Daniel Goldstein
ABOUT Daniel

Dan currently serves as a Branch Director with Pure Financial Advisors. He has experience in diversified financial services, working with large corporations as well as high-net-worth individuals, families, entrepreneurs, and business owners. He's adept at evaluating client needs and delivering tailored financial solutions for investment management, retirement planning, risk management, and high-level estate planning. Dan [...]

Avoid costly mistakes when collecting Social Security. During this webinar, Dan Goldstein, CFP®, MBA provides insight into the history of Social Security, Social Security eligibility, how Social Security works, and how to make the most of your Social Security payments. Dan answers questions from the audience on spousal and survivor benefits, tax on Social Security, Social Security claiming strategies, and the future of Social Security.

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Questions Answered:

Is the Social Security money withheld due to excess income limits given back upon reaching full retirement age (FRA)?

If a person is waiting to collect until FRA, should they file against the ex-spousal SSI benefit if that ex-spouse is 68, or will that cause the reduced amount?

In the David and Carol example, does Carol collect both her $600 benefit as well as the $1100 at the same time?

If the working spouse is younger than the non-working spouse, e.g. 5 years, will it make sense for the working spouse to take the benefit at 62 and the spouse will be 67 (FRA)?

We are reaching FRA four years apart. Can a married couple take benefits independently if the spouse’s benefit is higher than half of other spouse?

Can you take the spousal benefit of your current husband and your ex benefit at the same time?

Still confused. Do I have to wait until my husband retires to file for spousal benefits? Are spousal benefits percentages less based on when the spouse retired?

What if the spouse dies before claiming benefits?

I am a widower at age 60. I was told I could collect her Social Security benefits at my age 60. SS now says no because I make too much money. Does this sound correct?

When calculating the true benefit should I assume a compounded amount based on the currently published amount PLUS a cost of living increase each year?

State tax on Social Security: How is taxation applied in California if I start taking Social Security at 70?

SSA has noted that we will likely only get 78% of what’s due starting 2035. How does factor into your recommendations to people?


Andi: Thank you all for joining us for Social Security Benefits explained with Dan Goldstein, CFP®, MBA in our Chicago office.

Dan: All right, let’s jump in here a little bit. Again we’ll start talking about a little history with Social Security. Social Security was written into law in 1935, but actually didn’t start collecting taxes related to Social Security until 1937. In early parts of Social Security, you actually had the option you could take a lump sum or a monthly payout.

Almost everybody decided to take the lump sum. The first person to actually collect benefits related to Social Security was Ernest Ackerman. He received a whopping $.17 on $.05 that he paid into the system. The first monthly check was actually issued to Ida Mae Fuller, and she paid in a total of $24.75 into the system for years 1937, 38 and 39. She received her first check of $22.54 and collected over $23,000 in benefits over the course of her lifetime, which equated to a nice 92,000% return. So pretty good deal for her at that time. We’re not seeing those types of returns anymore in the Social Security system. So next time you go to your next dinner party or have a trivial pursuit question that comes up about Social Security, you can wow your friends with the history of Social Security. Social Security, as many that are joining today, know is just one part of the planning process as it relates to mapping out your retirement. Kind of call it the 3-legged stool. You have your Social Security benefits, you have your personal savings. So that includes cash savings that you have, that includes any investment accounts that you have outside of retirement plans. And then obviously for most people, that includes your retirement plan as well. So 401(k)s, IRAs, 403(b)s, 457s, all those different various retirement accounts that are available for you, to access in retirement to supplement income. Pension is still around for teachers and government workers in some private companies. We’re seeing that phased out more and more. But it’s important to understand kind of where Social Security fits into the available resources that you have. And taking Social Security, when you’re eligible to take it, that decision comes around some of these other options that you have and some of these other resources that you have.

Benefit factors- so if anybody wondering how your Social Security benefit is actually calculated, here are the factors that are used to calculate that benefit. Obviously, age is very important. Earnings- both what you’ve earned up to this point and potential future earnings before you start taking Social Security, spousal earnings, widower status, marital status, both your current marital status and if you’ve been married in the past, disability and pension. Obviously, if you’re eligible to take a pension, depending on what type of pension that is, that could affect your Social Security benefit as well and the dollar amount you receive. As we talked about, Social Security as part of that 3-legged stool, but it’s a big part of that 3-legged stool. Nearly 9 out of 10 people ages 65 and older are receiving some sort of Social Security benefit. And then to dig into these percentages a little more, almost a quarter of married couples and almost half of unmarried couples, Social Security makes up 90% of their income. So quarter married couples and almost half of unmarried couples. Social Security is most of what they’re getting as far as retirement income goes to cover their expenses. So obviously it’s important to understand the eligibility rules and regulations, taxation and all those things we’re going to talk about today. Talk about some of the rules associated with Social Security benefits, we’re going to dig into the acronyms first. Probably seen these acronyms and terms being tossed around a little bit. Wanted to find some of these things. You know exactly what we’re talking about throughout this conversation. Full retirement age, that is the age at which a person may first become eligible for the full or unreduced benefits. You have the age that you’re available to start taking benefits that can start as early as age 62. And then you have the age where you’re eligible to take your full unreduced benefit, which for most people is between 66 and 67.

