Pure’s Senior Financial Advisor, Allison Alley, CFP®, MSBA, AIF®, breaks down the essentials of Social Security and shares strategies to help you avoid costly mistakes when claiming your benefits.
Outline
- 00:00 – Introduction & History of Social Security
- 1:35 – How Social Security Works: Eligibility & Calculations
- 3:41 – 2026 Changes & Updates
- 5:33 – When to Claim: Early, Full, or Delayed
- 9:56 – Working While Receiving Social Security
- 11:09 – Spousal, Survivor, & Divorce Benefits
- 15:21 – Q&A: Claiming Strategies & Spousal Benefits
- 24:47 – Taxation of Social Security Benefits
- 28:30 – Q&A: Taxes, IRMAA, & Roth IRAs
- 33:45 – The Future of Social Security
- 37:20 – Q&A: Social Security Outlook & Closing
Transcription:
(NOTE: Transcriptions are an approximation and may not be entirely correct)
Kathryn Bowie, CFP®: Hello, and welcome to the Social Security webinar with Allison Alley, financial advisor here at Pure Financial Advisors. Thank you so much for being our guide today.
Allison Alley, MSBA, CFP®, AIF®: Absolutely. Excited to get into some Social Security. Let’s get into it. So we’re gonna head on back to the original Social Security. Social Security was written into law back in 1935.
However, payroll taxes weren’t actually collected until 1937. And originally, you could choose between taking a lump sum or monthly payments. And for the first few years, everybody took the lump sum, starting with apparently Ernest Ackerman, that’s the handsome fellow over there, who paid in a total of five cents and took his lump sum of 17 cents after a couple of years of paying in.
The first monthly check was issued to Ida May Fuller in Vermont in Ja- on January 31st of 1940. She paid in a total of just under $25 over three years, 1937, ’38, and ’39, and the first monthly payment she received was for $22.54. So by the second check, she had already received more than she had put in.
I feel like that didn’t bode well for the future of Social Security even way back then. Anyways, so by the time she finished, over her entire lifetime, she took a total of about thir- $23,000 of monthly payments, which after paying in less than $25 re- was a return of over 92,000%. Doesn’t quite work that way these days, so let’s kinda get into how things have changed and all the rules.
Social Security can play a really important part in your overall retirement plan. Sometimes it gets referred to as part of a three-legged stool, being made up of Social Security benefits, pension income, if you’re so fortunate to have one, and your own personal savings, whether that’s in 401s, IRAs, Roths, savings accounts, whatever, right?
So one piece of a three-legged stool. The things that go into determining how much you’re gonna get from Social Security, there’s a handful of factors. Your age, your current earnings, past earnings, future earnings, how much your spouse earned, whether or not you’re married or have ever been married, whether or not you have a spouse that has passed away, whether you’re disabled, or whether you have a pension.
Now, these things have changed a little bit. Having a government or city pension where you didn’t pay into Social Security while you were covered, that used to limit how much you were entitled to from Social Security, but it no longer does, which is helpful for a lot of people Okay. Right now, nearly nine out of 10 people aged 65 and older in the United States are receiving Social Security benefits.
Among elder beneficiaries, 12% of men and 15% of women rely on Social Security for 90% or more of their income. Frankly, that really also reinforces how important it is to save for yourself, because no- most people don’t wanna have to rely on Social Security, but you can see how many people really do rely just on Social Security to get by once they’re retired.
All right, we’re gonna get into some changes, but before I do that, I know Kathryn has a handout that we have available for everybody.
Kathryn Bowie, CFP®: So to help you take everything you’ve learned in today’s webinar, we put together this Social Security handbook. It’s free. It’s easy to follow guide that walks you through everything from how your benefits are calculated to smart filing strategies for couples, et cetera.
Allison Alley, MSBA, CFP®, AIF®: Okay, let’s get into some changes that happened in 2026. So this year, starting January, anybody receiving Social Security received a 2.8% cost of living adjustment on their Social Security income. So people are getting a little bit more on a monthly basis from Social Security. In addition, the maximum amount of earnings that can be subject to Social Security tax also increased.
