What if you could get a 32% boost in your Social Security benefits? You have the power to maximize the amount of your monthly Social Security check in retirement. The choices you make regarding your Social Security could be the difference in the lifestyle you are able to live during your golden years. Do you even know what the key choices are that can boost your benefits? Financial industry insiders Joe Anderson and Alan Clopine give you the tools and strategies you need to make the most of your Social Security benefits. Pure Financial’s Chief Planning Officer, Susan Brandeis CFP®, discusses how to determine if claiming your benefits earlier or later is the better option for you. Not sure you made the right choice and want a “do-over”? Pure’s financial professionals tell you how.
Important Points:
(01:35) – Social Security Reliance
(02:12) – Boost Your Benefits
- Understand How to Qualify
- Delay For Increased Pay
- Spousal Strategies
- Limit Social Security Taxes
(02:58) – When People Claim Social Security
(03:51) – Who is Eligible for Social Security Benefits?
(04:00) – Earnings Needed Per Social Security Credit
(04:52) – How much are your Security Benefits?
(6:47) – Past Earnings Compared to Social Security Benefits
(7:36) – Social Security Estimated Benefits Statement
(10:34) – Early and Late Claiming
(13:37) – Claiming Your Social Security Benefits Too Early
(14:00) – How to Qualify for Spousal Benefits
(14:36) – How to Qualify for Survivor Benefits
(18:25) – How Social Security is Taxed
(20:04) – Lowering Provisional Income
(21:53) – Ask the Experts
(23:27) – Ask the Experts
(24:53) – Pure Takeaway: Boost Your Benefits – Make the Most Out of Social Security
- Maximize Your Qualifications
- Delay as Long as Possible
- Use Claiming Strategies for Couples
- Limit Social Security Taxes
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Transcript
Joe: Are you ready to boost the most important aspect of your overall retirement planning? Do you know what it is? Stick around, folks. We will tell you we will break it down. We want to boost your overall Social Security benefits. Welcome, everyone shows called Your Money, Your Wealth®. Well, Joe Anderson here CERTIFIED FINANCIAL PLANNER™, and the show, wouldn’t be a show without the big man. Big Al Clopine.
Al: Aloha Joe, it’s great to be back in Hawaii and we’re celebrating Annie’s birthday today, so it’s a great day. Oh well, happy birthday to Annie Clopine, Big Al’s better half. You know, we’re breaking things down today in regards to Social Security benefits, and it’s probably one of the most important things that you have to look at because it could add hundreds of thousands of dollars to the bottom line. Most people make huge mistakes when it comes to claiming benefits because, right, I turned 62 or he I retired might as well start claiming and start getting the checks in.
But you might want to take a step back and do a little bit planning. That’s today’s financial focus. Wow. You’re kidding me with the rocket booster there. I guess we are boosting your overall Social Security benefits, but it’s important because if I look at this 50% of couples, 50% of their income, right? If a married couple, if they’re spending X 50% of those discretionary income or fixed income sources have to come from Social Security. If you’re unmarried, 70% of unmarried people, 50% of their income is coming from Social Security. And then if I look at here, 90%, 21% of married couples, I almost 100% of the income that they’re living off of is their Social Security benefits benefit unmarried. It’s almost 50%. So for people that are single married, it doesn’t matter. This is truly important stuff here. Let’s bring in the big man Big Al Clopine to break things down.
Al: Today, we’re going to talk about boosting your benefits, making the most out of Social Security, so I guess the first thing is how do you qualify? Let’s get into the basics. What are your benefits going to be? And then we’ll talk about delaying collection of Social Security to increase your benefits or get into spousal strategies. And then finally, we’ll get into taxation of Social Security because you do have a little bit of control over how much you pay in taxes.
Joe: I think the advice that advisors are giving their clients now, or if you look at any type of article on the internet, they’re saying, push it out as long as you can because we’re living a lot longer and you get this 8% delayed retirement credit each year that you wait. But if you look at reality Al still, about 60% of individuals are still claiming full retirement age or younger. The majority of people are still claiming that age 62
Al: Yeah and the benefits grow much more as you wait. And so we’ll get into that. But I guess let’s start with who actually, how do you qualify? So who is eligible for Social Security benefits? So. So first of all, you got to work 10 years in the Social Security system and most jobs are in the system, a few government jobs or not, but most do. So the way that the Social Security Administration looks at it, they go by quarters. So 40 quarters or 10 years, the early stage you can collect is age 62 and then in some cases, well, in all cases with spouses or survivors of eligible workers, you could claim based upon their benefit as well. So, Joe, it’s you know, like we said, the majority of people will get some sort of Social Security benefit.