Primary insurance amount, the benefit amount, that’s the actual benefit that you’ll be receiving at that full retirement age. And then Social Security administration, SSA. That’s the governing body around Social Security. Social Security Administration used to hand out or send out statements on a regular basis. Now they allow you to go to the SocialSecurity.gov website to look up your benefits. We’re going to take a look at- in a couple of slides here, what a statement looks like from Social Security Administration. You also see on your paychecks, I’m sure many of you know about the term FICA. That’s the taxation, that’s the revenue collection mechanism around Social Security and Medicare. So that’s the percentage that’s taken out your paycheck to fund the Social Security and Medicare benefits. In understanding some of the rules and regulations around collecting benefits, obviously one of the most important things to understand here is the age that you’re eligible. So as I mentioned, the first time you can become eligible to collect any type of benefit is at age 62. And then the age that you collect your full benefit is going to be slightly different for each person at anywhere from 66 to 67 years old. Obviously here in the leftmost column you can see by birth year what your full retirement age is. And then in the middle column here what your reduced benefit would be if you took it early. So for those that have a full retirement age of 66, they can start taking their benefit at 62 and get a 25% discount or reduction in their benefit. For those that have a birth date of 60, 1960 or older, their benefit or full retirement age is 67. And their reduction or reduced benefit at 62 is 30%.

So obviously a lot of different factors that go into deciding when you take your Social Security benefit. But it’s important to understand, depending on when you decide to take the benefit, what benefit you’re eligible for and what future benefits you may be giving up by locking into a reduced benefit. Again, as I mentioned a couple of slides ago, Social Security Administration has stopped sending out paper statements and said they direct you to the Social Security, ssa.gov website. This is what a typical statement looks like when you log on to the website and go into your benefits record or your benefit statement. You can see on the left here your earnings record. So it shows you all of your earnings to date here on the right. It tells you what your full retirement age is. What you would receive per month at that age. And then what you would receive both as an enhanced benefit if you were to wait to age 70. And what you would receive as a reduced benefit if you were to start taking your Social Security benefit as early as age 62. And then you can obviously see here with the table just below the dollar amounts associated with all the different time frames that you would decide to take Social Security. Obviously there’s a lot of factors in going to that decision, we’ll dive into a few of those later on. But this gives you a clear sense of what you’re eligible to get based on what your earnings are so far and what they may be in the future. I thought this was kind of an interesting pie chart. So polled people to get a sense of when they believe they will start taking Social Security. So these are people that are approaching retirement, have not started taking Social Security yet, polled them to get a sense of when do they believe they will start or when would they like to start receiving their Social Security benefit. Obviously the idea is to try for most people to get to that full retirement age and even to that age 70 to get the enhanced benefit. As you can see here from the poll, over about half the people think that or believe that they would start collecting their Social Security benefit at full retirement age or later in order to get that full benefit and in some cases that enhanced benefit. So going into retirement people think, I want to try to get as much of that Social Security benefit out of that benefit as I can. So what actually happens when they enter in retirement? Do expectations meet reality?

Here’s the next pie chart that shows what actually happens for people once they enter retirement. And as you can see here, the numbers look very different. So as you saw in the previous pie chart, we had close to 50% of the people thinking that they’d take their benefit at full retirement age or later. Once they get into retirement, the numbers change quite a bit. So 70% of the people take their Social Security benefits at the earliest possible time and you see a much smaller percentage actually waiting to full retirement age or later. And that’s where the planning comes in, understanding those resources that you have available to you outside of Social Security, how to leverage those resources to allow you to maybe allow this benefit to grow. Obviously, every situation is different and unique, but planning helps in setting expectations and having reality meet those expectations. So it’s kind of interesting to see how these two scenarios play out with when people decide to take Social Security. So going back to the poll I just showed in the pie chart, expectations versus reality. This is why it’s so important to understand when you’re eligible, when your full retirement benefit is, when your enhanced benefit is available for you. Because obviously depending on when you take Social Security, that greatly impacts the benefit that you receive. If we use the anchor point here at the middle of the screen of 66, that again is your full, in this example, full retirement age, that’s when you’re eligible for that full benefit, unreduced benefit. If you move to the left from age 66, you could see the impact of taking Social Security early. So essentially every year that you take Social Security early, you get a reduced benefit of 7%. And if you were to take Social Security at the earliest possible time, age 62, you’d actually see a 25% reduction in your Social Security benefit throughout your lifetime. We’ll show you later on in some strategies as they play out what kind of effect that could have on the total benefit that you receive throughout your lifetime. On the flip side, if you were to wait, again, full retirement age in this example is 66, if you were to wait past 66, every year that you wait, you essentially get an 8% increase in the benefit. So if you were to wait to age 70, you can receive up to a 30% increase or enhancement to your full retirement age benefit.