It’s now up to $184,500. So that’s the most of somebody’s earnings that is subject to Social Security tax. The amount of that tax remained at 6.2% for employees and 12.4% for the people that are self-employed, right? When you’re an employee, you pay 6.2, and your employer pays the other 6.2% on the amount of earnings that you have towards your future Social Security income.
If you’re self-employed, you’ve got to pay the full 12.4%. Medicare tax, which is part of FICA tax, doesn’t have an income limit, so you pay Medicare tax on… no h- matter how much income you earn. Additionally, the amount that you can make before your Social Security income is reduced if you start taking your Social Security early is $24,480.
So if you start early and you’re still working, if you make more than $24,480, $1 of your Social Security income will be taken away for every $2 of income over and above that $24,000 number. We’ll get into more logistics around that in a few slides. And then when the disability income. So people who are receiving dos- Social Security disability income, the average number, the average monthly amount went up to $1630, and it was at $1580 last year.
So just a rough idea of what that looks like. Okay, let’s get into the rules So a few terms that you might hear thrown around and that it’s helpful to understand. Full retirement age or FRA, that’s the age at which somebody first becomes entitled to their full or unreduced Social Security benefit. The primary insurance amount is the benefit somebody would receive if they begin starting, if they begin taking their Social Security income at their FRA.
And then the Social Security Administration, SSA, that’s the entity that takes care of all of this. You can go on their website, ssa.gov, to get your own personal projections. Okay. How cal- how benefits are calculated. So like we were talking about earlier, it’s your age, it’s your prior earnings. Social Security actually takes your highest 35 years of income, and that’s what gets used to calculate how much you’ll be entitled to at your full retirement age.
And right now, your full retirement age is based on the year you were born. Anyone born 1960 or later will have their full retirement age be age 67. If you were born in 1959, it’s 66 and 10 months. If you were born in 1958, it’s 66 and 8 months. If you were bef- born before that, you’re already at your full retirement age.
You can start as early as age 62, but your benefit is going to be reduced, and these are the percentages of those reductions. So 67 is your full retirement age. If you started as early as 62, you would only get 70% of that primary insurance amount, the amount you’re entitled to at your full retirement age.
Okay. What people expect to happen versus what we’ve s- actually seen happen. So when people were interviewed and asked about this, essentially about 75% of people thought that they would wait until at least 65 to take their Social Security… to retire and start their Social Security benefits. However, when people have seen what’s actually happened, it’s actually closer to s- the opposite, right?
70% of people that have actually retired and then started Social Security benefits earlier than age 65. So again, it’s one of those things to be aware of. If you do retire early for any reason, whether it’s health issues, being laid off, the list goes on and on, knowing what that’s gonna do to your potential Social Security benefit is a really impartant por- really important part of getting your plan mapped out Okay.
This is a little bit more info into what happens when you start your Social Security early versus waiting. ‘Cause I already mentioned if you take it early, it gets reduced. But if you wait to take it, you could also lock in a higher amount. So this is kind of the step down, right? Again, if you started at 62 and your full retirement age is 67, that benefit is reduced by 30%.
And then it’s reduced slightly less as you get closer to your full retirement age. But then if you wait past your full retirement age, you actually get an 8% increase every year as a… essentially like an incentive for waiting, and that increase stops at 70. So there’s no benefit past age 70 for continuing to postpone Social Security.
You can’t postpone it. I guess you could not file, but then when you did, they would still pay you back to your age 70. All right. So when you are trying to decide what to do, right? Start on time, start early, wait. You kinda… There’s a bunch of different factors that are gonna play into that.
Are you still gonna be working, right? Because if you’re still gonna be working and you’re not your full retirement age yet, because of that kind of penalty or reduction in your income, it probably doesn’t make sense to start early. But extenuating circumstances, you never know. So are you gonna be working even part-time before that full retirement age?
