In this episode, April Schoen and John Curry dive deep into one of the crucial components of retirement planning: Social Security. They explore the significance of timing your Social Security benefits and how it impacts lifelong income, offering expert insights into making the most informed decisions.
They’ll cover:
Why the decision of when to take Social Security is critical and how it affects your and your spouse's financial security throughout retirement
The implications of early or delayed benefits
Potential changes to Social Security and common misconceptions about the impact of legislative adjustments on future benefits
Tailored strategies to maximize your Social Security benefits based on individual circumstances, including considerations for health status, income needs, and marital history
And more
Mentioned in this episode:
Transcript:
April Schoen: Hello, and welcome. My name is April Schoen, and I am sitting here today with John Curry.
John Curry: Hello, April. Hello, everyone.
April: Today we are going to be focusing on one of the puzzle pieces of retirement. And that's going to be social security. So I'm going to give just a few minutes as people kind of get logged on here today. But while we're waiting for that, let's just talk about why is this so important. Well, when you are going to take Social Security is going to be one of the most important decisions you're gonna make when it comes to retirement, if not the most important one.
Because when to take Social Security is going to impact your income for the rest of your life. And if you're married, it's going to impact your spouse's income. And just think about how some people live 20, 30, 40 years into retirement, it's going to make a big impact. And John and I, when we're meeting with clients every week, right that we choose those days, we are meeting with clients, guess what we're talking about? Social Security.
John: Every time.
April: Every time. When do you take it? When is the best time for you to take Social Security? All right. So first of all, I just want to say, commend you for joining us today to learn about this topic. I mean, John and I are geeks about this kind of thing. We read and study it. But that's because we love it. But not everybody does.
So good for you for taking the time to be here to understand kind of what your options are. And if you're here and you want to know, what are my options? What are those kinds of
different claiming strategies? What should I be thinking about when it comes to retirement?
If you want to make sure you're kind of saving time, and you're getting the most out of your benefits? Or maybe you're even worried about Social Security, and you're wondering is it gonna be there when I retire? If you've got some of those questions, I'm glad you're here. Because those are the things that we're going to be talking about today.
John: Stay with us, because we're gonna talk about some of the issues and give us some feedback on what we think ultimately, will have to happen. Assuming that the knuckleheads in Congress can team up and do stuff together.
April: That's right. That's right.
John: That's a technical word, by the way. Knuckleheads.
April: Knuckleheads. I like it. So let me just tell you just a little bit about us. Who we are, what we do, and how do we help people as we get started into this today. So John and I typically work with people who are getting ready to retire. Many of them are members of the Florida Retirement System. We're located here in Tallahassee, Florida. So our largest employer here in Tallahassee is the state of Florida. But we work with clients all over the state, as well as all over the country. We've got clients, I think, in 15 or 16 different states.
John: I think it's 16.
April: I forget the number, but somewhere in that ballpark. And when we're meeting with clients, what we find is sometimes they struggle, or they're a little frustrated, they're anxious about what is this going to look like for them in retirement. Because for many of them, they spent their entire careers devoted to their careers, devoted to their family. And they haven't had the time to devote to the finance part of it. To understand what all those options are like we do.
They want to make sure that they're making the right decisions for their future, but they may not know how to get started. So what we do is we help them understand a lot in a short amount of time, so that they can make better decisions and can feel confident about what they're doing. So they can know their money is working for them and that they're going to be on track. Especially when it comes to retirement.
John: I think the biggest thing we bring to the table is clarity. Because you can read everything about Social Security, go to the website, buy a book, and it's still confusing. It's confusing to financial professionals. I've had the experience of going to a security office or making a call talking to two different people and getting two different answers. So if we can cut through all of the stuff, and just identify the things that are appropriate for that particular person, we can save you a lot of time. And time is money.
April: That's right. That's right. And so today we're gonna talk about how do you secure your retirement so that you can maximize your Social Security benefits. And what we're going to talk about is those different payment scenarios and you're going to know exactly how this applies to you. Because here's the thing, there are a lot of choices.
Do you take Social Security at 62 when you're first eligible to take it? Do you take it at your full retirement age? Do you take it at age 70? Add in a spouse's income and it complicates the issue. There's also a lot of information out there. How do you sift through all that to figure out how that applies to you? And many of our clients, what they don't want to do is they don't want to make a big mistake.
Because I always say there are no do-overs. Sometimes we make these decisions, and we may not be able to undo them. So we want to make sure that we're making the right choices. And that we're also not leaving any money on the table. Last year, let's see, it was in June of last year. So if you're seeing the screen, these are my two boys, they're seven and 10. And last year, we flew out to Arizona for a trip and this was their first flight.