Now, again, it’s not as simple as just waiting to age 70. There’s longevity and health that comes into this. There’s other mitigating circumstances around finances and resources you have available, but that just gives you some sense, an idea, of the impact that taking Social Security could have with a reduced benefit and then also waiting to take Social Security to age 69 or 70, how that could help you with an increased benefit. Talked about this a little bit already, but the decision around when to collect comes down to some factors around working.

Will you work full time, part time before full retirement age? Longevity is a big factor. Obviously your health, your current health expectations around your retirement time frame and that’ll play into when you decide to take Social Security. and marriage status? Are you married? What’s the age difference? whose benefits that you can collect on? All those things and many more factors come into when is the right decision or when it makes the most sense for you to start collecting Social Security. Some of the things to take into consideration, going back to those factors to consider as to when you decide to take Social Security is the impact that taking Social Security early can have, or the impact of working while you take Social Security. In this example, we’re looking at the impact of taking Social Security while you continue to work. So we’re looking at a couple of different scenarios here. We’re starting with under full retirement age. So for most people, that’s going to be between 62 and 66 to 67. In that time frame, anything over- any income that you make over $20,000, so $19,560, $1 of your Social Security benefit is withheld for every $2 you earn over that mark. So again, looking at this dollar amount, $19,560, every dollar you earn from earnings and wages outside of Social Security, your Social Security is basically impacted by reduction of $1 for every $2 you earn. Once you hit your full year retirement year, so not your full retirement age, but the year in which you reach your full retirement age, that limit goes up to close to $52,000. And instead of withholding $1 for every $2 that you earn over that mark, Social Security Administration withholds $1 for every $3 that you earn. Obviously pretty sizable impact between working before your full retirement year and then working in your full retirement year. Anytime you reach your month of full retirement age, so that month you turn between 66 and 67, depending on where you were born, there’s no limits and there’s no penalties on any other money that you earn from any other sources, earnings and wages. We’re going to jump into an example here and show you how some various scenarios can play out.

We’re using the example here of David and Carol. So both have a full retirement age of 66. David is a high wage earner. Carol is a lower wage earner. We’re going to run through a couple different scenarios showing how various strategies play out and the total benefits that they receive over their lifetime. So again, let’s start by looking at the spousal benefit. So in this example, again, full retirement age for David and Carol is 66. David has a full retirement age benefit of $2200 per month. Carol is $600 per month. And the spousal benefit is one-half of David’s benefit. So one-half of the $2200 that he can collect starting at his full retirement age of 66. In this example, we’re starting both David and Carol at their full retirement age. So both file, David collects on his benefit, Carol collects on her benefit. And let’s see how this plays out. So just to give you some background on spousal benefits. Again, we’re looking at this example of them both collecting at age 66. Carol’s benefit is $600, David’s is $2200. The spousal benefit is half of David’s, which is $1100 per month. This gives you- this chart shows you the impact of taking the spousal benefit. So one of the things that you’re going to want to consider, if you’re married, both of you are eligible to collect Social Security, both have different benefits. Does it make sense to collect on your own benefits? Does it make sense for one of you to collect on the spousal benefits? Here are some of the factors that go into that decision. One of the factors is when you collect the benefit. So again, those same rules apply to- that apply to reducing your benefit as a single individual, also apply to taking the spousal benefit. At full retirement age, you’re eligible for 100% of either your benefit or of one-half of your spouse’s benefit. If you take that before age- your full retirement age, you can see the reduction that you would receive in that spousal benefit. So starting at age 62, you get a 30% reduction, 63, 25%, and build up to 100%. On the flip side, where you saw that 8% increase in the benefit that you can receive as an individual by waiting between your full retirement age and 70, no such enhanced benefit exists on the spousal benefits. So there is no benefit to waiting past full retirement age to collect your spousal benefit. The benefit maxes out at your full retirement age and continues on through age 70. There’s no additional benefit there. Andi, you’re popping in. I’m guessing there’s some questions about some of the stuff we’ve gone through already.

Andi: We do have a number of questions. I want to start with Isabelle, she said “Is the Social Security money withheld due to excess income limits given back upon reaching full retirement age?”

Dan: The money is not given back, but as soon as you stop working, you’re then eligible for that full benefit. So the reduced benefit or the reduction in benefit only applies while you’re working. But no, that money is not given back to you once you stop working.

Andi: Okay. And then there was another question that I wanted to ask you now. Beth asked regarding ex-spouse Social Security. “If a person is waiting to collect until full retirement age, should they file against the ex-spouse benefit if that ex-spouse is 68, or will that cause a reduced amount?”

