You may think you’ve got Social Security all figured out, but several common myths and mistakes quietly drain retirees out of tens of thousands of dollars. Joe Anderson, CFP® and Big Al Clopine, CPA show you how to claim smarter, keep more, and avoid a miserable retirement.
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Important Points:
- 00:00 – Intro
- 00:44 – 6 Social Security Myths That Make Your Retirement Miserable
- 10:53 – 5 Common Social Security Mistakes that Cost Retirees Thousands
- 15:50 – How to Build Your Social Security Claiming Strategy
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Transcript:
(NOTE: Transcriptions are an approximation and may not be entirely correct)
Joe: All right. Today we’re gonna debunk one of the most complicated retirement systems on the planet. Welcome to the show everyone. Show called Your Money, Your Wealth® Joe Anderson here, CERTIFIED FINANCIAL PLANNER®. With the big man sitting right over there. Big Al Clopine. Hello, Big Al.
Al: Hello. How you doing?
Joe: I’m good. Good. There’s a lot of myths about one of the most successful retirement plans, but also one of the most complicated.
Al: Well, I’m gonna guess Social Security.
Joe: Social Security. We’re going to debunk the myths on Social Security that could put a couple extra a hundred thousand in your pocket. How about that? That’s today’s financial focus.
Myth 1: “Full Retirement Age Is 65”
All right. Myth number one. Let’s take a look. People still think that the full retirement age to claim your Social Security benefits is 65. However, if you’re born in 1960 or later. Your full retirement age is 67. So if you still think that it’s 65 and you claim at 65, guess what? You’re going to have a permanent haircut on that benefit.
We don’t want that to happen. So let’s break things down. Let’s bring in Big Al.
Al: Alright, so Social Security myths. We heard one, there’s a whole bunch more. We’ll get into those. And what are the mistakes we’re making? And then maybe most importantly, how do you plan around it? How are you supposed to do Social Security, get the biggest benefit? And Joe, I can’t think of a more important topic for our viewers today.
Myth 2: “Social Security Replaces 100% of Your Income”
Joe: Yeah, absolutely. I think, let’s look here. Most people think that, all right, well, when I claim Social Security, it’s a full retirement plan. Social Security was established in the thirties, and it was never meant to be a full income replacement. It’s supposed to replace partial, but it’s still a good chunk of change.
Al: It’s a good chunk of change, and according to the Social Security Administration, it’s on average, it replaces about 40% of your income. Realize if you’re a low income. A wage earner, it could replace a little bit more. If you’re a high wage earner, it would replace less. But Joe, I guess the most important point, it’s not a hundred percent, it’s a much lower percentage.
You gotta save to cover the gap.
Myth 3: “Spousal Benefits Reduce Your Spouse’s Benefit”
You got it. here’s another one. There’s something that’s called the spousal benefit. So when, if you’re married, or if you were married for at least 10 years, you can still claim a spousal benefit. And what that means is that you can claim your own benefit on your record, or you could claim a spousal benefit, which would be half of your spouse’s benefit.
What the myth is that they think it reduces their benefit. So if I was married, let’s say I was divorced and I wanted to claim on my ex-spouse, so people are like, yeah, I wanna claim that SP benefit because it’s gonna reduce their benefit, right? The answer is no. It’s just a factor that they’re looking at to determine what that spousal benefit is.
I think that’s a big myth. A lot. A lot of people, they don’t want their expo to claim on their benefit, but fortunately it doesn’t affect your benefit. But if you are an ex-spouse, it’s up to 50% of the benefit. As Joe just said. You gotta be 62 years of age. You have to have been married 10 years to that ex-spouse and you cannot remarry.
Myth 4: “Social Security Is Going Broke”
It’s gonna run outta money. Some people think it’s, I, think a lot of people think this and they’ve been thinking it since the program was established, a long time ago. But here’s the deal, right? there’s a lot more people retired claiming benefits that are putting into the overall benefits.
And so we had a surplus in 2024 of $2.7 trillion in 2034, that surplus is going to be gone. And so what happens to the system? It doesn’t necessarily go broke. There’s still. Enough money coming into the system, but it’s only able to pay out about 81%.
