00:00:00
The break even point claiming early versus full retirement age versus all the way till 70 is usually right there around 79 to 81. That’s where all the lines sort of converge. Well, average life expectancy is much longer than that these days. >> Peter, so good to see you. Welcome back everyone. A really popular topic today. We are talking about claiming so social security at 62 what you’re really giving up. So starting benefits early of course sounds appealing but the trade-offs can
00:00:36
be bigger than people expect especially if you’re a high earnner. So Peter, a lot of people think they can claim social security early and invest the checks. I’ve heard that a lot. Why doesn’t that strategy work as well as it sounds on paper? >> Well, we need an income. So under the premise of that thought, we would be working at the same time to provide the income that we need to live off of as well as in addition collecting social security thinking that we would invest those checks. But the reality is that
00:01:08
that does not work as effectively as a lot of people think for numerous reasons. Number one, the penalty for claiming early and working, which I’m sure we’ll get into some details on that. Number two is that you’re locking in a lifetime of lower benefits and one day you will stop working and you’ll need to replace the income. Well, if you’ve made the decision to claim and collect Social Security early when you didn’t really need the income, if it’s a necessity, that’s one thing. But if
00:01:37
you’re capable, able-bodied, and still working, and didn’t really need the income, well, now you’ve locked in a lifetime of lower income, and as a result, we’ll have to draw more from your savings and investments. And over the course of a life expectancy on average, we’re going to more than eat up the additional income that we would have received from Social Security during those years. uh you’re giving up more tax-free income because only 85% of your social security is taxable. So 15% of it
00:02:09
is taxfree. If you lock in a lower benefit, that means that less of your income is taxfree. Also, the same cost of living adjustment on a lower dollar amount is less dollars. So, as the years go by and we get these cost of living adjustments that are supposed to account for inflation, your benefit will receive less of a pay raise for you. So, numerous reasons why you probably should not rush out and claim social security early if it is not a necessity, >> right? Because the longer you delay, at
00:02:43
least you get a guaranteed increase as well. Can’t do that with the market. >> No. And you’re right, you cannot do that with the stock market. rather unpredictable what the increase is going to be there. But with social security, it is guaranteed and you reduce your benefit by uh about 30% if you claim early and then every year you wait past full retirement age. It’s an 8% guaranteed increase in your social security benefit amount. So yeah, you cannot guarantee that uh with the stock
00:03:12
market, Aaron. >> Okay, so you touched on the earnings test. Let’s dive deeper into that. Uh walk us through the earnings test. How does the $1 for every two rule affect someone who’s still working while claiming social security? >> Well, again, if you claim and collect early, not out of necessity, meaning you are working and earning in income at the same time, but choose to go out and claim your social security before full retirement age for every $2 that you earn over the earnings limit amount. And
00:03:46
this year that is $24,480. For every $2 you earn above that, they take back a dollar of your social security as a penalty for double dipping essentially in the government’s eyes. Now, that stops when you do turn full retirement age. But in the year that you turn full retirement age, there might be some time before that. And you still have an earnings test the year that you turn uh your your full retirement age, which means if you’ve got an early birthday in the year, maybe not a big deal. If it’s, you know, in the first
00:04:20
half of January, but if it’s a later in the year, certainly the the potential for earning more even in the year that you turn your full retirement age. So, we got to be careful about that. And sometimes it makes sense, you know, I’ve even seen cases where we wait until the next full calendar year before claiming just to avoid this penalty. >> Right. Okay. So, you were talking about kind of percentages uh and what you give up a second ago. What is the real cost of claiming at 62 versus waiting until
00:04:50
full retirement age or of course even 70 if you’re able. >> Well, it it is a reduced benefit. You reduce your benefit by about 30% when you go and claim at 62. Now, every year that ticks by, the the decrease is a little less impactful. But again, you’re locking in a lifetime of lower benefits by making this decision. And that’s your personal benefit. That’s only you. You made that decision. Well, what if we take Social Security at face value for what they’ve been telling us for a
00:05:23
couple decades here and the system systemwide has to also reduce benefits in 2033 like they say and and we’ll only pay out about 77 or 75 cents on the dollar. Well, now we are reducing an already reduced benefit. And so this really could have big impacts not only on you individually because you made that decision but doubling down if the system has to subsequently reduce benefits as well. But I mean there’s there’s numerous reasons here. Again part of social security is taxfree. Wouldn’t we want more tax-free income?