Dan: So there’s a number of strategies around that,, that might be more of a personal and customized situation for that individual. The reduction in benefit, I don’t know if they’re asking as it relates to that ex-spouse. They get no reduction in benefit from the ex-spouse. If that’s the question. Their decision around when they take Social Security on their ex-spouse comes down to when they’re eligible for Social Security, so age 62, what their benefit is going to be, what their spouse’s benefit is going to be. So a little more customized to that unique situation. But in general, you have to look at your age, your spouse’s age, what their benefit is, what your benefit is, and what makes the most sense for you, or what your biggest benefits going to come from, collecting on yours or collecting on the spouses. The spouses doesn’t know when you collect on their benefit, and it doesn’t reduce their benefit.

Andi: We do have a number of questions that are continuing to come in. As you think of them throughout the presentation, just type them into the Q and A, and Dan and I will work through those throughout the course of the presentation. I have one more that I’ll give you right now, and then we’ll get to the rest of them later. Adele says “In the David and Carol example, does Carol collect both her $600 benefit as well as the $1100 spousal benefit at the same time?”

Dan: So we’re going to jump right into that example here. Right after this slide, she does not get to collect both benefits. She collects the higher of the two benefits. And we’ll show exactly how that plays out in the next slide.

Andi: Perfect.

Dan: Thank you.

Andi: All right. Yep.

Dan: So very timely with the last question we got as it relates to spousal benefits. Again, we looked at the previous slide and saw both the reduction you get by taking that special benefit early and no additional benefit by waiting to take the spousal benefit past full retirement age. Again, let’s see how that plays out in the example for Carol and David. As background, remember, David has his full retirement age benefit at $2200 and Carol’s at $600 per month. If she were to take early, she gets a 25% reduction on her own benefit. And then, as you can remember from that previous slide, she actually gets a 30% reduction on David’s benefit, on her spousal benefit. So 25% reduction on her own, 30% reduction on David’s benefit. If she waits to full retirement age, she gets her own benefit of $600 per month. That’s her full retirement age benefit, and she gets another benefit, which equals a total to half of his benefit. So David’s full retirement age benefit is $2200 per month. Half of his benefit is $1100 per month. And you can see how the Social Security Administration splits up that benefit. You take your own full retirement age benefit.

In Carol’s case, that’s $600. And then you take an additional benefit to get to that $1100 or half of your spouse’s benefit. As I mentioned in the previous slide, there’s no additional benefit to waiting past full retirement age to collect on your spouse’s or to collect your spousal benefit. So in this example here, although Carol’s benefit does grow by that 8% per year for a total of 32%, by waiting from full retirement age to age 70, her spousal benefit is reduced such that the total still remains $1100. So again, just to play out that example, no additional benefit to waiting. And to provide some further background here before we jump into more questions, you cannot start collecting on your spouse’s benefit until they file for their Social Security benefits. So this works, in this example, David has filed at age 62 or David has filed at full retirement age or age 70. You can’t collect before your spouse files.

Andi: This is getting people really excited to get some answers.

Dan: Yeah, I imagine. I think there would be no shortage of questions around Social Security.

Andi: And there’s a very good chance, because we do have a couple of hundred people on this webinar today, that we are not going to be able to get to all of your questions, but you can email them to info@purefinancial.com if you don’t get an answer today. And we will also tell you how you can get a one-on-one analysis of your Social Security when we come closer to the end of the presentation. Ed says “If the working spouse is younger than the non-working spouse, for example, 5 years, would it make sense for the working spouse to take the benefit at 62 when the spouse will be 67, full retirement age?”

Dan: It makes sense for the younger working spouse to take their benefit at 62? Yeah, I think that that’s more of an individual situation. I think you have to identify kind of what your full retirement age benefit would be, what your spouse’s benefit would be, and then what would the benefit of taking it early be? There’s many strategies around Social Security situations where you can collect your- you get a 25% reduction on your own benefit by starting at age 62. If your spouse is 67, you’re going to get that full benefit on the spouse, but you’re going to get the reduced benefit on yourself. So again, you got to look at what makes the most sense for you. But in this situation, you get full retirement spouse, reduced benefit for yourself.

Andi: Jeff says that he and his spouse are reaching full retirement age 4 years apart. “Can a married couple take benefits independently if one spouse’s benefit is higher than half of the other spouse?

Dan: Yeah. You evaluate what your benefit would be, what your spouse’s benefit would be, and for the higher or the lower wage earner, you basically look at your spousal benefit, which would be one-half of the higher wage earner earner’s benefit or your own benefit. If your own benefit is higher, obviously you want to take your own benefit. If your spousal- one-half of the spousal benefit- if that’s higher, you’d want to take the spousal benefit.

Andi: Okay, at the moment, I think we’ve answered all the questions that are relevant to this part of the presentation, so I’ll let you get back into it.