So as you can imagine, they were both a little bit nervous. And I thought it was really interesting kind of experiencing this trip, this flight with the boys when it was their first time. Especially if it's something that you've done before. Because if you've traveled, if you've flown by plane, then you know what it's like to go through security. You know how it feels when the plane is taking off. You even know how to navigate the bathroom situation on a plane.
But for them, it was like this brand-new experience. So we were prepared. We talked about it. We watched YouTube videos on it, we packed our bags, and I felt like we were as ready as we could be. We got to the airport super early. And I booked that first flight out of Tallahassee to make sure we weren't going to be late.
So here we are on the plane, we're getting ready to take off. But the plane doesn't go anywhere. And we're on the tarmac and we're waiting and we're waiting and my boys have no clue. They're they're just playing their games. They're so excited about their first flight. They're kind of getting a little like when are we going to take off? When are we going to take off? And we're waiting, and waiting, and waiting. And it turns out there was a paperwork issue of all things. Paperwork.
So here we are sitting for probably 30 minutes because there was some sort of paperwork issue. So what happened with this is it delayed our flight taking off, it delayed our flight to Atlanta. So by the time we got there, we had five minutes to get to the next gate. And so for me, I'm over here having like a mini heart attack. I'm wondering, are we going to make our connection?
Am I gonna have to rebook flights? It’s me and the boys, it's just me traveling with them. So are we going to be able to sit together? There was just a lot of anxiety. So we get off the plane. And I tell them, they all had backpacks. And you can see in the picture, I'm like, give me your backpacks because we're about to run. And boy we just took off.
We ran, ran, ran ran ran. I was making sure the little one was, was staying up with us. And we literally got to our gate, we're like the last few people on the plane. So they were fine. They had no idea all of this anxiety was happening. But me on the other hand, I was having a little mini heart attack. And what made me think about this was when we have these moments of uncertainty, we realize how important it is to be resilient, to be adaptable, and to be prepared.
And I think about those kinds of same things when we're trying to get ready for retirement. Just like we had to adjust our plans and roll with the punches, we got to be ready to face those unexpected challenges. We got to make decisions about our future, even if we don't, maybe we don't even have all the answers yet.
And so despite kind of having some of those, we made our flight, everything worked out well. But you know what was interesting, too, like I said, the boys didn't feel any of this stress. They thought it was super exciting and fun. And that's because they had someone who had been through this before who was their guide and could help them.
So like just like our flight last summer, this journey into retirement can be filled with those same unexpected delays. You can have paperwork issues. And there can be a level of uncertainty. But if you're prepared, if you're adaptable, if you've got a guide, someone who can help you through that, it's going to make all the difference in making sure you've got a smooth transition.
John: So are you telling all of us that if we get in trouble, just call you and you'll get us on the plane?
April: I'll try my best. No promises.
John: Hard enough to get yourself on the plane. Much less two little kids.
April: Yes, yes, yes. Always an adventure. So here's what we're going to talk about today. We're going to talk about how does Social Security work. We're going to go through those key components of your benefits. And then we're also going to talk about some different payment scenarios. And we're going to save some time at the end.
So we could talk about how you can customize all of this for you. Because we're going to try to get as much information to you in the time we have left. We're not going to be able to get all the information out of my head and all the information out of John's head, but we are going to try to get you as much information as possible.
So let's get into this and talk about how does Social Security actually work. We get a lot of questions about this. About just the mechanics of it. But we want to get through this and then get to those claiming strategies. So how does social security work? Well, it's been around since 1935. I almost said '85. 1935. And as of December 2023, the average monthly benefit is $1,905.
And definitely, there have been some changes to Social Security through the years, but the basis of how it works is relatively the same. There's a Social Security trust fund. And that is primarily funded through the taxation of wages by the current workforce. And then those funds are used to pay out current beneficiaries.
So now we're going to talk about this a little bit later about what are some of the issues with the program, but this is one of them. We’ve got current workers paying current beneficiaries. So let me give you some numbers. Back in 1945, there were about 40 workers to every one beneficiary. And now Social Security estimates that by 2035, there's going to be two workers to every one beneficiary.
So you can see how this change, how having more beneficiaries and less, especially that ratio to workers, how that's going to put more pressure on the system. So we're going to talk about that a little bit later. But that is definitely one of the issues that Social Security faces.
John: By the way, the last major overhaul to Social Security was in the 1980s. And we're way overdue to have some more, and we'll get into some of the issues. We'll touch on some of that. But that might be why you were thinking 1985 there for a moment. Because that's when most of the major stuff hit the fan. It was in 1983 when they started it. Under Reagan.
April: Well, how do you qualify for Social Security? You have to earn what's called credits. And essentially, if you've got 10 years of work history, then both you and your spouse qualify for Social Security and Medicare. So again, as long as you've got about 10 years of work history, you and your spouse both qualify for Social Security and Medicare.
