Pure’s Senior Financial Advisor, Kyle Stacey, CFP®, AIF®, explores the complexities of Social Security and how your decisions can impact your long-term financial future. Discover key strategies to help you make the most of your benefits.
Outline
- 00:00 Introduction
- 4:52 Important Changes to Social Security in 2025
- 6:47 Rules of Social Security Benefits
- 9:52 Expected vs. Actual Retirement Age
- 12:20 Working While Collecting
- 15:05 David & Carol Scenarios
- 19:05 Survivor benefits
- 20:45 Collecting at age 62
- 22:31 Collecting at age 67
- 23:45 Collecting at age 70
- 27:35 Social Security Taxation
- 34:45 Q&A
- I’m a stay-at-home parent and have only 18 years of earnings. What steps can I take now to increase my future Social Security benefits before retirement? I’m hoping to retire in 5 years.
- My wife started her Social Security at age 63 and I plan to take mine at 70. Has the law changed? If I die, will my wife be able to elect my higher income?
- When should I apply to get my Social Security benefits?
- Do disabled adult children get their parents benefit when their parent passes?
- Can you clarify the Fairness Act and how it affects teachers and their pensions?
Transcription:
(NOTE: Transcriptions are an approximation and may not be entirely correct)
Kathryn: Welcome everyone to the Social Security webinar with our senior financial advisor, Kyle Stacey.
Kyle: So we’ll talk about kind of how it came about, different strategies for claiming. We’ll look at some case studies there, some statistics, and then different ways of looking at it in Social Security is by far one of the most complicated situations, structures that have kind of been created ever.
So, without further ado, we will kind of jump into this. Okay. So what you need to know. Just a little bit of a background. Social Security actually was created by Roosevelt back in the thirties. You know, there was a lot of unemployment, there was a lot of financial hardship. So they created this sort of Social Security blanket as a fail safe to make sure that everyone kind of had their basic needs met.
And it actually started in, 1935 passing the law. People started paying into it to, in 1937, and then they actually at one point gave you the option to take a lump sum on it. Right. I’m kind of glad they don’t offer that nowadays. I think that thing would be outta money fast, but, it wasn’t until people actually started seeing the benefits and bringing that cash in on a monthly basis.
people were actually making pretty good money off of this, and it was working exactly how it was intended. So the first person that actually started taking monthly benefits, was her name was Ida Mae Fuller. She paid into it for only three years, about $8 a year, and ended up getting about $23,000 in total benefits over her lifetime.
It that equates to about a 92000% return on the 24 bucks that she put in. That’s like the equivalent of investing in Apple since inception. Right? It’s pretty close to that. So, all intents, it’s worked out pretty well and it’s almost a hundred years old now. The system. so there’s a lot of important parts about Social Security, but the, main reason why it was created again, was just that financial backing, so that people had a little bit of a, floor on their income, their basic needs are met, but it was really intended to be one of three pieces, right?
Social Security was supposed to be one piece, and a long time ago, they used to have these things called pensions where people would actually, you know, receive income from their duties and work service. Those are very rare now, right? Some people are still receiving really nice pensions. If you’re working for a government entity or a, or you’re, you’ve been at a corporation for a really long time.
and then the other third piece of that is just your personal savings. So fast forward about 70, 80 years, and here we are. Social Security is a big part of what people actually rely on for their main source of retirement income. Okay? And so that three-legged stool is really kinda only two. Now it’s Social Security and then anything else that you’ve saved personally.
So there’s a ton of things that go into your benefit. Some of this is gonna be your age is probably one of the biggest determining factor for not only how much you’re gonna get, but what your full retirement age is, how much money you have put into the system. So if you guys are still working, some of you may still be working, you look at your paycheck, you actually pay into O-A-S-D-I, Social Security, F attacks, all of that stuff.
That is part of what goes into the system. Okay. And you can even log in to Social Security ssa.gov. Look at your past earnings, and then they actually extrapolate what your benefit’s gonna be based on what they expect you to make moving forward to get to your calculated benefit there. Okay? some of you may not be working, but your spouse does.
There’s a chance for you to claim benefits off of your spouse at some point, okay? widowers, right? If a spouse has passed away, you can claim benefits off of that spouse as well. And then your marital status. Past and present, there are ways to potentially claim benefits off of a divorced spouse. Okay.
