Kyle Stacey is a CERTIFIED FINANCIAL PLANNER™ professional with Pure Financial Advisors. Kyle graduated from San Diego State University, earning his BA in Financial Services and received the SDSU Personal Financial Planning Certificate. Kyle works directly with clients to help them accomplish their financial goals specifically pertaining to the areas of retirement planning, tax planning, [...]

Do you think you’re ready to make one of the biggest financial decisions you’ll ever make? Pure’s Financial Planner, Kyle Stacey, CFP®, AIF®, provides insight into the history of Social Security, important changes in 2023, spousal benefits, survivor benefits, taxation and how to make the most of your Social Security payments.

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  • 00:00 – Intro
  • 00:40 – History
  • 03:18 – Importance of Understanding Benefits
  • 05:06 – Benefit Factors
  • 06:44 – Did you know? 9/10 of people over age 65 are receiving Social Security benefits
  • 08:07 – 4 Important Changes to Social Security (2023)
  • 10:29 – Rules of Social Security benefits
  • 14:59 – Collecting early vs. collecting late
  • 19:00 – Continuing to work while collecting
  • 23:49 – Social Security case studies
  • 27:00 – Spousal benefits
  • 29:45 – Survivor benefits
  • 39:48 – Divorced spouse
  • 43:39 – Social Security taxation
  • 49:35 – Future of Social Security

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Kathryn: Thank you for joining us at this Social Security Benefits Explained with Financial Planner, Kyle Stacey. Hello, Kyle. Thank you for taking the time today.

Kyle: Yeah. Thank you, Kathryn. Appreciate the introduction there. Today we’re talking Social Security, right? Different strategies, education around Social Security. And for many of you watching this webinar today, this is likely going to be one of the biggest decisions you make financially. Okay. It’s determining, you know, how much are you going to receive from the Social Security system for the rest of your life? And which you paid money into through payroll deductions. And so Social Security has actually been around quite a while. It started actually with this idea back in the 1930s by Franklin Roosevelt. And, you know, coming out of the midst of the Great Depression, there was a lot of economic unrest. People were on the streets. There wasn’t a lot of food to go around and people were not doing so well. And so he presented this idea of like economic backdrop for people to have something to rely on if at some point they don’t have means to provide for themselves. And so in 1934, he presented this idea of Social Security. It actually got signed into law in 1935. And then payroll taxes actually started coming out from people’s paychecks in ‘37. And then if you kind of look historically at some of these different individuals. Originally when Social Security came about, you had two methods of actually taking your benefit. You could take the income stream for life, or you could actually take a lump sum. So it wasn’t very quickly they reversed that and stopped it. But one of the first people to actually take Social Security was good old Ernest Ackerman. Okay. He only paid about like $.05 into the system and ended up getting $.17 out of it in a lumpsum. So not a bad rate of return. But that kind of went away in the first 3 years, everyone took the lump sum. It was just give me the money, right? Still kind of coming out of the thralls of the Great Depression and everything.  It wasn’t until actually old Ida Mae here of Vermont, she actually took the first income stream from it and the first income stream, she actually only put $24 into the system through her whole career. She only paid in for 3 years. And then she got a paycheck essentially for the rest of her life. And after her first or second paycheck, or I guess Social Security check, she was whole, and then she collected that check for the rest of her life. And if you look mathematically, it actually amounted to about 92,000% as the rate of return on her contribution into Social Security. It obviously doesn’t work like that now, but just to put that into perspective of how kind of revolutionary this, this feat was. We all know Apple, Apple stock, Apple computers, one of the greatest companies to ever be seen. And if you look into from 2003 to today, today’s August 30th, that’s a 53,000% rate of return. If you would have invested in Apple stock. She got $92,000 out of Social Security or 92,000%. So that’s a pretty good rate of return, right? Just to put that into perspective. Obviously the system has changed dramatically. A lot more people are, are taking from Social Security. There’s actually less people paying into it now than there used to be, which we’ll get into here in a little bit. But, you know, the goal of today is really to talk about kind of how Social Security works, different benefits you can take, look at some different case studies and strategies, some things to look out for and some mistakes that we typically see as well.  But Social Security was really meant to sort of be a third leg of the stool and kind of this 3 stool approach. And, you know, 60 minutes did a good, a good, kind of review of this about 10 years ago, and they said, you know, Social Security, it should be Social Security benefits. Some people are getting pensions, and then you got to rely on your personal savings. Well, very few people now actually get this. This was very common 20, 30 years ago, and it may be common for government employees or city employees, but pensions are going by the wayside, and they’re not as popular as they used to be. Companies have found that 401(k) plans are much cheaper to administer and they have much less liability. So what they have done is they’ve shifted providing pensions to providing employer matches in their 401(k)s and it’s a lot easier to administer as well. And so many of you watching this may only have two of these, Social Security and personal savings. Okay, if you have a pension, you’re one of the fortunate minorities that have them. And so Social Security is likely going to be one of the biggest decisions that any of you are ever going to make. And to be quite blunt, it’s actually a really easy decision to make if you know when you’re going to die. Very few of us probably actually want to know when we’re going to die, but to be honest, if you knew that you can actually easily run the math and figure out when is the best time to take my benefit. Most of us don’t know that information, right? We can maybe get a better sense through your family history or what your, your health is, but for the most part, it’s a little bit of looking at the statistics. Okay. And so there’s a lot of things that actually go into what make up your Social Security benefit. Some of you might be self-employed. You have to pay into Social Security a little bit differently through self-employment tax. Some of you are having it directly pulled from your paycheck through what’s called FICA, F I C A.

