Feeling overwhelmed by Social Security decisions for your retirement? Unravel the complexities of this critical component of retirement planning in today's episode.
Join me, your guide in the maze of retirement planning, as I illuminate the often puzzling world of Social Security. From timing your benefits to understanding the system's history and strategizing for maximum returns, I offer a wealth of knowledge to help secure your financial future.
Discover when to ideally start your Social Security benefits to maximize your retirement income.
Dive into the fascinating history of Social Security with the story of Ida May Fuller, the first recipient.
Learn about the critical role of work credits and average indexed monthly earnings in determining your Social Security benefits.
Understand the unique strategies couples can employ to boost their combined Social Security benefits.
Hear real-life stories of retirees who navigated Social Security decisions to enhance their financial stability.
And more
Ready to master the art of Social Security for a fulfilling and financially secure retirement? Tune in to the full episode for invaluable insights and strategies. Subscribe on Spotify, Apple Podcasts, or simply hit play on the player above to start listening now.
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Transcript
April Schoen: Welcome back to another episode of The Secure Retirement podcast, where we dive headfirst into the world of personal finance, with an emphasis on making sure you're prepared to live the retirement life you want to live. My name is April Schoen and today we're going to tackle one of the biggest in retirement planning. And that's Social Security. Yes, that piece of the puzzle that sometimes can feel like you're trying to solve a Rubik's Cube blindfolded.
So let's talk about timing. When to take Social Security is a huge decision. And it is likely going to be one of the biggest decisions you make when it comes to planning your retirement. I run calculations of when to take Social Security for my clients multiple times a week. And just the other day I had a meeting with a couple, the wife let's call her Jane, she was planning to wait until her full retirement age to start her Social Security benefits. That sounds reasonable, right? But here's the catch. She isn't working right now. It's going to be another three years before she hits that magic age.
Meanwhile, her husband, let's call him John isn't retiring yet, but he's moving to a part time position, meaning his income is going to take a dip. So as we started looking into this, my suggestion was, hey, Jane, why don't you start your Social Security now? Why? Because time is money, friends. And by starting now, Jane gets to enjoy that income for three whole years. If she waited, she'd need about eight years just to break even on the higher amount she'd get later. For Jane, having this bird in the hand versus bird in the bush made total sense. But remember, everyone's story is a little bit different. And for some waiting is the golden ticket.
Now I know what you're thinking. But April, how does this Social Security thing actually work? Well, we're gonna get into some of the nitty gritty today. And so let's start with the basics. Social Security is like an old friend who's been around since the 1930s. The Social Security Act was signed into law by President Roosevelt on August 14, 1935. The new act created a social insurance program designed to pay retired workers aged 65 and older a continuing income after retirement.
Okay, let's take a quick detour down memory lane to where it all began. I want you to picture this. The years 1940 and a woman named Ida May Fuller receives the very first social security check. Now Ida May isn't just any woman, she's about to become the poster child for retirement planning. Ida May, a spry 65 year old gets a check from Social Security for $22.54. I know what you're thinking that's like the price of like a decent meal today. But back then it was a significant step toward financial security. But here's the funny thing. She only paid $24.75 into Social Security, from taxes from her work as a legal secretary. Talk about a good return on her investment.
But here's where things get interesting. Ida May lived to the ripe old age of 100. Yes, you heard that right, a full century. And during her lifetime, she collected a total of $22,888 in Social Security benefits. Now, let's put on our financial thinking caps. If you do the math, Ida May put in less than $25. And she got back over 22,000. That's like hitting the jackpot. But before you start thinking of Social Security as your personal slot machine, remember, it's designed to be a safety net, not the whole safety circus. Ida May's story is extraordinary. But it's also a reminder of the value of Social Security and why it's crucial to understand how it fits into your retirement plan.