Joe: Yeah, I mean, the whole 10 years or 40 quarters is a little bit confusing as well is like, well, what actually constituted as a quarter? It’s basically, you know, an earned income credit, if you will. And so I think in 2020, it’s about $1,400. You get that credit for a quarter or $1,400 or almost $1,500 in 2021 Al. So it’s not like you have to work a significant amount of time or make a ton of money to get that quarter.
Al: Yeah, I think that’s that’s a good point, Joe. And I think the pay, the million dollar question is what am I going to get in Social Security benefits? So I guess the best way to figure that out, some of you, I think when you’re 60 and older, you get statements each year, but many of us don’t. And so you can actually go on the Social Security website, which is SSA.gov. You can actually sign up an online account and you can look at your statement at any time that you want. So it’ll tell you what your benefits will be at various ages of collecting. And so the way that they do, the calculation is they take your highest earnings over 35 years. And so for those of you that have worked less than thirty five years, then some of those years will be factored in at 0. So the more years that you work and have wages, the higher the benefits going to be. And Joe they have a primary insurance amount where they sort of calculate how this is what your benefits are going to be.
Joe: Yeah, because it’s inflated, right? Because what you are making 35 years ago and what you’re making today is totally different, right, in regards to what numbers so they put an inflation factor on. So let’s say you were making $30,000 30 years ago, that’s probably equivalent of $130,000 today. So they cap us out to at a certain level. So you pay Social Security tax for your retirement benefit up to a certain level and then you don’t put it into the system anymore. And when you look at that, you’re like, OK, well, what is my benefit going to be? Well, first you want to check your record, so go to SSA.gov look at your earnings record just to make sure that it’s accurate. I know you have to go through records. It’s 35 years of earnings history, but then they use an inflation factor to find out what your primary insurance is. So you look at all right. Well, now I know what my benefit is, but what Social Security is meant to do, it’s not meant to replace 100% of your income. You know, for lower wage earners, it was meant to replace a lot of those incomes. But as median incomes, large income’s really large incomes. Social Security, depending on where you fall on the scale, is not going to replace 100% of the income. And here’s a chart here.
Al: Yeah, and I think that’s important to say because you can see for the lower wage earners there, you know, they’re not going to get for replacement, but maybe they’ll get maybe up to half or even a little bit more. But then as you make more and more money, yes, you do get a higher benefit. But the the amount of Social Security doesn’t maintain it, and there’s a reason for that is Social Security is meant to keep you out of poverty. So that’s why it doesn’t necessarily keep up. And Joe, I guess, you know, when you get your Social Security statement and you take a look at it, it gives you amounts that you’re going to be collecting at various ages, typically, they start with your full retirement age, and then they also talk about collecting early, which is age 62 and then also at age 70, which is later. And it’s pretty interesting how different the amounts are. In other words, if you collect at age 62, an early amount. We got an example of someone would be collecting about $1,500 if they wait till full retirement age 62 and age 70 $2,700 plus. And so if you go from age 62 to age 70, you’re increasing your benefit by about 80%. So it’s it’s a pretty big difference.
Joe: It’s almost 100% increase in your overall benefit if you wait. But I understand it’s like, Well, no, I need to cancel now, but you want to do some planning here, you know, because you’re taking it at 62 just understand that you’re you’re receiving a lot more benefit and that’s locked in for the rest of your life. So if you can wait, if you can find other means to cover your living expenses because I think we all feel hopefully that we’re going to live a long time. And so by waiting for that Social Security benefit, you’re locking in a lot of higher benefit for the rest of your life. And if you’re married and if you were to pass away prematurely, will then the surviving spouse would also receive potentially that higher benefit. So there’s a lot more planning to do in regards to collecting your benefit versus like, Hey, I’m 62, let’s go push the button and you know, let’s live happily ever after because it could not necessarily be happily ever after because you could be living a lot more happy if you had a little bit more cash. So we’ve got to take a quick break. Go to our website, yourmoneyyourwealth.com. We do have a Social Security handbook to walk you through all of the different strategies, how you’re eligible, what it takes and all the ins and outs. So go to Your Money Your Wealth. Click on our special offer. It’s our Social Security handbook. We’ll be right back.
Joe: Welcome back to the show, show’s called Your Money Your Wealth, Joe Anderson here, CERTIFIED FINANCIAL PLANNER™ alongside Big Al Clopine. Stick around this segment. We have Susan Brandeis, a CERTIFIED FINANCIAL PLANNER™. She’s our chief financial planning officer, at Pure Financial Adviser to break down some Social Security. But before we get to Susan, let’s see how you did on the true false question.
