How and when to Collect Social Security is one of the most important decisions you’ll make about your retirement. But with more than 2,700 rules governing your benefits, it’s easy to make costly mistakes. In this 45 minute digital workshop, you will learn all about how Social Security works, and how to make the most of your Social Security payments. An open question and answer session follows the presentation.
Andi: Please welcome your presenter, Allison Alley, CFP®, Allison, how are you today?
Allison: Hi, Andi, I’m great. How are you doing?
Andi: Very well. Good to see you. Thank you so much for this. I can’t wait to hear all about how we can make the most of our Social Security benefits when the time comes.
Allison: Yes, absolutely. Lots to get into today, but why don’t we go ahead and start it off with a poll. Andi is going to throw up a poll asking, “How far away are you from retirement?”
Andi: All right, so that poll is on screen right now. There’s a little bit of a delay between when we say things and when you see it happen on screen, so it might take a couple of seconds. Your options are: you’re already retired, less than 5 years from retirement, 5 to 10 years, 10+ years or uncertain which would be understandable given how uncertain things are right now? I’m going to leave this poll up for 5, 4, 3 2. As I mentioned, there’s a little bit of a delay, so when you see the poll go away might not be at the same time as I say it. If the poll goes away before you have a chance to enter your answer, you can just go ahead and type into the chat.
I’m going to end that poll now! 44% of our audience is already retired, 36 % are less than five years from retirement, 12% are 5 to 10 years, 4% of the audience are 10+ years and 2% say that they are uncertain.
Allison: Well, only 2% uncertain. That’s pretty good. That’s helpful information as we dive into this. We’re going to get into Social Security strategies, the history, the background and different ideas and things you can take advantage of to try to get the most out of Social Security possible.
If you have questions as we go, as Andi mentioned, feel free to put those into the chat and we’ll get to those when we can. In addition, we have a Social Security handbook. There will be a link to that in the chat as well. If you want more in-depth information, feel free to request that and we’ll get that out to you. All right, let’s get into it.
Allison: Let’s start with the history of Social Security. Social Security was written into law back in 1935. It wasn’t until a couple of years later that payroll taxes started to be deducted to start funding Social Security. Originally, you had a choice of taking a lump sum or a monthly income stream. In the beginning, everybody chose the lump sum. The first person to get a lump sum was good old Ernest Ackerman. He received a lump sum in 1937. He had paid in $0.05 and received a $0.17 lump sum distribution. A couple of years later changed and they started having it be an income stream only. There were no more lump sum options.
The first person to start getting a monthly income stream was Ida May Fuller, and she had paid into Social Security for 3 years – 1937, 1938, 1939, a total of $24.75. When she started receiving her monthly income stream. That first check was for $22.54. By the time she got her second check, she’d already gotten everything back that she had put into the system. Over her lifetime, she ended up collecting almost $23,000, which is a 92,000% return. Some things have changed since then. Obviously, no one’s getting 92,000% return on their Social Security contributions.
Let’s get into how Social Security’s determined and how it can play into your situation. Many people are going to have three different parts of their retirement. They will have their Social Security income, they might have a pension. Those are becoming less and less common, fewer and fewer companies have pensions these days. More of their retirement savings is on you as the employee, as the individual. That’s where the personal savings comes into play. You might have a 401K, an IRA, non retirement investments, stocks, bonds, mutual funds, et cetera. Really taking a look and seeing what you’re going to have in retirement and how these three or only twfo or maybe even only one thing is going to help you build and map out that retirement.
What goes into determining what you’re entitled to in retirement? The benefit factors; your age, your current and future and past earnings, your spouse’s earnings, whether or not you have been widowed, if your spouse has passed away, whether you’ve ever been married, whether you have a disability or if you have a pension. Your pension income can also impact your Social Security benefits. Understanding how all these things play together is what’s going to determine that future benefit that you’re entitled to.