So whether you're Jane or John and considering to take a leap into starting your Social Security benefits, let Ida May's story be a lesson. That this system can work wonders, but it's your planning that makes all the difference. So how is Social Security funded? I think you already know the answer. It's taxes. Right? So if you ever look at your paycheck and notice those FICA deductions, yes, yes, I know. Sometimes it's hard to see where all the money goes. But here's what this part is hiding. It's hiding in Social Security.
Because every time you earn $1, a piece of it, 7.65% to be exact, goes straight into the Social Security pot. And if you're self employed, you're contributing twice as much, because you're covering both the employee and the employer share. That's 15.3% of your net earnings. But if you're an employee, remember you're putting in 7.65 and your employer is matching that. And here's the good thing. When you retire, you don't have to pay that tax on Social Security income, pensions, income from retirement plans, investment accounts, other passive income, you just pay that on earned income.
But it's not just about what you put in, it's about how all of us working together contribute, because this pool of funds is then used to pay out current retirees and other beneficiaries of Social Security. Like people who may be disabled, survivors and dependents. You know, in a neat twist of fate, that first person to receive that Social Security check, Ida May Fuller, you know, she only contributed three years into Social Security before she retired, yet she lived long enough to see Social Security become a cornerstone of American retirement.
So the next time you see that deduction, remember, it's not just a deduction, it's your stake in this tradition that's been keeping people afloat for decades. And when it's your turn to retire, you'll be part of the cycle, reaping the rewards of the work you've done. Okay, enough about where the money comes from. Let's talk about how do we make it count for you. There's definitely some secret sauce to Social Security. There's work credits, there's average indexed monthly earnings, and there's that magical phrase full retirement age. This is where you learn how to unlock Social Security's full benefits.
First up is work credits. So how do you qualify for Social Security benefits? Well, you've got to have 40, work credits, and you can earn four credits per year. So let's say if you've got at least 10 years of work history, both you and your spouse will qualify not only for Social Security, but also for Medicare. Okay, so that's how you qualify. How you know that you're able to receive Social Security benefits. But then how much are you going to receive? Well, Social Security uses what's called an average indexed monthly earnings.
And what they do is they take your highest 35 years of work history, your highest 35 years of earnings, and they adjust it for inflation. Because I'm sure you can remember, right, you know, that $1 back in the day, but way more than it buys today. And voila, this is your AIME, your average indexed monthly earnings. And they use this to calculate how much you'll actually receive from Social Security. So let's have a quick planning discussion. We've got clients who have chosen to work longer to make sure they've got 35 years of work history. Because if you don't have 35, they'll factor in zeros for those years that you don't have. And it really brings down your average.
Now let's talk about timing, when to start Social Security. Social Security isn't a one size fit all hack. It's kind of more like those adjustable ones. You've got lots of options, folks. And it's all about what fits you best. So, you could punch your ticket to Social Security as early as 62. But here's the kicker, if you're still grinding away at the job, this probably isn't your best move. Why? Because there's something called an earnings test. It's like the bouncer at the club. And if you're making more than that limit, they cut off your benefits. Not so fun, right? Think of it like this. Wvery $2 you earn over this earnings limit, they take back $1 of your benefits. It's like having your slice of cake but not being able to actually eat it.
Now, if you wait until you turn your full retirement age, or your FRA, you get your full benefits. You get the whole pie, no reductions, no penalties, just your whole benefits. And remember your full retirement age, your FRA, this is based on the year you were born. So it may not be the same as your neighbor. So you're going to want to check those details out. It's gonna be somewhere between age 66 and 67. But what if you're that patient type who can wait until the grand finale at age 70. Well friends, your patience is rewarded with delayed retirement credits. Your benefits get a boost each year you wait past your FRA all the way up to 70. It's kind of like adding some extra frosting on that retirement cake.
But let's put the icing aside for a minute and let's have a real conversation about strategy. If you're working and you're loving it, and I mean really enjoying those Monday mornings, then delaying Social Security could be a very smart play. More time working equals less time worrying about stretching those dollars later. And here's a pro tip if you're married, you've got even more strategies to consider. Spousal benefits, survivor benefits, it's kind of like a chess game. And each move can really set up the next so that it literally pays to plan ahead.