And there’s two components to FICA tax. Right. It’s about a 7.65% deduction off of your paycheck, and that’s broken up into a couple different components. 6.2% of that actually goes towards Social Security, and the other 1.45% goes toward Medicare and paying for that. Okay, but other things that factor in is your age, right? How much money have you made? Does your- are you relying on a spouse and their Social Security because maybe you were staying at home with the kids or something like that. They were the primary breadwinner. I don’t know. Widower status, some of you may be single due to a loved one passing away, disability. And then some of you may also be subject to what’s called windfall elimination provision or government pension offset. If you have a pension in which you did not pay into Social Security, but you have other earnings that you at some point in your life or career did. Okay, so there’s a whole host of things that actually go into the benefit. And the way that they calculate the benefit without going into the weeds, they highly favor the lower part of your income first. So like the first tranche of your income, almost 90% of it is counted toward calculating your benefit. And so they- it tends to favor lower wage workers because they are going to need more of the income. Okay. And Kathryn, stop me if there’s any questions that are pouring in and that are relevant as we go through this, but, I don’t want to just be talking to myself here. But anyway, just kind of looking statistically at some of these numbers, nearly 9 out of 10 people age 65 and older are actually receiving their Social Security benefits at this point. So there is a lot of people actually receiving their benefit and the population is only getting older, right? I think there’s a slide in here that we’ll cover later. But I think over the next several decades- we have about 58,000,000 people claiming, that’s going to go to about 78,000,000 in the not-so-distant future. So there’s more and more people taking from the system. Okay. And this stat here actually was really, really surprising, 12% and 15% of men and women actually rely on Social Security for 90% of their income. Okay. Put that- think about that. That’s a pretty non-insignificant amount of the American population that relies on just Social Security to get by. And just a little bit deeper onto that. I don’t know if anyone wants to relay, or if you want to put this as a question in the Q&A, but the average Social Security benefit in this country is just over $1,800, $1,827 a month. That’s the average. So a pretty large amount of people are relying on that amount of money as their only source of income. But for some of those who have saved a couple of bucks or may have a pension, this is still a pretty important decision on when and how you’re going to take that benefit.

Kyle: Cool. Very good. Well, let’s actually start talking about some of the changes that we’ve seen recently with Social Security. Some of these you may have been aware of, some you may not have. One of the biggest ones that we saw was last year, Social Security got one of the largest cost of living adjustments that we’ve ever seen. It was just shy of 9%. Okay. And that was due to how bad inflation was last year. And most of you know, on this call, it really hasn’t gotten much better. You go to the grocery store, you go to the gas station, things are still really expensive. So to combat that Social Security increased how much they were doling out in benefit. So everybody that was taking Social Security got an 8.7% cost of living adjustment. They also raised with inflation, they raise other things to combat cost of living adjustments, but they also raised the maximum limit that you pay into the system. So if you’re fortunate enough to have a salary that exceeds $160,000, the first $160,000 of your earnings get into Social Security. That’s that 7.65%, 6.2% to be exact. But once you hit that $160,000 threshold, you no longer pay into Social Security. Okay. So sometimes people that they hit this number in like October or November, they get this little holiday bump and they feel their paycheck go up, even though they didn’t change anything. It’s because you’ve hit the maximum. This also went up really significantly last year. So it was $148,000. They jumped it all the way up to $160,000 for 2023. Okay, so just keep that in mind. The full retirement age continues to change as well. When, when Social Security first started, it was 65 years old, and that has slowly over time, as people are living a lot longer, has graduated all the way up to age 67. So many of you, you’re, if you were born after 1960, your full retirement age is 67. If you were born just prior to that, it might be one of those random ones like 66 and 6 months, 66 and 8 months, etc. And then the earnings limits are expected to continuously increase so that they can keep the Social Security system solvent and funded.

So every single year, that $160,000 that you pay into Social Security is expected to go up over time. Okay. And that’s typically based on core and CPI and inflation and whatnot. Okay. So Social Security, there is no shortage of rules. There’s a lot of, it depends. There’s a lot of caveats. And it’s like a, it’s kind of like a spider web where you sort of, you pull one lever and it spider webs a couple other different scenarios out there. So let’s talk about some of the basics and some of the main rules around Social Security. To do that, we need to understand a couple of terms. Okay, so there’s 3 main terms. The easiest one is going to be Social Security Administration. Just for short, SSA. Okay, these ones are a little confusing. They’re kind of, I don’t want to say interchangeable, but full retirement age is based on your birthday. Right. Based on your age. So your full retirement age is based on the year in which you were born. However, your primary insurance amount is the actual dollar benefit that you’re going to receive at a given point in time for your full retirement age. Okay. So if your full retirement age is 67, you will have a primary insurance amount that is based on your full retirement age. Okay. So this is actually how they calculate your benefits based on when you were born in the year. So we won’t spend a ton of time on this, but I just want to go through this really quick. Again, 66. Then it goes all the way down. They sort of spent a couple of years prolonging this to make sure we got to age 67. But this is more interesting here because everybody has the option of taking their Social Security at 62. Even if their full retirement age is let’s say 66 or 66 and two months or 67.

And we’ll get into the ramifications of that, but just know that every year you take your Social Security benefit early, you’re going to get a reduction. So for someone who’s 66 years old, most of you people are 69 and older. So it’s not too effective, but you could essentially lose 25% of your benefit. If you took it that, you know, 65 years early. Same thing if you’re 67, they actually made it more detrimental, you only get about 30% of your benefit if you took it at 62 years old. Okay. So based on the year you were born this will help you figure out what your full retirement age is. And again, the full retirement age is determined by Social Security Administration. As people get older, that has typically gone up. It’s also conversation to hopefully prolong the Social Security, you know, trust fund, so to speak, is raising that. So this is a chart to sort of-

Kathryn: Kyle-

Kyle: Yeah-

Kathryn:  Because you said you only get 30%. What you meant to say is you get the 30% haircut.

