Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:00 – When Should We Take Social Security? Should We Convert Our IRAs to Roth? (Richie & Heather, ID – voice)
• 09:04 – Download the Social Security Handbook
• 10:01 – What Should I Do With a $1M Single Premium Deferred Indexed Annuity? When Should We Take Social Security? Is 2% Advisor Fee Excessive? (Rebecca and Sam, VA)
• 28:03 – Calculate your free Financial Blueprint online, Schedule a Free Assessment with a financial professional
• 29:25 – Why Is My Spouse’s Social Security Benefit So Much Lower Than Mine? (Dan)
• 30:51 – The Roth Conversion Case for Drawing Social Security After Age 70 (P Ware, YouTube)
• 36:55 – Would Tax-Free Social Security Income Impact Claiming Strategies? (Jerry, Phoenix, AZ)
• 42:08 – Outro: Next Week on the YMYW Podcast

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Transcription

Intro: This Week on the YMYW Podcast

Andi: When should Richie and Heather in Idaho and Rebecca and Sam in Virginia collect their Social Security benefits? Why is Dan’s benefit so much higher than his wife’s? Plus, P. Ware has a Roth conversion case for claiming Social Security AFTER age 70, and Jerry in Phoenix wonders how Donald Trump’s plan to stop taxing Social Security could impact claiming strategies. That’s today on Your Money, Your Wealth® podcast number 509. Plus, Joe is checking back in as he rants – I mean, spitballs – on Rebecca and Sam’s $1 million single premium deferred indexed annuity. The fellas also spitball on their Roth conversion and retirement strategy, and how much is too much when it comes to advisor fees. I’m Executive Producer Andi Last, with the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA. To get your money questions answered, or to get a Retirement Spitball Analysis of your own, click or tap Ask Joe and Big Al On Air in the episode description and send us an email or a voice message, like this one:

When Should We Take Social Security? Should We Convert Our IRAs to Roth? (Richie & Heather, ID – voice)

AI RICHIE: “Hi Joe, Big Al, and Andi. This is Richie from the great state of Idaho. I’m 62 and Heather is 61. Heather and I are looking for a spitball on our retirement plans, including when to take Social Security and possibly rolling a portion of our IRAs to Roth IRAs. We’re planning to retire as early as February 1st, 2025. I discovered your podcast last year and have been listening while working out, hiking and mountain biking. Thanks for educating us with comedy. I drive a 2018 Ford F150 Lariat and Heather drives a 2021 Ford Explorer Platinum. Fine red wine anytime is our drink of choice, along with an occasional IPA or a sip of tequila. Unfortunately, we have no pets at this time. We are debt free. Our house is worth around $800,000 and we plan to spend $120,000 per year in retirement, excluding taxes. Our investments total $2,625,000 with a 60/40 split between equities and fixed income. We have $330,000 cash and $215,000 in equities in our brokerage account, our traditional IRAs total $1,423,000. Inherited IRAs, $145,100 and Roth IRAs $511,000. I make $12,250 a month, and Heather makes $5900 a month. My Social Security per month at 62 is $2747, $3851 at 67 and $4789 at 70. Heather’s is $1830 at 62, $2680 at 67, and $3358 at 70. We’ve been maxing out our Roth accounts the last few years, and we’ll add an additional $20,000 to our brokerage account by year’s end. We plan to take Heather’s Social Security in September, 2025 and mine at full retirement age in 2029, but are considering waiting until 70. We plan to withdraw $50,000 next Spring to upgrade our travel trailer. To bridge the gap until Social Security kicks in, we will use the inherited IRAs, brokerage account and Heather’s Social Security. This will buffer us from market downturns early in retirement. Looking forward to your spitball on our plans. Thanks a bunch, Richie.”

Joe: Alright, hey, what does that look like now that we’re filming this stuff? So, is it just like, Alan and I just looking at the paper?

Andi: It’s whatever Aaron decides to edit it to be, but the last time I think he actually had a waveform down at the bottom so that you could see some movement there while you guys were listening to the question.

Al: Oh, okay.

Joe: Got it. I was just wondering. I’m like, man, and then I’m just listening to a robot.

Andi: Yes.  AI explains in full numbers.

Al: You’re right. I know.  AI is maybe taking over, Joe.

Joe: Got it.  We got Richie. Richie and Heather.

Al: Yeah.

Andi: And I think that’s a reference to Richie Sambora from Bon Jovi and Heather Locklear from Melrose Place and Dynasty. They were a couple.

Joe: You think so?

Andi: Yeah.

Joe: Did they give you a little side note on that or is that your guess?

Andi: No, but I’m thinking if it’s Richie and Heather, it seems pretty likely.

Al: Got it. Well, that’s as good a guess as any.

Joe: Wow. Richie Sambora.  Is he still alive?

Al: I think so.

Andi: I believe so.

Al: Yeah. As far as I know.

Joe: Okay.  So he’s got, what, $2,500,000, $2,600,000. Wants to spend $120,000. Here’s what I don’t like about the strategy. Is that he’s kind of grouping things into these different buckets versus looking at the entire whole of the investment account.