Now, don't get me wrong, retiring at age 62 can be the right call for some. Maybe you're ready to swap that briefcase for a fishing pole or those office heels for hiking boots. Just make sure that you're not leaving money on the table. And let's zoom out, look at the bigger picture. Your entire retirement landscape. Social Security, it's just a piece of the puzzle. A corner piece, sure, but you need the whole puzzle for that complete, cozy retirement picture.
Now, I want you to imagine Social Security was the whole puzzle. But you know what it was never meant to be that. When it was first enacted, it was when it was first signed into the law books, it was designed to supplement retirement, to be a safety net, not the whole safety circus. You want to stroll through retirement, not sprint, because you're chasing the next dollar. That's why you gotta play the field with your assets. Like your retirement accounts, your savings, investments, maybe a side job, some consulting that you want to do to bring in some extra bucks.
There's really kind of an art to it. And you've got to, you need to kind of think about like your retirement income ballet and you've got to choreograph. When are you going to dip into each pot. Take from one too early and you might shrink it down. Wait too long on another and you might miss out on some tax benefits. For instance, tapping into your tax deferred accounts. Like what if you have a 401k, a 403b, a 457, a traditional IRA. If you tap in those too soon, this can bump you into a higher bracket. And we want to keep Uncle Sam's fingers out of the pie as much as possible, right?
And then what about on those tax deferred accounts, you're required minimum distribution? How you have to start pulling from them at a certain age. But that's a whole other episode, one day for the podcast. So you've got to identify all your income sources. Think of them like streams feeding into a lake, you need to know which streams flow all year round, and which ones dry up come summer. You need to know how much they'll bring in, when to open the floodgates, and what's the tax impact.
This is kind of like your financial ecosystem. When you coordinate when to take Social Security with your other assets, you're aiming for balance. You want every dollar to do its job, like a well trained actor in a play, playing their part to perfection. Remember, Social Security and retirement planning is personal. I'm sorry, but there's no one size fits all answer. It's about your life, your dreams, and yes, your finances. Creating a plan that harmonizes with your lifestyle is key. And that my friends is the real beauty of it.
Now let's talk about some real life scenarios and retirees who made their financial picture work in harmony. How do they do it? Well, I'm about to spill the tea. Let's talk about some real life heroes without capes. Some of my clients. And first up, we're gonna call her Linda. Now Linda was in the dark about what's called survivor benefits for Social Security. You see, Linda's ex husband had passed away, and they were married for over a decade. That's a key number folks. Being married for 10 years or more. And Linda didn't realize that she was sitting on some potential benefits.
So as we were digging through and going through what we call a retirement rehearsal, where we look at all your income streams in retirement, we play what if, and it's kind of again, throwing all the puzzle pieces on the table and seeing how to put it all in the right order so that we can maximize your benefits for you. Maximize your income. We uncovered that she could claim survivor benefits on her ex husband's record. But the plot thickens. While Linda collected those benefits, guess what was happening to her own benefit? It was growing. By how much? A whopping 132% by the time she hits 70. That's 10s of 1000s of dollars that she almost left on the table. And that, my friends is why you need to know the rules of the game.
Now our next savvy saver, let's call him Bob. Bob had heard through the grapevine that he should get those social security benefits now before they're gone. Have you ever heard that before? But Bob was still working. And if he had taken benefits at 62 not only would he face a reduction in his income but he permanently reduce his benefits. He'd lock in a permanent reduction. Talk about a double whammy. Thankfully, we caught that in time and Bob avoided what could have been a costly mistake. But now he's on track. He's going to be getting his full benefits, no reductions when he retires.