Kyle: Yes, correct. Sorry.

Kathryn: You get 70%.

Kyle: You lose 30% of the full retirement age benefit. Yeah, sorry, kind of ____ that one there. Okay, so this- these are some interesting statistics here. And I think this is going to affect a lot of the folks watching this. There’s a very big difference between planned retirement and actual retirement. Okay, so if we sort of look at these statistics around people collecting early, many people actually plan- if you sort of draw a line here in the sand, about 60% of people plan to retire prior to 65, right? That’s, that’s pretty ambitious. That’s pretty good, for better, for worse. That’s what it is.  40% plan on working a little bit longer than that. And again, this is planned. This is anticipated retirement. However, what actually happens is very different. Again, if we just sort of draw the same line, it actually is closer to about 80%/20%. All right, so about 80% of people retire much earlier than what they had planned for, which could force people into taking Social Security a little bit earlier than what they had desired or wanted to do. And it’s not entirely, you know, these folks’ faults. A lot of these individuals are in what’s called the sandwich generation. And the sandwich generation for these people here is, you know, they’re still potentially in the latter part of their career, they’re at their peak earnings career. But they’ve also got kids that are still either in college, they’ve come back from college, they might still be on the couch and they’re supporting them, they maybe haven’t found their feet. But they’re also supporting their parents who are also aging and needing a little bit more assistance and help. And so they’re kind of stuck in between. Most of the times when people retire earlier is because they need to take care of somebody else. And so you’re kind of sandwiched in between there and almost forced to retire sooner than what was anticipated. Okay. The other 20%, you know, maybe they just didn’t, or it could be the same sort of situation. But I thought this was really interesting. And that’s a big reason why it’s that, that kind of sandwich generation. So this is a good visual to sort of look at, to actually figure out how a full retirement age works, the different reductions along the way. And also you get a benefit if you’re able to delay taking your Social Security. Okay. So what this shows is assuming again, full retirement age for somebody who’s 67 years old, you will get your full primary insurance amount based on the Social Security Administration and your work history. However, if you wanted to take your benefit earlier than your full retirement age, you absolutely can do that. And you can take it at any month. You don’t have to wait a year to do it. You can take it at any month, starting at 62 years old. Okay, but look at the statistics every year you take it early, you get a little bit of a haircut and that haircut’s for life. It’s a permanent haircut that you’re taking because you want to take it a little early. So 7% year one, if you go from 66 to 60 or 67 to 66. 65 goes to 13%, 20%, 25%, all the way to 62. That’s that 30% haircut that you take. Okay, so it’s pretty significant. And if you’re fortunate enough to be in a position where you’re, maybe you’re still working at 67 or you have other assets that can get you by, or you just don’t need the Social Security, you actually can delay it 3 more years. All the way to 70, you cannot delay Social Security past that, right? You actually might get a letter in the mail saying, hey, you’re supposed to take this. But every year you delay it past full retirement age, they will give you a delayed credit and they say, hey, thanks for giving us a couple more, a couple more years. We’re going to give you a little bit more on the back end of this. So it’s really difficult up until, you know, more recently to find a guaranteed 8% rate of return. You look 67 to 68, 8% all the way, if you do the math, it’s 124% of your benefit. That’s pretty good. Again, you’ve got to wait 3 years to get it. So you’ve got to figure out a way to bridge that gap. Or if you take it early. That might hurt you later on in life because you’re taking the money now, at a certain point it might catch up, right? So everyone talks about their break even rate versus taking at 62 or 67 or 67 versus 70. That, that’s one way to look at it to try and figure out what’s the best way to claim it. A better way to figure out the best way to take Social Security is look at everything holistically, right? What is your income? What is your expenses? What is your tax bracket? Right. Do you, are you able to pull money from somewhere else to delay it? You want to look at Social Security as a whole and not just in a vacuum because it might actually surprise you on when the best time to take it is. And everybody’s situation is different. No one knows when they’re going to die. And so it’s one of those things you almost want to look statistically and say, okay, well, what is statistically the highest likelihood of me getting the best bang for my buck from Social Security? Okay, and so again collecting versus collecting late. One of the big mistakes that we see is this one here, and it’s not because taking early is a bad decision. Again, it’s sometimes people work after they take Social Security at 62, and there are penalties for doing so. It’s okay to take Social Security early, but if you work on top of that and you make too much money, they’ll take some of it away. Okay, so there’s something that you got to take- we’ll talk about that in a second. Longevity. This is the biggest one. Look at your family history. How is your health? Are you dieting, exercising, all of that good stuff? Longevity is one of the biggest determining factors and actually claiming your benefit early, late, full retirement age, somewhere in between. And then your spouse, right? Is there someone else in the household helping you with the decision? Does your spouse have a larger benefit than you do? Are your benefits identical, right? Who is someone older or younger, right? There’s different rules around claiming a spouse’s benefit.  