And then disability. Some of you may be disabled. There’s different pots of money through the Social Security system for that as well. and then this is something I think Catherine was talking about, during the brief little hiatus I had. But, we and GPO, this is essentially eliminated as the Biden administration was going out.
late 2024, they passed a law that actually repealed. This issue. So if you did work for a government entity, there used to be a provision where they’d reduce some of your benefit because you did not pay into Social Security, even though maybe a previous job you did. So they got rid of that. Okay, so just some statistics.
This is actually really important. So nine outta 10 people age 65 and older are taking their benefit. This was as of last year, I would’ve expect that’s probably gonna go up. But then looking at the differences between, you know, elderly beneficiaries. 12% of men, 15% of women rely on Social Security for 90% of their income in retirement, right?
27% combined rely on that for almost all of their income for retirement. Like that’s a big number. So it’s really important to get the decision correct when you’re making this. So just some important changes that they’ve made. I’ll even preview some of 2026, ’cause we’re pretty close to the end of the year.
They gave you a 2.5% cost of living adjustment if you started in 2025 moving forward. They just announced that this is actually gonna be 2.8% moving forward in 2026. So I think the average Social Security benefit retiree is gonna get an extra 50 to $60 a month there. Okay, this is another one, and this has gone up quite a bit.
So when you actually are working and you’re paying into Social Security, there’s actually a cap on it. So for those that are fortunate enough to make over $176,000, if you make more than that, you actually stop paying into Social Security. So if you’re making, you know, a couple hundred thousand dollars, you may notice your pay goes up and you didn’t get a raise or anything, or your boss didn’t tell you it’s, actually Social Security.
You’re not paying into it anymore. So it’s about a 6% contribution that you’re making that no longer has to happen. So for 2026, this actually goes up to about $186,000 or so. Okay, and just with inflation, it’s kind of indexed, so it’s gone up quite a bit the last couple of years. 23,400. Remember this number.
Some of you may elect to work prior to what is called your full retirement age. We’ll talk about what that is in a minute. But you’ve gotta be very careful if you plan to work and claim Social Security if you make more than $23,400. And you are under the age of what is considered full retirement age.
For most of you it’s probably 67. They will take money away from your benefit if you earn more than that. So to be specific, it’s $1 will be deducted for every $2 that goes over that 23,400. Okay. And then disability payments also went up a little bit from 1542 up to $1,580 for 2025. Okay. rules. There is no shortage of rules with Social Security.
there are a ton of terms, but these are kind of the most basic ones that you need to know. It’s really age and amount. So full retirement age is essentially what the Social Security Administration determines what. Is you’re entitled to your full primary insurance amount. Okay? So for most people born 1960 and later, it’s gonna be 67 years old.
If you were born in fifty nine, fifty eight, fifty seven, it’s gonna be a little bit less than that. That is what Social Security has deemed your full retirement age. Okay? the primary insurance amount is essentially how much money you are entitled to based on your contributions to the system over that timeframe.
Okay, so your benefit amount is based on your age. You’re taking it early, later. We’ll talk about that. and then Social Security administration is just, SSA easy enough. Okay. Calculating the benefits, you know, we’re gonna get into that here pretty shortly, but by and large, essentially you are entitled to your maximum benefit and you can delay it later to 70, or you could take it as early as 62.
And based on these different full retirement ages of 66 and eight months, 66 and 10 months, again, that’s based on your birth year. There’s not really any control that you have over that. It’s just when you were born. So 1958, there’s probably not many people on this call, that are their full retirement age is earlier than that.
’cause it’s 2025 and you do the math on that. so 1960 and later is where majority of the people are gonna fall here. And look at this, is interesting. So age 62, that is the earliest you can claim it and across the board, regardless if your full retirement age is 66 in eight months, or even 6 19 60 with 67 years old, that’s about a 30% haircut.
So taking it early, you are foregoing maj, 70 or 30% of your PIA number so that you can take it early so they penalize you. So it’s about 30% across the board. And then this one. You know, I’ve been doing this webinar for a number of years now. It seems like every time we do this and update these numbers, the numbers for expected retirement age tends to go up, which is good.
I think everybody expects to try and delay their Social Security a little bit later than what actually happens. But for 65 to 70, you do the math on that. It’s about 69% of folks expect to take their Social Security later. Unfortunately, the reality of that is not such, you know, most people actually end up taking it much earlier.
It’s actually about 73% take it earlier than they expect. So again, there’s a lot of planning that needs to go into when to take Social Security. What other resources do you have? And some of you, this is sort of a byproduct of being forced into retirement. You know, whether you wanted to or not. some of you may be having to take care of, you know, your parents.