And let's not forget about the dynamic duo's, the countless couples I've worked with. When two people have two different earning records and ages, the when to take Social Security question becomes more of like a duet instead of a solo. So for those couples, it's not always a synchronized swim. Sometimes we decide it's best for one to take benefits early, while the others benefits is growing. Other times we find it's better to wait and let both grow. It's kind of like a chess game. And we're aiming for that checkmate against financial success.
So what's the secret sauce? We run scenarios, we crunch numbers, we look at every angle. Taxes, longevity, health, dreams, right? It's not just about maximizing dollars, it's about maximizing happiness. And these stories aren't just feel good moments. They're lessons in disguise. They show us that Social Security is a tool. And like any tool, it's all about how you use it. And sometimes you need a financial handyman to help you use it right.
I hope some of these stories of my clients give you some food for thought. But remember, your retirement is your own story to write. But let's pause for a moment. Because it's not all about the money, right? It's about how you want to live your life. Think about your health, your hobbies, your family, those travel dreams you have. Or maybe there's a company, a job, a side hustle that you've been itching to start. Maybe there's some volunteer work that you really want to get involved in. Something that sparks joy in a way that your current nine to five can't touch.
Retirement is more than just some number, than just some financial goal. It's a new chapter, a renaissance of self. It's a time when you can finally let your passions take the front seat, and let's be real, do you still get that spark going to work? Or is it more like a flickering light bulb that's ready to go out. I know, I know, these decisions are as emotional as they are financial. I can't tell you how many people come in who are getting close to retire and tell me that they're second guessing themselves. They're worried. Did I make a mistake? And we walk through those numbers and they can see it in black and white, at least they can understand the financial side of their world and know that this next phase isn't just going to be okay, it's going to be great.
But like I said, these are emotional decisions because there's comfort in the routine, in the familiar. There's also thrill in the new and the potential for what lies ahead. It's a personal journey, an opportunity to rediscover old loves and find new ones. It's about finding that sweet spot where finances health and happiness meet. And when it comes to social security, timing is a huge part of that equation. It's one of the tools in your belt, a resource to help you shape this new phase of life. Not something that totally defines it.
So when you're looking at the horizon of retirement, take a moment and listen to your heart as well as your head. And don't go at this alone. Remember, we're here to help you. So whether you're ready to kick back at 62, or you want to power through to 70, we want to help you ensure that this retirement life you build is as fulfilling as it is financially sound. And as we think about how Social Security fits into your retirement plan, remember, it's just a piece of the puzzle, not the whole picture.
And I can't help but mention and talk about the future of Social Security. Sometimes it feels very much like the weather in Florida, where it's a tad bit unpredictable. So stay informed, stay nimble, right. We'll keep you informed as much as we can about any sort of changes that may be coming down the pipeline. Folks, as we kind of wrap up on today's podcast before you go I want you to jot down on your calendar our event that we're having in February. On February 29th. Yes, the 29th because this year is a leap year, we're hosting an event where we're going to take it even further deep dive into Social Security.
So whether you're going to be able to join us on a webinar, or you can swing by our in person seminar here in sunny Tallahassee, you're going to be in for a treat. We're going to go into a deep dive into all of these things I've just covered today and even more. And especially if you're here in person you get to ask all the questions, and we will answer them all to the best of our abilities. So listen, if today's episode made you curious or you liked it, it sparked some joy. Hey, hit that subscribe button, leave us a review, share it with someone who you feel like should listen to it as well. And until we meet again, I hope you keep those retirement dreams vivid, your plans robust, and hopefully throw in there a little bit of dash of humor as well. I wish you all well, and I'll see you on the next one.
Voiceover: 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 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 opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address 3664 Coolidge Court, Tallahassee, Florida, zip code 32311. Phone number 850-562-9075. Securities products and advisory services offered through Park Avenue Securities Member FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
The Social Security Administration has not approved, endorsed or authorized this presentation. There is no charge to attend subsequent consultations. Contact the Social Security Administration for complete details regarding eligibility for benefits.
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