. There's a lot of coordination you can actually do for a couple, and it's one of things that we help clients with. If that's something you're interested in, we could definitely help you with that.
What we would need is just a copy of each of your Social Security statements, and we can put a report together that's going to show you taking it early, taking it late, what's that kind of crossover point. How do you actually maximize those benefits. And then again, this might be useful for someone who's thinking, oh, I'm retiring at 62 I might be having some health problems. I'm not sure what my life expectancy is going to look like, and so I'm going to go ahead and take these Social Security benefits early.
Now, for Social Security calculations, what they assume is that someone at age 65 they are assuming that your life expectancy is 20 years, about age 85. That means, if you really look at the numbers, women live a few years longer than that on average, men a few years shorter. So they average it out to be about age 85, is what Social Security looks at.
Again, these are some benefits of taking it early. And this is stuff that we all walk through with our clients. But let's talk about the benefits of also delaying Social Security. Because I hear this a lot, I want to delay it as long as possible. If you do that, you're going to get those higher monthly payments.
Like I said, when you delay from full retirement age to age 70, you get an 8% increase per year. So my full retirement age is age 67 so if I wait till 70, that's 124% of my full retirement age benefit. That's a huge increase. This would mean an increased benefit for my spouse. Let me walk through that. We're going to talk about survivor benefits in a minute, but surviving spouses receive the higher of the two Social Securities.
I'm a numbers person. I don't know if that surprises you or not, but let me just put some numbers on it. So let's say that my Social Security benefit was $3000 a month, and my husband's benefit was $2000 a month, and I passed away first. Well, then Brian, my husband is going to receive $3000 a month from Social Security. He's not going to get both, but he's going to get the higher of the two. This is when we do look at, does it make sense for someone to delay their benefits because it's going to be a higher Social Security benefit for either of the surviving spouses.
I was just talking with a client this morning about this. Sadly her husband passed away earlier this year, and we were talking about the different Security Benefits and what she used to get and what she's getting now. And this can be ideal for people who are continuing to work, because Social Security penalizes you if you take your benefits early and are still working.
So it's really ideal for those who are continuing to work past their full retirement age.
And again, this can mean that you're going to have more financial security later in life, when we might find that health care is increasing, other expenses are increasing, you're going to have a higher baseline. If we compare that to say, someone taking their benefit at age 62. This really comes down to a very personal decision. I feel like sometimes people want me to give them a blanket answer.
Everybody should always do this all the time. And unfortunately, that's just not the way it works. It really comes down to everyone's specific situation. Comes down to your financial situation, your health situation, your family situation. There's a lot to consider about when to take your benefits. I really encourage you to sit down with a financial advisor, a planner, who knows what they're talking about, who understands Social Security and can look at this with you.
Don't make these decisions in a vacuum. Make sure that you're looking at all of your options and going through it. Let's talk about overview of pros and cons. Early benefits, you're going to get that immediate income, but your benefits are going to be reduced, and there are also income limits if you're continuing to work, which we're going to talk about. If you decide to delay your benefits, you're going to have higher income, increased benefit, and there's no income limit for working.
Now let's get into some of these spousal and survivor benefits. So for spousal benefits, the spouse must be at least 62 years old, and they're going to receive either their own record or up to 50% of the higher earning spouse's benefit. So let me use my example I gave earlier, where my benefit, let's say, is $3000 a month. Well, my husband is eligible to get his benefit on his own record, or half of mine, whichever is higher.
So even if the spouse didn't work much out of the home at all. Maybe they don't even have 10 years of work history. They still qualify for spousal benefits under your record, and can receive up to 50% of the spouse's benefit. If they claim Social Security before their full retirement age, they will also have a reduction, and there's also survivor benefits. This is a claiming strategy.
Now this is available to both widowed spouses and dependents. You can get up to 100% of the deceased spouse benefit, and you you can claim as early as age 60. We just had a client in this week, and her husband passed away several years ago, and she's been receiving his social security benefit. He was already getting Social Security, so she's getting 100% of what he was receiving, but she has never taken her benefit.
She's actually been letting her benefit delay and grow. And she just turned 70 this year, and she flipped over from her survivor benefit to her own record, because Social Security now is going to give her a pretty big bump, because she's changing over to her own record. This is a huge planning strategy. Definitely make sure that you keep that in mind if that is your situation.
So how do we have strategies to maximize benefits for a household? We want to coordinate when we're taking Social Security. It might mean that someone takes it early and another person delays into the future. We've got to look at those survivor benefits so that we understand what's going to happen when one of the spouses passes away. Do we have plans in place to replace that lost income?
That's a big part of what we do, too, for clients in that situation. When they've had a spouse pass away, we know they're going to have a reduction in income because of Social Security, and we've got to have buckets that we can tap into to recreate that, to replace that income. Now, what if you are continuing to work? I get this question a lot. You're saying, hey, April, I'm still working, but what if I want to start taking my benefits?
So the question I always ask here is if you're taking your benefits early, before your full retirement age, are you going to be working in any capacity? Because Social Security has earnings limits, and if you make over that limit, they're going to reduce your benefits. So the earnings limit in 2024 if you claim before your full retirement age is $22,320.
That means, if you are claiming Social Security early, and you're working, you have earned income, and you make over that amount, then they're going to reduce your Social Security benefit $1 for every $2 over that limit. Okay, so this is very important for us to understand how that works. And let me explain again. This is only on earned income.
So if you're getting money from a pension, you're taking money from retirement accounts, investment accounts, you have other passive income like real estate. None of that is earned income. It's, I have a job, I have a consulting business, I am self employed. It's any earned income is what they're going to look at there. And then when you do hit your full retirement age, they actually will go back in and do an adjustment and figure out what's your new benefit amount based on what your reduction was.