How’s your health? Is there longevity in the family? Are you expecting to live a really long time? Waiting might be worth it. And then are you married? If so, what’s the age difference? What are your earnings versus their prior earnings? Who’s gonna have more benefits? Those things factor into when you would take your own as well.
All right. Let’s chat about what I was mentioning if you are gonna work while you are taking Social Security income. So if you aren’t yet full retirement age, like I mentioned, the 2026 limit of what you can earn before your benefit gets reduced is $24,480. So that’s not very much, right? So unless you’re just doing some little part-time work, you’re gonna get your benefit reduced $1 for every $2 of earnings above that.
In the year that you turn your full retirement age, the months leading up to your birthday, there’s a slightly larger limit. You could make up to $65,000 in that year before your birthday. And so there’s… you can earn more, and the reduction is slightly less. You get $1 withheld for every $3 of earnings above the limit.
Again, only in the months before your birthday or before your full retirement age hits. And then once you hit your full retirement age, you can make as much money as you want, take your Social Security income, and there’s no reduction of your Social Security benefit So if you wanna keep working, you could still go ahead and turn on your full re- you turn on your Social Security at that full retirement age without a reduction.
Okay, let’s talk about likelihoods and life expectancies, and then we’re gonna get into some spousal scenarios. When we look at married couples, single individuals, and life expectancy, essentially at… Once people retire, I guess it doesn’t really matter how old you are, these still stand. But a married couple, at least one person has a 63% chance of living to age 90, and 85%…
there’s an 85% that at least one person will live to age 85, right? So that’s some longevity. They get a little bit lower when you’re not married. So a single female age 65 has a 44% chance of living to 90, a 66% chance of living to 85. A single male age 65 has a 33% chance of living to 90, and a 55% chance of living to 85.
So married couples have longer life expectancies, and take that for what you will. So let’s chat about what that actually means and how you can kinda leverage your own and spousal benefits if you are married. So we’re gonna use this example, Carol and David. They are… We’re assuming they’re the same age.
He made more money than she did. Both of them have a full retirement age of age 67. David has a higher benefit because he earned more, so his Social Security benefit, if he took it at age 67, would be $2,200. Carol’s benefit is $600. However, spousal benefits, everyone is entitled to their own benefit or 50% of their spouse’s, whichever one’s higher.
So in this case, if we assume they both file at age 67, start collecting, David’s gonna get his $2,200 and Carol is gonna get $1,100. And I’ll get to how that’s actually calculated in a minute. But just like your own benefit, if you start the spousal benefit early, it’s also gonna be reduced, right? So similar reductions in benefits by starting early.
But unlike your own benefit, which gets that 8% annual bump when you wait, the spousal benefit does not increase. So whether Carol started at 67 or 70, she’s still gonna get that $1,100. And so y- there’s no reason to wait on a s- on a spousal benefit How that’s actually calculated is the… So we, in this scenario we know that David’s is 2,200, so Carol’s is 1,100.
So she starts at her full retirement age. She gets her own benefit of 600, and then a spousal addition to bring that total to the 1,100 that she’s entitled to, half of his. If she starts early, her… And this is at 62, right? There’s all the iterations in between. But that 30% reduction is applied to her own.
There’s a slightly larger reduction on the spousal, so the total amount is reduced down, but it’s like proportional. If she waits to take it to 70, her own is gonna get that same increase that we were mentioning, right? The 24% increase between 67 and 70. But the spousal benefit doesn’t increase, so the total is still capped at that $1,100 max.
Very clear, right? Okay. So when they, when it gets looked at of who’s actually collecting what, 60% of women are collecting their own benefit, 15 are collecting just that spousal benefit, and 24% of women currently claiming Social Security are, have a combination of their own and the additional amount of the spousal.
Survivor benefits. What happens with survivor benefits is the surviving spouse is going to get the higher of the two benefits. So if both people are getting Social Security, somebody’s getting… They’re both getting their own, somebody’s getting their own, somebody’s getting the spousal, whatever, one of those numbers is probably higher.