And then Social Security is going to determine what your Social Security benefit amount will be by averaging your highest 35 years of work history. And what they do is they take, you know what we made 35 years ago, and they index that into current values, current today's prices, where they take your highest 35 years of salary.
So if you don't have 35 years of work history, they put zeros in there to fill in the gaps. So if you don't have 35 years of work history, it brings down your average. One thing you can do is you can log into Social Security's website, you can look at your statement, and you can see your earnings history online, and see how many years you've thought, and see how that is calculated.
And speaking of statements, if you've never been on Social Security's website, I highly, highly encourage you to go on, you can go to ssa.gov or socialsecurity.gov, you can create a login and there you can pull your Social Security statement. The Social Security website also has lots of calculators that you can use, but we don't recommend you use the calculators, you're going to want to get your actual statement.
Because that statement is going to show you lots of different things. It's going to show you what would your benefit be at 62. At your full retirement age and age 70. And then it's also going to show any sort of survivor benefits that are available to spouses and children. So let's go through and talk about the different components of Social Security and what you need to know about how it works.
The first thing to know is there is something called your full retirement age or FRA. And your full retirement age determines when do you get your full benefit. 100% of your benefit. There are no increases or decreases to it. It's your full benefit. And your full benefit is determined by the year you were born. So if you were born between 1943 and 1954, your full retirement age is 66. If you're born in 1960 and later your full retirement is age 67.
And anywhere in between there, you might have some different full retirement ages. 66 and two months, 66 and eight months, etc. Now you can claim Social Security as early as 62. But if you do that your benefit is going to be reduced, and it's going to be reduced forever. So some people think I take it at 62. And then when I hit full retirement age, I'm now going to get 100% of my benefit. And that's not accurate.
John: I was telling a friend this morning about our webinar in the gym. I said there are some things you should know. He said I only want to know one thing? When do I get my money? When do I get my money?
April: When do I get my money? I like that, I like that. Well, you can get it when he's 62. There are some pros and cons to that. But you can claim it at 62.
John: You want to talk about some of that now or later?
April: We'll talk about that next because we'll get into looking at 62 and age 70.
John: Because I want to share what I decided to do because you and I have been through that a lot with other people.
April: Yes. Now you can also delay taking Social Security. You can wait past retirement age. And when you wait, your Social Security benefit is going to go up. So the longer you wait, the higher your benefit will be. But that increase stops at age 70. So there's no reason to wait past age 70 to start Social Security.
So when we think about Social Security, we think of it in three phases. What is it at 62? What is it at my full retirement age? And then what is it at age 70? So let's look at an example. Now we're assuming this person's full retirement age was age 66. Okay, age 66. And currently, in 2024, the maximum monthly benefit at your full retirement age is $3,822. 3822.
If you take it early, if you took it as early as age 62, you're gonna get a reduced benefit. And they're going to pay you 75% of what your benefit would have been at your full retirement age. And then if you wait, if you wait past your full retirement age, you get what's called delayed retirement credits.
And your benefit increases at 8% per year. So if my full retirement age is 66, I wait to age 70. At four years, my benefit is now 132%, it's going to be $4873. Now, your delayed retirement credits is also going to depend on your full retirement age. Because if your full retirement is age 66, you have four years for that benefit to grow at 8%.
But if you're like me, my full retirement age is 67, I'm only going to have three years for that benefit to grow until age 70. The thing I want to point out here too, is what happens if you decide to take it somewhere between 62 and your full retirement age. Social Security calculates it down to the months.
So how many months either before or after your full retirement age. So if I decided to take it at 64, it's not going to be 75% of my benefit. It's going to be between that 75 and 100%. And if you've got questions about that, about, hey, I'm thinking about taking it at this specific age, what's my benefit going to be? We can help you with those calculations.
We can also help you look and decide what's what we call a crossover point, and at what point would be the best time for you to take it. I'd love to tell you that there's like a one-size-fits-all answer here. But there's not. It is going to depend on everybody's individual situation.
John: However, a lot of people are being told there's a one-size-fits-all all and everybody should do X, or everybody should do Y. And it's just not accurate. Not if you do proper planning.
April: That's right. And we see both ends of the spectrum. We hear from other people how everybody should take it at 62. They should take it as early as possible. We hear no, you shouldn't take in at 62. You should wait all the way to 70. And I think for us again, it's not a one-size-fits-all all. It's we need to look at your individual situation to decide when is going to be best.
Because you can't make this decision in a vacuum. You can't just look at these numbers and say yep, that's what I'm gonna do. You have to look at the full picture. I said at the beginning, Social Security is just part of the puzzle. It's just one piece of the retirement puzzle, and it's got to fit in with everything else.