Yeah, Joe, I think that’s one of the biggest misconceptions about Social Security.
yeah, there’s a surplus right now, and if there are no changes in Social Security, then your benefits are gonna be reduced. The current prediction is about 81%, so you lose about 20% of your benefits. Will Social Security be changed? Very likely. So it’s happened before? It’s been changed before and it’s had more funds, so I, would.
Still probably count on your benefits. Just realize worst case, you still get a whole bunch of money from Social Security.
Myth 5: “You Get a COLA Increase Every Year”
Joe: Let’s go here. COLA goes up, we get a raise every year, not necessarily the case. 20 10, 20 11, 20 16, no COLA.
Al: Yeah, and that’s right. So just realize that cost of living increase that happens when there actually is inflation and we don’t have inflation every year.
And if that’s true, then there’s no increases of Social Security. So it’s not every single year you get an increase.
Joe: 2025. Two and a half percent increase.
Myth 6: “You Lose Your Benefits If You Work”
Joe: Alright, I’ll lose my benefit if I work. Walk us through this because this complicated.
Al: So what happens full retirement age for most people is 67.
So if you’re under full retirement age, you can make up to $23,000. And still collect your full benefit. if you make more money than that, then you start losing some of your benefits. It goes back to the Social Security Administration. Now, there’s a special rule the year that you reach full retirement age.
The months before full retirement age, you actually can make more money, up to 61,000, and you don’t have to give as much benefit back. Starting at full retirement age, you can make as much money as you want. And I’m talking. Salary, right? You can make as much sal as you want and still collect your full benefits.
Realize if you have some of your benefits that are given back, then that’s okay. It’s not like you lost the benefit, it just gets thrown right back into your future benefit.
Joe: This 23,400 is earned income, so if I’m working, this is not pension income. This is not interest in dividends. 23,000. So this is under my full retirement age.
So if my full retirement age is 67, this is any dollars. If I claim my benefit at 62, and I’m still working full time, if I’m making more than $23,400. Right. Every $2 I earn over that limit, they’re going to take a dollar back. So they’re going to reduce that benefit. So if I’m working full time and I’m making more than $23,400, it probably doesn’t make sense to take my benefit.
It’s not like they steal it. Right. What they’re doing is recalculating what your full retirement age benefit is going to be. It’s like you never claimed it, right? So if I worked at 62, claimed it at 62, I was over this threshold and it zeroed out my Social Security, they’re just gonna assume I’ve never claimed my Social Security at 62.
I fully retired at the end of the year. That Social Security benefit would be like, I claimed it at 63 versus 62, so my, increase or my Social Security payment would be increased once I reach my full retirement age. So if I wanna take my Social Security benefits at age 67 and I make a million dollars a year, they’re not going to reduce my benefit.
It’s only from age 62 to your FRA. That’s the big distinction here. Sometimes people wanna take that benefit as soon as they can get it, but if you’re working full time, it probably doesn’t make sense.
Bonus Myth: “Social Security Income Is Tax-Free”
Al: Yeah, that’s right. You gotta be careful. And that’s, so another myth is that, the Social Security income is tax-free.
It used to be, but it’s not anymore. And depending upon your income level. It could be taxed at zero. There are no taxes on it, or half of your Social Security could be subject to tax or up to 85%. And Joe, that’s based upon your provisional income.
Joe: Yeah, provisional income is a little bit unique too, and they haven’t adjusted provisional income since the 1980s when they put this into place.
So here’s what provisional income is going to determine, right? Where you kind of. Fall on this chart here. So to make it simple, you got your adjusted gross income, right? So you look at your tax return, see what your adjusted gross income is, but then there’s some add-backs. They’re gonna look at your tax exempt income, so that’s municipal bonds.
So if you have tax-free income coming from municipal bonds, they’re gonna add that back. They’re gonna look at any type of foreign in or they’re going to, the excluded foreign income that was off your return. But here’s the kicker, they’re also gonna put in 50%. Of what your Social Security benefit is, look at your A GI tax exempt income, foreign income, and then half of that Social Security that equals your provisional income.
Alright, so then you look back here, if my provisional income right is under $32,000. If I’m married, my Social Security’s tax-free. If it’s above 32,000 and below 44,000. Then 50% of my benefit is gonna be taxed once I hit over $44,000. Not of adjusted gross income, but provisional income, 85% of that Social Security is subject to tax.