You still may have your own kids at the house that you’re taking care of, so you’re kind of sandwiched in between there, which forces a lot of people to actually retire sooner than they expected. Okay. so here’s the actual math on this. So, we’ll, take a look just for a second. Again, full retirement age is what we’re assuming in this example, and you can see the percentage that it drops every single year until you get to 62 years old.
Okay? But also they entice you a little bit. Every single year. You go up to 70, it goes up. and so again, it’s not. It goes all the way, 30%. So I did some math on this prior. It’s not on the slides, but let’s just say your benefit was $32,000 at full retirement age. If you delayed it to 70, you’re gonna get almost $40,000 at that point.
So it’s 124% of that benefit. Versus taking it early. Again, if you have a $32,000 benefit, you’re gonna get just over $22,000. So it’s a $10,000 reduction just to take it a little bit early. Now you’re gonna get an extra a hundred grand, right for that, that five year period, 20, 20, 20, all the way up to a hundred.
But then it just becomes a mathematical equation. Okay, well, where if I make it to what age do I make more money if outta the system? Okay, so this is a good chart to sort of dovetail and look out. a lot of things about collecting early versus collecting late that’ll affect the benefit are gonna be your working.
This is a big one. So again, we talked a little bit about if you’re gonna work and take Social Security, you can only make so much before they start taking it away. All right. And then I think the biggest thing almost goes without saying is Social Security would be a really easy decision to make if we knew when we were all gonna expire.
I don’t know if any of us would want to know that information, but if you knew it would make planning for this a lot easier, of a situation. So this is by far probably one of the biggest determining factors, understanding your health situation. Is there longevity in the family, what you expect, there.
And then same thing with the spouse, right? Are you married? If so, what is the age of the spouse? are there age differences or age gaps in that? That’ll also make a big difference as well. So this is just sort of com extending a little bit more, talking about continuing to work while, taking Social Security.
So here’s again, just if you’re under full retirement age, here’s those limits. There’s the $1 for every two. This is where it gets a little bit confusing, is if you are re the year that you reach full retirement age. Let’s say that your birthday, falls in October. Right, so that’s 10 months that you may be working up to full retirement age.
62,000 is how much you can make before they actually start taking away some of the benefits. If you claim later that year. So again, you gotta be really careful If you’ve got a bonus or something kicking in at the end of the year, you just might wanna be very careful with that. But once you get to full retirement age, which again, for most peoples in that 66, 8 months up to 67, they don’t care how much you make.
So if you’re full retirement age and you’re still working and making a full paycheck, you can make unlimited dollars. It doesn’t matter. I think another thing, that we get asked a lot, and I’m just gonna, predict this is gonna be a question, Catherine, in the chat. Is, does my spouse’s income affect my Social Security benefit?
And the answer is no. So if a spouse who is no longer working but is under full retirement age takes their benefit, their spouse’s earnings is not gonna reduce theirs if they go over this. So they’re separate. Okay. Your, the, your tax return and the Social Security administration talk to each other.
That’s how they know. Okay. this is another interesting statistic, and this is the, I guess, summary of this chart is essentially women live longer than men, right? I think we all kind of knew that, but the stats are actually pretty staggering. So if, you look at a married couple, 65 years old, one person at least has an 85% chance to make it to age 85.
That’s a pretty high probability. And then if you look, one person has at least a 63% chance to make it to 90. So it’s kind of funny if you look at these two different numbers. From just a five year period, the statistics dropped 20%. That’s kind of where life expectancy happens to fall. You know, coincidentally as well, it’s kind of in that like 82 to 86 range.
So big difference there. And then this is just looking at females versus males. 44 per chance, or 44% of a chance to make it to 90 and then 66 to make it to 85 men. It’s less, it’s 10% less than that. So you know, women have a 10%. Bigger, number percentage wise on how long they’re gonna go. Okay.
Alright. Take breath. Talk about some case studies. So what we’ll do, there’s several different, iterations of what we’re gonna look at here with a, married couple and different timings of when they claim benefits and things like that. But let’s just go through some of the basics. We’ve got David and Carol.
They’re married. David was the higher wage earner when he was working. Carol was the lower age work or lower wage earner, and then their full retirement age is 67. So we’re making the math nice and easy on myself here. So here’s a pretty cut and dry situation with Social Security. So we always wanna start with David, and when we go through these next several slides here, his benefit is $2,200.
Okay? And we don’t want to figure out what is the spousal benefit. So a spouse is entitled to half. Of the primary benefit. So in this case, Carol, we’re assuming she has a $600 benefit from her own earnings, but that’s less than half of David’s, so her entitlement is up to $1,100. Okay? So for a really clean, easy situation, they both file at full retirement age.