A couple statistics here. 9 out of 10 people, age 65 and older are currently receiving their Social Security benefits. For 21 % of married couples and 45% of those that are unmarried, Social Security actually makes up 90 % or more of their income in retirement. It’s really important to understand how those benefits are going to be calculated, what you’re going to be entitled to and what you can do to make sure you’re maximizing getting the most out of Social Security possible.
Let’s get into the rules for your Social Security benefits. There’s a few different acronyms or phrases you might have heard of before. Full retirement age is often referred to as your FRA.
That’s the age at which somebody is entitled to their full unreduced retirement benefit. Your primary insurance amount or your PIA. That’s the amount that you’re entitled to at your full retirement age. If you take it early or later, the amount you’re entitled to would change. But the PIA, that primary insurance amount, is the full amount at your full retirement age. Then the SSA, the Social Security Administration. That’s the entity that runs Social Security. You might have also heard the FICA tax referred to. FICA taxes are the Social Security and Medicare taxes that are withheld from your wages while you’re earning and that goes into all these calculations.
Collecting your benefits and calculating what you’re going to be entitled to. Your full retirement age, again when you’re entitled to 100% – that unreduced amount, is determined by your year of birth. It’s anywhere, currently, from age 66 to age 67. It might be 66 and two months, four months, so on and so forth, depending on your year of birth. If you take Social Security early and you could start as early as age 62, you will get a reduced amount. This is showing you the %age that you’d be entitled to at that time. If your full retirement age is 66 but you decide to start at 62, you’re going to get 75% of that full retirement age amount. If your full retirement age is 67, you take it at 62, you’re going to get 70.83%. Even a lesser percentage, because your full retirement age is a full year later. Making this decision, deciding when you’re going to take your benefits. Whether it’s worth it to wait. Whether it makes sense to start early for a reduced amount really depends on what all else is going on in your life.
Here is what the Social Security statement looks like. You can go to www.SSA.gov. That’s the Social Security website. Create an account and pull your Social Security, your most recent, your current Social Security statement. What you’ll find here is several different things. At the top it’s going to show you those retirement benefits. It’s going to show you what you’d be entitled to. It’ll show you number one, your full retirement age. But in addition to that, it’ll show you what you’re entitled to at full retirement, at 70 and at 62. While we just talked about the fact that your benefit gets reduced if you start it early. It can also increase if you decide to wait and take it later. In addition, this shows you what your benefits are based on.
On the left hand side, that’s where you’ll see your earnings record. This shows you every single year that you’ve had earnings that were subject to Social Security tax. Your Social Security benefit is calculated by taking your highest 35 years of earnings history. That’s what’s put into the Social Security calculation to determine that PIA at your full retirement age.
We’ve got another poll. Andi, if you would go ahead and throw that up. We have a poll that’s going to ask you when you’re anticipating taking your Social Security benefits.
Andi: I am publishing that poll right now. “When do you plan to take Social Security? early? Full retirement age? Age 70? Already collecting benefits? Or you might be uncertain.”
There is a little bit of a delay. When that poll appears and goes away may be a different time than when I actually say it. I’m going to close that poll up in 5, 4, 3, 2. I’m going to give it a couple extra little seconds. If you don’t see the poll or don’t have a chance to put it in before it goes away, just go ahead and enter your answer into the chat. I’m going to close the poll up now. 9 % of the audience says that they’re going to take Social Security early. 27% say they’re taking it at full retirement age; 29 % at age 70; 22 % are already collecting benefits and 11 % are uncertain.
Allison: That’s interesting because that actually goes along quite a bit with this result. This was a poll done by the Employee Benefit Research Institute asking that same question. When people are anticipating taking their Social Security benefits. As you can see, over 72 % of people were anticipating waiting till at least 65 or later, with 32 % thinking they were going to go all the way to 70. Something to factor in is that they also polled and went to see when people actually take their Social Security benefits? It tends to be a lot earlier than people originally thought they were going to. 70% of people actually start before age 65. A lot of factors could play into that. Obviously, as we talked about, taking it early has that impact.