So let's talk about these delayed retirement credits and we'll kind of go through this. Like I said before, how long you have to defer or delay if you're choosing to do that is going to be based on when is your full retirement age. And every year you wait they increase your benefit by 8%. But they also look at it on a per-month basis.
So you don't have to wait one full year. You could wait eight months, you could wait two years and six months, and Social Security is going to calculate what that increase would be. But they do the same thing. If you take it early, it's month by month. So when you look at your statement, again, this is why I do recommend that you get a copy of your statement, because it's going to show you your personal amounts.
It's going to show you the earliest age of 62. It'll show you what is your full retirement age, and then also age 70. And as we mentioned, there is no perfect retirement age that covers everyone. This decision to delay or to not delay, to take it early, is going to be considered on this personal situation, your circumstances. So John, let's talk about for a few minutes here, what are some of those key considerations people should think about if they're going to take their benefits early, or if they're gonna wait?
John: Well, to me, one of the biggest things, because I've been doing this for 49 years is people taking the benefit too soon. I still hear people say, well, the system's gonna go belly up. Start taking it at 62. Get your money out fast. But then you see people who do that, and then upon their death, the spouse gets a lot less money. And for people who have very little life insurance in place, they should delay as long as possible to have a survivor benefit that's larger. We've seen that many times in working with clients.
April: Especially the higher income earner.
John: Absolutely. So I look at that, then I look at in my case, I chose to take my benefit at full retirement age of 66. Got my first check 2019, January '19. Because I looked at the time value of money, I didn't want to wait until 70. Yes, it would have been more money, as you saw earlier. Over $1000. But I have to take into account the time value of money. What could I do with that money in those four years.
Some of it went into life insurance, to give a benefit later to children and grandchildren and now great-grandchildren. Some of that I used to take care of things I wanted to do along the way. But basically, most of it got saved. You know, for me, I put it in my life insurance, because I can get the money back if I need it or want it.
But, upon my death and Social Security goes away, there's money there to replace it. So I think from a standpoint of being realistic is do you need a higher benefit, because maybe you couldn't qualify for insurance or maybe you don't have enough assets to leave the same income to your spouse.
So think in terms of survivor benefits. And then just think in terms of just of when do you want the money? You die, you and I have had this conversation hundreds of times with people. And most people, most people are truly better off taking it at full retirement age, if they've done a good job of planning in other areas.
April: That's right. That's right. You know, one of the things we'll talk about too is your income while continuing to work. So if someone's thinking about taking their benefit early, one of the key questions they should ask is, are they still going to be working? Are they going to have some earned income? Because if they are, they may find that they've got a reduction from Social Security.
John: They're going to see that coming up a couple of visuals here too.
April: So definitely if we're thinking about taking it early, we may want to say, well wait. Before I do that, am I going to have some sort of earned income? We also want to take into consideration our health. You know, I'm thinking about one of our clients who was having some major health issues decided to go ahead and take it. He had to retire early.
So he would have had took his benefit at 62. You know, and I think that was a very good decision for him. Especially considering those health issues. Go ahead and get that money in now and use it to enjoy life while you can. But I'm thinking about another couple, one of the couples that we work with where we did a little bit of both. The husband was the higher-income earner.
And so we recommend he wait to his full retirement age. But his wife was a few years older, she started her benefit early. So that way, they kind of got the best of both worlds. They got some income coming in now from Social Security and then were able to wait to his full retirement age to start taking his. And it just kind of worked out to be that sweet spot between the two.
John: Well it goes back to what you said earlier, April. It's not a one size fits all. People think it is because okay, say universal plan, if you have your 10 years of working the 40 credits, if you qualify, so people think ok, it's just pick A, B, or C. It's not that simple.
April: And you know another one of our clients was retiring but we recommended he wait to take his is one of the situations where we did. And that's because he had some deferred compensation that was going to be coming in so he had some big bonuses that we're going to be coming in to him.
And we said, well, you're going to have these bonuses coming in, it doesn't make sense for you to take Social Security, because most of that is going to the IRS. Why don't we wait, let it continue to grow, and then take it when your income is not so high. So just a few examples there. But that goes back to how it comes down to that personal situation, everyone is so different, right, about when to take it.
Now, Social Security does have a cost of living adjustment or a COLA, but it's not guaranteed every year. So what they do with the cost of living adjustment, this COLA, is it's based on the CPI, the Consumer Price Index, for urban wage earners and clerical workers. And so this year in 2024, the COLA was 3.2%. Last year, in 2023, the COLA was 8.7. One of the largest that we've seen, and that's because inflation had been so high in 2022.