Al: That is a bit complicated, but one final clarification. When we talk about 50% taxable, 85% taxable, that’s how much of the Social Security is taxable, not the tax rate.
Joe: A lot of stuff here with Social Security. Pretty complex. If you need some more help, go to YourMoneyYourWealth.com. Click on our Special Offer. It’s our Social Security Guide. It will guide you through claiming strategies. It will guide you through the taxability of your overall benefit. It will guide you through when you claim it at 62 full retirement age or even later. What are the pros and cons of doing this? You want to make sure that you understand the best claiming strategy possible to maximize the amount of dollars that you will get for you and your family. Go to YourMoneyYourWealth.com. Click on that Special Offer, download right there for free. Alright, when we get back, we’re gonna bust more myths about Social Security. You won’t wanna miss this. They’ll go anywhere. Show’s called Your Money, Your Wealth®.
Andi: Cn’t get enough Joe and Big Al? Follow us on the Your Money, Your Wealth® podcast, in your favorite podcast app and on YouTube. Visit YourMoneyYourWeatlh.com and click Ask Joe and Al on Air to get a retirement spitball analysis.
Common Social Security Mistakes That Cost Retirees Thousands
Joe: Hey, welcome back folks. Joe Anderson, Big Al. We’re breaking down some myths and mistakes that people are making with their overall Social Security benefits. It gets complex. If you need more help, go to YourMoneyYourWealth.com. We got a free. Social Security Guide. It will walk you through all different stages of decisions that you need to make when you claim your benefit, YourMoneyYourWealth.com. Click on that Social Security Guide. Before we get into the mistakes people are making, let’s see how you did on that true false question.
Al: lifetime Social Security benefit for a couple is almost a million dollars. True or false, Joe, could that possibly be true?
Joe: It is 950 grand. Wow. Right? $2,000 a month for, 20 years with no COLAs is 948,000. Now, if we’re living a lot longer, that number goes up. If we live a little bit shorter, of course that number goes down, but this is why it’s so important to make sure that you get this thing right.
All right. Don’t take it for granted in regards to your claiming strategies. People take it right, kind of ad hoc. You wanna make sure that you have a strategy. Let’s get in some mistakes, Big Al.
Mistake 1: Claiming Benefits Too Early
Al: I think probably one of the, ones that we see all the time is people take their benefits too early, right?
62 is the youngest stage. You can take it, but if you take it, then you’re not gonna get your full benefits. You’re gonna get. 30% reduction or 70% of your benefits if you wait till your full retirement age, which is between 66 and 67, depending upon the year that you were born, then you’re gonna get a hundred percent of your benefits.
And even better, if you can wait till age 70, you’ll get an extra amount up to 124% of your promise benefits.
Joe: Yeah, I think it’s, very specific to the couple or to the individual on when you claim this. Yeah, it, makes sense from a dollar figure to, to push this thing out as long as you can. But hey, if you need the check, if you need the cash, if you don’t think it’s gonna be around, there’s all sorts of really good reasons to take it early.
But I think the benefit of taking it later, of course, is that you get 124% of the benefit. Alright. Also, there’s drawbacks to taking it a little bit late.
Mistake 2: Waiting Too Long (When It Doesn’t Benefit You)
Al: There can be drawbacks. Like if you have health issues, for example, and you’re not gonna live that long a life, maybe you want to take it early. If you need the cash flow, you might want to take it early, right?
If you wait, you might have higher Social Security income. That means more of your Social Security will be taxed more, your capital gains will be taxed. Your Irma, your Medicare, payments, they may be higher. So just be aware that it’s not a, bed of roses to wait.
Mistake 3: Errors in Your Earnings Record
Joe: Alright. another mistake that people are making. There’s errors. We’re human. And so you wanna double check as you start getting close to claiming your benefit is look at your statement, right? If you look at your statement, making sure that all of your, income is stated correctly, because they’re gonna take a look at 35 years of work history. So you wanna look to make sure that all of that is correct, right?
If there’s heirs, you know, you can always send in your W2, but work with the Social Security Administration just to make sure that A, there is no heirs on the overall statement so you could receive the benefit that you deserve.