00:05:59
The break even point claiming early versus full retirement age versus all the way till 70 is usually right there around 79 to 81. That’s where all the lines sort of converge. Well, average life expectancy is much longer than that these days. And so every year that you pass that point of convergence, it’s more profitable to have waited and delayed on your social security. Now, I’m not necessarily saying everybody should wait till 70. In fact, that’s not the case. Not everyone should wait till
00:06:32
70. Not everyone can. I think that social security is an effective tool that we should use and use it effectively. It would be to protect your personal wealth and personal assets as best as possible. Uh keep keep your money going as long as you you would need it to. >> Right. One of the reasons I always enjoy speaking with you, Peter, is because you’re always thinking about the whole family, right? also legacy, but specifically with family and for those who can wait until 70, can you explain
00:07:01
how claiming early affects your spouse, particularly when it comes to survivor benefits? >> Sure. Well, all these pieces fit together, right? We’re making decisions at 62, 65, 67, 70 that ultimately impact us for life all the way through our 80s and into our 90s and not even just through our lives. It echoes through the lives of our spouse and our children and our beneficiaries. So these are big decisions that again play into that lasting legacy that you will have. The the the legacy that you create for your
00:07:35
spouse can be impacted pretty significantly by your decision on social security. Between two two people, a married couple, you receive two social security checks. But if one person out of that couple passes away, the survivor only gets one social security check. One person, one check. They do bump up to the higher amount from between the two spouses, but they would lose as little as one/ird to as much as 1/ half of their social security income and what is known as the widows penalty. Simultaneous to losing that income, all
00:08:13
of the thresholds for our tax brackets also adjust to single head of household, meaning the brackets, the bracket level thresholds move down, meaning that surviving spouse actually probably bumps up, paying higher taxes. And your Irma levels for your health care, your Medicare premiums also adjust to single. And so that surviving spouse also might end up paying more in Medicare premiums. So it’s there’s numerous reasons why you need to think through this decision and again all of these pieces are
00:08:47
interconnected and that’s why we try to bring them all together when we put together that optimized retirement plan for our clients at Rashan Planning. >> Right. And again talking it through. Clearly this is a puzzle all different sized pieces and it’s going to be different for everyone how it comes together. So, Peter, if somebody would like to talk through when they should claim social security and how it fits into their retirement income plan, what’s the best way to reach you?
00:09:12
>> Well, as you said, Erin, a a wildly popular topic because it applies to almost everyone. Uh, everyone is going to go through this question, but not everyone puts some time into understanding this, right? We’ve worked for 30, 35 years to build up these benefits. It’s worth 30 35 minutes to really understand how you could be impacted by the decision that you’re making and educate yourselves on it. And that’s why again it is part of the plan that we put together. And if you would
00:09:41
like to get that optimized retirement plan or even just look at your social security, we got some great calculators that that will help you arrive at a good conclusion on that and begin to incorporate the rest of your financial picture and your goals. So, if you would like to take advantage of that, uh, no cost, no obligation. It’s a courtesy service that we offer at Rashan Planning to do the social security optimizer and put together that optimized retirement plan. Give me a call 919-30005886-9193005886.
00:10:12
You can also go online, rashplanning.com. It looks like rich onplanning, my last name, rashplanning.com. You can email me, peterranplanning.com. You can also text your name, by the way, to that number if you if you want to just get in touch uh with a with a text. Text your name to 919-30005886. Important topic though, Aaron. >> Absolutely. Peter, thank you so much for your time today. I really appreciate it. >> Always good seeing you. >> Hey folks, Peter Rashan here with Rashan
00:10:46
Planning. So glad that you are enjoying the podcast Planning Matters Radio. You know, one of the tools that we’ve put out there that people really seem to appreciate and really are are finding of value is at 919 retired.com. It is your retirement tax bill calculator. If you’ve got any kind of retirement account, your tax deferred 401k or IRA, this is the website. This is the resource where you can go, you can plug in your own numbers, your information. You can slide the the the tool calculator up and down for your tax rate
00:11:23
or your amount of savings and see what your tax bill is likely to be if you default and defer to the IRS’s plan versus what you could potentially bring that tax bill down to. A lot of times it is a very significant savings. So, if you have not yet, go to the website 919retired.com, run your numbers on the retirement tax bill calculator. This has been planning matters radio. >> The content of this radio show is provided forformational purposes only and is not a solicitation or recommendation of any investment
00:11:59
strategy. You are encouraged to seek investment, tax, or legal advice from an independent professional adviser. Any investments and/or investment strategies mentioned involve risk, including the possible loss of principal. Advisory services offered through Brooks Zone Capital Management, a registered investment adviser. Fiduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under
00:12:22
management while insurance products pay a commission which may result in a conflict of interest regarding compensation. Peter Rashan and Rashan Planning are not affiliated with nor endorsed by the Social Security Administration or any other government agency.