Al: Yeah, especially when he talks about where to take the money from.

Joe: Right, he’s trying to bridge this gap until Social Security, and so he doesn’t know when to take Social Security. Should- Heather’s going to take it at 62, I want to wait until age 70, so if Heather takes it at 62, she gets what, $2000 a month, or call it $20,000, $24,000 a year. So, and then I’m going to take it from my inherited IRA and my brokerage account. Well, you got $145,000 in your inherited IRA, you want to spend $120,000. Social Security is going to come in at $20,000, so $100,000. How old are they? 61 and 62? Al: Right.

Joe: I mean, they got an 8-year bridge.

Al: Right.

Joe: So, and then his brokerage account is 100% equities. Right. So you need to be figuring out a strategy because if the market tanks on you, you’re already close to a right around a 4% burn rate. So you’re taking out 3.5% if she takes hers at 62, right.  I would be careful with a strategy this way. I’m not saying he can’t do it, or he’s pretty close. But if you start, well, I’m going to take my inherited IRA, then my brokerage to supplement, maybe I don’t take my Roth. I want to look at the tax implications of your distributions, how much money you should be taking from the, or just qualified accounts in general, how much you should be taking from the brokerage, how much you should be taking from the Roth, because he could keep himself probably in a pretty low tax bracket for life.

Al: I, I agree with that part, and I’ll go back. I think, I’m okay with her taking Social Security at 62 because, and with him waiting. Because what you want to do in the case of a married couple is at least have one of the two you wait longer because whoever survives the other, the other spouse will get the higher benefit. So, I kind of like the idea of at least one of them, in this case, Richie, waiting until age 70, and then Heather taking it, 62. I’m okay with that. And if she does, if they want to spend $120,000, her benefit’s about $22,000, $90,000 is the shortfall. You divide that into what they have. That’s $2,600,000. That’s a 3.8% distribution rate. I’m fine with that at age 61, 62, particularly knowing that Social Security is coming. So I’m fine with the strategy. If you want to take, Richie, if you want to take Social Security earlier, I’m okay with that. But I personally would probably wait to 70. But then what Joe is getting at, Joe is how do you bridge the gap? And I think you want to be a little bit more careful. Yeah, some will come from the inherited IRA, but then some will probably come from your regular IRA. You’re basically trying to max out the lower tax brackets. And if you do it the way you’re thinking of doing it, you’re going to leave money in the 12% bracket that you could have taken money out of your deferred and paid very little tax. So you want to be a little bit more careful how you do your distribution plan. Joe: Yeah. I think you have to look at the numbers here too, because if he did his strategy, you’re going to take the inherited IRAs in the brokerage account. And so he’s going to be at a low tax bracket. So you either have to take money from the retirement account, the two point- or the $1,500,000 that he has in IRAs, either convert that to a Roth, or you take a distribution to the top of that 12% tax bracket. Al: And you can pick either, as long as you’re filling up that 12% bracket.

Joe: Yeah, but I don’t think he’s going to be in a giant tax bracket because of the spend. The 4% burn rate.  I think you fill up the 12% bracket with the distribution versus conversion so he can keep more of that liquidity with his brokerage account.

Al: Yeah, I’m okay with that. Yeah, that’s probably what I would do for that exact reason. And that is when you have a bunch of money in tax-deferred, which they do, but they’re going to pretty much use it. They’re going to use it for their own spending. Right. Now here’s where it gets trickier. Like when you, when, like, let’s say the numbers are double, like they’ve got.

Joe: Or their spending is less or half.

Al: The spending is half. How ever you want to say it. Right. And so now you’ve got way more coming out than you need.

Right. That’s when you start thinking about more Roth conversions because you’ll be in higher brackets than what you really need to be in.  So.

Joe: Cool. Idaho. I wonder where he lives. I was in Coeur d’Alene, Idaho.

Al: I know you were. Yeah, you play some golf out there?

Joe: I did. I did. Very beautiful place.

Al: Yeah, it is.

Download the Social Security Handbook

Andi: So should you claim Social Security early, at full retirement age, or wait until age 70? The difference can mean thousands of dollars of additional retirement income every year, or a permanent haircut, so how does your claiming strategy fit in with the rest of your retirement plans? Make sure you know all the available options and that you have a solid plan in place before you start collecting Social Security benefits. Download our Social Security Handbook for free to learn how to maximize your monthly Social Security payments. This guide explains who is eligible, how Social Security benefits are calculated, the difference between collecting early vs. late, working while taking Social Security, details on spousal, ex-spousal, and survivor benefits, and how your Social Security is taxed. Click or tap the Social Security Handbook link in the description of today’s episode in your favorite podcast app to download your copy for free, courtesy of Pure Financial Advisors and Your Money, Your Wealth.

What Should I Do With a $1M Single Premium Deferred Indexed Annuity? When Should We Take Social Security? Is 2% Advisor Fee Excessive? (Rebecca and Sam, VA)

Joe: “Hello, Andi, Al and Joe.  Love, love, love your show.”