Dan: Glad this is spurring some good discussion here. We’re going to jump in and talk a little about survivor benefits. So we talked about individual benefits, we talked about spousal benefits. Now let’s talk a little about how survivor benefits may differ a little from the spousal benefit and how all this kind of comes together. So you look here on the right hand side of the screen, we’re using that same example, full retirement age of 66 for both David and Carol. David’s benefit $2200. Carol’s benefit $600. And one of the decisions around- in our previous slide is, let’s take advantage of that spousal benefit because that spousal benefit is higher than what Carol is taking. But Carol does also have the opportunity, if her spouse, in this case David, passes away, to jump up and take the survivor benefit. So in this example, again, David’s full retirement age benefit is $2200. He takes it at 63 and a half, so 63 and 6 months. So he gets a small reduction in benefit from that full retirement age benefit. So instead of $2200, he gets $1833. He passes away collecting that benefit. Then Carol’s benefit jumps up to that $1833. So it stops collecting on hers and starts collecting on that $1833. She doesn’t get both benefits. She gets the higher of her benefit or the survivor benefit. Another example down here, David waits, collects at age 70, so gets that enhanced benefit, which increases his benefit by 32% from what he would get at age 66. He passes away. And again, Carol has the opportunity to jump up and take his survivor benefit versus continuing to collect on her benefit. Don’t get both of those, get one or the other. In this case, it makes sense for Carol to take the survivor benefit because it’s higher.

Andi: Felicia- we do have a couple more spousal benefit questions and I just want to get this cleared up.

Dan: Sure.

Andi: Felicia says, “Can you take the spousal benefit of your current husband and your ex-husband at the same time?”

Dan: You cannot. One or the other.

Andi: And then Gerkamal says, “I’m still confused. Do I have to wait until my husband retires to file for spousal benefits? And are spousal benefit percentages less based on when the spouse retires?”

Dan: Well, it’s based on when the spouse files for their own benefit. That’s when you can start collecting on the spouse’s benefit. So your spousal benefit is tied to that spouse, and that benefit does not start till the spouse files for their own benefit. Depending on when that spouse files and starts collecting is going to determine what your spousal benefit is. So if your spouse collects, starts filing and collects at full retirement age, you’re going to get that full spousal benefit. If they start collecting early, you’re going to get a reduction in that spousal benefit.

Andi: Michelle says, “What if the spouse dies before claiming benefits?”

Dan: If the spouse- then you would collect the survivor benefit, but not till you reach eligible age, so at earliest age 62.

Andi: And then JC says, “I’m a widower at age 60. I was told I could collect my spouse’s Social Security benefits at my age 60, but now they say no because I make too much money. Does this sound correct? Can I collect her Social Security?

Dan: That’s more of an individual situation. If she was told no, then my guess would be that she can’t do it. But that’s one of those situations where want to better understand the entirety of her circumstance and her finances to know why she’s getting the response that she’s getting and what, if any, opportunities there is to work around that.

Andi: Okay. More questions, I’ll hold them till later.

Dan: Okay. So we’re going to run through an example here and show you a couple of different scenarios of David and Carol taking their own benefits, taking the spousal benefit at different ages and how that plays out over their lifetime. In this first example, again, we’re using the same numbers. David full retirement age gets $2200 per month. Carol gets $600 per month. David lives through age 75. Carol lives through age 82. So in this example, they’re going to start collecting early, start collecting at 62. So David collects at 62, which means he gets a 25% reduction in his benefit. That 25% reduction over his lifetime equates to about $277,000. Carol, she collects that reduced benefit, her individual benefit. So instead of $600, she gets a 25% discount to $450 per month. And she collects that through age 82. So that total benefit equals $75,600. And then she collects that Spousal benefit also of $350. So the way this plays out, David’s reduced benefit is $1650. Carol’s individual benefit is $450. That’s a 25% reduction. Her spousal benefit is $350. Again, that’s a 30% reduction because they’re taking at age 62. The spousal reductions are slightly higher than the individual reductions. And then once David passes away at age 75, as we discussed earlier, Carol has the option to jump up and take the survivor benefit, which is higher than what her current benefit is, what her spousal benefit would be. So this shows them taking their benefits to age 75, and then Carol jumping up and taking that survivor benefit between 75 and 82. You can see how this is laid out here. David’s benefit, $277,000. Carol, $75,000. That additional spousal benefit, which is the $350 per month. And then once David passes away, Carol gets that survivor benefit, total benefit of $550,000.

So a couple of different things here. Individual benefits- Carol collecting the Spousal benefit because it’s in her best interest to do so, and then jumping up to the Survivor benefit because it’s higher than what she’s currently collecting once David passes away. We’re going to show this similar example, but we’re going to show it full retirement age instead of that reduced benefit age of 62. So same examples that we’ve been using, same time frame for retirement. David passed away at 75. Carol at 82, but we’re going to start collecting benefits at full retirement age instead of 62. David collects his full retirement age benefit of $2200 per month from 66 to 75. Carol collects her full benefit of $600 per month and then Carol gets that $500 benefit. The $600 plus $500 equals half of David’s benefit. So they’re collecting these benefits from 66 to 75 when David passes away. And then again, Carol is going to jump up and take that survivor benefit because that $2200 is higher than what she’s currently collecting, $1100. So I see how this plays out down below, both starting at age 62, they get $550,000. If they wait till age 66, they get $580,000. So again, you’re balancing, waiting in order to get that full retirement age benefit versus waiting 4 years to collect that benefit. So the dollar amounts over their lifetimes is not that much different. $30,000 is a nice chunk of change, but if you think about, again, all the decisions that go into when you decide to take Social Security, you’re giving up 4 years of income in order to get an extra $30,000 over the course of your Social Security benefit. A lot of this comes into longevity and health. Nobody has crystal ball what their health and longevity is going to be, but you can see the impact of some of these decisions and how they play out. Let’s keep going with this example. Now let’s look at waiting for the enhanced benefit and showing the impact that that has. Again, same parameters. David to 75, Carol to 82. Instead of starting at full retirement age, we’re starting at age 70. David’s benefit has increased by 32%, so he’s collecting $2900 per month. Carol gets that increased benefit as well. Her benefit goes from $600 to close to $800 per month.