When one spouse is, passes away, the surviving spouse is going to get the higher of the two benefits. So either they’re gonna keep getting their own, or they’re gonna get their spouse’s if that one was higher.
Kathryn Bowie, CFP®: We have a couple questions. Okay. One is, can I stop my Social Security and then restart it at a later date?
And if I do, will my monthly checks increase?
Allison Alley, MSBA, CFP®, AIF®: You can if you stop it within 12 months. So if you start your Social Security, you can stop it. You have to pay back everything you received, so it’s like it never happened, and then if you started it again later, you would get the benefit of that increase for waiting.
Kathryn Bowie, CFP®: Correct. Okay. If both my husband and I have worked forever and started Social Security at 70, wouldn’t we both get our own benefit? Yep. Yeah, basically, if they’re, if one’s making m- If one’s not making more than twice the amount, then you’re just each getting your own.
Allison Alley, MSBA, CFP®, AIF®: Correct. Everybody gets their own or 50% of their spouse, whichever is higher.
So if your own benefit is higher than half of your spouse’s, you’re just gonna get your own. If their benefit is higher than half of yours, they’re gonna get their own, so you just get your own.
Kathryn Bowie, CFP®: Okay. So I’m two years older than my wife. When I reach 70, can she take her half of my- Then you actually just said that.
Yeah … when she reaches
Allison Alley, MSBA, CFP®, AIF®: the- that is actually a good point. The higher earning spouse does have to be collecting for the lower earning spouse to get the spousal, which this is… There’s part of this as the example here in a minute. But the lower earning spouse could start their benefit, but on their own benefit, which if they have a benefit based on their own earnings record but they wouldn’t be able to switch to the spousal until the higher earning spouse actually turns their own Social Security on, then they could start taking the spousal benefit.
Kathryn Bowie, CFP®: Gotcha. So let’s see. If the spouse takes theirs at 65, so theirs and theirs so theirs and their spouse portion, it doesn’t reduce the other spouse’s benefit if they wait until 67. But actually you just said that the s- the-
Allison Alley, MSBA, CFP®, AIF®: Correct, but they wouldn’t actually be able to take the spousal part until the higher earning spouse was taking theirs.
Kathryn Bowie, CFP®: Correct. Okay, and we’ll take one more. I understand that if I work after starting, the earned income can reduce my Social Security benefit, but what about if I don’t work but receive non-qualified deferred compensation? So when we’re talking about the provisional income.
Allison Alley, MSBA, CFP®, AIF®: Yeah. Yep, we’ll also get to that.
Yeah, it actually, it only is earned income that is factored into whether or not it’s gonna penalize your Social Security income. Interest and dividends, passive income, like real estate income, none of that counts against, counts towards that annual earnings limit if you’re taking Social Security early.
Back to David and Carol. So we’re assuming that David’s monthly benefit is $2,200. Carol’s monthly benefit is $600. David’s gonna live to 75. Carol’s gonna live to 85. So if David starts taking his benefit, $2,200 a month, but let’s say he takes it early. So let’s assume that his age 62 amount is actually 1,650, and he gets that, from age 62 to age 75.
So 168 months, that equals $277,000 total for David. If Carol starts her own $600 benefit also early, let’s assume that’s $450 a month that she’s gonna be entitled to. And so during that same period until that same hun- the 168 months, her lifetime that equals $75,000. But we know that she’s also entitled to the spousal.
So if we stack the spousal on top of that, and because she’s gonna live 10 years longer than him, the amounts are slightly higher, so the total adds up. The total amount that David’s gonna get is t- all of this added together, the 240, Carol’s 65,000, the spousal of 50. And then because she’s gonna get the spousal bene- excuse me, the survivor benefit when he dies for the subsequent 10 years.