Al: I don’t have enough credits to claim Social Security at 70, so can I continue to work and claim Social Security at 73 when I earned enough credits to collect Joe? True or false?
Joe: I would say that’s true. So if he did not have enough credits and then at age 73, you have enough credits to earn a Social Security benefit? Yeah, absolutely. I don’t see why not. That’s a unique question. I don’t think I’ve ever heard that. But yeah, if he as long as you have the credits, it doesn’t necessarily matter what age, as long as you’re over age 62. So let’s switch gears a little bit. Let’s bring in Susan Brandeis. Susan is a cCERTIFIED FINANCIAL PLANNER™, Director of Financial Planning at Pure financial advisor, and is also the chief financial planning officer.
Very big title, Susan. Welcome to the program.
Susan: Hi, Joe, it’s great to be here. Let’s talk Social Security.
Joe: Let’s talk Social Security. Susan, we’re talking about cleaning strategies in regards to Social Security, and I think there’s some confusion. Or maybe, you know, when should people claim because there’s a lot of options that people have, they can claim as early as 62, or they could push it off all the way to age 70 or any year in between. But you look at the statistics, I still see that most people, almost half or over half, are claiming their benefit prior to their full retirement age. What are some of the reasons? Do you believe that they’re doing that?
Susan: Yeah. So some of the reasons is one. Let’s just say they’re not working and they want to have income. One way to turn it on is to turn on your Social Security. A lot of people feel really comfortable having a paycheck or some sort of fixed income, so that that’s probably way too.
Joe: So that’s a good point. So they feel the security of a paycheck that they have just depositing in their overall bank account versus maybe selling some other assets, selling their brokerage account or taking distributions from their retirement accounts. I don’t want to touch that. Let’s turn on Social Security. We’ll get a baseline of income and then we can kind of float with the other necessities.
Susan: Yeah, exactly. Exactly. Also to, you know, if you or your spouse have an impaired life expectancy, that could be another reason, you know, if you don’t think you’re going to live past age 70 and Social Security benefits are at 62, you would want to take it as soon as possible.
Joe: Right. You wouldn’t receive the overall benefit because there’s kind of this break even point, right, that people look at Social Security of hate, not necessarily as a guaranteed income, but they’re more or less looking at it as, Hey, how can I get the most out of the system?
And if I claim it at 62, it’s bird in hand if I wait until age 70. Oh wow. A lot of things going to happen. I could die before age 70 and I didn’t get anything from the overall system, so then I would lose, right?
Susan: Yes, exactly. And then finally, then the other one is if you don’t trust the government, you just don’t trust the government all to to honor their promise benefits. You know, you’re one of those people that have a conspiracy about the government or you just think Social Security is going to get dried up, then you would want to take your Social Security benefits as soon as possible.
Joe: Sure. But I mean, there is true concern with this because the I mean, if you look at the spending, the trust fund will evaporate at some point unless they make some significant changes. But let’s just say that the Social Security is solvent. We believe that potentially pushing it out as as long as you can to age 70 is the right answer. Why is that the right answer?
Susan: Well, one of the biggest things is when you delay your Social Security at age 70, you’ll get the maximum benefits. And if you’re looking for a paycheck, that means you’re going to get the biggest benefit for the rest of your life and your spouse’s life.
Joe: So talk to me about spousal benefits. So let’s say you have a married couple. One of them is pushing it out to get the maximum benefit. How does that affect the spouse?
Susan: How does it affect the spouse or the spouse will get 50% of the spouse’s full retirement age benefit?
Joe: So if I push it, my benefit out is so. I think some misconception is if I push my benefit out to age 70, then if I was married, my spouse then believes that I would get half my benefit at my age 70 age. Is that true?
Susan: No, it’s not true. If you pushed yours out till age 70, you’ll get the maximum benefit and your spouse will get the benefit of 50% of what you would have gotten at your full retirement age. How about if by claiming age 62? What would my spouse get? So if your spouse waited till their full retirement age, they would get half of your full retirement age.
Joe: So if my spouse claimed benefits early and I claim benefits early, it would be a reduction of the benefit. If I claimed later my spouse claims later, there’s no increase in benefit. They’re always going to get 50% of the benefit at my full retirement age or vice versa if they claim at their full retirement
Susan: As long as they claim at their full retirement age.
Joe: This is clear as mud, isn’t it? Totally. I mean, there’s a lot of different rules here. So now let’s let’s wrap this up talking about we talk about spousal benefit. How about survivor benefits? Now, how does that work when one spouse partner?
