There is so much wrong and misguided information – not to mention confusion – out there about social security. As a result, people make bad decisions that sometimes can be very hard to recover from.
We tackled the most common questions about social security, how it affects retirement planning, and what you should be doing now to prepare for a happy and healthy future with a steady income that meets your needs.
These are decisions you can’t put off any longer because what you do now will affect your social security benefits for a lifetime.
Tune in to find out…
The basic calculation that determines your monthly benefit
Balancing income tax with social security – before and after you start collecting
The biggest mistakes people make with their social security – and how to avoid them
The earliest – and latest – you can collect social security – and why you might wait
The regulations regarding working while simultaneously collecting social security – and how much you can earn before you start to incur penalties on your benefits
Listen now…
Mentioned in this episode:
Transcript
April Schoen: Hello everyone, and welcome to another episode of a Secure Retirement Podcast. This is April Schoen and I'm sitting here today with John Curry.
John Curry: Hey April.
April: I turned the tables on John today. I've got in front of me a list of frequently asked questions that John and I go through with our clients when we're talking about social security planning. These are the most common questions that our clients have for us on how did they plan for social security in their own retirement planning. So John, are you ready to get started?
John: I am. But before we do that, I will take a moment and explain to everyone your background, because you're very knowledgeable in social security retirement planning. You've learned a lot, you've been helping a lot in our class. So just share your background, please.
April: Thank you for that. So for me, I started in financial services back in June of 2010. So a little over nine years ago, and I joined John Curry's team here in North Florida Financial about five and a half years ago. My focus has primarily been on retirement planning, especially for members of the Florida retirement system. That was my experience with the other firm. And then also continuing on working here with John. So it's one of the things that I love doing is helping our clients prepare for retirement and as they're getting ready to step off into this new adventure.
John: And obviously, for me, for those who know me, it's important to me because I grew up in a state employee family. My grandfather worked for the state of Florida Department of Transportation out of the Phoenix Springs, and my dad worked with the same office. And every morning or day, they would get up and ride together to work with a local friend too. So I grew up understanding that environment, and then later discovered, April, that people were getting either no information or misinformation of how to coordinate the Florida retirement system and social security and Medicare and how do you take money out.
So all these issues got me to the point of where I have a passion, like you, of helping members of the Florida retirement system. We have other clients who are business owners, doctors, lawyers, Indian chiefs. So we have people across the spectrum, but our number one focus is helping people with retirement income planning.
April: Right. Agreed. Yes, very good. Alright, so let's get started and dig into some of these questions about social security.
John: Very good. And I like it to be where we have a conversation about it, instead of just me hogging the mic. Let's just share it together. So as we're going through this, folks, April may jump in, I may jump in. And if we step on each other, we'll just back off and let everyone finish their thought.
April: Sounds good. Okay, so let's just kind of start. I want to start with some of the basics around social security. So how do you qualify for social security benefits?
Qualifications for Social Security Benefits
John: Well, the short answer is you have to work for 10 years. You have to have what they now call 40 credits. So then that's basically working four quarters out of counts for a year. So 10 full years of working and you and your spouse would qualify.
April: That's right. So if you have earned your 40 credits, or you have 10 years of working history, then you and your spouse both qualified to receive social security benefits, retirement. Correct. Okay, and how are benefits calculated?
John: Well, this came up just recently, and in fact, last week, because the guy was asking about this. And it's based on the average of your highest 35 years. And if you only have 30 years of working, then they're going to plug in zeros to make up those. And when he realized that, he said, Whoa, wait a minute. So it's going to behoove me to work another five years. I said well, based on your income level you're earning now you're making the highest income you've ever earned?
The answer is yes. And then he wanted me to calculate for him how much of a difference it would make and I said I can't do that. Social security can do it for you but I don't know how to do that. And I would be concerned it I'd be incorrect with the numbers anyway. So if you are in a position of where you're not sure, then by all means, ask them to do an audit for you and give you an estimate of your benefits.