But remember, there’s no additional benefit for her for waiting to collect the spousal benefit. So her benefit on the spouse side is reduced such that her total benefit still remains at $1100 per month, which is half of David’s full retirement age benefit. Once David passed away at 75, she jumps up and takes that $2900 per month as a survivor benefit. So let’s again see the impact that has on financially. They started at 62, $550,000, full retirement age $580,000. In this example, by waiting to age 70, they’re only collecting $532,000. And so we keep harping back to the other mitigating factors that basically control or decide when it makes the most sense to take Social Security. Longevity is a big factor there. The fact that David passes away 5 years after he starts receiving his benefit offsets any advantage associated with waiting and getting that enhanced benefit. So again, it doesn’t always make sense to wait to age 70. And you can see one of the situations where in this case it would have made sense to start a full retirement age. Keep moving through this example, we’re going to show some additional scenarios and how those scenarios play out against our base case here. So, again, we’re starting to collect at 72- I’m sorry, 62. In this situation, David lives to 75 and Carol lives to 82. So same there. In this case now, Carol is actually collecting on her own benefit at age 62. So taking that 25% reduction on her own benefit, but starting to collect it at age 62, David waits to a full retirement age so he can get his full retirement age benefit of $2,200 per month. Again, Carol can’t collect on David’s benefit until he files. So she collects on her own benefit at 62, then starts collecting on his benefit at age 66. She gets that $500. So even though she got a reduction on her own benefit, she still gets David’s full benefit. That addresses the question that we got earlier on in the presentation. She gets a reduced benefit for herself, but a full benefit on her spousal benefit. And then again, once David passes away, she’s able to collect the survivor benefit of $2200. And you can see here how that strategy plays out. So you get income earlier. One of the spouses starts collecting as early as 62, and then starts collecting the spousal benefit at full retirement age. And waiting to full retirement age for David to collect actually puts them in a slightly better situation than if they both waited. So they get income earlier, and then they get more total income throughout the length of their retirement. It’s not a whole lot of difference, not a big difference between $584 and $580. But the fact that you’re getting a slightly larger lifetime benefit and are able to start collecting early makes this a better scenario, in my opinion. We’re going to keep playing this out and we’re going to actually look at how longevity can affect the lifetime benefit for Social Security. So in the first scenarios, we show David living to 75, Carol living to 82. Now, in this situation, we pushed their retirement on another 10 years. So in David’s case, he lives to 85 instead of 75, Carol to 92 instead of 82.

Again, Carol takes that reduced benefit. So she starts collecting at age 62, gets that reduction, that 25% reduction in her benefit. David starts collecting his full retirement age benefit of $2200 per month at age 66. Carol is going to come in and take her spousal benefit of $500 per month. So she gets the full spousal and the reduced individual, and then she switches over to David’s survivor benefit when he passes away. But again, he’s living another 10 years. So it’s another 10 years of his benefit and then another 10 years of Carol’s benefit. Plus she’s able to jump up and take the survivor benefit when he passes away. So, as you can imagine, this is going to be a much better situation than what we showed earlier. As you remember, this situation with them living to 75 and 82 resulted in about $584,000 of lifetime Social Security benefits. This strategy produces close to $1,000,000. So over $300,000, $400,000 more in lifetime benefit from living 10 years longer. And then you can kind of see how these different scenarios play out using the same variables that we used in the prior example. They both live 10 years longer and both start collecting at 62. Then they get $844,000.

They both wait until full retirement age and have 10 years of additional life or longevity. They get close to $980,000. And then if they both- this is where waiting for that enhanced benefit really pays off. When you have longevity and you have a long life expectancy, you can see what the impact would be by waiting to age 70, collecting that enhanced benefit, and having that survivor benefit be that enhanced amount also. So that strategy ends up in a little over $1,000,000 of lifetime Social Security benefit. I’ll stop there for a second. I don’t know, Andi, if we’re in good shape, if there’s anything that you want to pop in and ask, happy to do so at this moment.

Andi: Yeah, let’s do that. I have one more question that’s relevant to what you’ve already covered. Jeff says, “When calculating the true benefit, should I assume a compounded amount based on the current published amount plus a cost-of-living increase each year?”