Here’s what it looks like. In this example, we’re assuming that somebody’s full retirement age is 66. You get that reduced amount if you take it early. If somebody’s full retirement age is 66, they take it at 65, they’re going to lose 7% of what they’re entitled to all the way down to 62. They’re losing 25% of that for retirement age.
On the other side of things, and I think why people originally think they’re going to wait until 70 is because you do get a pretty large benefit for waiting. You actually get an 8 % increase in your benefit for every year that you wait up until age 70. If you waited all the way from 66 to 70, your benefits are going to be 32 % higher than it would have otherwise been. That can make a huge difference in that income stream over time. But obviously there’s a lot of factors. When you’re trying to figure out whether or not you should take it early or wait till full retirement age or wait longer to take it. You want to factor in; are you still working? How is that going to impact things?
The longevity, your current health status, longevity in the family? If you wait to take it, you do have to live a certain amount of time longer to make up for the years that you weren’t taking the Social Security benefits. If you do, you can get a lot more out of the system, but you want to factor these decisions. In addition, are you married? What’s the age difference between you and your spouse? Which one of you can collect spousal benefits? All of those things are going to factor into when and how you decide to take your benefits.
In addition, if you are going to continue working while you’re taking your Social Security benefits, you want to factor in some earnings limitations. If you decide to take Social Security early and you’re still working, there is an income limitation. If you earn more than that, you’re going to have an additional portion of your Social Security benefits withheld. Number one, you’re already getting a reduced amount if you started it early. And number two, it’s going to be further reduced. In 2021, the income limit is $18,960. If you’re going to just have a little part time job making a couple of dollars fine, you’re not going to have your benefits impacted. But if you earn more than roughly $19,000, every dollar of benefits for $2 of earnings above that $19,000 is going to be withheld from your pay.
The year you actually turn your full retirement age. It, of course, is a different number. Let’s say your birthday is in June, your full retirement age is 66. You turn 66 in June for the first part of the year. If you’re still working, you could actually earn up to $50,000 until that penalty kicks in. Then you have $1 of benefits withheld for every $3 of earnings above that $50,000 limit for the months prior to your actual birthday and hitting that full retirement age. Once you hit your full retirement age, there is no penalty at that point. There’s no limit to what you can earn. You can be full retirement age. You can start your Social Security benefits and you can keep working full time and you wouldn’t have your Social Security benefits reduced or penalized.
Andi: Allison we do have a quick question that actually dovetails into where you are right now. Cecil would like to know “what type of income can reduce those monthly Social Security benefits?”
Allison: That’s a great question. It’s wages, earnings. Your interest income isn’t going to impact it, things like that. But if you have a job; wages, that’s what’s going to impact this limitation. Great question.
Andi: Excellent. As a reminder, if you do have questions, you can just enter them into the chat and we will get to them as we are able. It is back to you, Allison.
Allison: Perfect. In addition, I know that we have a Social Security handbook that Andi is going to have a link to in the chat. If you want more information, you can click on that. That’s going to go into a lot deeper than obviously what we can get through today.
Let’s jump into some specific scenarios with these, these real life people. We’ve got David and Carol. David and Carol are married. He’s the higher wage earner, she was the lower wage earner. They’re the same age and both of their full retirement age is 66. In this scenario, David’s full retirement age benefit is $2,200, Carol’s is $600. Because David’s benefit is more than hers. You want to look at spousal benefits and what you might be entitled to. Everyone is entitled to their own benefit based on their own earnings record or 50 % of their spouses if it’s higher. In this case, like I said, David’s benefits are $2,200, Carol’s is $600, so half of David’s is $1,100. That’s obviously more than Carol’s, so she would be entitled to that $1,100 spousal benefit at their respective ages 66. This scenario they are both going to claim at 66. He’s going to $2,200, she’s going to get $1,100. Pretty straightforward.
Let’s look at the maximum Social Security benefits. As we were just talking about, you can benefit and get a larger amount if you wait until 70 or anywhere in between 66 and 70.