April: Good. Okay, and when can I start collecting so security?
John: Well, the earliest you can collect it is age 62. As far as retirement benefits. Now, if you're a widow, you can start collecting at age 60. But that's a different topic. But as far as retirement benefits, the earliest I can collect it is 62. You can delay until full retirement age. We'll get into that later. And then you can leave and farther out to age 70 if you want to, but the earliest you can get it is 62.
April; Okay, very good. And on your full retirement age, how is that determined?
John: The short answer is based on how old you are. Really is based on your birth back in the 80s, when social security went through a radical change. They changed it up. So instead of some people still think that full retirement age is 65. We see that a lot, but it's not. If you were born after 1943 through 1954. Its age 66.
If you were born after 1954. So as an example, 1955, it would be 66 in two months. So for each year thereafter, you have two months. Why they did that, I have no idea. But at age 55 it's 66 and two months, then it goes 66 and four months, 66 and 6, 66 and 8, 66 and 10. And then voila, 1960. And later, it's 67. So what I just tell people is, if you were born, after 1954 it's going to be 66 and something if you're born after 1960 is going to be 67.
April: Age 67. Good. Yes, and that makes it a little fun from a planning standpoint. But determining when your retirement age is, I was just working with some clients last night and you know, that's and his was 66 and eight months. And then hers was age 67 was her full retirement age. So trying to work through some of those things.
John: Yeah, I never talk about social security here. But let's talk about where this fits in. See social security in and of itself as a good benefit, but if you're guilty of looking at social security as a standalone micro, and you don't incorporate it in a macro planning process of some kind, I'm afraid you might make a bad decision.
Some people should take it at 66. We'll get into that later, full retirement age, some people should wait to 70. But unless you have a dynamic, ongoing picture of what retirement looks like to you, I know in our case, we do what we call a retirement reversal. So people can see what happens, but they get 62, 67 or 70. And our clients are able, we can toggle on and off and I can see that.
April: Exactly. The client I was working with last night, his original thought process and we're going to get into this little bit later, was who takes us good at age 70. I said, Well, can we look at the alternative? What if you take it at 68 when he plans to actually retire? It's only two years. So some people may say that's not a huge difference in either benefits or how that's going to affect your overall plan. But we were able to walk through and show Okay, well this is what happens if you were, when you retire at age 68 and you take social security versus delaying it to age 70.
John: And that's a good point. Just because 66 or 67 or 70 doesn't mean you can't take it in between. Some people should take it at 66. I did. I took my benefit. I was 66 on December 9 of last year, I started my benefit in January, and also 2pension checks coming in. So on paper, I'm retired. But as you and I both know, I'm not retired by any stretch of the imagination. I'll be like George Burnsn still working when I'm 100 years old, but doing it on my terms.
But I think that the correct answer for people is if you don't need the money, delay it. And we'll talk later about why that's beneficial. But if you in my case, I don't need the money. But I chose to take the money because of the time value of money. I want the money today. And I'll tell you, this is not part of our questions but I'll tell you what I'm doing with part of my money. I'm spending on my grandkids. I'm doing things now. And then somewhere in your questions. I saw that second. We'll come back to that one later.
April: Yes. Okay, well, let's get back to some of the most common questions we get about social security. What is John, what's the average monthly social security check?
John: $1461, as reported by the social security website. That's not a lot of money. But on the one hand, there are a lot of people out there in this country, that's all they get. One of the reasons I'm obsessed with helping people with retirement planning is when my grandfather retired the state of Florida, he took option one, and he had social security. That's all he had. When he died, option one died with him with the state pension plan.
All my grandmother had for the rest of her life, another 26 years, was social security. So my dad and my uncle had to help support their mom. And just, he had no life insurance. He didn't believe in it. So he left her a fixed. Now the good news is there was no debt. But you start looking at those checks. That's why I said if you look at it from the macro standpoint versus macro, you might make some bad financial decisions.