But I do want to point out, there's been several years where we've had no cost of living adjustment. Back in 2011, back in 2016. And we've even had some years where it's very, very small. So while yes, there is a cost of living adjustment, it's not guaranteed, you will find in our planning, when we're first doing what we call is a retirement rehearsal, we assume no cost of living adjustment on Social Security.
Because I'd rather be more conservative about it, and then have some of these cost of living adjustments be icing on the cake than us planning on it being there. This is one of the things that I hope they change. I hope they change how the cost of living adjustment is calculated. Because this CPI, the one for urban wage earners and clerical workers, isn't a great representative of the population that's taking Social Security. So that is one of the things that I do hope that they change.
John: I think you will see that change. I don't know when, but I think the reasonable people sitting around the table talking about what needs to be done like they did back in the 80s, then you'll see changes. You will not see it this year because of an election year. Let me be clear about that one.
April: Now, let's talk about how is your benefit taxed. Because we get this question a lot. There's a lot of confusion here. Some people believe that Social Security isn't taxed at all.
John: Because at one time it wasn't
April: That's right. But now it is. So part of your benefit is going to be considered taxable income. And Social Security has this complicated formula where they say what is your, they call your combined income. And how you figure out your combined income is you take your adjusted gross income, you add back in non-taxable interest, and you add in half of your Social Security benefit.
And this is how you get your combined income. And then if your combined income falls between different levels, this is gonna decide if 50% of your benefit is considered taxable income, if 85% is considered taxable income, or there are some people where they don't get taxed. So I'm going to walk through this, but I'm here this isn't where I would say if you guys have specific questions about this, let's look at your situation.
Take it offline and look at your specific situation. But what they do on the tax is they look at your combined income if you're an individual or if you file jointly. And then if your combined income falls between different categories. Let me give you an example for maybe a couple filing a joint income. If their combined income is somewhere between $32,000 and $44,000 then half of their benefits are considered taxable income.
But if their income is greater than $44,000, then 85% is considered taxable income. So good news is not all of your Social Security benefit is taxable, but part of it most likely will be. And while John and I are not CPAs and tax attorneys, we look at it and study this enough that we can kind of help guide you on where you're going to fall out in these different ranges.
We had a client a few years ago who started her Social Security, and she didn't know that she could have taxes withheld from her benefit. So she got penalized from the IRS because she wasn't having enough taxes withheld. That is one of the things I want to make sure that point out too is that you can have Social Security withhold your taxes when you start. Now let's talk about what happens if you are continuing to work in some capacity in your Social Security benefit. So what we're going to be talking about here is earned income.
So this is wages. This is I'm working, I'm either working for someone or I'm self-employed, I've got some sort of earned income coming in. This does not apply if you've got a pension, this does not apply to any income from investments or retirement accounts. But Social Security, if you decide to take your benefit before your full retirement age and you're still working, then your benefit will be reduced, depending on how much you're making and when you start to take your benefit.
So let me give you some examples. This is for 2024. If you start taking your benefit at 62, and you've got earned income over $22,230, then Social Security is going to reduce your benefit $1 for every $2 above that limit. So in half, right? It's going to reduce it $1 for every $2 above that limit.
That's why we say we have to be very careful when we're taking it early if you plan to work in some sort of capacity. How much is that income going to be? We've got some clients that want to do something in retirement, and they just make sure their income is less than $20,000. They're working part-time, they're working in some sort of consulting position. Just earning some play money, as we call it.
John: We met with some folks yesterday, where over the years the consulting he did, he said, okay, now cutting it off right here. Because of that.
April: That's right. And then Social Security does differentiate between the year you turn your full retirement age, and the month you turn your full retirement age. Let me give you an example. My birthday is in December. So in the year that I turned full retirement age, if I have earned income over $59,520, then Social Security is going to reduce my benefits $1 for every $3 over that limit.
So for me, that would be if I started Social Security earlier in the year, and my birthday is in December, so I don't hit my full retirement age until December. But if I went ahead and started taking Social Security in February or March, I might have a reduction due to this income limit. But if I wait to start Social Security in the month that I turn my full retirement age, for the month of your birthday, or the month that you turn that age, depending on if you've got one of the 66 and 10 months, birthdays, full retirement ages, then Social Security doesn't care how much you make.
You can make a million dollars a year and still collect your benefit with no reduction, no earnings limit. So not only does it matter about how much income you're earning, but it matters when you start that benefit. Very important. So now let's go in and look at some different payment scenarios. And what does this look like about when to take your benefit?
The first thing we're going to talk about is spousal benefits, because as we said, after you've got about 10 years of work history, you and your spouse qualify. So what the Social Security Administration is going to do is they're going to look at your spouse's benefit record, and they're going to base it off of his or her history.