The total in this scenario, if they both started at 62, but she lives 10 years longer, gets them $574,000 over their combined lifetimes. If they both start at 67, and we’re assuming those same life expectancies, David’s gonna live to 75, Carol’s gonna live to 85. He starts, he gets his full 2,200. She gets her 600, but also the additional five, so she’s getting $1,100 a month.
The total amount… I guess they carried it over for us. Thank you. The total amount if they both start at full retirement age, he lives to 75, she lives to 85, gets them 580. If they started at 62, 574, right? So better off waiting till full retirement age. Again, this obviously assumes that they know exactly how long they’re living, so that makes real life a little more complicated.
But what happens if they both waited until 70, right? So if David waits until 70, now he gets that increased amount, so 2728. Carol gets… Her own is increased, but the spousal decreases. So again, it’s a combined $1,100 ’cause there’s no benefit for her. She doesn’t get any more just ’cause she didn’t start until 70.
But because David didn’t start until 70, she took the spousal. This combined amount is 557. So that’s actually the least favorable option so far. But what happens if Carol starts her own benefit at 62 because she’s the lower earning spouse. So she turns on her $6 b- $600 benefit, but it’s reduced ’cause she starts at 62.
David turns his full benefit on at 67. He’s getting the $2,200. At that time, she can get the adjusted spousal addition. And again, he lives to 75, she lives to 85. This gets them a combined 588. Somebody basically just asked something similar, right? The lower earning spouse could go ahead and start early knowing that they’re not gonna get the additional spousal part until the higher earning spouse turns it on, but that could end up being what works out best in getting you the most over your combined lifetimes.
So again nobody has a crystal ball. We don’t know how long we’re gonna live, but understanding, health and longevity and all those other parts can play a part in helping you determine what’s gonna make the most sense. If you are divorced, you can still be entitled to your ex-spouse’s spousal benefit as long as you were married for at least 10 years and you’re currently unmarried, and you’re both at least 62, and you’ve been divorced for at least two years.
So if you’re currently married, you can get each other’s spousal benefits. But if you’re divorced, you can still access your ex-spouse’s benefit, and it doesn’t impact them at all. You can still access your ex-spouse’s benefit as long as these things apply, right? And it doesn’t matter what they’re doing.
So that’s important. Survivor benefits. So if to be eligible for survivor benefits once one spouse died, you can also get survivor benefits if you were… your ex-spouse passed away and you were married for at least 10 years, you are at least 60, and you are unmarried or you are r- remarried after age 60.
So there’s a lot of ways that you can still get benefits based on a spouse’s earnings record, even if you’re no longer married to them and even if they’ve passed away.
Kathryn Bowie, CFP®: So if I retire prior to my full retirement age and wait to collect Social Security at full retirement age, how can I factor in the principal reduction from my 401?
What would that mean? What do you mean?
Allison Alley, MSBA, CFP®, AIF®: Oh, do you mean… Oh, so yeah, you would need to factor that in, right? So you mean if you retire and you don’t take Social Security, so you’re gonna need to withdraw from your 401to bridge the gap before t- Social Security- … comes on. Yeah, that’s an important f- piece of all of this, right?
Is taking a look at what have you accumulated, what types of accounts is it in, what are the tax ramifications of withdrawals. Is it in pre-tax money? Is it in Roth accounts? Have you built up enough to sustain withdrawals before you turn on Social Security? Yeah Yes, you have to factor that in.
Yeah.
Kathryn Bowie, CFP®: Okay, this is an interesting one. I’m 68 and have delayed filing for benefits. When I decide to file, can you explain how the delayed retirement credits work? For example, if I choose to file at 68 and a half, my understanding is you can go back six months and receive a lump sum credit or receive a delayed credit the following year.
Allison Alley, MSBA, CFP®, AIF®: Yeah. That’s You just explained it. So if you wanted- Good answer … you wait to file until 6- your example, 68 and a half, but you wanna be like, “Hey, I meant to start at 68,” you submit that, and they will calculate what you would’ve been entitled to at 68, and they’ll pay you a lump sum of those months, and then start that monthly amount when you sign up.