Al: That’s a lot of love.

Joe: And she loves her husband, Sam.

Al: Wow.

Andi: And you know what? I think these folks are from Cheers. Rebecca and Sam.

Al: Oh, yeah. I think you’re right. Yep.

Joe: Rebecca, it was Diane.

Andi: But Rebecca was after Diane.

Al: Rebecca was the second one.

Joe: Rebecca was

Andi: Rebecca was Kirstie Alley.

Al: Yeah, the second Cheers girl.

Joe: Alright.

Al: You’re right, the first one was Diane.

Andi: Yeah.

Joe: Yeah.  She got a little overconfident maybe. She thought she could do big motion pictures.

Al: I think so, yeah. Did a couple and that was about it.

Joe: She did a couple and that was about it, yeah. Alright, so, “My husband Sam and I are now both hooked and look forward to every episode. Sam is also going back to older episodes, as it took a while for me to convince him to listen. And so he’s a bit behind the 8 ball.”

Andi: I thought that said he’s a bit behind the spitball.

Joe: “So here’s the question, I greatly appreciate your spitball on what I should do with $1,000,000 single premium deferred annuity I bought in 2022 prior to my YMYW education.”  $1,000,000 single premium deferred income annuity, Al, you know what that is?

Al: Indexed annuity. Yeah, I do know what it is.

Joe: Oh, it’s a deferred indexed immunity. Oh boy. Okay.

Al: Yeah.  That’s how we can get your blood boiling.

Joe: Yeah. $1,000,000. That guy made a lot of money off of Rebecca and Sam. All right. “I’m 60 years old, fully retired, 2023. Sam’s 61 and retiring next year. We drive a ‘16 and ‘07 Hondas and I really enjoy red wine or a Carmel macchiato. Macchiato style.” What is that?

Andi: I think it’s a macchiato, and I think it’s a-

Joe: – macchiato?

Andi: Macchiato. And I think it’s a coffee drink.

Joe: I don’t drink stout, so I don’t know.  Well, “Sam enjoys IPAs.  Our two kids are launched, 95% independent, as we pay for flights home. That’s it.” Big Al, you still pay for cell phones?

Al: A couple things still.

Joe: Got it.

Al: It is cheaper on the family plan.

Joe: Got it.  Alright, here we go.

Al: I guarantee you-

Joe: Oh, I got it.

Al: – 20 years from now.

Joe: 20 years from now. Oh my God.

Al: It’s all the same stuff.

Joe: Yeah, I’ll be so senile 20 years from now.

Al: Just take it, kid.

Joe: Yeah, it’s all yours.  All right. “The data. We got traditional IRAs, $750,000, Roth IRAs $35,000, TSP $1,200,000, inherited traditional IRA, $44,000, brokerage accounts, $620,000, cash savings, CDs, $120,000. And then this annuity of $1,000,000, current accumulation value is $1,100,000, and then the benefit base was funded by my 401(k).” Alright. So if you rolled the 401(k), bam! Right into that nice big annuity.

Al: If you’re keeping score, it’s about $3,700,000 in assets. Joe: $3,700,000. Good for you, Sam and Rebecca.  “Sam’s pension, $60,000 beginning after retirement. Social Security, $60,000 mine at 62 and 63, almost the same benefit each. And $83,500 combined at FRA and $103,000 combined at age 70, not adjusted for inflation. We get $1,000,000 inheritance coming in the next 10 years, house is paid for, worth about $700,000.”  All right, so they got a pension. They might- if you got a pension and fat Social Security, why are we buying an annuity here?

Al: Just, you know, a lot of people when they retire, they start thinking about, I’m not going to have a paycheck anymore, and they want to try to recreate it. But you’re right. They already have it.

Joe: They already have pretty good fixed income. All right. Let’s see what, let’s see what we can do here.

Al: In fact, Joe, when you add up the Social Security at 70 and pension, they have about $160,000 of fixed income. They want to spend $125,000.

Joe: Yeah. All right. “So I’m struggling what to do with this annuity, if anything. I bought it for risk free stability and to create a pension stream for myself, but I’m now thinking I could have achieved equal or higher returns, just keeping it invested. Of course, that’s hindsight. And what’s done is done. I did not fully understand the product at the time, but now have much better understanding of what it is since I’ve retired and had time to research. Here are 4 potential options I see. Number one, keep it as is and begin a lifetime benefit payment in year 3, mid 2025. Since I selected the fixed increase of 3.5% for this year, the benefit base will increase to 7.25%, to $1,200,000 next year, resulting in a choice of either a defined, definite $54,000 fixed annual payment or $47,000 increased payment.”  Alright, I’m gonna come back to that and do the math for her. Number two, let it ride a little bit longer. The payment percentage increases by 0.1% each year I wait, and the benefit base increases to a minimum of 2% each year depending on the selected indicee.  If a selected indicee or index has a positive return, it is multiplied by 1.5% plus, an increase of 2%, e.g. a 4% index gain, increased the base by 8%, which is 4% times 1.5% plus 2%.” Oh my god, no wonder why you didn’t understand what you’re buying here.