Dan: I think the cost-of-living increase is a year-to-year thing, right. We’ve seen some big increases lately as inflation has ticked up recently. So there was a nice adjustment to Social Security benefit last year. There is going to be a nice adjustment this year. I know for calculations that we do here at Pure, we’ll use a conservative number of around 2%. That could be a safe number to use. But that’s really a year-to-year decision. And if you want to be ultra conservative, not something that I would count on for calculations. So the decision really when to take Social Security, how much you get, and how it works in your overall financial plan really is a decision that’s unique to each individual. So we here at Pure, the Fiduciary Advisors are here to help you navigate through that process. Get set up for Social Security analysis, get a sense of what you’re eligible, and talk through various strategies and how it relates to your overall financial plan. So we’ve talked about eligibility. We’ve talked about some rules and requirements. We talked about benefit reductions from starting working while you’re taking Social Security. We talked about spousal and survivor benefits. And then last, but certainly not least is talking about some rules around taxation of benefits. Let’s just finish up here with some eligibility requirements around divorced spouses. So spousal benefits apply to anybody that’s been married to an ex-spouse for at least 10 years, so 10 years or more. They’re currently unmarried. So if you’re going to collect on your ex-spouse’s benefit, you have to be married for 10 years or more. You have to currently be unmarried. If you remarried, then obviously your benefits are tied to yourself and to your new spouse. And then obviously you both have to be at least 62 years of age and divorced two years. Pretty similar on the survivor benefits. Married to a deceased spouse for at least 10 years, unmarried or married after the age of 60. And then, as we discussed, for an ex-spouse that’s still living, have to be at least 62. In this instance, you have to be at least 60. So those are the eligibility requirements. And then they start looking at how much income you make, what is your benefit reduction associated with that income, what is the taxation of those benefits? This is just for you to become eligible to collect on an ex-spouse’s benefit. These are the rules and regulations associated with that. As I touched on earlier, taxation is also a big key consideration when discussing Social Security benefits.

We’re going to touch on that here a little bit now. Provisional income- this is essentially how the Social Security Administration calculates income that would be subjected to taxes. So Social Security that’s subjected to taxes, this is how they calculate the income. And how much of your Social Security ultimately is subjected to tax? So not taxed, but subjected to taxes, comes down to total income using this provisional income formula. So again, the formula follows 50% of your Social Security benefits. So it takes half of your Social Security benefit. It then adds ordinary income. Ordinary income can be income from you as a wage earner. It could be income that you’re collecting from various retirement sources that’s counted as retirement income. So tax-deferred assets, 401(k), IRA, 457, those types of assets. Dividends and capital gains, so those are going to be interest and income that comes off of your investment portfolio that may sit outside of a retirement plan. So think about brokerage accounts, stock and bond portfolios that aren’t in an IRA, 401(k) and 157, 401(a), those types of shelters, so they sit outside of your retirement accounts. And then non-taxable interest- let’s just kind of walk through some scenarios here and show how this formula plays out. We’ll look at the middle column here for married filing jointly. The first $32,000 of income using that formula that I described above is not taxable. So if you earn less than $32,000 from those income sources that I’ve described, then none of your Social Security benefits going to be subjected to tax. From $32,000 to $44,000, up to 50% of your Social Security benefit will be taxed, and then over $44,000, up to 85% of your Social Security benefit will be taxed. That’s for married filing jointly. Obviously as a head of household, single filer or widow or widower, those numbers are slightly smaller. So again, depending on where you fall in here, will ultimately determine how much of your Social Security benefit gets subjected to tax and the formula to figure out how much income you have. That provisional income formula is calculated here. Let’s see how this plays out. Use two scenarios. Top here, we have $20,000 of Social Security benefits, $40,000 IRA withdrawal. So $50,000 of provisional income.

Again, the provisional income is half of your Social Security benefits. So $10,000 plus that $40,000 IRA withdrawal. That’s ordinary income. That gets taxed at ordinary income rates, you have $50,000 of provisional income, that $50,000. This is a married filing jointly example. So from that $50,000, you subtract $32,000. Remember, that $32,000 is the first tier. So anything up to $32,000 does not get subjected to tax at all.

That leaves you with $18,000. That $18,000, again, as you recall from that previous chart, 50% of that is what’s subjected to tax. So 18 times 50% gives you $9000. Then we move into that next tier. We’re looking at that next tier, which is between $44,000 and $32,000. So now we take that $50,000 and subtract $44,000. That leaves us with $6000.

That $6000 is multiplied by 35%. So again, up to 85% can be subjected to tax. That’s how that formula works out. Anything above $32,000 gets- multiplies by 50% and then anything above $44,000 gets multiplied by .35 or 35%. So that $9000 plus $2000. That’s how much your taxable benefit of what your Social Security benefit is subjected to tax. So of that $20,000 you have in Social Security benefit, $11,100 is subjected to tax. And this is the formula to get you there. Second example at the bottom here- sorry, do you want to break in with a question?