And so that can affect the decision as well. And so we talked about those penalties earlier in this last- this one here. Let’s actually do that. So again, if you take Social Security prior to your full retirement age, there are penalties if you continue to work. So sometimes people, what they say is they say, hey, I’m going to get to 62. I’m going to take my Social Security and I’m just going to work part time. Right. That’ll kind of supplement me working full time. I get a little bit of Social Security, all good. That helps me keep my health insurance, bridge me to 65, yada, yada. That’s kind of the thought process, but it’s a little bit of a spring trap. Okay. Be very careful because if you work part time, you take Social Security and you make more than this number, $21,240, they are going to take $1 of your benefit for every $2 you exceed that number. Okay? So just to put that in perspective, let’s say in one year, you take it early, you work part-time, you make $21,242. So you’re $2 over the limit. Let’s say your benefit is $1500 a month, they will take $1. So you’ll get $1,499. Not a big deal. Okay, but if you’re making substantially more than that, let’s say you make $50,000 part time, this can really bite you because what’s going to happen, you will get your age 62 benefit for the entire year. Social Security is not going to know that you work part time until what? You file your taxes. Social Security Administration and the IRS talk to each other. They’re going to look at your salary and they’re going to see that you took Social Security. And they’re going to be like, oh, this person made too much money. We need to withhold dollars. So the next year without any notice, you’re going to get your benefit reduced. So you’ll get it for a year and then like when you’re 63, your benefits going to get reduced substantially. So be careful, especially if you only work part time for a year and then stop all of a sudden now you don’t have your part time income and your Social Security is going to drop even further after you just took a potentially 30% haircut on it. Okay, so just be very cognizant of that. It’s a little bit more lenient for the year that you turn your full retirement age, whether that’s 67, 66 and a half, whatever it may be. So the year you turn full retirement age, they give you a little bit of a bigger leeway, right? So $56,520. And they only withhold $3 for every $1 or- you know, for every $3 above that, they take $1. Okay. So this is something that we see also too is a big retirement date for people is getting to a certain age for claiming Social Security. 62 is a big one. 65 is a big one because they can go on Medicare. Full retirement age is a big one. But depending on where your birthday falls in the calendar year, be very careful with how much money you have earned up to that year. Right? If you exceed these numbers, you might inadvertently mess it up. Okay? But once you get to full retirement age, doesn’t matter. You can make $1,000,000 and they’re not going to take any of it away. So full retirement age and older, you can make as much money as you want. Okay. This is where I was talking about statistics and making sure you understand again, life expectancy, how’s your health, and that goes a big factor into determining when you’re going to claim your benefit. So just looking at this, a married couple, interestingly enough, statistically has a higher probability of living longer than just siloing men and women. Okay, so married couples, at least one person has a 63% chance to live to age 90. That’s a pretty large probability, right? And then at the chances of at least one person making it to aging or as 85 is also pretty high, 84%. But when you actually silo those two together, it’s a lot less, right? Women live longer than men. That’s just a fact. Okay. But women living this 85 is 65%, whereas men are 45%. Or sorry, 54%. So just factoring that in whether, you know, you’re a single taxpayer or if you’re married, just understanding these probabilities, because especially for married couples, it’s very unlikely that one spouse is going to, let’s say, expire before the other. Right. Typically, one spouse passes away, the survivor is there for, you know, several years later, maybe even really long periods of time.  And so, you know, making sure that the higher benefit earner might be the one who takes Social Security a little bit later to protect the overall household benefit might be a strategy you want to look into. So let’s do some,  some case studies, right? So we’ve got David and Carol. So David’s married to Carol.  David is the higher wage earner. Both of them have full retirement age of 67, and that’s really important to know. Okay. Especially as we go through these case studies, we’ll do a few of them and see which one’s the best. Okay. Obviously given some assumptions of, you know, expiration dates, things like that.  But pretty straightforward case, we’ll kind of start slow and then dive in a little bit deeper. So the way that this is sort of constructed is that David’s benefit again, is $2200. And the way that spousal benefits work for married couples is that the spouse is always entitled to half of the highest wage earner unless that spouse has their own Social Security benefit. So we’ll get to that one in a minute. But for this instance, Carol has zero benefit. Okay. David has a $2200 benefit. So the way that the spousal benefit works is half of David’s is what Carol is entitled to. So she can get $1100 off of David’s benefit. There’s some caveats there. She can’t just take half of his benefit when she feels like it. David has to be taking his benefit for Carol to be eligible to take half of David’s. Okay. So in this example. They file at 67 years old. So David takes his $2200. Carol takes half her $1100. All good. No issues there. There’s no strategy here. We’re just saying, hey, full retirement age, both of them take it. They collect it. Okay. So that is how a spousal benefit works. If, just saying if, let’s say Carol’s benefit was $1300, she’s not necessarily entitled to taking half of David’s because her benefit is larger than half of David’s. So there’d be no reason for her to take hers, or his. Because hers is bigger, unless you want less money, but I don’t think Social Security would let you do that.  So this is actually, we talked about the reduction of taking your own benefit early. So remember we said if your full retirement age is 67 and you take it at 62, that’s a 30% haircut. The spousal benefit is reduced even further if you take it early, okay? So the way the spousal benefit works, again, just in Carol’s example, 67, the most money she can get from a spousal benefit is half of David’s. It does not ever go up if she delays it. Okay. She can’t take half of his age 70 benefit. It’s always off of half of the full retirement age amount. And every year she takes it early, again, assuming David in our example is taking his, the reduction is pretty large. It’s actually 35%, not 30%. Okay. So the way that actually works in practice is like this. So again, we have David and Carol, $2200 for David. This example, we now have Carol, she gets a $600 benefit. Maybe she worked in the past. So she is entitled to half of David’s benefit. But the maximum she can get is $1100. Okay. Through any combination of any of this stuff. So she takes her own benefit. Okay. Under assuming full retirement age. And then, again, half of $2200 is $1100, but she’s going to take her own benefit. So she’s only going to get $500 of spousal. That’s how you get $1100. So there’s this misconception that you just take half of the husband’s. No, you, you actually get your own benefit and whatever the difference is, is considered the spousal benefit. So in this case, she got her own $600. She’s entitled to $1100, so the difference is that $500 for a spousal benefit. But look at what happens when she takes it early. It’s different. So her own benefit, if she took it at 62 years old, it’s a 30% reduction. So now she’s