And let's walk through how these spousal benefits work. So a spousal benefit, you're entitled to half of your spouse's benefit. Let me give you some examples. Let's say that my Social Security, I'll just make the math easy, let's just say that my Social Security benefit is $1,000 per month. My husband would be eligible to receive his benefit, or the spousal benefit, whichever is higher.
So if my benefit is $1,000 a month, he's eligible to receive $500 a month as the spousal benefit, or his. Whichever is higher. And you'll find this in documentation and letters from Social Security that how they do the spousal benefit is they pay you your benefit first, and they add on enough of it to reach that 50% mark. There are also benefits for widows and widowers.
So there are widow and widower benefits available for you and your spouse. So if you're the surviving spouse, you are eligible to receive 100% of the highest benefit. You won't receive both, but it's 100% of the highest benefit. So again, let's just use an example. Let's say my husband's benefit is $2000 a month. My benefit is $1000 a month and Brian passed away first, I would be eligible to receive his benefit at the $2000 a month, but mine would go away.
And this is really when we want to do some planning. Because we know especially when there's a couple, a married couple, we know at some point, you're going to have a reduction in your retirement income, because the lower of the two Social Security's is going to go away at some point. So we've got to have a way to replace that.
John: Let's be more direct. That some point is when death occurs. And that's why the coordination of Social Security, investment assets, savings assets, and life insurance is critical. Sadly, most people don't think about that. They don't think about, okay, when I die, my Social Security benefit could go away for my spouse, and then there's a gap.
April: And we don't have time to get into this today. But the other thing that happens there too, is your taxes change. And when you go from filing married to filing single, guess what happens?
John: Higher tax bracket.
April: Higher tax bracket. I think that's one of the most terrible things about our tax system, our tax code, is that you've got a spouse who passes away and now you have to pay more in tax. And as we just see here now I have lost some income, but I got to pay more tax. Awful. So again, that's when it comes down to planning. You have to plan for these things because we know it's going to happen. There are different survivor benefits.
Again, I'm not going to take the time to go through this today. But just know you can take it at your full retirement age, you may be able to take it as early in the survivor benefits as early as 60. But it's going to depend if you're continuing to work in some capacity. There are also benefits for divorced spouses.
So if you're divorced, but you were married for 10 years or longer, there's a benefit available to ex-spouses who may have had that lower earnings record. So they have to wait until they're at least 62. And they have to remain unmarried. But it works exactly the same. They're eligible for those spousal benefits.
They're eligible for up to 50% of their ex-spouse’s benefit. And what I want to point out here too, is that the benefit paid to an ex-spouse does not in any way affect how much goes to the spouse, or even if they remarried. So I've heard kind of thrown around sometimes when people are getting divorced, if you don't do this, I'm going to prevent you from getting my Social Security benefit. And guess what, they can't do that.
John: You can't stop it.
April: You can't stop it. They have no control over the Social Security benefit. But again, it doesn't impact them at all. They can still get their benefit. If they're married, again, their new spouse can get the spousal benefit, and you can get the spousal benefit.
John: So in theory, you could be married for 10 years and one day three different times, right?
April: That's exactly it. And multiple people can collect under your benefit. Now, I don't think that's what Social Security originally intended that to do or be. But that is one of the problems.
John: I'm still shocked, that that has not been changed. I believe that's one of the things that will be heavily looked at, and will probably go away in the future. Maybe not, but it is something worthy of consideration. To protect the plan.
April: I do want to point out some planning strategies here, if that does apply to you, or you've got a divorced spouse, or some survivor benefits, that there is some planning strategies and techniques that we can apply, or we choose to take one of those, and then let the other benefit continue to grow. So what we may see, I'll kind of give you some examples here, I'm gonna go back to thinking about that survivor benefit.
Sometimes what we find that works best is you actually take the survivor benefit, and you're getting that income, and then you let your benefit continue to grow to age 70. And now you're able to benefit from those delayed retirement credits. That's a very common strategy that we look at.
So it's important that we look at it in multiple ways to make sure that we're taking advantage of all of those benefits that are available to you. So let's get into and talk a little bit about some of the issues around the program. And one of the issues we talked about earlier is that we're going to have this ratio of workers to beneficiaries is shrinking over time. So we've got more beneficiaries than workers, especially if we think back to 1945 when we had about 40 workers for each beneficiary.
And now the Social Security Administration estimates that by 2035, we're going to have about two workers for every beneficiary. And if you go on the Social Security's website you can read their Annual Trust Fund report, and they don't hide it. They are very upfront, they are very clear that if no changes are made between now and 2034, the trust fund will be exhausted.
John: It's also pointed out very clearly on the statement and on the website when you calculate your benefit. So we can't, we can't say they're hiding it from us because they're not.
April: They are not. And let's talk about what they say will happen. So if no changes are made to Social Security between now and 2034, that's 10 years, Social Security estimates, they're going to be able to pay about 76 cents for every dollar of scheduled benefits.