David’s gonna get his 2200 a month, and then Carol’s gonna get her 600 plus a spousal up to 1100. So that’s pretty straightforward. Okay. So it gets a little bit more complicated when you start looking at the different timeframes and things like that. and so this is just taking a look at how spousal effects or spousal benefits are affected by taking it early.
We talked a little bit earlier about how if you take your benefit at 62 versus your full retirement age of 67, it’s a 30% haircut. It’s actually bigger haircut for the spouse to take it early. So if you look again, the maximum a spousal benefit can be as 50% of the primary insurance age amount. So a hundred percent it doesn’t go up.
The further you delay it now as you go down. The percentages are actually bigger to the point where it’s actually a 35% reduction for the spousal benefit if you take it early. Okay, so something else to think about there. So here’s a good little chart, kind of a teeter-totter that shows, okay, you got David’s benefit again, 2200.
Carol has her own benefit. This is a good way to understand how spousal benefits work. So the spousal amount that she’s entitled to is $500 because her own benefit is $600. So remember, her maximum amount she can get is $1,100. So that’s how you get her own benefit, plus the remaining amount to get up to 1100.
So it’s $500 actually her spousal benefit. Most people think that they just get half of David’s. That’s not how it works. You actually receive your benefit and then the spousal just kicks in the rest. Okay? And so let’s take a look at delaying it. All right? This one gets a little complicated too. ’cause again, remember the maximum that Carol can get is half of David’s.
So the maximum she’s ever gonna get is $1,100. So in this con scenario, she delays her own benefit. She gets that extra 24%, which is great, but it doesn’t change her spousal. It actually made it worse. Whoops. Lemme go back to that. It made it worse, right? She actually gets a smaller spousal ’cause she chose to delay her own benefit.
So in this scenario, it actually would’ve made more sense for Carol to just take her own benefit at full retirement age, right? ’cause it doesn’t go up, it never goes up. It just stays the same. So is she still subject to that $1,100 max? Now, on the flip side of that, again, if, Carol decides to take her benefit early, and so does David, again, her own benefit is gonna be reduced 30%.
But the spousal benefit, again, starting with that max of 1100, which is $500, gets reduced by 35%. Her maximum spousal, if she claims it early, is gonna be 600 and or 725 bucks or $45. So really interesting kind of how to look at the different teeter totters of that, survivor benefits completely separate, discussion than spousal benefit.
Right. Spousal versus survivor, very different. they typically benefit the surviving spouse of the most. That’s what it’s designed to do, is to make sure that surviving spouse is not left with a significantly smaller amount. So let’s just assume, and, hypothetically David passes away and he was 63 in six months.
Okay, so if that’s the case, that means David took his benefit early. Let’s say he took it at 62, so if he got it at 63 and six months and passed away, he was actually getting $1,705. Okay. At that point, the survivor benefit is at a minimum going to be whatever David was getting at that point. There’s a couple of rules that we’re not gonna go into, but essentially Carol’s gonna get a little bit of a bigger amount.
It’s like 0.825% of this benefit. So she’s gonna get a little bit more, but she’ll never get less than what he was getting. Okay.
And then the survivor, same thing. If David decided he wanted to delay the benefit to age 70 and then passed away after that, Carol would then step up to that benefit. Hers would go away. So she’s still gonna get the bigger benefit of the two. Okay, so when you’re thinking about claiming strategies, it’s really important to understand which spouse has the highest benefit, and then see if there, if the math works in your plan, where one of them may be able to delay the longest just to preserve that overall spousal benefit or the survivor benefit, sorry.
So let’s, look at a, couple scenarios and this we can look at pretty finite because we have actual data on when people are passing away. Like I said, figuring out Social Security and the optimal timing of when to claim is, difficult ’cause we don’t know when we’re gonna pass, but if we have some case studies we can look at that at least gives you a sense of direction.
So here in this scenario, both David and Carol are collecting at 62 years old. We know they’re taking it early, right? Their full retirement ages are 67. They’re taking it five years sooner, so they’re taking that 30% haircut. Again, David’s benefit hasn’t changed. It’s 2200. Carol’s is 600, but in this scenario, David’s gonna pass at 75 years old.
So he got 13 years worth of his benefit from 62 to 75. Okay? So if we look at that. Whoops. Okay, so because he took it early at 62, his benefit was $1,540. Carol also took hers early, so she gets 420. Okay? So you kind of do the math down there, and then what happens is afterwards there’s the spousal benefit that Carol’s going to receive.