That’s not the case with the spousal benefit. Regardless of when Carol files for that benefit, 66 or later, she’s not going to get more than that $1,100. There’s no benefit to waiting to file for the spousal benefit. One thing, though, the higher earning spouse does have to file and be receiving their benefits for the spouse to claim on their record. That wasn’t always the case, but they changed that a few years ago. The higher earning spouse has to actually be taking their Social Security benefits for the lower earnings spouse to take the spousal benefit. But past 66, it’s not going to increase. Taking the spousal benefit early will decrease it however.
Let’s dive a little bit deeper into how it’s actually calculated. Again, with Carol’s spousal benefit being $600 at full retirement age, here’s that calculation. She gets the $600 of her own, plus the amount of the spousal benefit to bring her up to that $1,100 maximum spousal combined benefit. If she were to take it early, her own benefit is reduced, as well as the spousal benefit. She goes from, at 66, taking $1,100 to at 62 she’d only get $800. On the other end, though, her own benefit would grow if she waited until 70. But again, because that maximum level is still $1,100 for her, the spousal chunk gets reduced down so that the combined amount is still just $1,100. That’s what I meant when I said it doesn’t matter if she waits, she still only gets $1,100. Here’s the breakdown of how that calculation works.
In addition, you want to pay attention to potential survivor benefits later. In this case, we’re assuming that Carol outlives David. If he had taken his benefit early and was entitled to $800 because he took it at 63 and 6 months and he passed away. She’s no longer going to get that spousal benefit of $1,100, but she’s going to get what he was getting.
Flip side, he waits until 70. He passes before her. She’s still going to continue his benefit, which is significantly higher. Obviously there’s no crystal ball. No one knows exactly how long they’re going to live and what this is going to look like. But you want to make sure you understand how all these things play together so you can make the best decision, with the information you have at the time.
Let’s jump into the mechanics of collecting. We’re going to look at a couple of scenarios, a couple of different ages of when Carol and David are going to take their benefits. Let’s say they decide to both start taking it at age 62. So David starts early, his is going to be reduced down from $2,200 to $1,650. In this case, we’re also assuming that David’s going to live to 75, Carol is going to live to 82, so he’s going to get his benefit of $1,650 starting at 62. He lived to 75. At that same time, Carol decides to claim her own benefit. It is reduced down, but then she gets the spousal benefit on top of that, so their combined amounts. Over their combined lifetime, this scenario of them both starting at 62, gets them a total of $550,000. With him living is 75 and Carol living to 82.
What if instead they wait until full retirement age? So full retirement age, same other information. He starts at 66. He gets $2,200. She starts her benefit at 66, she gets her $600 plus the spousal benefit. So she’s getting her $1,100. This scenario, they end up getting more combined over their lifetime. It takes them from $550,000 to $580,000.
What if they wait until 70? He waits until 70, he gets that $2,900, she gets her increased amount, but remember that spousal benefit is less because this combined can still only be $1,100. They still live to 75 and 82. In this scenario, this actually gets them less over their combined lifetimes than either of the two prior scenarios. That’s because that spousal benefit didn’t increase. There was no benefit from Carol taking it at 70.
Let’s look at what might be even better. What if instead of waiting, Carol just starts her own benefit early at age 62. She gets a reduced amount of $450, but it starts at age 62. That’s all that’s coming in. David, on the other hand, waits until 66. He starts taking his full benefit of $2,200. At that time, Carol can then claim that full spousal benefit. He gets to 75. She still gets to 82. This actually gets them the most of these three, $580,000. Just a little strategy. You want to map out what’s going to get us the most out of the system. In this case, Carol starts early and then stacking on those spousal benefits once David actually starts collecting his. This is further impacted depending on how long they live.
All that same information, but now, instead of 75 and 82, we’re assuming he lives 85 and she lives to 92. So 10 years longer for both of them, she still starts at 62. He starts at 66. Spousal benefit tacks on. Now this gets them $962,000.
You can see what it does to the other scenarios as well. If he lives an additional 10 years and he waits until 70 to start, he gets that higher amount for longer. That actually gets them just over a million dollars. That’s why I was saying it’s hard to know ahead of time what you’re actually going to end up with. Really factoring in your longevity, your health, the other needs that you have is going to help you really narrow this down.