Susan: So your survivor benefits, so you’re eligible for survivor benefit if you’ve been married or your former or you had a former spouse that you’re married for at least 10 years now, to be eligible for survivor benefits, you would need to be at least age 60. And the benefit would be 100% of your deceased spouse’s benefit.
Joe: All right. So if I break this down, if I’m looking at survivor benefits, it might make sense for the higher age earner to push it out as long as they possibly can, because then they lock you in this high benefit. And then if I were to pass away, then my spouse would receive the higher benefit. It was higher than hers. So there’s other things to consider. I guess if you are married or have been married for 10 years, you know, you can still claim on ex-spouses are still receive survivor benefits from an ex-spouse. Let’s talk about that for a second.
Susan: So let’s say you were married and you were married for at least 10 years or more and you’re currently unmarried, then you’re eligible for survivor benefits or spousal benefits.
Joe: So as long as I was married to someone for 10 years, yeah, I’m still eligible for that ex-spouse’s survivor benefit and spousal benefit as long as I don’t remarry. I really appreciate you joining us today.
Susan: It was great to be here, Joe.
Joe: That’s Susan Brandeis, CERTIFIED FINANCIAL PLANNER™, Head. Go to our website, yourmoneyyourwealth.com. Click on our special offer. That was a lot of stuff. A lot of information there confusing. I got confused. I think Susan got confused. We’re all confused. That’s why you got to go to our website. Click on that special offer. It’s called our Social Security handbook. Your money welcome. It’s free of charge. It’s our gift to you. We got to take a break. Show’s called Your Money Your Wealth
Joe: Welcome back to the show, show’s called Your Money Your Wealth. Joe Anderson, Big Al I’m talking about Social Security. I go to our website, yourmoneyyourwealth.com. Click on our Social Security handbook, Social Security handbook, yourmoneyyourwealth.com special offer. That’s our gift to you today. Let’s see how you all did on the true false question.
Al: I can stop my current benefits within the first year of claiming payback, everything I collected interest free and restart my benefits at a higher rate based upon my current age. Joe. True or false?
Joe: That is true. I think that’s a little known fact.
Al: Most people don’t know about it. And even if you do know about it, that can be painful to pay everything back when you’ve already spent it. So I’m not sure how many people actually do that. But if you realize that you claimed at the wrong time, then there is that bad deal of do over within the first year.
Joe: Yeah, in a lot of cases it makes sense to do. You just have to do the math, but you’re right, you could do the math all day long, but you’re still going to have to cut a check back to the Social Security Administration. And I would imagine most of you would be like, no, forget about it. It’s just kind of keep going with it. So let’s switch gears Big Al let’s go to your favorite topic.
Al: Yeah, let’s talk taxes because Social Security, as many of you know, used to be tax free. And then many years ago, a couple of decades ago, they started taxing it, and they have this tiered system as to how much is taxed. And so there’s this concept called provisional income and provisional income is essentially your income, adjusted gross income without Social Security. But then you add back in half of your Social Security. You also add in your your interest tax free interest and you get provisional income. Then you go to this chart here, and this chart shows that if you’re single and your provisional income was under $25,000, you don’t pay any taxes on Social Security. For married, it’s $32,000. As you can see, there’s a 50% bracket and an 85% bracket. So, Joe, interestingly enough, if you can arrange your affairs, somehow they have a lower provisional income. You pay less taxes on Social Security.
Joe: This is key. I mean, we look at your overall pictures key, right? When you’re doing your own planning. You can’t look at Social Security in a bubble. You can’t look at your overall taxes in a bubble because they all kind of combine together. Tax diversification is critical. So how are you creating the income from your other assets is going to determine basically how much of your Social Security is going to be taxed. If you have a lot of money coming from a Roth IRA distributions that’s not included in the provisional income calculation. If you’re managing your taxable accounts in a way that you’re tax lost harvesting and you’re creating losses in gains and knocking those out by creating income and a tax free rate, that’s now also not going to be included in your provisional income. So we’ve seen individuals and families then have a very high income. They’re paying very little tax, if any, just because of how the planning that they set themselves up for. When they do start claiming Social Security benefits, they know how Social Security is going to be taxed.
Al: Yeah. And I think it’s important to say that many states don’t tax Social Security either. In fact, currently it’s 37 states out of 50. Do not tax Social Security. California being one of them. But let’s talk about how you can potentially reduce your provisional income so that less of your Social Security tax would be taxable. So one of the ways would be something called a qualified charitable distribution, and this is when you’re over 70 and a half actually now 72, you can do it at 70 and a half, but 72 is the required minimum distribution age. And so instead of having a required minimum distributions show up as income on page one of your 1040, you can actually send it directly to charity. Therefore, it doesn’t show up as income, Joe it doesn’t affect your provisional and come and you could be in a lower bracket just from that strategy alone.
