Joe Anderson
ABOUT Joseph

As CEO and President, Joe Anderson has created a unique, ambitious business model utilizing advanced service, training, sales, and marketing strategies to grow Pure Financial Advisors into the trustworthy, client-focused company it is today. Pure Financial, a Registered Investment Advisor (RIA), was ranked 15 out of 100 top ETF Power Users by RIA channel (2023), was [...]

Alan Clopine

Alan Clopine is the Executive Chairman of Pure Financial Advisors, LLC (Pure). He has been an executive leader of the Company for over a decade, including CFO, CEO, and Chairman. Alan joined the firm in 2008, about one year after it was established. In his tenure at Pure, the firm has grown from approximately $50 [...]

Andi Last

Andi Last brings over 30 years of broadcasting, media, and marketing experience to Pure Financial Advisors. She is the producer of the Your Money, Your Wealth® podcast, radio show, and TV show and manages the firm's YouTube channels. Prior to joining Pure, Andi was Media Operations Manager for a San Diego-based financial services firm with [...]

Published On
October 20, 2020

On round 3 of the YMYW Retirement Plan Spitball Analysis, Joe and Big Al focus on your tax diversification and asset allocation questions: should more money be going into Christy’s pre-tax Roth accounts? Has Roger set up a good portfolio for his elderly relative? Plus, the Rule of 100 (or the Rule of 120) for investing in stocks and bonds, as touted by Jack Bogle and the Bogleheads. Also, should Tom take a Coronavirus-Related Distribution? And finally, when to take Social Security, and that Social Security file and suspend rule that affects people born in 1954.

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Show Notes

  • (01:01) YMYW Retirement Plan Spitball Analysis: Should We Put More in Pre-Tax Roth Accounts for Better Tax Diversification?
  • (07:27) YMYW Retirement Plan Spitball Analysis: How is this Portfolio Asset Allocation for an Elderly Retiree?
  • (14:53) Stock and Bond Allocation: Jack Bogle & The Bogleheads’ Rule of 100 or Rule of 120 for Investing?
  • (21:02) Should We Take a Coronavirus-Related Distribution (CRD)?
  • (26:19) When Should We Claim Social Security?
  • (32:06) Can I Claim Social Security Benefits On My Ex-Spouse or Does the 1954 Rule Prevent It?

Free resources:

LISTEN | YMYW Podcast #288: YMYW Spitball Analysis 2: Retirement & Social Security

LISTEN | YMYW Podcast #284: What Is Your Retirement Number? YMYW Spitball Retirement Analysis

LISTEN | YMYW Podcast #262: What’s the Right Retirement Asset Allocation for You?

READ THE BLOG | What Is Asset Allocation?

WATCH | Asset Allocation vs. Asset Location

READ THE BLOG | Decision 2020: Your Vote and Your Money

Listen to today’s podcast episode on YouTube:


Today on Your Money, Your Wealth®, we’re back for round 3 of the YMYW Retirement Plan Spitball Analysis, and this time Joe and Big Al focus on your tax diversification and asset allocation questions. Should more money be going into Christy’s pre-tax Roth accounts? Has Roger set up a good asset allocation for his elderly relative? Plus, find out what the fellas think of the Rule of 100 or Rule of 120 for investing in stocks and bonds as touted by Jack Bogle and the Bogleheads. Also, should Tom take a Coronavirus-Related Distribution? And finally, the fellas answer your questions on when to take Social Security and that file and suspend rule that affects people born in 1954. Click the link in the description of today’s episode in your podcast app to go to the show notes, read the transcript, access this week’s free financial resources, and send in your money questions. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

YMYW Retirement Plan Spitball Analysis: Should We Put More in Pre-Tax Roth Accounts for Better Tax Diversification?

Joe: Alan, Christy from Seattle writes us. This is an essay. It’s an essay is what Christy has emailed.

Al: We do love your e-mails. If you could make them a little more brief that would be cool.

Andi: That means they’re going to cut out all the compliments and flattery.

Joe: Oh. Okay. You’ve heard me try to read these things.

Andi: True.

Joe: It’s awful.

Al: I think that’s partly what they like though.

Joe: It’s awful – if anyone likes that-

Andi: That’s why they make ’em long.

Joe: It’s so bad.

Al: They want to see how you can pronounce certain words.

Joe: Just fumbling around like- anyway. “Hi Big Al, Andi, and Joe.” OK. First of all, so I’m last billing here.

Al: Just a Big Al fan maybe. I don’t know.

Joe: She is a Big Al fan. “I’m a big fan of the show. Especially when you praised my comments on Solo 401(k) awhile back on podcast 194. I have a question about your favorite topic Roth retirement accounts.” It’s not our favorite topic, Christy. I’m so sick and bored of talking about Roths. You cannot imagine.

Al: At least she didn’t say Backdoor Roth.