So that’s that 700 and you know, $45 there. Then here’s where you can look at the math. David got his own benefit of 240 grand. Carol got her own the spousal benefit, kicked in another 50, and then after, David dies, she gets another decade of his benefit, his survivor benefit, which equates another 200 grand.
So the total dollar amount in this scenario is about $574,000. That’s over the lifetime that they’ve drawn out of the system. Okay. Now if we look at another scenario, this one’s a little bit more cut and dry because again, we’re looking at full retirement age for them as 67 years old. Same assumptions.
David passes at 75. Carol passes at 85. Okay, so if we go through this again, pretty cut and dry, 2200 is what David’s gonna get. Carol’s gonna get her 600 a month. Plus the spousal, which kicks in the other 500. ’cause the max she can get is $1,100. Remember? Okay. And then if we look at these, whoops. The, dollar amounts, that previous slide we looked at, they got 574,000.
This next scenario by delaying, remember you, they delayed it five years. They went five years without getting a benefit, and assuming these dates of passing, it wasn’t that big of a bump up. It was only $6,000. So again, if we, if these numbers were completely different, 85 versus 90, you know, the math would look a lot better.
But in this scenario, you know, this is what it looks like. It’s not that far off. Okay. So then let’s, push the envelope a little bit further and say they delayed the 70 now. Okay, so now they’ve gone, they said, Hey, we’re not gonna take it at 62. We’re gonna push this thing out eight more years and take it at 70.
So David’s benefit, he gets 124% of that 2200. Okay, so 2007, 28 is what he’s getting a month. Carol delayed hers as well, so she got a nice little bump up. But again, remember what is the maximum that Carol can ever get out of the system for a spousal benefit is $1,100. So her smaller spousal kicks her up to that 1100, and then again he passes at 75.
She lives 85. So then we can look at the difference. It’s actually 557,000. So I’m not saying that delaying the 70 is a bad thing, but again, under these assumptions, it didn’t make sense for them to delay the 70. Okay, so we can actually now look at the optimal strategy should they have done given these assumptions of date of passing.
And this is actually probably gonna surprise some of you. The best strategy for David and Carol would’ve been actually for Carol to take hers early at 62, take the 30% haircut, and it would’ve been best for David to take his at full retirement age. So, again, remember in this scenario, they’re both the same age, full retirement age of 67, but Carol took hers five years earlier.
She got a little bit of a benefit, and then it was able to hop up to the spousal, which again was slightly reduced. And then you look at the math, it’s five, almost $590,000. So the optimal strategy for these assumptions and these dates of passing is actually for Carol to take it early and then David to take it full retirement age.
Interesting how all this stuff works, right? And again, this would be the easiest decision if you knew when you were gonna pass away. But I don’t think we wanna know that. So as if Social Security couldn’t get more complicated, there’s different ways to look at it from spousal benefits and survivor benefits, but for divorced spouses, this is becoming a bigger and bigger part of Social Security planning just because the rising rates of divorce in the country.
And so this is important to understand. Some of you may not know that you even have these options, so if you can actually take a spousal benefit off of a divorced spouse, there’s some criteria that you need to meet though. You need to have been married to that ex-spouse for a decade or more. Okay? You need to be unmarried, right?
You can’t get remarried, and both of those individuals need to be at least 62 years old and the divorce has to have lasted for two years. There’s some caveats in there where you only need it to be nine months, but we’re not gonna get into that. But for the most part, to claim a spousal benefit, again, a member of spousal benefit is half of that primary earners, amount.
Okay. You can even take it too off of a deceased ex spouse if that is what happens to you. So again, there’s different, criteria for that. But if you are divorced and that divorced spouse passes away, you are actually still entitled to some of that benefit. Again, there’s criteria you need to meet, but you need to have been married to that deceased.
Ex spouse for a decade, 10 years. And then you also need to be unmarried. Or if you do get remarried, it has to be after age 60. Okay? So there’s all these, if ands, it’s like a giant Excel spreadsheet formula. so married to the deceased, that for 10 more years, 10 years unmarried or married after age 60, and then that person claiming the benefit has to also be at least age 60.