Andi: Allison, we have a whole bunch of questions. Why don’t we get through a few of those right now. I can tell you right now there is no way we are going to get through all of these today because we only have about an hour to complete this webinar. If your question does not get answered, you can email it to: info@Pure Financial.com. I put that in the chat if we don’t get to your questions, but we’re going to do our best. I’m going to start at the top. Chuck says “how long must a person be married to get spousal benefits?”
Allison: That’s a great question and there is a slide on that. You do have to be married for 10 years. If you’ve been married more than 10 years, then that is what is going to entitle you to be eligible for spousal benefits again, based on your own earnings record or your spouse’s, depending on who’s higher than that’s going to map that out for you.
Andi: Next one, Danielle says. “How are spousal benefits impacted if your higher earning spouse is deceased?”
Allison: You would be entitled to those widowed benefits. We’ll get on those as well. It doesn’t matter as long as you were married for at least 10 years. If your spouse passes away, you’re still going to be entitled to the higher of the two, your own benefit or theirs. That’s accounted for in the Social Security system.
AndI: Terry’s question is “if you get a reduced benefit initially, how do you get back to full payment when you don’t get any additional money?”
Allison: You don’t. If you start taking your Social Security benefits early, at that reduced amount, that’s locked in. You’re not going to get back to a higher amount. Maybe that question was about if you’re working and so you get a reduced amount?
Andi: That might be the case.
Allison: OK, if that question was if your Social Security benefits are reduced because you’re still working and you took it early. Once you stop working, you’re going to be entitled back. It won’t keep reducing your Social Security benefits.
Andi: Perfect. Jeffrey says “if you want to leave a legacy, might it not be best to take Social Security early so you can preserve your transfer on death money?”
Allison: Yep, that’s a strategy that a lot of people look at. That’s why you look at everything else you have going on. If you go ahead and take Social Security early, that means you need less from your own portfolio to live on, then absolutely you might end up with more left over to leave to your beneficiaries. Absolutely.
Andi: Sylvia says. “My ex is receiving his benefits, could I claim from his? I’m 63. I was planning to wait for mine until I’m 65?”
Allison: Yes. There is a slide that goes into more information on that and like how old you need to be when you’re divorced and things like that. We’ll definitely get into it and that’ll be in the Social Security handbook as well.
Andi: Again, I have already put the link for the Social Security handbook in the chat. If you missed it, because there has been a lot going on, I will post that again momentarily as soon as we get through a couple more of these questions. Cecil also asked “Is spousal benefit capped at full retirement age versus potentially 70?”
Allison: Yes, essentially. If we go back, let me pop back through a couple of these slides real quick. This slide kind of shows that. In this scenario, her spousal benefit is capped at $1,100, so even if she waited to take it, it’s still not going to be more than $1,100. That is capped. Once you hit full retirement age your Social Security spousal benefit is not going to increase past that point.
Andi: I have a few more questions, a number of people were talking about what type of income reduces your Social Security benefits. People asked about a whole bunch more options. Real quick, Guido said. “Is a pension considered part of income subject to limitations?”
Allison: No, it has to be earned income. Pension income doesn’t count against you in the calculation. Interest in dividends, capital gains, things like that. It’s earned income.
Andi: Yusef’s question, “Does IRA income affect the retirement income?” That would be a no.
Andi: Beatrice wants to know about capital gains. Is that considered income?
Allison: No, not for this purpose.
Andi: Jeff says, “if I own a business but I’m not receiving wages, only profits, does that reduce Social Security?”
Allison: It will depend on the kind of business and how the income flows through to your personal tax return.
Andi: Again, we have a number of questions. I will try and wade through the rest of them while you continue with the presentation.
Allison: Yeah, weird, but this is generating questions.
Andi: As I understand it, there are 2700 rules that guide Social Security. It’s no wonder that it’s this confusing.