Al: I don’t even understand.

Joe: This is complicated.  Yeah. “Hypothetically, if I could just average the same 7.25% base increase over the next 5 years, the payment would be $85,000 fixed, or $75,000 increasing in year 8. The worst case scenario would be growing at a minimum of 2%-” You know, all of these numbers are garbage.  Let me do the math for Rebecca here. This is what she has to be thinking about because this is where people get confused with these products. They’re like, okay, well here, we’re going to tie to an index. You’re not going to lose any money. And if the index has a positive return, we’re going to give you some return with a cap. And then, oh, we’ll throw a bonus. Because if you look at these numbers. She’s thinking, all right, well, in a really good scenario, she’s going to get 7.5%, or maybe I could get 8%, 8.5% or 9%. I’m going to get this fixed payment of X amount of dollars for the rest of my life. Yeah. If I keep the money in the annuity. And then they’re going to give me even a higher payment, and then I’m going to get this locked in fixed payment forever. All of that, if I was in Rebecca’s shoes, I would be like, yeah, that sounds really good. Most people hear those numbers and it’s like, fantastic.

Al: Where do you get an 8% return?

Joe: Where do you get, who gets an 8% return? Wow, you’re gonna give me an 8% return and I’m not trying to be rude to Rebecca because that’s how this I was gonna say another word stuff is sold.

Al: What word were you gonna say?

Joe: I don’t know.

Al: You don’t remember. Okay.

Joe: You put $1,000,000 in and let’s just say all right Hey, you keep it in the product for 10 years, right? And so at 10 years, we’re going to give you a 7% rate of return. I’m just going to keep the math simple. Okay. Right. 7% over 10 years, your money’s going to double and it’s a guarantee. So now in 10 years, when you want to turn on the income, it’s going to be a $2,000,000 base. Okay. And we’re going to give you, let’s say 5% on the money. All right. So 5% times two is $100,000 a year.

Al: Wow, and that’s and I only invested $1,000,000.

Joe: You only invested $1,000,000. You’re gonna get a guaranteed $100,000 a year or make it $120,000. I don’t care, right? Right, but here’s what Rebecca needs to do with these with all these numbers that are super confusing to the average investor, let alone a sophisticated investor, right? Look at the time that the annuity company holds those dollars. Right. So in this example, you gave the annuity company $1,000,000. 10 years goes by. On your statement, you see, wow, now it’s worth $2,000,000. And then I’m going to get a guarantee, let’s say, of $100,000 a year. And I’m going to turn on that income. I’m never going to outlive that $100,000.  Sounds awesome.  But then I look at it and say, all right, well, let’s see another 10 years goes by. So you get $100,000. So $100,000 times 10 is what?

Al: $1,000,000.

Joe: So, the annuity company has held Rebecca’s money for 20 years. What rate of return did she receive?

Al: Zero.

Joe: Zero!

Al: You got your money back.

Joe: You got your money back after 20 years. Now she is 80 years old. Right. Right?

Al: Correct.

Joe: So, now she’s gotta live, let’s say she lives until 90. Right. So, she gets another $100,000 a year. So, she doubles her money, but it didn’t take her 10 years to double the money. It took her 30.

Al: 30. Because this goes away when you pass away.

Joe: Right, and it’s gone. So, I’m just making up the numbers here because they are, this is super complex. Alright, well whatever index you pick, we’re gonna give you X and it’s a cap, and then oh, we’re gonna add another 2% here. Oh, well what the hell we’ll just throw in another 4%.  Right? It’s like, God, how, I’m the luckiest person in the world, how did I find this product?  So, okay. All right. Sorry. All right. So now we number 3, so I’m mailing it. I’m mailing it in lately,

Al: You got your blood pressure up. So yeah, let’s look at the choices 3 and 4.

Joe: All right “I cash it out and invest, current surrender value is $954,000.” So you’re gonna lose $50,000.  Yeah, I don’t know, lose $50 000 or take 30 years or maybe less. I would have to do the math. This is hypothetical and you please get a review by a professional that’s a fiduciary to do the math for you. But cash it out. All right. “Surrender charges phases out 8 more years” Trust me, it doesn’t matter what the surrender period is, the annuity company always wins. They do. That’s why they’re in the biggest buildings in every metropolitan area. They’re smart, they got actuaries that have PhDs. So if you want the annuity for fixed guaranteed income, keep the product.

Al: Now if you live to 110, you win.

Joe: It’s awesome.

Al: It’s a great product.

Joe: But no, it’s a, it’s insurance. An annuity product is insurance. So if Rebecca wants a guaranteed income that she never ever has to worry about running out of money. Right. Then do the annuity. If you’re thinking it’s an investment, it’s not an investment. It’s insurance. Right. So it’s longevity insurance. You want a guaranteed income stream, but she already has a lot of fixed income. You spend $120,000 a year. You already have half of that in a pension of $60,000.