Andi: Just real quick question, because we do only have about 6 minutes left of the presentation. Mitch wanted to know “How is taxation applied in California if they start taking Social Security age 70?
Can you talk a little bit about state taxation Social Security?”

Dan: So obviously, what we’re talking about here is federal taxation. State taxation, I know in California and Illinois, the Social Security is not subjected to state tax. There’s 13 states where you do have your Social Security benefits subjected to state tax. California and Illinois are two states that do not subject Social Security to state tax. So using that handbook, talking to a financial advisor, if you live outside of those two states, you’re one of those 13 states, that’s part of what you’re going to have to factor in as well, the state tax.

Andi: All right, and then Mike also had a question regarding taxation for his specific Social Security situation. Mike, that would be a perfect opportunity to schedule that Social Security analysis with one of the financial professionals at Pure. And I will put that link again into the chat so that you can do that. And then our next question is actually “Social Security Administration has noted that we will likely only get 78% of what’s due starting in 2035. How does that factor into your recommendations for people? talking a little bit about the future of Social Security?”

Dan: Yeah, we actually have a slide on that just after this so we can-

Andi: Perfect.

Dan: – talk a little bit about the future of Social Security after we finish this example.

Andi: All right, sounds great.

Dan: Thanks, Andi. So just to finish up this example here, and again, the top example, we had $20,000 of Social Security benefit. In this bottom example, we double that amount. So the total amount is the same. We’re showing $60,000 of income here, $60,000 at the top. But the categorization of that income is different. So $40,000 Social Security income, $20,000 from IRA withdrawals. The provisional income is $40,000 now, instead of $50,000. Remember, it’s one half of your Social Security benefit. So in this case, it would be $20,000 plus $20,000 IRA withdrawal, leaves you with $40,000 of provisional income. Let’s run it through the formula. That $40,000 minus that first tier, that $32,000 that isn’t subject to tax at all, leaves you with $8000. Multiply that $8000 by 50% and you get $4000. There’s no additional money. There’s no additional amount from Social Security above that threshold. So again, because of the categorization of the income is different here, ultimately the provisional income is different. And because of that, the total amount that’s subjected to tax, or total amount of your Social Security benefit that’s subjected to tax, is $4000 in this example versus $11,000 in this example. So just even with the same amount of income, the categorization of that income can greatly affect how much taxes you pay or how much of your Social Security is going to be subjected to tax. I talked about- got a question just now about the future of Social Security.

So the trust, the Social Security Benefits Trust, the Old Age and Survivors Insurance Trust Fund, 2033 is when it’s anticipated to be depleted. 2035, the number of Americans 65 and older will increase from approximately 56,000,000 to 78,000,000. And in 2035, you’ll also see that it’ll take 2.7 workers to cover each Social Security beneficiary versus 2.3. So a slight uptick in the number of workers that it’s going to take to cover each Social Security beneficiary. 2057, Disability Insurance Trust Fund is depleted. These are pretty bleak statistics to put at the end of a presentation here. We’ve known for a while that the way the things are progressing with Social Security, that there would be a point in the fund would reach kind of that tipping point where it would be difficult to maintain the benefits and to continue to pay out at the levels that we’re paying out. But keep in mind, there are a lot of levers that can be pulled. One of the levers is increasing the percentage that we charge for the FICA tax. So the FICA tax, again, is the tax that covers Social Security and Medicare. Right now, that total is around 7.65% when you take those two pieces together. So government always has the opportunity to increase that amount. Right now, they capped the amount of your income that gets subjected to FICA to just under $150,000 per year. So there’s always an opportunity to increase the amount of that cap and push it up past $150,000. It adjusts with inflation every year, but there’s always an opportunity to push it up even more if need be. You can always adjust the eligibility requirements. So when you could start taking Social Security, you can adjust that bottom number at 62. You can adjust that full retirement age. You can adjust that enhanced benefit age. There are a lot of levers.
I think some of the statistics make this look a little bleaker than it actually is. We always have some variables and levers that we can pull to maintain this Social Security benefit into the future.

Andi: As you notice, there is a lot that goes into Social Security, and it is a huge part of your overall retirement. Deciding when to take it and how to maximize your Social Security benefits is incredibly important. So we do really encourage you to schedule that Social Security analysis with one of the advisors at Pure. We want to be respectful of your time. It is 1:00pm here on the West Coast, so we’re going to wrap it up at this point. Dan, again, thank you so much for hopping in and making it possible for us to do this today.

Dan: Yeah, happy to be a part of this. Thanks for letting me do this, Andi. I really enjoyed it.

Andi: You can call us and you can email us with any questions that you have regarding your specific Social Security claiming strategy. And again, if you have any questions, get them answered in that Social Security analysis. All right, thank you all so much for joining us. Dan, thank you very much and have a great rest of your day.

Dan: Yeah, thanks, Andi. Take care.

Andi: All right, bye bye.

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