Joe: Yeah. QCDs, these are very useful in a lot of different areas, and I still think people utilize them right? You’re giving to charity, but you’re still taking a required minimum distribution. They’re showing up on your tax return and kind of jumbles things up. So if you understand how all of those coordinates together could save you quite a bit in taxes and still accomplish all your charitable giving, tax goals and so on. So, you know, we’ve talked a little bit about tax laws harvesting funding with Roth IRAs and then Big Al real estate. What do we do here?
Al: I would say almost every real estate owner that I’ve talked to and myself included, has some kind of deferred maintenance to do on their rental properties. And in a year when you’re trying to create deductions, potentially you can do some of that deferred maintenance and potentially write it off as a as a maintenance expense and lower your rental income, your net rental income. If you’re if your total adjusted gross income is below $100,000, you can actually write off up to $25,000 of losses on rental real estate. So that’s yet another way to reduce your adjusted gross income, which then reduces your provisional income.
Joe: That was a little stretch goal there, but they’re going to do that every year.
Al: But, you know, not every year, but the years where you need it, right? Got it.
Joe: To do this, let’s go to ask the experts.
Al: Do I have to delay the full year of my Social Security benefits in order to get an increase in my check? This is from Layla in Mission Valley. That’s a great question and I think at least the way I read the question, Layla is you don’t have to wait till year end. You know, every month that you wait, you get a higher benefit so you don’t have to wait the full year to get a better benefit for, you know, like if you did a mid-year, that’s better than claiming a benefit earlier in the year.
Joe: You know, what’s interesting about that question to Al is that let’s see that Layla is still working, and she’s already collected her Social Security benefit in each month or quarter or year that she works if those are higher earning years or quarters than previous ones. Her Social Security benefit will continue to increase, but there’s a caveat to that. If you are claiming your Social Security benefits early prior to your full retirement age and your working, you could lose benefits. So it’s kind of a double edged sword there, really encouraging people to push those benefits off as long as you possibly can. If you are still working, pass your full retirement age and you’re still claiming your benefits. Those benefits will continue to increase. They will never decrease. So let’s say if you’re working a part time job that has a lower earning than some other years, they’re not going to decrease the benefit. But it will increase if you have higher years. So a really good question. Let’s go to the next one.
Al: This is from Mary in Ramona. If I do a large Roth conversion this year, I’ll be able to significantly reduce my taxes in the future. However, it will put me in a higher bracket for Medicare premiums should I do the Roth conversion or not. That’s a great question, Marion. I guess the point is when you do a Roth conversion, you’re adding income to your tax. Adjusted gross income pay higher taxes in that current year, which then with Medicare premiums. When you’re subject to Medicare, usually 65 years and older, then there’s a two year look back. So if you have a high income year by doing a Roth conversion two years later, you may be paying higher Medicare premiums. So I think the way I would think about it is you’d look at the extra Medicare premiums that you would have to pay two years from now and just add that in as an additional tax, if you will. And does it still make sense to do the conversion? I think that’s the math that you have to do.
Joe: You add that additional cost into the tax and then you find out what the effective tax rate is and then you look in the future to see what effective tax rate you’re going to be. If you’re still going to be in a higher tax bracket or the same in the future probably makes sense to do it.
If not, I mean, that will give you a good gauge. Let’s see what we learned today. First off, you really want to take a look at how do you maximize the benefit, right? This is a pension that you will receive for the rest of your life, so you want to make sure that you maximize the benefit as much as you can. Looking at delaying, you know, some of you can’t delay the benefit, and that’s OK. But for most of us, maybe it might make sense, maybe to delay a year or two and find other sources of income, either through your portfolio, part time work or whatever, just to lock in that higher benefit amount. And then if you’re married or if you have a spouse that you’re married to for at least 10 years, there’s claiming strategies that you should be aware of. And finally, making sure that you reduce your overall tax bill. Hey, if you want more information on this, you know where to go. Go to yourmoneyyourwealth.com. Click on that special offer. It’s our Social Security handbook. yourmoneyyourewealth.com. Click on this special Offer Your Money Your Wealth. It’s our Social Security handbook. That’s it for us today. Big Al. Have fun in Hawaii, my friend.
You’re looking good. Yeah, but I mean, are we on a seven second delay or what were we? I don’t know. It looks like you are.