April: Right. Yeah, definitely. Okay. And if someone wanted to look at their own earnings record, and to see how much they would receive on their own record, how would they go about doing that?
Keeping Track of Your Social Security Benefits
John: Well, the easiest way is just go to the social security website, and go in and set up your own personal account. And I'm gonna defer to you on that in a minute. Because you're more comfortable doing stuff like that than I am on the computer, although I did mine. But another way that I like to do, I've been to the social security office on two occasions.
I thought the ladies, the two ladies who helped me were very nice, very professional. I found their knowledge was pretty good. When we got into some of the more complicated stuff, they had to get back to me. One of the things that she said, You know, this inside out, don't you? I said not inside out, but I know it pretty well because of learning and studying it. But either get on the website or go to the local office and sit down with someone and get help.
April: The website, which you go to ssa.gov to create your own login and go in. You can take a look at your statement. Social security used to mail a statement. And so now you can go online and see them. And on your statement, it's going to show you if you take so security early at 62 what your benefit would be. It's going to show you what your full retirement age is and how much your benefit will be.
And it will also show you what your benefit will be if you delay at age 70. So very importantly, those are the three numbers that we look at when we're doing our planning with clients. And now the client I was working with last night, he was able to also go on to social security, use some of their calculators and project how much his actual benefit would be at age 68. We are pretty close in our estimates of that. But he was able to fine-tune that number on their website.
John: Yeah, let's give kudos to the social security administration. They've done a good job of updating their website from time to time. But also you go there and get the trustees report, which tells, they're very candid and frank about the threats to social security going forward. And I would encourage everyone listening to this to go in and read that report. Some of it's dry, I'll admit that. You and I are kind of geeks about this because we love it.
But folks, there's some good information on there. If you just take time, just go in occasionally and just kind of cruise through the website and just bounce around, you'd be shocked at what you learn. And if you don't want to do that, that's okay. That's why we do webinars and full-blown seminars on social security. And every client that we work with, we go through social security, Medicare, retirement income playing, we look at all that.
Because that's part of your plan. It's not just okay to invest in an IRA or 401k, or a deferred comp, or 403B, and think that retirement is done. It has a lot of moving parts. It's like a beautiful Swiss watch. There's a heck of a lot of wheels grinding around and got to make sure they're all working together.
April: That's right. Yeah. And today, we really wanted to cover basics and some of those frequently asked questions that we receive. When we have our seminars there are at least an hour and a half, sometimes two hours long on the topics, going into much more detail.
John: I'm gonna pick on you for a minute here. When April got the idea of doing this, we decided it made sense to take content that we've had. But do it in a manner of where you're busy. We know that keep it short and sweet to 15 to 20 minutes to give you an overview. Hopefully, what we're doing here, April, is getting people who are fulfilling their appetite to learn more. Because we see people who waited till it's too late. We still help them. But if they had done some planning, at least thought about it and got a plan of action when they got closer to retirement, those decisions would have been easier.
April: That's right. I agree. Good. One of the most common questions, John, that we get is can you work and collect social security at the same time?
Is Working While Collecting Social Security Feasible?
John: And you know, my smart-alec answer is yes, of course you can. But you might not like the end result. But yes, there are rules around it and I think that's where you're headed with this question here. And that is what are you allowed to do income-wise. Is that what you're talking about here?
April: Yes.Yes.
John: The short answer is yes, you can. If you started at age 62, and collect social security, first of all, you're getting about 75% of the full benefit. And if you earn more than $17,640, then you're going to lose $1 for every $2 over that limit. I keep it simple and tell people if you earn over $18,000 a year, then you may not want to take social security at age 62.
Now we know people who will continue to work and they'll collect their social security because they say I'm not going to work more than I have to hurt my benefit. But the short answer is you can do that. And in my case, because I'm 66 full retirement age, I can work as much, earn as much as I want and not have any type of penalty.