Al: Yeah, and Joe, I think it’s important to say that we used to always get annual statements. We don’t necessarily anymore, but you can go online. S. sa.gov, you can set up your own, my Social Security and check to make sure that your records are correct. And if they’re not, they even allow you to upload w twos to that to fix it. So just be aware of that.
Mistake 4: Not Working Enough to Qualify
Joe: Alright? another mistake that people are, they might not work enough.
They didn’t even qualify to get the benefit. So here’s what you need to do. You need to work 40 quarters to get those credits. That’s 10 years of work. They’re gonna take a look at the 35 highest years. If you’ve worked only 10 years, they’re still gonna look at 35 years. They just put zeros in on those years that you don’t work.
Right. But they also index all of those years, 35 years ago to today’s dollars to get your primary insurance amount. But again, looking at your statement, making sure that the record is there that you do qualify? You have the 40 quarters or do you have the 10 years? Now, if I’m married. I don’t necessarily worry about this.
Because then I can always claim the spousal, but there’s mistakes there too. Let’s go to that one.
Mistake 5: Spousal Claiming Mistakes
Al: The highest benefit that you receive as a spousal benefit is at your full retirement age, right? Which is, as we talked about, 66 to 67, depending upon the date you’re born, you. So there’s no reason if you’re a spouse, planning to claim spousal benefits to wait till age 70 ’cause you don’t get any extra benefit you want to claim at full retirement age.
Another mistake people make is collecting on your own benefits and not realizing, then you can switch to a spousal benefit.
Joe: Go to YourMoneyYourWealth.com, click on our guide. You’ll probably get a lot more out of it than this show. It gets complicated. There’s a lot of things. It depends on if you’re married, if you’re single.
How many quarters have you contributed to the overall plan? Do you have any gaps? In your work history, there’s so many different things that you wanna make sure that you check all the boxes. Go to the Guide YourMoneyYourWealth.com. Click on that Special Offer. It’ll walk you through so you can claim the right strategies, YourMoneyYourWealth.com.
Click on that Special Offer. Alright, when we get back, we’re gonna talk about. A plan, putting this all together. Lot of mistakes, lot of mints. Let’s make a plan to get you on the right track. We’ll be right back.
Bringing It All Together: Build a Social Security Plan
Joe: Hey, welcome back. Show’s called Your Money, Your Wealth®. Joe and Al talkin’ Social Security. We gotta get a plan in place. But before we start doing that, let’s see how you did on the true false.
Al: Most people plan on waiting to collect benefits, but they take it much sooner. True or false? Would you I think I know that one. That’s, true.
Joe: This is just as a whole of people think about retirement. So here’s the expectation of people when they go into retirement is like. Alright. Almost more than 70% of people think I’m gonna retire at 65 years of age or older.
Right? Very few people is like, all right, between 60 and 64, here’s the reality, right? Most people are retiring before 64, even though it’s like, Hey, I think I’m gonna retire a lot later in life. People are retiring a lot earlier. And so when I think, hey, I have more time to save, I have more time to put a strategy and plan together.
I have more time, you know, to, to accumulate wealth with the overall markets. Well, people are actually retiring earlier. And so for that reason alone, people are claiming their benefits as soon as they can Take it.
Al: Yeah. I think this is a real important point. Right? And so how could this be? How does this happen?
Well, it could be health issues that you have or maybe health issues of a spouse or parent, right? So you’re a caregiver, right? Or maybe you’ve been let go and for whatever reason it’s difficult to find a job in your sixties. So just be aware that this is pretty common.
Joe: Alright? Kind of looking at this chart here, if I claim it at 62.
Right people like this because guess what? I get a paycheck from 62 to 67 or 62 to 70 that I otherwise would’ve forego, right? I wanna have a lot more fun in my earlier years in retirement, and the extra cash flow is great if that’s you, take it. But just understand if you live a longer life, you’re giving up this.
Later in life by getting this today. Some of you might think that’s a fair trade. If that’s what your strategy or plan is, then by all means, but just understand you get a lot more benefit if you wait. That would be up here.
Al: Yeah, I think that’s a good point because if you, if, you need your Social Security, you wanna retire younger, right?
You need Social Security, and if you don’t take it, you’re gonna really work through your portfolio, then maybe you should take it. But just be aware. I mean, one way to think about Social Security is kinda like an insurance plan, right? If you live a long life, you’ll have more benefits, right? So just consider that.