Okay? So a lot of tongue twisters and crazy things going on here. yeah, it’s super complex, right? All right. The third leg of the complexities tool is, taxation. So I, have no idea who created the taxation on Social Security or why it’s this way, but it is super convoluted. so we’ll try and make some sense of it.
but essentially your Social Security is taxed. So there was a law. Passed this year in 2025 that essentially made it retroactive as of January. It was signed in the law over the 4th of July weekend. They called it the one Big beautiful Bill. That’s what they actually called it. but what it did is there was a, they tried to make Social Security less taxable.
So there was a lot of campaigning going on saying, Hey, Social Security is gonna be non-taxable. We don’t want Americans to pay tax on Social Security. they, didn’t actually do anything structurally to Social Security or the system. What they did though is they said, Hey, let’s make the effects of taxation on Social Security less.
So what they did is anybody over the age of 65, whether you’re taking Social Security or not, they are giving you a $6,000 deduction on your taxes, and that is in addition to either the standard deduction or your itemized deductions. Okay. There’s a caveat with that as there is with everything, your income, if you’re a married couple, needs to be under $150,000, okay?
So if your income with your Social Security, your pension, your IRA, withdrawals, any real estate, you know, social, dividends, interest, capital gains, all of that needs to be less than 150,000. For you to be able to get that, extra benefit. They didn’t actually do anything to Social Security. Okay, so in order to figure out how Social Security is taxed, you first need to figure out what is your adjusted gross income.
This is essentially all of the income that sits on your tax return. Okay, so this is gonna be any salary, any pensions, any IRA withdrawals, this is going to be dividends, capital gains interest. Anything that flows through onto your tax return is part of your adjusted gross income. And then they add back things like tax exempt interest.
So this is gonna be like if you have a municipal bond, that interest, even though it’s not taxed, is calculated as. Figuring out how much of your Social Security is gonna be subject to tax. Okay. Super weird. And then they, any foreign income gets added back too. Okay. And then the weird part is they actually take your Social Security benefit, they chop it in half and then add it to this.
So that’s what they call provisional income. So you take all of your income plus half of the Social Security benefit you’re gonna get. And then they look at this number and they say, okay, provisional income, what is that number? And then what they do is they run it through a bracketed system and they say, all right, we’ll just use married filing joint as an example.
And they say, all right, well if that provisional income number, this, with all of these numbers added up, is less than $32,000, you pay no tax, it’s zero. None of your Social Security is taxed if that provisional income number falls between here. This number, this tranche is $12,000 big 32 to $44,000. Half of that is subject to tax, so that’s six grand.
Okay, so now we’re all the way up to $44,000 of provisional income, and so far, $6,000 is subject to tax. Anything over that 44,000, 85% of that amount is subject to tax. Up to a maximum of 85% of your Social Security is subject to taxation. That’s not the tax rate, that’s how much is subject to tax. Okay, so super complicated.
I have no idea who created this or where they thought about it, but it ends up working out pretty fairly if, you look at a couple of tax returns like I have, okay, so there’s a lot of planning you can do around this too, depending on when you’re claiming the benefit, how old you are, what other income sources you’ve got, what accounts you’re pulling from, so you can artificially try and keep this low if you’re doing the appropriate planning on that.
Okay, so this is something we get asked all the time, like, what is the, what the heck’s gonna happen with Social Security? Is it going away? Are they taking it? What? What’s happening there? it, the, these numbers are kind of, kind of scary, right? We’re not too far away from this, but 2033 is when the, trust fund is supposed to be depleted.
the number of Americans 65 and older will increase, you know, so the population at this tranche is actually getting older. Even though the population’s sort of, you know, stagnant or declining, that this specific tranche of folks is actually increasing quite a bit. So there’s more people drawing from the system, not as much paying into it.
And then in 2035, there’s gonna be 2.4 covered workers for every beneficiary. So in the past that used to be like 5, 6, 7, 8, up, like 10 to one at some point. Now it’s down to two to one. So there’s just less people paying into it. more people drawing from it. Disability insurance, isn’t really in the forefront of our minds.
2098, you know, we shouldn’t be too concerned there yet. so some of the things that they’ve, talked about as far as, okay, what are, they gonna do? Is there gonna be reform on that? I’m of the opinion that I don’t think they’re just gonna. Cut Social Security altogether. I think there’d be panic and civil unrest in the streets there.
But they do have some levers to pull on, to, to make this thing work a little bit better and extend it out. So kind of earlier in the slides we talked about how much people pay into Social Security, for in their paychecks. So if you’re right now that cap is 176,000, it’s gonna go up to about 180 next year.
So, but once you hit that cap, nobody pays into Social Security. So there’s talks about just removing the cap. So higher wage earners would actually pay more into the system. there’s other things in there. The way that Social Security. Is actually calculated for a benefit. The benefit actually favors the lower income wage earners.