April: Yes And that was my next question. At what point can you have unlimited income and still collect so security?
John: Well, you know, at our seminars we have people will tell us that was a trick question. You want to tell them about that?
April: Yeah. So we, it really comes down, it comes back to this your full retirement age, but not just the year in which you turn your full retirement age. Social security actually calculates it based on the month that you turn your retirement age. So we do throw a trick question out there in our seminars.
John: And the answer is this, December 9th last year, I turned 66. So in the month that I turned full retirement age, I could earn a billion dollars that month and have no penalty. But if I earned that billion dollars at any other time during the year, and I took some security, that'd be penalized. So the key is full retirement age folks, you can earn all you want in the month that you reach full retirement age.
April: That's right. Good. And we've already gone through some of the earnings limits. We won't spend too much time on that. But just know, if you're under for retirement age and still working, you will have, you could see a reduction in your benefits if you earn more than as John mentioned around 18,000 per year, and you're collecting social security.
John: You know one thing we didn't cover though is, what if you're in that gap? What if you're, what if you're not in the month of your full time of day and you did it center. If you earn over $46,920 then you would lose $1 for every $3 you're earning. So someone might find themselves, I'm thinking of someone right now.
They retired, started collecting social security, but then she was given a heck of a job for 18 months doing computer software work for the state of Florida. They wanted her so badly. This was years ago. So badly they paid her 150% of what she was earning as a salary. She said I've got to come out of retirement for that. I said I don't blame you. And back then it didn't impact her pension so she could do it. And she used that money, saved it invested it. And that's how she took a lot of travel.
April: Oh, that's good.
John: A lot of traveling right up right up until the day she died. She was still traveling.
April: That's great. And speaking of trick questions, I've got another trick question for you. Aat what age do you stop paying taxes on social security?
John :Well, I gave you another smart-alec answer. Never. Because when you collect social security, it is subject to ordinary income tax. So if you have an income that's high enough to qualify for income tax to be paid on, then you have to pay tax. Now, this is a trick question in this sense. Now with a standard deduction being double, the first 24,000 of income for a couple is not taxed. First 12,000 for an individual. So if you're like that person who is just getting the that's the average of 1400.
Now, that means a lot of people getting less, but if you're getting $1,000 a month from social security, and that's the only income you have, and you have a $12,000 standard deduction and you pay no tax on that. But very few people we see are in that position. And then there's another issue too that people don't think about, and that is the payroll tax. You have to pay social security taxes and a wage base, which is now big. It's $132,900. Medicare has no cap on it. If you earn $2 million you have to pay tax, Medicare tax. But social security is capped at 1329. It was not that way for a long time.
And now it's index it keeps going up. So the tax amount percentage doesn't go up, but the amount they tax goes up. I remember asking Senator Graham one time about that on a flight back from Atlanta. I said, Why do you guys keep raising the taxes on social security? And he smiled, he said, Now, you know, we've not raised the tax rate at all. I said I know that. But you're raising the limit. The income limit, therefore, I'm having to pay more tax on all of my clients. But that's the way it was set up by Congress back in the 80s. And they, by the way, most people don't know this.
Because there was no promotion big time in the media about the changes. That's when we started having to pay taxes on social security. That's when there was the income limits imposed. A lot of things happen there. That's when the 66 and two months etc. started back in the 80s. When Ronald Reagan pushed Congress to make changes. It was way overdue. Didn't go far enough and they were probably too lax. If I hat ran social security, no one, no one would ever get benefits before 65 or 66. There'll be no 62 unless somebody is disabled, but that's a different benefit.
April: Different topics. Right. Good. Okay. I'm on to another common question that we get, John, is how do spousal benefits work? So if you are married, and if one of you qualifies for social security benefits, then your spouse also qualifies for a spousal benefit.