Allison: Trying to get this streamlined for a webinar, but a lot of information out there. Keep asking questions. Check out the Social Security handbook and we’ll keep going from there.
Allison: To a couple of the questions that we’re just asked. Spousal benefits and survivor benefits for people that are divorced. To qualify for spousal benefits, you have to have been married to your ex-spouse for at least 10 years. You have to currently be unmarried. If you got remarried, then you can’t file on the ex spouse’s claim anymore. You’d be working with your own benefit on your current spouse. Both people have to be at least age 62 and divorced for at least the last two years. Yes, you can claim on your ex spouse’s benefit. The same 10 years applies whether you’re married or not. There’s a few other factors there for survivor’s benefits. If you’re divorced and your ex spouse has passed away. Same rules, you have to have been married to the ex spouse for at least 10 years and then you have to be unmarried or remarried after age 60 and you have to be at least age 60. If these all apply then you would be, even if you’re divorced from that spouse, eligible to claim survivor benefits based on that ex spouse’s earnings record.
Now let’s get into the taxation of Social Security. I’m sure this will not generate any more questions. It will, because of course, they don’t simplify anything. Social Security taxation, whether or not your Social Security income is going to be subject to federal taxation, depends on a few other factors. In addition, California does not tax Social Security income. Some other states do. Depending on the state you live in, you want to make sure you know how that’s going to be treated. Only 13 states tax your Social Security income, but still, it’s worth finding out whether that’s going to apply to you or not. From a federal level, whether or not your Social Security is going to be taxed, here’s the chart that determines that. If you had nothing but Social Security income, it would not end up subject to tax. Something called your provisional income gets calculated. Your provisional income is calculated by taking the total of these things. So half of your Social Security benefit, any additional ordinary income. So that would be pension income, business income, earnings, wages, dividends and capital gains and any non-taxable interest. If you have tax free interest that still adds in to calculate your provisional income. Then that number is taken and it looks at this chart. If you are married, if that number is under $32,000 none of your Social Security is going to end up taxed. If it’s between $32-44,000, up to half of it could be taxed; if it’s over $44,000. Up to 85% of your Social Security could end up subject to federal taxation.
Here’s an example of that calculation. The tiers are marginal, so it’s not incredibly straightforward. The top example assumes that somebody has $20,000 of Social Security income. They took $40,000 from their IRA. Their provisional income again is half of that Social Security benefit, plus the IRA. So it’s $50,000. That is looked at using those scales; 32,000, below that between $32-44,000. In this scenario, 55% of the person’s Social Security income is going to be taxable. In this example, $11,100 of their $20,000 Social Security income is going to flow through on your tax return and be subject to tax.
The second scenario, the person has the same amount of total income, $40,000 of Social Security, $20,000 of an IRA withdrawal. Because of the way provisional income is calculated, their provisional incomes actually lower. It’s $20,000 of Social Security, $20,000 of the IRA, $40,000 of provisional income. Again taking a look at those thresholds and in this scenario, only 10 % or $4,000 of that Social Security income is subject to tax. This person has twice as much Social Security income, but only 10 % is subject to tax. This person has way less Social Security income coming in, but more of it is subject to tax. It’s important to know how you’re generating income, where it’s coming from so that you see the impact of when you take your Social Security, what’s going to happen to it from a tax perspective?
Before we get into the future of Social Security and kind of start to wrap this up, I feel like this is a good time we have additional questions, especially after going very quickly through the taxation of security. Andi, what have we got?
Andi: As I mentioned, I know that we are not going to be able to get through all of the questions. We have a few hundred people on the call and a few hundred questions I think have come through. Again, I’m going to start at the top. Ron says “does taking survivor benefits reduce your own benefits?
Allison: No. You would get one or the other. You’re always going to end up with the highest option. You wouldn’t take the survivor benefit if you were entitled to more. There would be a strategy of the timing of taking Social Security versus taking your own. It’s something to take a look at.
Andi: Vee says “My full retirement age is 66 and a half. If I want to claim Social Security at 65, how much does that decrease my retirement payment?”