So you gotta have a plan for taxes too, right? Because taxes can take away a lot of your retirement dollars. And one way to reduce taxes is to have money in Roth IRAs because the money that you take out of a Roth IRA Roth 401(k) is tax-free. Not just the principal, but the earnings and growth. It’s all tax-free.
Joe: Yeah, but there’s another plan too. Let’s say if you have money in a taxable account, a brokerage account. Stocks, bonds, mutual funds, right? You’re tax at a capital gains rate here, but those capital gains rate could affect the taxation of your overall. So Social Security. What’s really cool that Algi said is that if I have money in a tax-free account, Roth IRA specifically do not account against my provisional income.
So if I pull a hundred thousand dollars out of this account, that’s the only dollars that I have and I have my Social Security, guess what? My Social Security’s gonna be a hundred percent tax-free. It’s a double whammy. Now if I have dollars here, interest in dividends that are kicking out, well, there’s a strategy that’s called tax lost harvesting.
So I can harvest losses, so if stocks go down, I can sell them, buy something similar. Those losses, offset gains dollar for dollar. So when I’m looking at tanking distributions from here, and if I can offset gains with losses, guess what? That’s tax-free. So if I have tax-free here and tax-free here, my Social Security potentially could be tax-free as well.
Al: Exactly, and then you also gotta look at what state you live in. Now, most states Social Security is tax-free, fortunately, but there are 10 states that where it’s not tax-free. And you can see the list here, Montana, Utah, New Mexico, Rhode Island, Vermont, and so forth. If you’re living in a state that taxes Social Security, just make sure you budgeted for that.
Joe: Let me wrap this thing up again. for those of you that are married, because it gets a little bit, complicated, again, there’s something that’s called a spousal benefit. So as long as I’ve been married for 10 years, I can claim that spousal benefit as long as my spouse is claiming that benefit. What is the benefit you receive?
50% of your spouse’s benefit. So if I’m married for 10 years, my spouse’s benefit is $40,000. My benefit on my record is $10,000. Well, if I claim the spousal, it will go up to 20 half of my spouses. So if I claimed on my own record it’s 10, I would claim the spousal, they would gimme another 10. Right? But I have to be married to do that, or have been married to an individual for at least 10 years.
The spouse that you’re claiming that spousal benefit on needs to be claiming their benefit. So if you wanna take the spousal benefit, but my spouse is not claiming, I can’t take the benefit that spouse needs to claim. So this is where strategy comes into play. Does that spouse wait until age 70? Did they claim it right away?
What is the age difference between the two spouses? But just know that spouse needs to claim. However, there’s something that’s called a survivor benefit as well. So if one spouse dies, right? That Social Security potentially goes with them. But if a spouse dies with a lower benefit, right then nothing really changes.
But if the spouse dies with a higher benefit, well then the surviving spouse will take over that higher benefit. So their spousal benefits and survivor benefits. So if you’re married, you wanna make sure that you’re looking at. All different avenues to make sure you can maximize that.
Al: Yeah, that’s an important one.
And survivor, as you said, Joe, that, when one spouse passes, the survivor spouse gets to keep the higher, the two benefits. So it’s actually a good idea if one spouse has a higher benefit. If you can wait till age 70 or as long as you can wait, that’ll be a higher benefit for the survivor.
Joe: Take action. You gotta research the facts, understand your situation, your goals, and what are the facts around your overall family. Watch out for mistakes. A lot of mistakes people just kind of claim as soon as they retire. That could leave dollars on the table, right? You gotta be tax smart. Think about tax strategy as you’re moving through your retirement to make sure that you’re looking at all avenues and then just have a clear strategy. Write it down, right? This can be complicated, but we try to make it simple. Go to YourMoneyYourWealth.com. Click on that Social Security Guide. It’s free of charge. Download it right there on your computer. You can learn all about Social Security claiming strategies, the pitfalls of doing one thing versus the positives of doing another thing. YourMoneyYourWealth.com. Click on that Special Offer. Alright, I’m Social Security-ed out.
Al: Yeah, that seems like enough.
Joe: That’s enough. for Big Al Clopine. I’m Joe Anderson. We’ll see you next time folks.
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