Spousal Benefits
John: Okay, let's take the most simple one first. In my case, I'm divorced and I was married for years, so on paper for 41 years. So she did not work outside the home very much. So her benefit was very small. So she is collecting one half of my benefit because one half of my benefit is greater than hers. Now, the way it really works is she's still getting hers. And they just simply add to that, so that she's getting half of mine.
April: Right. So for example, if your benefit was $1,000, then her spousal benefit would be $500 per month.
John: That's correct.
April: Okay. Following up on that, what happens when one of you passes away?
John: Now that's an interesting question because many people think that the surviving spouse only continues to get one half. Not accurate. In that case in the event of my death, instead of her collect the 500, she would get 1000.
April: She gets the higher of the two.
John: That's correct.
April: Very good. Okay. And what are, so we talked a little bit earlier,
John: By the way, we'll keep on that, because I've heard people talk about the widow's benefit. It's not just a widow, it's the widower also. So if the roles are reversed if mine were lower and hers were higher, if she died, I would collect her benefit. So as a widow, or widower benefit, want to make sure we're clear because I've had men say, I don't qualify, and I go, Yes, you do. No I don't. I'm not a widow. And I've actually had people get who did not know they qualify. Sent them back to social security and they got back pay.
April: Good. Okay, and we talked about this a little bit, but how are social security benefits taxed?
John: Well, the short answer is up to 50% or up to 85% of your benefit is considered to be ordinary income, and you add it to what other income you have. And when you do your taxes it's just added together. So it's based on an earnings cap. We can get into detail if you want to, but it gets complicated. Rather not do it on this. But just basically, if you are at a certain threshold is 50% of your benefit is determined, considered to be taxable income. If you're above another threshold, then 85% of it is treated as ordinary income.
April: Very good. And yes, we do go into more detail about that in our webinars and seminars.
John: Yes, and one on one. So I would encourage people to participate in all three of those.
April: Good, okay. And so we've talked about your options for taking social security. You can take it early at 62, you can take it at your full retirement age, which is determined by the year you were born. And then you can also delay to age 70. What are the benefits of delaying to age 70?
John: Well in my case, at age 66, had I waited until 70, I would get an 8% increase each year I delayed. So at age 70, my benefit would be four times X 32. 32% higher. So why would I do that? If I'm working, I don't need the money, then that might be a good way to increase my benefit for the future. There's another reason to do it. We see some people who either did not have life insurance or canceled it when they retired.
If they don't have life insurance or adequate, then this is a good way to provide a higher survivor benefit like we talked about a moment ago. Because if I did not have life insurance, in my case, I have a lot of it because I believe in it. But if I didn't that I definitely would have delayed. So that then when I die, there's a higher survivor benefit.
April: Yes. Very good. Okay, and probably the most common, this is the last question we're going to talk on, discuss today. And it's probably the most common question that we get. So when should I take my benefits? Should I take it at 62? Should I take it at my full retirement age? Or should I wait till age 70?
Is There a One-Age-Fits-All to Start Collecting Benefits?
John: You know, I got a wise-cracker answer. Whenever you want to start spending the money. It's also the same answer I give when people say, well, when should I start taking my retirement benefits? From IRA? 401k? Whatever. I don't know. What do you mean you don't know? I don't know. When do you want to spend it? Do you want to go enjoy the money now? Or do you want to leave it behind so someone else can enjoy it? So these trips you keep talking about taking, why don't you take your social security benefits, and start funding some of those?
In my case, a large portion of my social security benefit goes to pay life insurance premiums. I just thought of something pretty cool about taking a benefit each month and letting it funded my life insurance, which creates a big chunk of money coming in tax rate for my family, right for my kids, my grandkids and great-grandkids. I just thought that's pretty cool. That's some of it frankly, I just spend it on my grandkids, and great grandkids. So it really comes down to what are your other sources of income? What have you accumulated? Have you done a good job of saving?