Allison: It will be a year and a half, roughly, of that calculation. Somewhere around that one full year early is 7% so it’s an additional 0.05%. You’re probably looking at, you know, at a 10 or 11 % decrease.
Andi: That’s permanent, right?
Andi: Rose says “My spouse has retired at 63. I’m still working and plan to retire at 67. Is she eligible for spousal benefits?”
Allison: Yes. But she couldn’t actually take her spousal benefits until you as the longer, higher earning spouse files and starts taking your Social Security benefits. At that time, then she could start taking the spousal.
Andi: Here’s an interesting question. Beverly says “What if you have had a significant other for 50 years? Can you still get spousal benefits if he passes first?”
Allison: Unfortunately, not. You have to be married.
Andi: Do you want to take some more questions?
Allison: We can take more questions. You’re watching the clock. As long as we have time, I’ll take more questions.
Andi: I will just say that Sylvia says, “You are extraordinary, and I’m so glad I registered for this webinar. Thank you.”
Allison: Thank you.
Andi: Regina says “I have been permanently laid off from my job. I turned 65 in August. Should I take the survivor benefit of my husband now? Or would it make sense to wait until I’m full retirement age in December of next year?”
Allison: I can’t answer that question in this call. I’d have to know a fair amount more about your overall situation. Potential asset levels, withdrawal needs things like that. You can check out our Social Security handbook that might help you calculate what the differences would be.
Plus, we’ll give you our contact information so you can reach out to us to help out with that in the future, too.
Andi: Cecil says “How does a high required minimum distribution over $100,000 affect one’s Social Security benefits strategy.”
Allison: That’s a really good question. If you have, again, that’s where that provisional income calculation comes in. If you have large amounts of other income sources, IRA withdrawals, required distributions from your retirement accounts that’s going to impact your provisional income. If you have $100,000 coming out of an IRA, you’re going to end up with 85 % of your Social Security income subject to federal tax.
Andi: Gaye says “I am 5 years older than my husband and I earn more than him. When I sign up for Social Security, how do I also set it up where he gets part of my benefit? How old does he have to be for me to do this?”
Allison: That’s where the spousal calculation comes in. If you’re older and earning more than he would, he could take his own, you know, whenever 62 or at full retirement age, that would be what you’d want to look at. Then he would be eligible to take the spousal, which sounds like it would be more, once you have actually filed and are taking your Social Security benefit. That’s when he would be able to take the spousal benefit.
Andi: For the moment, I’m going to go ahead and put a hold on questions so that she can finish up the webinar.
Allison: The future of Social Security? Here’s the thing. This has been talked about a lot, that the Social Security, which is called the Old Age and Survivors Insurance Trust. Is on schedule or at risk of being depleted in 2033 which is, obviously, not that far away. What’s factoring into that is the number of people currently getting Social Security benefits versus the number of people working and paying into Social Security and how that’s going to continue to change. So 65 and older, that are currently taking Social Security, is about 56 million. It’s projected to go to over 78 million by 2035. Additionally, currently there’s 2.8 workers paying into Social Security for every Social Security beneficiary. By 2035 that’s going to be even less. We have progressively fewer people paying into Social Security compared to the number of people receiving benefits. All of this is obviously not helping the longevity of the assets in Social Security. While we don’t know exactly what is going to happen. It would be reasonable to assume that we will probably see some changes to Social Security. Whether that means they would push out full retirement age for younger people. Whether that means they would change the percentage of FICA tax that your wages are subject to, or the amount of wages that are subject to FICA tax. All of those things, and certainly many other things, could continue to evolve to ensure that Social Security continues to last and be available for people.
OK. Thank you to everyone for attending the webinar. I know that Andi is going to put up an offer, but we’ll probably get to some more questions here. But if you have additional questions or concerns, obviously you can get that Social Security handbook. In addition, you can reach out to us for a free financial assessment. You can click the link and schedule that right away. We’re happy to continue to help. You can email us. You can give us a call. Happy to answer more questions. I’m sure we have more.