So you do get an additional adjustment for that when you hit your full retirement age, but it is something really important to know. So how do these earnings affect your benefits? If you claim early again, you've got that earnings test. They will recalculate. Once you reach your full retirement age, Social Security is going to recalculate your benefit amount to give you credit for the months that your benefit was reduced.
So that means then you're gonna have a higher benefit at your full retirement age. But a lot of times, the math doesn't work out where it makes sense for you to work and get your benefits early. It's still better for you to wait and take your benefits when you've fully stepped off into retirement. Balancing that work and benefits requires careful planning. So for some who continue to work it's going to be very beneficial.
This is when you want to work with that financial advisor and think about your financial needs, your health, and your long-term goals when making those decisions. Another question that we get a lot is understanding how Social Security benefits are taxed because they used to not be taxed a long time ago. And so a lot of times, people think that Social Security benefits are not taxed today, but that's not accurate.
Part of it does get considered in as your taxable income. And this one I'm going to give you my disclosure is that I'm not a CPA, I'm not a tax attorney, so make sure that you're consulting your own tax professional when talking through this. But let me give you an overview of how this works, and then you can meet with your tax professional. Social Security has something that's called combined income, and what they do is they take your adjusted gross income, they add any non taxable interest, and they add in half of your Social Security benefits.
And this combined income determines how much of your Social Security benefit is considered taxable. And that ranges from none of it's taxable, half of it's considered taxable income, or 85% of it is considered taxable income. Let me show you these income thresholds. Depends on how you file your taxes, if you file as an individual, or if you file married filing jointly. If you file as an individual and your combined income is less than $25,000 no taxes on your Social Security.
So there is still a possibility to have no taxes on your Social Security. It just doesn't impact as many people. And then, if your combined income is between $25,000 and $34,000 then 50% of your benefit is considered taxable income. And anything over $34,000, 85% of your benefit is considered taxable income. If you file married filing jointly and your combined income again this for both of you, so we have on your tax return.
So this is both incomes, is less than $32,000 no taxes. Between 32 and 44, 50% of your benefits will be considered taxable. And then over $44,000, 85% is considered taxable income. We talk through this with clients, and I'll tell you that when we're doing planning, we assume it's all taxable because of then that just means that bit that's not is going to be icing on the cake for you.
So if you're like, man April, that's kind of complicated to think about a combined income, and where does all that fit in? Then I would say in planning, just assume it's all taxable, and just know it's not going to be as bad as you think that it is. But again, this is really when you want to take this into consideration with everything that you have. Very important when you're doing strategic planning, part of what we do with clients is this strategic planning of like, hey, when am I going to take money from different buckets, so I can be as tax efficient as possible?
Maybe I want to stay under some certain tax limits because of federal income taxes, or maybe I'm concerned about IRMA, which affects your Medicare premiums. These are all things that you want to take into consideration when thinking about when to tap into benefits, when to tap into not just Social Security, but also investments, retirement accounts. That's a big part of what we do is as helping coordinate that.
Well, I hope today, again, I wanted to give like, a quick overview of Social Security, just to give you an overview, again, of how does it work? How do you qualify? When can you claim? What are some strategies to take into consideration? We do have, we actually give full hour, hour and a half long presentations on Social Security. I know we do have some of those up on the podcast, up on our YouTube channel as well, so you could definitely go there and get more detailed information.
But I want to just give that high level overview for Social Security, for those that are like, hey, I want to get this introduction and earn about Social Security as I'm diving into this. Make sure that you subscribe to our channel or our podcast, because the next episode we have coming up is going to be about investment strategies for a secure retirement. I think you're really going to enjoy that episode as well.
We're going to talk about developing that strategy for integrating social security with your other income sources, with your other investments and retirement accounts as well. Stay tuned for for that next episode that we have coming up. And you know, if you're like, hey, April, thanks for this but I'm really not sure what I should do in my situation.
I'm trying to decide what's going to be best for me and my family. Then I would suggest scheduling a time to do a consultation. We do complimentary consultations, so there's no charge to you. We do a 30 minute call, and what we're going to help doing that call is first of all, get clarity. What are some of the most important things to you? What are your goals? What are your concerns? What questions do you have about retirement?
And usually in that consultation, we're going to have a couple of ideas that we can share with you, like, hey, I think you should look into this, or maybe these are some ideas to work on as you're getting close to retirement. If you're interested in that, I would say hop over to our website, which is curryschoenfinancial.com.
You're going to see a button that says book a call, and that's going to take you right to my calendar so you can book a 30 minute phone call. gain, best way to do that, I would say, would be to head over to our website, which is curryschoenfinancial.com. We'll have a link that in the description box, so you could easily get to it. You could also call our office, 850-562-3000. Again, that number is 850-562-3000. Hope you guys enjoyed today's episode, and I look forward to seeing you on the next one. Bye now.
Voiceover: The Social Security Administration has not approved, endorsed or authorized this presentation. There is no charge to attend this event or subsequent consultations. Contact the Social Security Administration for complete details regarding eligibility for benefits. Guardian, its subsidiaries, agents and employees. Do not provide tax, legal or accounting advice. Consult your tax, legal or accounting professional regarding your individual situation. This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoenfinancial.com or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with, or endorsed by, Park Avenue Securities, Guardian, or North Florida Financial and the opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address, 1700 Summit Lake Drive Suite 200, Tallahassee, Florida, 32317. Phone number, 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Company of America, New York, New York. Park Avenue Securities as a wholly-owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
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