Al: And Social Security is more than you need.

Joe: So you gotta pull $60,000 from the portfolio. $60,000 into $3,500,000 is a pretty small distribution rate. Right.  So, I don’t know, there’s a lot more to this thing, maybe I’ve answered a question.

Andi: Well, then jump down to the red part.  She’s got a couple of completely different questions.

Joe: Okay, “-take a 5% maximum penalty free withdrawal each year.” Oh, and they can only take 5%? I thought it was usually 10%. Usually 10%, yeah. But this is such a great product, why in hell would you want to take more than 5% our?

Al: And then you gotta wait 8 years.

Joe: Yeah, just lock you up, lock you- you know, there’s an annuity product that we used to see with like an 18-year surrender period, yeah, you know, we called that one, we called that Hotel California.

Al: You can’t get out of it. You can enter, but you can never, ever leave.

Andi: You can never leave.

Joe: You can never leave. So, alright. “I’ve researched the index choices, tracked the performance over the last 10 or so years. And understand the risks. Since we don’t need the payments right away, I’m tempted to try and max out the growth a few more years. And in the meantime, withdraw from the brokerage in the IRA instead of covering retirement expenses and reduced taxable income prior to the RMDs.

We would like $125,000 per year in retirement and leave a minimum of $1,000,000 in inheritance to each kid.”  Okay. Now, this is just even more frustrating.  So the goal is not guaranteed fixed income.

Al: No, they want to leave money to the kids.

Joe: They want to leave money to the kids.

Al: And it’s now an annuity that goes to the insurance company.

Joe: Right. And again, I’m more or less ripping on the agent that sold the product, not Rebecca. Right. Because it sounds really good to the average investor.

Al: Actually, you know, I’m sitting here and I’m thinking, this sounds amazing. Yeah. Right.

Joe: I’m going to get in the annuity business.

Al: I need to go get one of these.

Joe: But like I said, if she wants a guaranteed fixed income for the rest of her life and wants to insure that and not worry about the markets and fluctuation and volatility and everything else, then that’s a wonderful product. Go for it. But it’s like, oh no, I want to give a bunch- million, you know, a few million bucks to my kids.

Al: Yeah, right.

Joe: Oopsie poopsies.  “We’d love to also get your spitball on when to take Social Security, whether the 2% we are paying our advisor is excessive.” Now you’re paying a 2% as well with the commission?

Andi: But only on $1,200,000 of their funds.

Joe: Oh boy.

Al: Well, that’s because they already got the commission on the mill.

Joe: Yeah. Killed it on the commission. Yeah. Made about $80,000 on the annuity. Right.  But I’ll save that for a future note. Okay.  Alright, well no, 2% is extremely excessive.  Of course, I don’t know what annuity contract she’s in.  I have no idea what the details are. It could be a phenomenal product, given certain goals.

Al: You’re talking generally.

Joe: I’m talking very high general of how these products work, how they’re usually sold, how they’re positioned. You could have a very good advisor, but it, the, sounds to me that this, there’s red flags.

Al: Based upon what you know, we don’t know because we don’t have the contract, right? But what would you do out of these 4?

Joe: If it was me-

Al: Yes.

Joe: And if it was my money-

Al: Yeah.

Joe: And I put $1,000,000 in, and I could get out of it for $954,000?

Al: Mmmm. You might do that.

Joe: I might think about that pretty hard.

Al: I am with you. I, to me, if they’re young, if, I right, if I could take out 10% penalties free, I might do that, but 5%, that’s not enough.

Joe: I don’t know.  Yeah, you could let, I don’t wanna give advice. We’re just spit balling here.

Al: Well, all we’re saying is what we would do.

Joe: Yeah. I mean-

Al: I mean, we’re not, we don’t know.

Joe: I would need to know a little bit more about your goals and aspirations, your timeframes and your tax bracket and whatever.

Al: And of course, I mean, I answered this in the context of myself, which may or may not be Rebecca and Sam’s situation, but that’s what I would probably do. I would say, boy, that wasn’t my best choice. I’ll get out of it. I only lost $50,000. Good enough.

Joe: Yeah, I think 2% is pretty excessive. Selling commissions and not maybe disclosing what the commission is, is probably, you know, you might want to understand that a little bit.  What are the costs and fees associated with it? And really, what is your IRR, your internal rate of return, if you’re looking at a guaranteed income product? Right.  Again, it’s insurance. So, if you want to insure against longevity risk, then, you know, annuities do a really good job of doing that.  But doing a, you know, a tax-deferred indexed annuity? Yeah. Andi: So, when should they take Social Security then?

Joe: Well, they got a $60,000 pension, and they have plenty of cash, the distribution rate is low. If they have longevity, they would take Social Security, as, I would push it off as long as you can. And then their fixed income is going to cover most of their income needs, depending on what inflation does. The biggest issue I see is taxes. So, let’s say they turn the annuity on, it’s a 401(k) plan that she rolled into the IRA, and she waits. She doesn’t do anything with the money. She lets it defer, right? And then you get a lot larger guaranteed fixed payment. Right. But it’s going to be 100% ordinary income tax.