So I want you to imagine, you're in retirement, you're collecting Social Security, and then your benefit is reduced by 25%. So now, that's not what we want, right? We don't want to have less income in retirement, we want to have more income in retirement. We don't want to have to have less of a lifestyle, we want to have more.
John: So think of it this way. You go to work, and you get your check, and you got to 25% cut while working even, you're not gonna be happy with that. Now you've retired. And maybe you're not able to go back and get another job because of health issues or because you've been out so long that nobody wants you, because you don't have the skill set anymore, which we see a lot.
And now that 25% happens. That's why it's so important to understand that when Social Security was started, President Roosevelt made it very clear, it's not designed to be the only thing you have to take care of you to retirement. It is a way to keep people secure, and came about because of the Great Depression. And you've got to do your part, save, invest, and plan.
April: I mean, life expectancy is so different today than it was back then. We're living much longer. Social Security didn't intend and plan for us to live as long as we are today.
John: They had no way of knowing.
April: They had no way of knowing. So it is definitely one of the issues around the program. So let's talk about what are some of those proposed changes that we might see that are going to help offset this. Well, one of the things that we might see is higher taxes.
John: Excuse me. Did you say, might?
April: Might, might. One of the ways we might see some changes is higher taxes. That's one way to solve some of the solvency issue is to have more revenue coming into the program. Have more money coming into the trust fund.
John: The way that they're going to do that, they're not going to call them taxes. There going to be called contributions. So your contribution level instead of 7.2 is going to be increased. It's coming. It's one of the big things that happened in the 80s. So probably what will happen, they'll go back and look at what the committee did in the 80s. And say okay, what can we do that's similar because we have a track record. We can have less political confusion over it. And taxes in some form will have to go up.
April: Yeah, they can increase the actual tax rate, they can increase the amount of money that the taxes are applied to. Because right now there is an income limit. At some point you stop if your income is over a certain threshold, you stop paying into Social Security and Medicare on those. Especially Social Security. So that's one of the things they can do too where it doesn't look like a higher tax, but it is. It's getting more revenue into the system.
John: A lot of people think that's what will happen because Medicare, they did away with that cap. So the logical choice would be to say, well, we didn't raise tax rates, is to raise that income limit or take it off.
April: Absolutely. And have it be unlimited. One of the other things they may do. Oh ok, go for it.
John: They could reduce the benefits across the board. And they could say no more 62. And by the way, full retirement age sorry, April, it's not 67 anymore. It's now 70. So those are all things that have been talked about by Congress in committees and considered.
April: Well, you saw what happened with France. They did that they had tons of pushback.
John: Did you see it? Remember all the riots?
April: Yeah, definitely some pushback. But they did raise that, we're going to call it our full retirement age. But they did raise that. So that's an option too is to raise that full retirement age. Now, one thing I will say is that if you are closer to retirement. You're within that, let's think maybe even two to five-year range. I don't think that you'll have very many changes to your benefits. It's what they're gonna do is they'll impact the younger generations. So I just turned 40 in December. So I think that I will have sweeping changes to Social Security.
John: In the early 2000s, when Congress took this up and then tabled it. They were saying that if you were within 10 years you would not be impacted. And somebody that said, even if you're 55 and older, but who the heck knows, because there're so many moving parts nowadays, April. And you know, you've made a comment we're geeks about this. I read this stuff, and I pay attention to what's happening on the political side. What's happening on the financial side, because it's tied together.
April: Absolutely. Well, think back to 2015, they did make sweeping changes to Social Security in 2015, as well, and they moved fast.
John: It was done in a matter of a couple of months.
April: Yeah, it was so fast. Some changes that they made then. So you bring up a great point that again, and we think about this, the issues around the program, that Social Security is subject to political agenda.
John: I can tell you this, if I had control over it, a long time ago, there'd be no age 62 benefit. That's when we started getting in trouble with it. And you go back and read and study what the trustees have had to say, that should never have been allowed. If you want some type of hardship provision, that's one thing. But across the board to say, you can take, quote, early retirement, that never should have been allowed.
April: Yeah, so we're gonna see, especially this year too with it being a presidential election year, I think we're going to hear a lot about Social Security in the news. So it definitely becomes that political football and gets tossed around for sure. Now, there's another issue with the program. But this is, excuse me, what I should say is, this isn't necessarily an issue with the Social Security program.
It's more that it could be an issue with your retirement. Now, Social Security was never meant to be your sole income in retirement. And this is some information that the Social Security website that they publish. So this data comes back to 2019. And we're looking at people who are retiring at the age of 25.