But they’ll pay you back for the months you weren’t taking it if you wanted to start it earlier. What this is talking about is how Social Security income is taxed. And so how much of your Social Security income will be subject to federal tax is dependent on all of the other sources of income that you might have.
And so a calculation gets done to determine what’s called your provisional income. And so that is essentially half of your Social Security benefits plus pretty much any other income source. Even tax-exempt income gets added in, right? So we’ve got all of your income sources, plus your half of your Social Security benefits that totals up to your provisional income.
Your provisional income is what determines how much of your Social Security income is actually subject to federal tax. So if you… I’m gonna stick… I’m gonna start on the bottom with married filing jointly. But if you’re married and filing jointly and your provisional income is under $32,000, none of your Social Security income is gonna end up subject to federal taxation.
If your provisional income falls between $32,000 and $44,000, then up to half of your Social Security income would be subject to federal tax. And once your provisional income is above $44,000, you’re essentially looking at 85% of your Social Security income flowing through and being subject to federal tax on your tax return.
There’s a big calculation that gets done, right? It looks at all of those different factors, totals it all up, and then there… it’s progressive, right? So j- just ’cause you hit $32,000 of provisional income, half your Social Security isn’t subject to tax, right? There’s a range, and it increases up to half, right?
And then above this, there’s another calculation, and more and more is subject to tax until you hit 85% of the total. While not all of your Social Security is taxed, which is a nice benefit, a lot of people, depending on what else they’re living on, so th- that question, right? If one person’s taking Social Security income and the other person is working, those earned income dollars are gonna be totaled into this provisional income calculation.
If you have a rental income, if you’ve got dividends, if you’re pulling out of your IRA, if you’re pulling out of, if you’re realizing gains on stocks in a non-retirement account, right? Capital gains, dividends, interest, IRA, 401withdrawals, rental income, business income, earnings, wages. All of those things add up and are factored into this calculation to determine how much of that Social Security income is subject to tax.
It is why making sure that you give yourself choice and flexibility while you’re accumulating dollars towards retirement, it’s why that’s so important, right? If you can build places where you aren’t gonna pay tax, like Roth accounts, if you can build money outside of retirement accounts where you can utilize long-term capital gains rates, you can tax-loss harvest.
There’s ways to keep those other pools of money really tax efficient so that, hey, you’ve got Social Security coming in, you’re pulling some out of your IRA. But if you want more to live on, you could pull from some of your other accounts if you’ve been able to get money in those other types of accounts, like I said, like Roths and non-retirement accounts, so that those things don’t add up here, right?
If you can keep this as low as possible, then you have a greater likelihood of having less of that Social Security income subject to federal taxation. And this is just at the federal level, right? There are a handful of states that tax Social Security. There’s only 13. So most states don’t tax Social Security income.
Some do, so you obviously wanna check your own state. But this is the rules at the federal level. So before we get into the future of Social Security, I have to imagine there’s
Kathryn Bowie, CFP®: more questions. You have to imagine, okay. So do you know how long you can go back if I decide to, as we talked about, that I decide I wish I would’ve taken my Social Security earlier.
Do you know how long you can go back?
Allison Alley, MSBA, CFP®, AIF®: I think you can only go back six months.
Kathryn Bowie, CFP®: Okay. What will the Social Security do to the IRMAA calculation when we’re talking about IRMAA?
Allison Alley, MSBA, CFP®, AIF®: Great question. Let’s go back to this. So that gets added in as well. When you… So IRMAA, for anybody that doesn’t know. So once you’re 65 and eligible for Medicare, your Medicare premiums are based on your tax return two years prior.
So let’s say 2026. Everybody who’s on Medicare in 2026, the amount of premium that they pay is determined by their 2024 tax return, and it’s determined by what’s called your modified adjusted gross income. And there’s a basic Part B premium that everybody pays, but there are several higher thresholds, and as your income increases, it will increase the amount of your Part B premium.