Al: Yeah, taxable.

Joe: You have a $60,000 pension that’s ordinary income tax. Al: Right. And Social Security.

Joe: And Social Security. So, you’re just locking in a lot higher income, potentially, that you’re spending. And all of that income is taxed at the highest of rates of ordinary.  So, yeah. But, good news is, you’re not gonna run out of money.  You can do, take more trips, buy more booze, drink more wine.  Have fun! Right? And then you don’t have to worry about the markets, you don’t have to worry about managing the money.

I don’t know. Or you’ve got someone paying, you’re paying them 2% so they can manage that, but.

Al: Yeah, 2% is a little on the high side,  but, you know, it also depends what services you’re getting. So we, it’s, we can’t really say for sure, but.

Joe: Yeah, I don’t, the last thing I want to do is bash.

Al: I know, yeah, me too. But I would say it’s higher than, industry standard. Yeah.

Al: Could you say that?

Joe: About 100%?

Al: Yeah, that’s about right.

Joe: A little double. Yeah. I don’t know, $3,000,000? I’m going to charge you 2%? It should be, I don’t know, 60, 70 basis points?

Al: They’re only charging 2% on $1,200,000 because they already got the commission on the annuity.

Joe: That’s right. Yeah. All right. Sam, Rebecca, congratulations on your retirement. Congratulations on accumulating the wealth that you have.  Yeah, you’re in great shape financially. The products and the planning that, that you’re in could it use some tweaks and massaging. Sure.

Calculate your Financial Blueprint online, Schedule an Assessment with a financial professional

Andi: You can see for yourself how those tweaks and massaging can affect your retirement plans and see your likelihood of retirement success with a Financial Blueprint! Click or tap the Financial Blueprint link in the episode description, input your details, and our free tool will analyze your current cash flow, your assets, and your projected spending for retirement. It’ll then calculate a detailed report with three scenarios to help you determine your probability of retirement success. Your Financial Blueprint even includes future taxes, and actionable steps you can take now to achieve your financial goals. Take control of your retirement future: click or tap the Financial Blueprint link in the episode description to get started.

Once you’re armed with the information you need, consider meeting with the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors for a Financial Assessment, either in person or online, to go over your Financial Blueprint. Both the blueprint and the assessment are free, with the goal of educating and empowering you.The Pure team will help you develop a thorough financial plan that goes beyond the basics, offering guidance that addresses both your unique immediate needs and your long-term retirement vision. At the end of the assessment process, you can decide whether Pure is a good match for your needs and what the next steps look like. Get your Financial Blueprint and schedule your Financial Assessment – both for free. Click the links in the episode description to get started.

Why Is My Spouse’s Social Security Benefit So Much Lower Than Mine? (Dan)

Joe: All right. We got Dan. He writes in. He goes, “Hey, why is my Social Security about $3000 and my wife is only $800?” I have no idea, Dan. It’s probably, your wife had a certain earnings record with Social Security.

Al: I’m guessing your earnings record, Dan, was higher.

Joe: Yeah, you made more money than your wife. And so how Social Security calculates the benefit is based on 40 years of earnings history. How many, how much money did you make and how much money did you put into the overall system and that creates your PIA or your primary insurance amount.

Al: Right. Right. Yeah.

Joe: And she probably made a little bit less and so when you do the calculation her benefit is $800. I don’t know. When did she take the Social Security? She took it at 62. She’s gonna get a permanent haircut. Maybe Dan pushed his out to a later age.

Al: That could be. Yeah, it, right, I think it’s the 35 years, it’s income over 35 years, and it’s the highest 35 years. And if you only work 15 years out of the 35, it counts as you making zero for 20 years, so it averages that in. So, I don’t know your wife’s situation, but she probably either worked less than you, or she made less than you, or she took her benefit earlier than you. So those are reasons why it could be lower.

Joe: Yeah, great question, Dan. Very simple, to the point, move on.

Al: Yeah, you didn’t have to read two pages.

Joe: No, it was like two pages, I get a little dizzy.

The Roth Conversion Case for Drawing Social Security After Age 70 (P Ware, YouTube)

Joe: Okay, we got, let’s see, what, where do I start reading this one here? Help me out with this one.

Andi: This is a YouTube comment that was- This is a YouTube comment by P Ware- he commented on podcast 504 in reference to emailer John, who planned on taking his Social Security at age 70 and a half, and you guys said there’s no reason to do that, take it at 70. So this is P Ware’s comment on that.

Joe: Oh.

Al: Okay, it’s a comment.

Joe: “There is a case for drawing Social Security past age 70. Up to 70 and a half.”  Oh, God. Now we’re splitting hairs here. Andi: Actually, this did, this did, cause me to have a question for you, so I’ll let you read it and then I’ll ask you my question.

Al: Okay.