Good job of investing? Have you done a good job with your planning? And I would tell everybody that listens. I don't care where you are at this point in your financial life. Sit down with someone, it could be us, someone else but sit down and get some guidance in coordination of distribution planning. You've done a good job probably of saving money, earning money. That's just part of the ballgame. There's a second half. I was watching a football game last night. And it was amazing. came down to one point. And I was back and forth back and forth between just went blank on the teams now,
Oh, the Raiders and, no, excuse me Houston Texans and the New Orleans Saints. And the game is not over until it's over. So in that second half of life is called the distribution side. So really, that's the long answer. I know that if you don't have other benefits to help you, you may be forced to take social security at an earlier age than you want because you may need the money. But on the other hand, you may be able to plan and delay it all at age 70 if you want to.
April: Yes, and it like we talked about earlier. It depends on are you still gonna be working in some sort of capacity in retirement? How's your health? Yes. Do you have life insurance? Or again, back to what you were mentioning about delaying so that your spouse has a greater benefit? Those are all the things that we look at when we're helping clients decide when to take social security.
John: And you may not have life insurance, but you may have other assets. That point you've determined, you decided by choice, I'm gonna let my assets my savings account, my CDs, my 401k, my IRA, my 457 plan, my Roth IRA. So you're making that serve the role giving you income and the spouse's income. And that's okay, that's what you do, as long as it's a conscious choice. But again, our plan is to look at everything and say okay. Were you aware of this? Or you're aware of this? And then put all the pieces together.
April: Yeah. And I like in our planning too with a look at the different options and say, Okay, here's what it looks like we can show people. Here's what retirements going to look like if you retire at 66, 68, 70, 62. Whatever the situation is. And we can look at each individual situation.
John: We test drive it. You wouldn't buy a car without test driving it. Although I should say that I bought two cars without ever driving it. But usually, you would not buy a car on a test driving it. And that's what we go back full circle to what I said earlier about the retirement rehearsal, where we can sit down and so which is better, clicking on 62, 66 or 67, or 70? Let's take a look at it and see what it looks like.
April: That's right. That's one of the most enjoyable parts I think of what we do, John, is I love working with clients and showing them what retirement looks like. And helping them realize they can retire today if they wanted to.
John: Absolutely. It's powerful. And you're bringing, you're helping reduce the stress that a lot of people have, let's just be honest. A lot of people, unfortunately, don't like their work. They don't like the fact that they have to go to work. You and I are blessed. We love what we do. We love our clients, we got a great team we work with. It's not a burden. It's not a chore to go to work. I have to remind myself to unplug and go home or go do something else and take those trips that you keep pushing me to do. And free the mind a little bit. But I think we're blessed. And we get to do something we enjoy doing with people we enjoy doing it with and you know, life's good.
April: It's very good. Well, John, thanks for taking the time today to go through some of these common questions that we get on social security. I hope everyone listening to this found this helpful and impactful.
John: I enjoyed it. And by the way, we have a seminar this evening we're going to be doing and I hope that people will come join us for some of our live events. I think you'll learn a lot and it's a lot of fun. But thank you for having the conversation with me because this has been different and I like it. So thank you for turning the tables on me.
April: You're welcome.
Voiceover: If you would like to know more about John Curry's services, you can request a complimentary information package by visiting johnhcurry.com/podcast. Again that is johnhcurry.com/podcast. Or you can call his office at 850-562-3000 again, that is 850-562-3000. John H. Curry, chartered life underwriter, chartered financial consultant, accredited estate planner, Masters in science and financial services, certified in long-term care. Registered representative and financial advisor of Park Avenue Securities LLC.
Securities products and services and advisory services are offered through Park Avenue Securities, a registered broker-dealer and investment advisor. Financial representative of the Guardian Life Insurance Company of America New York New York. Park Avenue Securities is an indirect wholly-owned subsidiary of Guardian. North Florida Financial Corporation is not an affiliate or subsidiary of Park Avenue Securities. Park Avenue Securities is a member of FINRA and SIPC. This material is intended for general public use.
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