And Social Security did this study, to say, hey, in these different kinds of pre-retirement income levels, how much of that income will be replaced by Social Security? And how much needs to come from other sources? So let me give you some examples. We're going to look at this kind of middle-income tier here. So they looked at people who were making pre-retirement about $86,000 a year.
And they said that Social Security is going to replace about 32% of your pre-retirement income. And that remaining amount has got to come from other sources. So what are some options? What are some examples of other sources of where to have this come from? It could be you get a pension, right? Do you have a pension?
That's one of the first questions we want to ask, What about retirement accounts, investments, savings, real estate? You've got to make sure that you've got enough income coming in to satisfy your income for the rest of your life. And not just income today, but make sure that you've got increasing income later.
This goes back to us looking at this, we call it a retirement rehearsal, where we play what if. We throw on the table all of your puzzle pieces. All of the pieces of your financial life. And we say how do we put this together in the best way possible? So what does that mean for you? When do you take Social Security?
If you have a pension, how is that going to fit into your overall income in retirement? What about investments and retirement accounts? What about taxes? What about costs for health care? These are all these things that we got to take into consideration to make sure you got income today, but you also have more income later.
John: Very important. Especially all the discussion about inflation right now. The Fed Chairman just this week said not likely to get to 2% and that we should get comfortable and get used to inflation. His words. It's not transitory after all.
April: It's not. No, it is not. I think 2% was too low of a number myself anyway, but it is sticking around here. That's for sure.
John: I remember back when I bought a house in 1982. If people listening to this, right today, some of the people are old enough to remember this. Mortgage rates were 13% when I bought that house. Inflation, depending on who you listen to was over 16 to 17%. Money market funds were paying 16% back then.
And my concern is that we may see that again. We saw inflation coming down. And I hope the numbers are real. So I hope this continues to come down. But we all should plan for higher inflation to be safe. I'd much rather assume a higher inflation rate and it not happen, then to assume no inflation rates or very small, and then my money is wiped out.
April: Inflation, we call it that silent thief. But sometimes it's not so silent.
John: True. Well, when the income taxes come out, that's screaming. That's not silent at all. Inflation is definitely a silent thief.
April: So today, we've kind of gone through and talked about Social Security, how it works. We've talked about these different payment scenarios. What are some of the issues around the program that you need to be aware of, and then, again, maybe not necessarily issues with the program, but issues and make sure that you're looking at for your own retirement.
So then the question for you then is going to be how do you put all of this together to figure out what is going to be best for you. And that is an area in which we can help you. Because we recommend that you don't just do this in a vacuum, that you're not just making these decisions on your own without having some professional advice.
Because you don't want to make a big mistake, you don't want to have some sort of tax issue. So what we recommend for those on the call today is just schedule a time for us to have a discovery call. These are 30-minute calls, where we go through and we're going to talk about and get some clarity about what are your goals. What are your concerns?
Especially when it comes to retirement. We're going to talk about what are some of the opportunities that may be available to you? And then what's holding you back? What are some roadblocks that might be in your way? And then what are the specific steps that you need to take to save you time, money, and energy.
And I don't know if we're the right fit for you, because we're not the right fit for everyone. But I can tell you that at the end of this 30-minute call, we will know if it makes sense for us to continue working together in some capacity. So this call is really for you if you're motivated, you're committed to reaching your goals, you're coachable, and willing to be open-minded and learn some new things. Hey, but this call is not really for you if you're not coachable, you're not really willing to learn some new ideas.
So the best way, the easiest way to schedule a call is you can go to our website, johnhcurry.com/call. And you will be able to be redirected to the calendar link so that you can book that 30-minute phone call. You can also call our office at 850-562-3000. You can let Luke or Leslie know that you are on the webinar and you'd like to schedule your complimentary 30-minute call.
There's no cost for the call. We get that question, but there's no cost for that whatsoever. So again, the best way to schedule your call is to go to our website or call our office at 850-562-3000. We want to say again, commend you for being on the call today and learning about Social Security. Sometimes it can be a complicated topic, but we try to make it as simple and easy to understand as possible.
John: I want to end this by making this comment. I commend them for listening and getting the information. Knowledge is power. So we're told. But that's not totally accurate. The use and acting on knowledge is power. So take advantage of that 30-minute call or come sit down with us, and have a cup of coffee. And let's see if we can help you.
April: Thank you guys. Have a good afternoon.
John: Goodbye.
April: Bye now.
Voiceover: The Social Security Administration has not approved, endorsed, or authorized this presentation. There is no charge to attend this event and there are no charges for subsequent consultations. Contact the Social Security Administration for complete details regarding eligibility for benefits. 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 opinion stated or their own. April and John are registered representatives and financial advisors of Park Avenue Securities, LLC. Address 3664 Coolidge Court, Tallahassee, Florida, zipcode 32311. 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 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.
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