Joe: “If your birthday is in the second half of the year, say July, and you are trying to max out Roth conversions up to a certain tax bracket limit, then taking Social Security in the year you turn 70 will lower the amount you can put into a Roth conversion.  When you start Social Security, you have the option to select a start date up to 6 months earlier and then get the lump sum for the previous months.” Oh, look at the big brain on P Ware.

Al: You know, P Ware is correct.

Joe: He is an advisor, guaranteed.

Al: He’s correct.

Joe: Yep. That’s a great strategy, P Ware, and you’re right.  Kudos to you. That is absolutely right.

Al: So, so, so 70 is the last date where you can collect Social Security, but when you start collecting it, you can actually have a start date 6 months earlier and you get a lump sum.

So let’s say your birthday’s in July, you put in for benefits in January the next year, that lump sum of 6 months would go into the next year. So this could work. It’s actually not a bad idea- in certain cases.

Joe: Did I ever tell you about that- the lady, this is a few, several years ago that came into the office and she had this baby?

Al: Okay.

Joe: Strangest woman I think I’ve ever met in my life, comes in unannounced and wants to talk to me about a question she has about Social Security.  So she’s 72 years old or somewhere close to that. Okay. And she goes, hey, I should claim Social Security because I’m 72 years old, but can I put the account into a different, like, how do I get, how do I move the, or change the account number where the money goes to? If I’m married, because I’m married and I, you know, I don’t want my husband actually to see the benefit.

Al: Okay.

Joe: I said, okay, that’s- that’s straightforward. Sure. I don’t know what kind of marriage you have.  She’s like, well, should I get, I should get a family benefit too, because I have this baby. I’m like-

Andi: She’s 72 and she had a baby?

Joe:  72 years old. It’s like a miracle baby. I was like, all right. But then this is when RMDs were at 70 and a half. And I was like, well, here, well, are you taking RMDs? She’s like, well, what’s an RMD? I was like, do you have a retirement account? Yes, I have a retirement account. Well, you have to start taking dollars from that retirement, right? She’s like, oh gosh well, can I move that into a different account as well? And I was like you could do whatever you want. I was like, well, what well why are you trying to hide all this money? And she’s like, yeah. Well, my husband thinks I’m like 60.

Al: I remember you telling me that.

Joe: She’s got this baby. I’m like, oh my God. This is-

Al: Oh, my gosh.

Joe: Anyway.

Al: Okay. Miracle baby. Miracle-

Joe: -or I thought I had a miracle baby.

Al: Yeah. Well, you’re nothing compared to that.

Joe: All right. Okay. Go to Jerry from Phoenix.

Al: Yeah.

Andi: Well, I wanted to ask a question on this same topic about claiming Social Security after age 70, as late as 70 and a half. Now my- because I ended up researching this and I found out that if you claim like at 70, you know, and you get the 6- month lump sum, it actually takes you back to whatever the monthly payment would have been 6 months earlier, is your permanent amount that you’re getting going forward, which is why claiming at 70 and a half, then you’re getting your age 70 benefit in the lump sum for that 6 months that you asked for. Right?

Al: Yeah. Both those statements are accurate, but you also can claim Social Security without getting a lump sum and then you get the benefit you’re supposed to get.

Andi: So I know somebody who waited until the age of 73 to claim his benefits, so he would have gotten that lump sum, and that would have been still at the age 70 amount, correct? Even though he waited that long, he collected the last 60 months worth.

Al: Correct. The only increase, there might have been a cost of living that he would have got, right? But otherwise, it’s the benefit at age 70.  At 73, with the cost of living for whatever Social Security did for those few years.

Andi: So that’s why P Ware is suggesting waiting until 70 and a half so that when you get that lump sum, it is at the age 70 amount, not at the age 69 and a half amount.

Joe: No, what he’s saying is that if, let’s say, his birthday’s in July.  And so you claim your benefit at age 70, you receive that paycheck from Social Security in July. Well, you have 6 months of income on your tax return of Social Security that otherwise you could eliminate on your tax return and then you could do a Roth conversion to that dollar figure or whatever, right? Because that’s going to show up on the return. Let’s say your benefit is $30,000, so $15,000 of Social Security is going to be on your tax return for that year because it’s half the year. He’s like, well, don’t claim it until the next year. You’re going to get a lump sum of that $15,000 that you should have January 1st, but you could have done a Roth conversion of an additional, let’s say $15,000 in this example to, or higher, or $15,000 additional because that income didn’t show up on the return.

Andi: Got it.

Joe: That strategy probably makes sense one out of 100.

Al: I’ll go back to your original comment. You’re kind of splitting hairs. I mean, to get an extra- I mean-

Joe: Because the following year you have that-

Al: You got extra income. You got a higher bracket, but whatever. I mean, it does work. It’s actually, it is a reason where you could do it.

Joe: Yeah, he is right.

Al: I get it.

Would Tax-Free Social Security Income Impact Claiming Strategies? (Jerry, Phoenix, AZ)

Joe: All right. “Hi Andi, Big Al and Joe.”  I’m getting third wheel here lately.