getting $420 off her own benefit. But because she took it early, she’s almost foregoing the maximum of $1100. Because she took it early, her benefits reduced 30%. And the spousal benefit is also reduced 35%. Remember that’s this chart here. Okay. So going back, less 35%, that’s her benefit, $745. So it’s a little bit of a double whammy. If you take your own benefit early and the spousal early, it’s going to hit you. Okay. Versus the flip side of that. If we look again, the maximum she can get is $1100. If Carol decided to delay her benefit to 70 which she could absolutely do. Remember she gets that 8% delayed credit every single year she decides not to take it after 67, she would get $744. But again, the ceiling is $1100. So regardless of her delaying those few years, she actually got less of a spousal benefit because she got more of her own benefit. So $356 is the max that she gets. So I would say if under those assumptions, she actually left some money on the table. She could have just taken it at full retirement age and then waited and then got a bigger spousal benefit. It wouldn’t have mattered because the max you can get anyways, $1100, okay? There’s another example I’ll show you about leaving money on the table when we get to it. But this is a really great chart to sort of dovetail to see the effects of spousal versus delaying and taking that full retirement age. Okay.  Survivor benefits are completely different than spousal benefits. Okay. So we’ll, we’ll have another example of this, but survivor benefits are essentially one spouse died. There’s a surviving spouse. The surviving spouse has the option, or I guess it’s a defaulted to taking the larger of the two benefits. Okay. So again, under these assumptions, we’ve got David whose benefit was $2200. Let’s say David took his benefit at 63 and 6 months and his benefit was $1800 and then passed away. Carol’s entitled to the entire $1833. That $1100 spousal maximum is out the window. Survivor benefits are different than spousal benefits. Okay, those reductions only come into play in very unique circumstances. So if David was able to delay his benefit to 70, and got $2900 out of the system, upon his passing, Carol would be able to like step up to this $2900 versus her $600 benefit. Okay. So really important to understand that the survivor benefit is very different from the spousal benefit. Okay. As a matter of fact, only about half of people are taking, you know, half their husband’s benefit. That means half the half of women actually have their own benefit that’s larger, which is good. So let’s do a couple of examples and some case studies here on just, you know, what different outcomes would look like long term, assuming a couple of, I don’t like to use the word dying. So I’m just gonna use the word expiration. Okay. I think that’s better.  62. Okay. So let’s show what happens at 62 years old. Okay. So we’ve got David’s taking his benefit at 62. Again, remember his full retirement age is 67. So if he took it at 62, he’s taking a 30% reduction, he’s going to get $1540 for the rest of his life. And in our example, we have them living through age 75. So at that point, let’s say Carol also took her benefit at 62. So she’s taking her reduced benefit. She’d also get a little bit of half of David’s. It wouldn’t be the $1100, it would be like $700 and some change.  Her benefit’s $420, a little bit of the spousal, but the way that the math works, assuming she lives to 85, David’s going to collect about $277,000 based on that longevity. Carol’s own benefits about $75,000. So after, you know, ____ 168 months, that gives a, where’d it go? Oh, it, they gave me different slides here. It was like $277,000. I think it was something like that- a little bit more.  But. That’s, that’s kind of the math, right? And so then from there, if we look, if you look at the adjusted spousal, this is going to be very important, when we get to one of the next couple of slides. You can look at the differences between the spousal and all of that. So this is the slide I was referencing. $574,000 is the total. Carol takes hers, she gets this much in spousal benefit, and then when David passes at 75, remember she steps up to this amount. This goes away. She gets this amount for the rest of her life until she’s 85 when we have her expiring here. So then she actually has $217,000 in survivor benefits. Okay, so just to recap real quick, David’s benefit’s $240,000, Carol takes 65, she gets $50,000 in spousal. That’s a combined amount and then after David passes $217,000. That’s what gives her this $574,000. And then let’s do one where we look at age 67. So this is full retirement age. This is about as clean as we can get. So they both are 67, right? Nothing really changes too much here. They both start. Carol’s getting $1100, which is half of David’s and they collect that pretty much forever, right? So her own benefit, remember is $600. Right. That’s her own benefit, but she gets the spousal benefit. Okay. $600, $500. That’s where we get the $1100. Okay. So that’s what they’re collecting collectively together. And then if we do this math, that actually only comes out to about $580,000. Okay. So again, these are, there’s a lot of assumptions in here, especially around expiration dates here. But under those two exact scenarios, one taking them at 62 and one taking it at full retirement age, it’s only a $6000 difference. So if you knew going into the rest of your life, if these were going to be your expiration dates, I don’t know, and this is not advice or anything, but personally, I’d rather just take the money early, right, $6000 over that long of a time frame, ain’t worth it. But just showing you- it’s still more money in this example. It’s pretty clean. Okay. Now let’s talk about this scenario. And this is where I think Carol left some money on the table. Okay. So again, age 70. Big difference, right? Not only do you have to wait, if you could take it at 62, you gotta wait 8 years to just take your benefit. That’s a lot of time. A lot can happen in 8 years. Health can deteriorate, whatever that ends up being.  You also have to supplement that income from somewhere else. If you got to get it, whether it’s from, you know, rental properties or your retirement accounts, or cash, whatever you got.  So let’s just kind of show you how this works. If David’s benefit was $2200, remember every year he delays it past 67, he gets that 8% delayed credit. So 124% of his benefit is about $2700. And then Carol’s like, oh, okay, well, David’s delaying. I’m going to delay too. So $600 was her benefit. 124% of that $744. Okay. Pretty straightforward. But then she gets her spousal, right? So she gets a little bit more of the spousal, half of this, up to that $1100 max. Okay. It doesn’t exceed that just because David delayed his to 70, doesn’t mean that she gets half of the age 70 benefit. It’s always half of the $2200. Okay. So you add these up, that’s $1100 bucks. But if she was going to get her own benefit of $600, And she delayed it, like that’s great, but the maximum she can get anyway is $1100.