And yes, Social Security income coming in, and frankly, everything else on this list, adds in to your modified adjusted gross income, and that’s the number that gets looked at to determine those future Medicare premiums. And then every year it’s reevaluated. So for 2027, the Social Security and Medicare folks will look at your 2025 tax return, and so on and so forth.
So if you have high income one year for whatever reason, you sold some… You, I don’t know, you took a big distribution from your IRA or you sold your house or who knows, and there was a lot of income. You might have your IRMAA or your Medicare premiums higher two years later, but the following year it’s gonna reset based on the next year’s tax, right?
So it’s not like a increase forever, but it is part of the calculation that determines your Medicare premiums. Yeah.
Kathryn Bowie, CFP®: Good question. The provisional income limits, is the AGI factoring the standard deduction? Now, standard deduction comes after AGI, but senior- Correct … deduction and the OBB 6000 senior deduction.
Yeah. So maybe comment on that.
Allison Alley, MSBA, CFP®, AIF®: Yeah, correct. Okay. So provisional income is before itemized or standard deductions and that new senior exemption under the OBB, B, whatever. B. Three Bs. So yeah, you have your adjusted gross income, provisional income. These are all calculated, and then standard or itemized deductions, those add- additional senior credits, exemptions come after that to give you taxable income.
But taxable income is not what is factored into this. It’s the amount of b- before those deductions are taken out.
Kathryn Bowie, CFP®: And we have talked about our Roth IRA, but someone just said, “Can you just briefly explain what a Roth IRA is?”
Allison Alley, MSBA, CFP®, AIF®: Yeah, absolutely. So a Roth IRA is, I can’t draw on this otherwise I’d draw it out for you.
But basically- … a Roth IRA is a, an account that you can put after-tax dollars into, invest it. It grows tax deferred, tax-free really, and withdrawals come out when you’re ready to take withdrawals in retirement at completely tax-free. So i- if you are still working, you have earned income, and you can put money into a Roth IRA.
There’s a few rules. You have to be working, you have to have earned income, and you have to be under a certain amount of income. There’s an income limit to be eligible to make the contributions. But you could contribute to an account, invest those dollars. The growth is gonna be tax-free forever. When you go to pull the money out to supplement your other income sources, whether it’s Social Security, pensions, other account withdrawals, those dollars are completely tax-free, and they do not get included in this calculation.
So having Roth dollars can be really beneficial in helping mitigate not only your total tax, but how much of your Social Security is subject to tax, whether or not you’re subject to Medicare additional premiums, all of those factors.
Kathryn Bowie, CFP®: If I never worked, could I draw as based on my husband’s income?
Allison Alley, MSBA, CFP®, AIF®: Yep.
Honestly, that’s why spousal benefits were originally created, because traditionally like the husband worked and the wife stayed home and took care of the kids. And so it was a protection for the wife to be able to draw those spousal benefits based on the husband’s earning records.
Things are different today, but the rule is still the same.
Kathryn Bowie, CFP®: If you still have questions in how Social Security fits into your retirement plan, that’s exactly why we offer this free financial assessment. And Allison is, g- great giving us all these details, but everything specific to you personally we can talk about in the office or via Zoom.
So no pressure, no cost, just honest, personalized guidance from our team of professionals and experienced advisors to you. And if you are already a part of our Pure family, just give your advisor a call, and we can go over all of this together with you.
Allison Alley, MSBA, CFP®, AIF®: We’re wrapping up here. This is the future of Social Security, which is frankly kind of unknown.
But basically right now, given the amount of money and the number of people drawing from it, currently the, what Social Security really is the Old Age and Survivors Insurance trust, right? That’s Social Security, is on track to be depleted in 2033 So that’s not great. In 2035, the expectation is that the number of Americans 65 and older will increase from 73 million to 78 million, and there will be 2.1 to 2.2 covered workers for every beneficiary.
So what that means is that right now the number of people that are working and paying into Social Security, there’s today 2.3 workers for every person receiving Social Security. You need people paying into Social Security for the money to be there for the people receiving it, and that is expected to decrease because these generations aren’t as many people as the baby bo- baby boomer generation.