Andi: No, you’re getting- they’re saving the best for last. Come on.

Joe: I haven’t really talked about my insecurities about this in a while, but I’m noticing it a lot. Just saying.

Al: It’s popping up, huh?

Joe: Got it.  Well, “I’ve been listening to your podcast for a couple of years and would like to submit my second question for your podcast.” Okay, Jerry. By all means.  “Thanks for answering my first one a year or so ago. I drive a 2021 BMW 430i and my drink of choice is a little Mich Ultra. During the election campaign, several tax changes were discussed and perhaps given the red wave-“Red wave.

Al: Given the red wave.

Joe: Got it.

Al: Got it.

Joe: I’m guessing that’s the Republican wave?

Al: Correct.

Joe: “- I wanted your spitball on whether current Social Security strategies might change. Today, our investment income, small pensions, wife Social Security, and Roth conversions are filling up to the 24% tax bracket. My 66-year-old bride of 44 years started claiming Social Security at 62 and 5 months. I’m 67 and I’ve been planning to take my Social Security at age 70. Given our tax bracket and current tax laws, 85% of our current and future Social Security payments will be taxed at 24% or higher. If one of Trump’s Social Security proposals to stop taxing Social Security becomes law, and assuming there is no means testing, my $57,000 annual Social Security would be avoided 11.6 in annual federal taxes. And my wife’s estimated annual Social Security increase with the spousal offset could avoid $4000 in federal taxes. We live in Arizona, so Social Security is already not taxed on the state level. So here’s my question. I think if Social Security becomes exempt from federal taxes, then I should go ahead and just file for Social Security prior to age 70. I’ve been filling up the 24% tax bracket and Roth conversions and tax-free Social Security would also allow me to continue with my goal of having my IRA split 50/50 between deferred and Roth. Do you think tax-free Social Security income will impact my Social Security claiming strategy, or do you think the current strategies will remain? Thanks in advance.  And thanks for making your podcast so informative and entertaining.” All right. What do you think, Big Al? Yeah. Social Security tax-free?

Al: I doubt it, but it could be, I mean-

Joe: What’s the chance?

Al: Below 10%.

Joe: I would say below 2%.

Al: So here’s what I would say, I would say there’s all kinds of proposals, particularly on a presidential campaign, and just don’t go to the bank with them. Just yet, right? Don’t make any changes until something actually happens. If it does happen, then you could relook at it again. But in my, the way I think about this, I think it’s more important that you do the right claiming strategies as opposed to whether you get a little bit more Social Security for a couple of years and still do your Roth conversions. And in a lot of cases, I kind of like the spouse with the higher benefit to wait to 70, if you can afford it. Just because then that’s the higher benefit that whoever survives the other one will receive. So I would look more at the benefit of Social Security rather than the taxation.

Joe: Yeah.  I think they changed the law, what OBRA, Omnibus Budget Reconciliation Act, Al?

Al: Yeah, where they tax Social Security?

Joe: And then, but that was-

Al: That was a long time ago.

Joe: That was under Clinton, I think.

All: Yeah.

Joe: But then when they first started taxing Social Security, it was under Reagan. Yeah. How many years ago?

Al: That was in the 80s. 80s, yeah. Yeah.

Joe: And so, but they never indexed the amount that would be, like, $44,000. Anything over $44,000, 85% of your benefit is subject to tax. Right.  I mean, $44,000 in the 1980s was like $150,000 today.

Al: There’s a lot more.

Joe: So, I mean, they haven’t done anything with the system in regards to taxation for years and years and years. And for someone on the campaign trail to say, hey, we’re going to have tax-free benefits for Social Security benefits? I love the concept.

Al: It sounds good.

Joe: I mean, we live in the state of California, and the state of California doesn’t tax Social Security. Right. But on the federal level, you know, how much taxes that would be?

Al: Well, if, I would say if we had a balanced budget every year, yeah, maybe.  I don’t think we’ve had a balanced budget in my entire career.

Joe: I know, vote for Big Al.  On the campaign trail. Alright. That’s it. That’s it for us today. Social Security questions galore. Appreciate everyone coming in with your questions.  And thanks for the fun time today. Happy holidays. We’re gonna have this wonderful holiday season, Big Al.

Al: We are, I can’t wait.

Joe: Alright, thanks Andi, wonderful job.

Andi: Thank you.

Joe: You’re welcome. Alright, we’ll see you next time. Show’s called Your Money, Your Wealth®.

Outro: Next Week on the YMYW Podcast

Andi: Your Money, Your Wealth is your podcast, and this show would not be a show without all of you. You are our holiday gift. So keep sending us your money questions, tell your friends about YMYW, and leave your honest reviews, comments, and ratings for Your Money, Your Wealth in Apple Podcasts, on our YouTube channel, and in all the other apps that let you do that.

Sherri in California, Houry in New York, and YouTube commenters Get Smart Paul and P Ware, I’ve asked Joe and Big Al to spitball on your questions and comments, and many others, next week on YMYW podcast 510 – the new years’ eve edition.

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.

_______

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