Andi: Yes, we absolutely do have more questions, so I’m going to jump into some more of those right now. Let’s talk a little bit more about the difference between spousal benefits and survivor benefits. Because Lena asked, “Can I still collect spousal benefits even if my husband is still living?”
Allison: You can collect spousal benefits if your husband’s still living. But survivor benefits are what you would collect after your spouse passes away.
Andi: Don says “ I am on SSDI, married and 59 years old. I have some health issues. My spouse is 56 and retired. If I were to pass away, can my spouse take my Social Security disability even though my spouse isn’t collecting Social Security until 62? My SSDI is larger than my spouse’s SSI will be.”
Allison: No, they wouldn’t take your SSDI. That’s the disability income that you’re entitled to based on a disability. They would be entitled to your survivor benefits.But not at their current age. They would still have to wait for survivor benefits until at least age 60. But 62 or their full retirement age changes the calculation. They wouldn’t get your Social Security disability income, they would get your actual Social Security survivor benefits.
Andi: Greg says. “How much is Social Security taxed if you live in California? So I guess the question would be, is there state tax on Social Security as well as federal tax?”
Andi: It’s subject to federal tax, based on those calculations, no matter where you live. Whether or not your state also taxes it depends on your state. California does not tax your Social Security income. When you look at your federal return and your California return, your taxable income on your federal return will be higher than your California return. Because Social Security is an adjustment and taken off and not taxed in California.
Andi: Sasha says “what happens with Social Security if you don’t have 35 years worth of earnings?”
Allison: It will still take your 35 highest years, which means that some of those years would have a zero and it would be based on that calculation.
Andi: Iliana says “I know people that retired and collected their Social Security at 65, but then got a job and continued working. Is that a good strategy?”
Allison: It totally depends on your specific situation. If somebody started taking it at 65, which is still early. It would depend on when they went back to work, if they had reached full retirement age before they went back to work, as to whether or not that benefit was going to be reduced. It depends on your individual situation on whether that would make sense or not, what other assets you have. Can you live on them? Can you not? Every situation would be a little bit different there.
Andi: Jeffrey says, “You mentioned once you start taking Social Security, you have to remain at that level that you receive. But I thought within a year you can pay back your Social Security and then wait to a new level”
Allison: Yes, that is correct. There is a small caveat if you start taking your Social Security early and for some reason you decide that was not a good idea. Within the first 12 months, you can pay all that money back. You got to give it all back and then you could start over, essentially. So then if you decided to wait until retirement age, then you could go to what you would have been entitled to. Yeah, that’s true.
Andi: Lena also asked, “Will my husband’s benefit decrease if I collect a spousal benefit now?”
Allison: No. When you file for the spousal benefit, the person whose earnings record that is based on is not impacted at all.
Andi: Excellent. Again, as I mentioned, if you do have further questions. I think I might have missed some, so I tried to get to all of the ones that were in the chat. I may very well have missed some. I will put our contact information in the chat. You can also schedule that offer. Send us an email at info@PureFinancial.com. If your questions did not get answered or you can call us at (844)FEE ONLY, that’s (844)333-6659. I’ll leave chat up for a couple seconds more here, just in case anybody else wants to re-up their question so that we can get that answer to you right now. Otherwise, Allison, thank you so much for this incredibly informative webinar. Don says, “Thank you. You both have done an excellent job. Must be nice being so smart.”
Allison: Well, I’m glad it was helpful. Hopefully there’s a ton of information, obviously. I’m sure, you know, it’s kind of just the tip of the iceberg of what we got into today. Glad it was helpful.
Andi: I’m going to post that link. Here is the Social Security handbook again, one more time in the chat. If you need to estimate your Social Security benefits, I will also put that link in the chat that will take you straight to the Social Security website for their estimator. I will also, of course, put in the link so that you can sign up for a free financial assessment so that we can help you to determine the best Social Security claiming strategy for you. All right, Allison, thank you so much. I appreciate your time today. Thank you all for joining us and have a great day. Have a great rest of your afternoon. Thank you. Bye bye.
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