So she actually, in this case, should have taken hers at full retirement age. She would have got the $600 for 3 years. And then when David took his at 70, then she could have gotten a spousal benefit, but doesn’t matter the maximum she can get is $1100. So what she did is increased her own benefit and got a smaller spousal benefit is all she did. So if you do the math, and I did this ahead of time, but it ends up being about $21,600 she left on the table. It’s about $7200 a year. Cause she could have just taken her $600 bucks a month or $7200 a year, starting at her full retirement age. It wouldn’t have mattered. So she left a couple of dollars on the table here, by waiting until David took his. It’s still not a bad strategy again, if, if David passes away, like he does at 75, she then steps up to this much larger $2728 benefit. So in the end, you know, household benefit is protected. Okay. So I thought this was a really good example of making sure there’s some planning ahead of time here, especially if there’s different full retirement ages, different benefit amounts, etc. Kathryn, you got a question?

Kyle: Yeah, we’re going to touch on it a little bit. I don’t have any case studies that we’re going to dive into there.  It’s a little bit more of a rarity to have, but it is something we’ll, we’ll talk about here in a couple of minutes.

Kyle: Yeah, maybe we’ll cut it off a little sooner and, and kind of keep going. So I’ll, I’ll kind of jam through some of these other examples here. Oh, it’s not letting me move to the next slide here. Oh no, there we go. Okay. All right. So this one’s talking a little bit about benefits- Different dates of death is what we’re showing here. Okay. So 75 and 85 now. Okay. Actually, that’s a little bit different. So where are we at here? Go back. Okay. So this is more or less talking about like the optimal strategy, given these dates of death. Okay. So in this example, again, the $2200- Carol gets her $1100. She dies at 85. David goes to 75. In this example, if David takes his at full retirement age, obviously he’s going to get his $2200, but under these assumptions, Carol actually takes hers early. So she gets her $420 because it’s reduced. Remember that 30%. And then once David takes his benefit, she can then claim spousal, even though it’s an adjusted amount, right? So the two combined is about $920. You aggregate these over your life. This strategy actually came ahead because the first one we did was both of them taking it at 62. The other one was them taking it at 67 and then the other one was delaying to 70. The actual optimal strategy, again, knowing when their dates of expiration were, $588,000.

That’s the maximum they would have gotten under all of these different assumptions. Okay, so there’s a million and one ways to skin this with different assumptions of life expectancy, etc.  I believe life expectancy for men is around 80, 78, 80, somewhere in there. And then women, I think it’s just in the early 80s. This one’s talking about different dates of death. Okay. So this is, we’re running it out a little bit longer. Ages 92 and 85 for David. The numbers are obviously going to be a lot bigger, but under these assumptions, they actually end up with quite a bit. We’re not going to go through the full retirement age scenario of this, but as you get older, it pays to delay taking Social Security. So for those who may have longevity in their family, you know, early to mid-80s or later, it could make more sense to try and stretch out Social Security longer because of those different breakeven points. But under these assumptions, they actually got the most out of the system by delaying to 70 and full retirement age. So that’s just kind of what that’s showing. This is just factoring in the different spousal benefits, okay?  This is kind of where I think those questions were coming up, Kathryn, about like divorced spouses and deceased spouses, things like that.  There are different ways you can get benefits.

Some of you watching this webinar might be a divorced spouse. Some of you might have an ex-spouse that’s deceased.  There’s all different kind of spider webs and avenues to go. But if we just sort of segregate these two and we’ll talk about again, spousal benefits are very different than a survivor benefits. But if you are a spouse, a divorced spouse, and you were married to your ex-spouse for 10 or more years, you are entitled to half of that ex-spouse’s benefit. Okay, so if you, you know, married someone, 10 years, divorced them, married again, divorced them after 10 years, married again, divorced after 10 years, you can pick from the highest of the 3. Okay, no joke. But you have to still remain unmarried. You can’t just get married and take off the other ex-spouse. You have to stay unmarried. Both of the individuals have to be at least age 82. There’s always fine print with Social Security. So that says two years does not apply if the individual was eligible for spousal benefits at the time of divorce. Okay.  And then the divorce has to have at least lasted for two years. That’s where the fine print comes in here. Okay. So yes, divorced spouses are entitled to their ex-spouses benefit as long as they were married for 10 years.

Kathryn: As a quick, you said 82, you meant 62 years of age. And also, and also-

Kathryn: I know. At least, you know, I’m listening. And also the fact that the spousal benefits do not affect the primary benefit. So the person that the, so the ex spouse who’s receiving the benefits It’s not affecting the person, the current spouse. I mean, the-

Kyle: Correct. Yeah. Yeah. So it’s not like they’re taking away from your ex-spouse.

Kathryn: Correct. It doesn’t-

Kyle: It’s yeah- they won’t even know. Yeah. That’s a good, a great point. Yeah. We get that question a lot is, they’re going to take half my Social Security. No, that’s not how it works. You still get your benefit. They’re entitled to half of it. You won’t even notice that they filed for it. Great point.

Kathryn: And do they have to, the ex-spouse, do they have to wait until the, qualifying spouse starts taking Social Security? They don’t have to- They don’t have to-

Kyle: I don’t believe so. I, I don’t know the answer to that one. Write it down and I can always respond to that person via email.

Kathryn: I believe they do not. I think the answer to the, somebody asked that question, but I believe the answer is they don’t. So that the,  spouse, the ex-spouse doesn’t have to wait on, you know, there’s no communication.