So by 2035 it’s expected that only 2.1 to 2.2 people will be working and paying in for every one person receiving benefits. By 2099, the Disability Insurance Trust Fund is also expected to be complete… to be depleted. Excuse me. So there’s likely changes coming. What exactly those are, nobody knows for sure.
Things get thrown around all the time. Congress will have to make some decisions at some point. And, things that could happen, in the beginning we walked through, the amount of income that can be subject to Social Security tax, which right this year is $184,500.
That could continue to increase. They might take the cap away altogether. The current percentage is 12.4, 6.2 for the employee, 6.2 for the employer. That could increase. They could change the way the benefit is calculated. They could increase the age at which you reach full retirement age. They could change how spousal benefits are calculated.
They could change who’s entitled to spousal benefits. They could change how disability benefits are calculated. They could change because yeah if you have minor children and you pass away, there’s Social Security benefits involved. They could change that. There’s a lot of things that could potentially change.
In the last 10 years they’ve changed a handful of things. So I’m sure those are the avenues that will continue to be explored. And what they land on, obviously we don’t know. But, being on track to run out by 2033, that’s, I don’t know, eight years from now, so that’s not great. So I would expect changes to come, but understanding how the current rules apply to you, understanding what you’re entitled to, and understa- and then paying attention to how those things could change could also then change the decisions you make, right?
Could change the choices you make in when to start it, how to turn it on, all of those things. And I think that’s it. I know, as Kathryn’s already mentioned, we have a really great Social Security resource. You can go online. You can come in for a free assessment to see how all of these things apply to you.
And I’m happy to take any more questions that we have before we wrap up.
Kathryn Bowie, CFP®: One of the questions we just got in was what is the possibility of a reduction in Social Security around 2033 and 2035? Yeah, I mean- So do you need a crystal ball?
Allison Alley, MSBA, CFP®, AIF®: I could, yeah. I could not tell you the possibility of that. I have no idea, but that’s on the table, too, right?
Could they reduce current amounts? Anything’s possible. I have no idea what the probability of that would be.
Kathryn Bowie, CFP®: Yeah, I just heard when someone was saying how all of these things that they’re talking about in Congress, they’ve been basically kicking the can down the road. And now there’s gonna be a certain- For years.
Allison Alley, MSBA, CFP®, AIF®: It’s not like this hasn’t been on the radar for literal decades,
Kathryn Bowie, CFP®: and it, I guess there’s a certain point where they can’t kick the can any longer. So as you said, retirement age is gonna go up. Our percentages might go up. We don’t know exactly what’s gonna happen. We just all have to wait and see and watch, and that’s why we are constantly changing our plan, our financial- path. Get your personal questions answered. Find out how we might be able to add value to your situation, not only in Social Security, but in all other factors, your taxes. And can talk about all those things in this personal free assessment to come in and talk to one of our financial professionals. Thank you, Allison, for all of your great knowledge. We appreciate you.
Allison Alley, MSBA, CFP®, AIF®: You’re welcome.
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AIF® – Accredited Investment Fiduciary designation is administered by the Center for Fiduciary Studies fi360. To receive the AIF Designation, an individual must meet prerequisite criteria, complete a training program, and pass a comprehensive examination. Six hours of continuing education is required annually to maintain the designation.
CFP® – The CERTIFIED FINANCIAL PLANNER® certification is by the CFP Board of Standards, Inc. To attain the right to use the CFP® mark, an individual must satisfactorily fulfill education, experience and ethics requirements as well as pass a comprehensive exam. 30 hours of continuing education is required every 2 years to maintain the certification.
MSBA – The Master of Science in Business Administration (MSBA) degree is earned after successfully completing a bachelor’s degree from an accredited institution. A person holding this degree has pursued further study in an area of specialization (i.e., financial and tax planning). The typical length of time to complete the program is 1 to 2 years for full-time students.