So there’s a bigger proportion of the benefit that you get versus a higher wage earner. And the way Social Security de Describes this, it’s called AIM A-I-M-E-I. I forget what the acronym is, but the aim points, they might mess around with those aim points and make it less favorable for higher income workers and more favorable for lower ones to kind of, even the playing field.
They’ve talked about that. and then there’s the one that nobody wants to hear is they just may just. Flat out cut the benefits by, you know, 20 to 30% at that point, which would probably extend it out. So no one really wants to mess with Social Security, but something’s gonna have to happen soon. I, again, I don’t think they’re just gonna get rid of Social Security.
I think that would be a huge detriment. We already looked earlier in the presentation here in like, almost 30% of people are relying on that for almost all of their income, right? So there’s definitely some changes coming down the pipe. but by and large, I don’t think it’s going away.
Kathryn: A stay at home parent and have only 18 years of covered earnings.
What steps could I take now to increase my future Social Security benefits before retirement, if hoping to retire in five years,
Kyle: they’ve paid in 18 years, they plan to go back to work for another five. So that gives them 23 years of paid in service to Social Security. Okay. And the question is, how do I get that higher?
How do I make sure I can get more out of the system or I pay more in, so I, I didn’t get into this too much, but the way that your benefit is calculated is they actually take your highest 35 years of income. So you may work a 50 year career, but they only take the highest 35 years, and they use that to calculate that primary insurance amount.
So in this example, if this stay at home, parent’s gonna have 23 years in, they’re gonna have several years of zeros in there where they, didn’t earn anything. So that will ding them a little bit on their benefit so that the idea might be, you know, you either go back to work and for that five years you make a bunch of money and the more you pay in, the more you’re gonna get.
or you might just work longer if you wanted to extend the benefit. ’cause if you’re gonna work a little bit longer, you probably don’t need to take your benefit, which further sort of enhances the benefit long term. if you’re a stay at home parent, you might wanna look at your spouse’s earnings.
Again, I’m presuming there’s a spouse too. you might be entitled to the spousal benefit. So even if you’ve only paid in 23 years, that spousal benefit might be bigger than what you’ve paid in. So you might look at the spousal benefit there.
Kathryn: My wife started her Social Security at age 63. I plan to take my Social Security at seven 70.
Sorry. Okay. Has the law changed? If I die, will my wife still be able to elect my higher income? So if, I guess he’s asking if he dies prior to 70.
She still be able to elect.
Kyle: The survivor,
Kathryn: the higher, yeah. That,
Kyle: that gets into a, little bit more strategy. I’d probably want to know is, the age 63 spouse already claiming, have they claimed, do they expect a claim?
’cause there’s ways that spouse could take their own benefit. or a reduced one and then maybe let the other one go up or vice versa, things like that. you probably need a little bit more context, but at the end of the day, the survivor benefit is always gonna be the higher of the two.
Kathryn: Regarding when to apply for the Social Security benefits.
Kyle: Oh, yeah. You could do that a couple of months prior to the age in which you want. So you can, like, if your full retirement age is 67, you know, you probably want to do it the month of, or the month before just to give them a heads up. sometimes this gets into a little bit of claiming strategy, so you probably either want to talk to your advisor or come visit us, but you could potentially claim like at the end of the year if you’re trying to, you know, with some tax planning stuff, you could claim it but not claim it until the next year and have ’em retro pay you for that.
So it’s kicking the income into another year. You could look at something like that.
Kathryn: So since I started collecting Social Security benefits three years ago and have been affected by we and GPO, when it went away last year, I thought I was supposed to get a refund. Do you know anything about any refunds?
They haven’t received any refunds. And what about Irma? Anything you want? Yeah,
Kyle: so if the refunds to my understanding were retroactive as of January of 2024. So if here we are 2025, a lot of these checks started rolling in like Mar April or like March and April this year. And people started noticing, oh, my benefit went up and I got this check, you know, I got extra cash and that was the re the retro payment.
So if that didn’t happen, there’s probably a reason, you know, I’ll give the Social Security administration some credit. They actually did a pretty good job of, retroing and putting that into. into play pretty quick. I think a lot of people didn’t think that was gonna happen until probably later in 2025 or even early 2026, and they knocked that thing out in three months.
So, if you haven’t received your retro payment, I hate saying this, but you might need to call the local Social Security office and see what’s going on.