Kyle: There’s no waiting. I’m pretty sure as long as both spouses are 62 years old, that there’s no issue.  And then again, survivor benefits of deceased ex-spouses is also a little bit different too. So survivor benefits for married to deceased people, the ex-spouse for 10 years. Okay. You have to be unmarried or you can get married after you’re 60. Okay. So if you have an ex-spouse who is now deceased. You cannot get remarried until after 60.

Okay, and then you can take it and then some people there’s different strategies there where you can delay your own benefit to 70 still claim off the ex-deceased spouse, etc. That that’s probably getting a little bit further in the weeds and we need to do today for a webinar, but just know that ex-spouses that have deceased, the surviving ex-spouse is available to take the benefit if it was larger than theirs, okay? Oh boy, Social Security taxation. Social Security is definitely taxed depending on income. Most states don’t actually tax Social Security though. Like I know here in California, it’s tax-free, which is pretty nice. Federally though, it can be taxable. You know, I’ve heard some people say, oh, Social Security is not taxed.  Well, depends. Everything is depends. All right. So let’s talk about that. The way they calculate taxing Social Security is a little funky. I don’t know how they came up with the rules. I just know what the rule is. Okay. So what they do is they take your Social Security benefit and then they chop it in half. So 50% of your benefit, and then they add up all of your other income, which is what we consider provisional income. So that’s going to be things like if you have a paycheck, if you have interest, if you have dividends, if you have IRA withdrawals, if you have rental real estate, if you have non-taxable interest, if you have municipal bonds or tax-free income, it’s called modified adjusted gross income, they will add that back. Okay, so they take half your Social Security benefit. They add up all your other income and they lump that together and that’s what is your provisional income. Okay. And then what they do is very similar to the tax brackets. They run it through their own little calculation and I’m just going to silo kind of the married ones just because the numbers are bigger, the first $32,000 of that provisional income, again half of Social Security plus all your other income, if it’s less than $32,000, then 0% of the Social Security is subject to tax. Okay. If it falls in between here, those dollars that fall in between half of those dollars, 50% of those dollars are subject to tax. If your provisional income is more than $44,000, 85% of the Social Security is subject to tax. Again, this is not the tax rate. This is the amount of the money subject to taxation. Okay. So let’s do a couple of examples. And I’m going to go back and forth on these slides because I’m not a big fan of this, this calculation here. But our first example is there’s $20,000 of Social Security income, but Social Security isn’t enough for these folks. They need $40,000 from their IRA. Okay. So in order to calculate what their provisional income is, remember we take half of the Social Security benefit, which is $10,000, half of $20,000 is $10,000 plus the $40,000 that gives you $50,000 of provisional income. Okay, so we take that $50,000 and let’s run it through this little bracket here. Okay, well $50,00-, $32,000 of that is not even in the calculation. Okay, so $50,000 minus $32,000 that leaves us $18,000. $18,000 goes into this bracket here. This bracket is $12,000. So you’ve got $18,000, right?  Minus $12,000, because that’s how much is in there. $12,000 of our remaining $18,000 is taxed at 50%. Okay. So that’s $6000. Okay. The remaining $6000 times 85% ends up being $5100. Okay. So that aggregated together is $11,100 is subject to tax. Okay. So that’s how you get this number $11,100- 55% of the $20,000 is subject to tax. Okay. Is that not confusing at all? It’s a little strange. So another way, if you wanted to look at this chart, $50,000 was our provisional income, right? You back out that first $32,000 because remember the bracket, the first $32,000 is not taxed at all. Okay. And then there’s 18,000 left, which is, you know, taxed at .5%. This one does it a little bit differently. It’s more top down, whereas I just did bottom up. Okay. So the count, the numbers are a little bit different, but you get to the same dollar amount. It’s $11,100. I like going bottom up because it’s just like calculating taxes. Let’s try another one. So this one’s a little bit different. These people, maybe they delayed their Social Security or something, but they have a bigger benefit, so it’s $40,000. So they have a $40,000 Social Security benefit. They just needed about $20,000 from their IRA. So again, the way you calculate your provisional income is you take the half of the Social Security, the $20,000, so they’re $40,000 is their provisional income. So going back to this chart, $40,000, the first $32,000 of it, not taxed at all, go through the rest up to 50%, which is in this bracket, go to the next one. It’s only $4000. Cause there’s nothing over the 50% bracket. So in turn, it’s only 10% of the $40,000.

Kathryn: We have a question that’s sort of related to that, that you might be able to at this time.  When you’re talking about capital gains, you’re talking about withdrawing from your IRA. But when you have capital gain, let’s say you sell your home and you have capital gains of up to $200,000. How will that-?

Kyle: All of all of that income is added. It’s any income that’s going to show up on your tax return, dividends, capital gains, IRA withdrawals, pensions, rental, real estate, business distributions, any other income, and half of the Social Security.

That’s what provisional income is. So then they take all of that income. They run it through this bracket. And that’s what actually determines how much of just the Social Security is taxed. Right. You still have your own tax brackets. It’s just running through how much of the Social Security is subject to tax.

Kathryn: And then a random question that might, you might want to wait till the end, but are you going to talk anything or “Do you have information if someone is going to be retired overseas and how will that affect collecting their Social Security?”

Kyle: And I guess maybe we need more context. Were they a US citizen to start and then they’re just going to go like down to Portugal or something?

Kathryn: You know, that is a good question. They don’t say they’re a US citizen, but they just say, “can you collect Social Security if you’ve retired overseas?”

Kyle: Mm hmm.

Kathryn: As long as you’re a U. S. citizen.

Kyle: Yeah. Mm hmm.