Kathryn: You’re a pure client. You’re in our family. please reach out to your advisor and they will be happy to go over all of the ins and outs of your specific situation, because these are great questions and a lot of it does pertain to a specific situation.
If you are not yet a pure client and you want to just get a, have a conversation, you could have a free consultation, with a professional. Kind of to piggyback
Kyle: off that too, I think when, people are looking at their Social Security and they’re trying to figure out what is the best. Time and to take it or look at it.
I think a lot of people do the basics, right? They say, okay, well if I take it at 62 verse 67, what’s my break even? And, that’s a good place to start, but that’s not the end all be all because a lot of you have decisions to make on, okay, if you take it at 62, you’re getting that haircut upfront. But if you choose to wait till 67 and you’re retiring sooner than that, you have to make up the difference from somewhere.
Right, whether it’s your portfolio or part-time work or something like that. So layering that decision on top of your other income sources is gonna help you figure out what the most optimal timing of taking that benefit is.
Kathryn: Do disabled adult children get their parents’ benefit when the parent passes? If they’re a dependent,
Kyle: oh goodness.
I have a friend that actually that is happening to, so I, I’m gonna say yes just because that is my, friend’s brother’s situation. but I do not know the exact answer to that. ’cause that is a very complex question. ’cause it depends on the type of disability. And if they’re getting federal funds already, it might mess with like their housing allowances and things like that.
So you just gotta be really careful with how you’re getting the benefits there.
Kathryn: Right.
Kyle: Okay.
Kathryn: what if they both worked? If you’re talking about, David and Carol, I believe, so my husband is three years younger than me, but he has a significantly larger benefit. Okay. I will be able to claim half of his, but doesn’t make sense for me to wait until he is claiming his benefit, or should I just take mine now Anyway, I just turned 65. It kind of goes back to that scenario a little bit.
Kyle: Little bit. Yeah. And you know, one of the slides, we went through like it didn’t make sense for the lower, lower benefit spouse to delay past 67 ’cause there’s no additional benefit for a spousal. So if your spouse is younger and that benefit is significantly higher, I, would say you’d probably want to take it at full retirement age.
Don’t delay it past full retirement age ’cause you’re gonna miss out on money. And then it’s just a decision on when he’s gonna take it. That decision’s gonna also affect your spousal benefit. So there’s, pros and cons of that, but that’s how you’d wanna look at it.
Kathryn: It might be too convoluted, but it’s about the Fairness Act affect public school teachers who did not pay into Social Security.
Okay. I’ve heard that some teachers received rather large checks and now collecting Social Security benefits in addition to their teaching pensions. Social Security told me that I would not receive any benefits from the Fairness Act, so I’m confused about how some teachers are getting Social Security plus their pension.
Kyle: Yeah, and this is so, so specific. I mean, it depends on if that spouse that’s not getting their retro, it depends on if their spouse has income, if they’re entitled to a spousal benefit, if they had a job prior to teaching that they paid into. I mean, I know a lot of. You know, teachers prior to getting into the teaching field, you know, they were waiters, waitresses, and, you know, just making very little money.
So their benefits are super small, and they probably didn’t have much of a benefit to begin with, so it might not affect ’em, where people are seeing the most value is people that might have been getting zero from it and now all of a sudden they’re getting a spousal benefit, which is, you know, half of whatever their spouse is that’s been the biggest needle mover.
Kathryn: And this one, just to, reiterate. So Social Security calculates my benefits based on 35 years. What happens if you only work 30 years? Your benefit is the average of 35 or 30. You just have five zeros.
Kyle: Yeah. You just have five zeros at that point. So they take 35 numbers.
Kathryn: No matter how many numbers you have, they’re gonna take 35, but if you have more than 35, they’re gonna take your highest numbers.
The highest 35? Yep.
Kyle: Okay, well, that, well, I’ll just say one more thing on that too, is some of you may log into ssa.gov and let’s say you’re, you know, 58 years old and you’re planning to retire at 62. If you look at that full retirement age amount. That they quote you on the, sheet, they are assuming you’re making that prior year’s income until full retirement age.
So you gotta be a little bit careful there. Some people, they’ll, stop working and then they don’t realize that, oh, my benefit actually went down for, you know, five straight years because you were not paying into the system anymore. They assume that your future earnings are what it was last year.
Kathryn: If you’re not yet a part of the pure financial family, then now’s your time to schedule that free consultation. The financial professional will take a deep dive into your entire financial picture and not only just about Social Security, but also your whole retirement plan. Thank you so much everybody for joining us. Have a great day.
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