Kathryn: Okay. Okay. Thank you.

Kyle: We’re getting close to the end here, so I’ll just go through this really quick. This is just kind of talking about the future of Social Security. These are questions we get asked a ton is, just looking at some stats, you know, like 2033. I mean, that’s 10 short years from now,  the Social Security fund is essentially bust if there’s no dollars left at projected wise.  So there’s a lot of people that have some anxiety around that. It was like, well, is it even going to be there in 10 years? You know, I’ll give you my opinion. I think it’s going to be, I think there’s a lot of things they can do to make sure that there’s money there for people. That said, I think a lot of people, a lot of younger folks in their 20s, 30s, 40s are probably going to have a very different looking Social Security system than what we have now, but there’s a million and one ways they can fix it.  You know, they can raise how much people pay into it. We talked earlier about $160,000 being the max. They can just get rid of the maximum and it’d just be 6.2% unlimited.  They can raise the full retirement age, which is probably something they’ll consider doing. Right now  67 is the maximum full retirement age. They might bump it up to 68 or 69 or 70, right? Maybe they increase how long you can take Social Security instead of 70. Maybe it’s 71 or 72, 73. There’s a ton of different ways, but typically things don’t get solved until it’s kind of in your face a problem type of thing, right? I mean, we almost defaulted on our debt this year and they waited until the 12th hour to fix it. So it’s until it’s in our face, I don’t think it’s going to get solved in in the near term But I do think it will get eventually rectified. This is something I talked about earlier.  The number of Americans 65 and older is increasing quite a bit I mean, there’s 58,000,000 today and over the next several years it’s going to increase to 76,000,000. That’s a lot of people. And to follow that up, there’s also less people paying into Social Security right now than are actually drawing from it, and that number is getting worse, right? There’s less people paying in, more people taking from it.  This one might not be as big of a concern for those watching, but by, you know, almost 2100, the disability trust funds run out.  So those are some of the stats, at least around Social Security, but I believe that kind of takes us through everything. I hope there’s some time left for questions, Kathryn.

Kathryn: Well, we still have, we have a lot of questions, so I know that we’re not going to be able to get to all of them, but, many people were asking about the right age and you’ve kind of touched on that.  But just one. And so “When you take your own benefit when you’re 62, your husband delays it to 70 and that’s so his is higher than mine, if he were to pass away before me, did you say I would get his full benefit that he received for from the age 70, the higher benefit?”

Kyle: Yes. So there’s a little bit of a caveat there. Again, the spousal and survivor benefit’s different. The survivor benefit, you get the entire survivor benefit. However, if the surviving spouse is less than full retirement age, it will get reduced. Okay. So again, let’s say the, let’s say the surviving spouse is 64 years old. Husband was 70, died at 70. So it’s a bigger benefit, but the surviving spouse is 64. She’s a couple of years short of full retirement age. It would be reduced in that situation, a little bit. But if she’s, let’s say 68 and her husband is 72, you know, she just gets the bigger benefit.

Kathryn: Okay. And then this question wasn’t really framed as a question, so I hope I get your question answered properly. So widower benefits. So how does remarriage, how does that impact the family benefit. So if I’m a widower and then I get remarried, I think that might be what she or he is asking.

Kyle: Yeah, there’s different strategies around that. Some people will take the survivor benefit they’re entitled to, the widower benefit and that’s, that’s it. It’s pretty clean. Some people will actually take their own benefit and try and delay the widower benefit to that deceased person’s age 70 benefit, then step up to it.  There’s a ton of ways to look at that too. That one’s a little bit arbitrary, but, that there’s definitely some strategies around that. Well, I mean, that’s probably a good lead-in any way. I mean, we’re going to offer- I mean, there’s a ton of stuff with Social Security anyway.  If, if you’re interested at all in getting a little bit more in depth kind of feedback on Social Security, we offer free assessments for people to come in, sit down with an advisor, go through their situation because it’s not something you want to look at in a vacuum right? There’s a whole host of other things with your, your financial situation that you want to consider. Obviously, longevity, pensions, your liquid financial resources. Are there rental properties that you’ve got? Are there other assets coming in on the back end of that through inheritance? I know where there’s a big generation that might have that happen.  So it’s not just looking at it in a vacuum and figuring out what your break-even is given certain assumptions, right? So we offer a free assessment if you want. I think, Kathryn, do you have a link that you can put in the, in the chat there that we can do, or I think they’ll follow up with you guys. If you guys want us, it’s a free assessment. We’ll sit down with you for an hour, see what’s going on and kind of go from there.

Kathryn: Yeah. I’m going to put the link in if he doesn’t. So here’s a couple of things to put in there because you guys have had some excellent questions. We’ve had a lot of questions. And so Kyle hasn’t been able to get to all of them, but please do give us a call and,  see how your experience might differ because everybody’s personal experience is very unique. So let an experienced financial advisor, here at Pure, take a deep dive into your situation and find out, you know, more what we can do for you or what you might, what questions you have. But you’ll not only learn about what part of Social Security will play in your retirement income, but also be able to choose, you know, your retirement distribution plan that’s right for you because everybody is different and unique. You’ll hear Kyle say many times, it depends. It depends. So, there’s no cost, no obligation. It’s just a one-on-one sit down chat. So if you’re interested, let us know.

Kyle: Yeah. I mean, you guys, you took an hour out of your day, probably during your lunch break, you know, takes time to do something with the information, right? Cool.

Kathryn: Well, thank you so much all. I’m going to be putting these links in the chat right here so that you can click on that if you have any questions. And we just thank you so much for being a part of this Social Security webinar.

Kyle: Thanks, Kathryn. Have a great day.

Kathryn: Appreciate it.

Kyle: You bet.

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