Joe: Oh God. But we’re doing our duty to answer your guys’ questions. “I have a question.” So it’s your show. It’s your favorite topic it sounds like. “My husband 52 and I, 46, are planning to retire when he’s 60. Right now we have about $450,000 in a taxable brokerage account, mostly low dividend index funds, and individual stocks; $900,000 in IRAs, 401(k)s; $130,000 in Roths; $50,000 in an HSA; and  $120,000 in cash, part of which we’re hoping to use for a down payment on investment property soon. That means less than 10% of our retirement assets are in Roth accounts. This is because we have a relatively high combined income of about $400,000 per year which puts us in the 32% tax bracket. So it hasn’t seemed to make much sense to put money into Roths. Right now we’re saving about $160,000 a year with about 1/10 of that going into Roth via my husband’s 401(k), which allows post-tax contributions that are set up immediately to roll into the Roth.” There ya go. Congratulations there. That’s the Mega Backdoor there Big Al. I knew it was comin’. Every email has something to do with the Backdoor. Just call it Backdoor planning. “We save about $100,000 a year in the taxable brokerage account mostly because a big chunk of my husband’s pay comes from RSUs. We also have about $500,000 of equity in our home. We’re hoping to have about $4,000,000 in total savings 8 years from now which I project will break down to about 40% taxable accounts, 50% Traditional retirement accounts, 10% Roth. Then we plan to live mostly off our taxable accounts and some rental property income; hoping to spend about $160,000 a year through retirement. So, looking to do Roth conversions for the first 10 years of retirement then we’d switch to living off a combination of Traditional and Roth retirement accounts plus Social Security.” Is there a question anytime soon here Christy? “The question is-” OK. Thank you. “- Is this a good plan?” Yes, it’s a wonderful plan. “Will it give us enough tax diversification in retirement given the capital gains taxes are lower than the tax brackets we plan to be in retirement. Is it okay keep putting as much into the taxable accounts? Or should we divert some of the taxable accounts to minimize post-tax contributions, beef up the Roth before we retire? I like the liquidity and flexibility of taxable accounts and I’m reluctant to take money out of them during the next few years since they’re mostly in stocks which means we have a high average rate of return but they’re volatile. Am I wrong to rely so heavily on taxable accounts in the retirement plan at the expense of Roth contributions?”

So no, I think she’s on point. They’re still going to have a couple million bucks in retirement accounts when they retire. So I would fully- here’s the rules- this is what I would do. They’re saving $160,000 a year Al, which is a significant amount of money compared to most Americans. So Christy, if your husband’s goin’ with the Roth 401(k), what the hell? Go Roth 401(k), do the after-tax contributions to the max, so that’s about $54,000 that you can put there, and then convert that into the Roth. If you have a 401(k), max out the 401(k) plan. If you haven’t done Backdoor Roths, do Backdoor Roths of another $7000 apiece and then everything else goes in the brokerage account. What do you think Al?

Al: Good. Except she mentioned she’s got 401(k)s and IRAs, so if they already have IRAs, the Backdoor Roth will be more problematic because of that aggregation rule and the pro-rata rule.

Joe: Then put it in the 401(k).

Al: If you can roll your IRAs into the 401(k), it opens up the ability to do the Backdoor Roth. But yeah I agree. I think it’s a great plan. I think Christy, you’re in a high tax bracket right now so the tax deduction is particularly valuable. And then in retirement, you’ll likely be in a lower bracket. It looks like your husband will retire at age 60. So there are 12 years to convert and you’re even a little bit younger. So there’s a lot of years to convert. And while you’re in low tax brackets so yeah- I think it’s a great plan.

Joe: They’re using the troft of that low income, convert up to the 10%, 12% tax bracket. You got 10 years to do it. They’re living off their brokerage accounts. That’s going to be capital gains. Their RMD’s at that point is gonna be pretty low because a lot of it’s in the Roth. The Roth doesn’t have an RMD. Social Security, push that out to 70. The provisional income on the income for Social Security that doesn’t include Roth distributions so they could potentially be in a 0% tax bracket in retirement if they do this right. So great job Christy. Thank you very much for the email.

YMYW Retirement Plan Spitball Analysis: How is this Portfolio Asset Allocation for an Elderly Retiree?

Joe: Roger writes in from San Diego. “Hi Andi, Al and Joe.” Oh, “and sure, Joe too.” This is like 3 in a row.

Andi: They’re doing your trick. They’re figuring out the thing that bugs you and they’re using it against you.

Al: They seem to like to do that, don’t they?

Joe: I guess so. Very funny. “Thanks for all you do and a great show. So I’m tasked with helping an elderly relative handle their money. But first let’s go through the most important info. I drive a 2009 Altima. I don’t have a pet but I love dogs.” Altima. Trying to figure out-

Andi: Nissan.

Joe: Nissan Altima. That looks like a Camry. Yes? No?

Andi: Maybe.

Joe: Maybe?

Al: Similar. Yeah, I think so.

Joe: Affordable, but sleek.

Al: I think it’s maybe not as big as a Camry. Although I could be wrong.

Joe: He loves dogs but doesn’t really want to rescue one it sounds like.

Al: I love ’em, but I don’t want one.

Joe: “The relative doesn’t drive or have a pet. The relative is 89 with excellent longevity and health. And we’re hoping will be around at least 10 more years.” Wow that’s age 100. “After spending their pension and Social Security, they spend about 3% of the portfolio a year and don’t have a desire to spend more. They live in an independent living assisted facility, all meals included, but don’t currently need assisted living. Obviously when they need assisted living or long term care, their spending will go up. Now their heirs are all fine, financially stable and don’t mind that the portfolio is spent down. I’ve set up an allocation for them that is currently 33% S&P, 46% bonds and 21% cash. I think odds are good that they won’t ever spend the money in stocks and about 30% of the stock value is unrealized capital gains. Their current income is in the 22% federal tax bracket. They live in California so I’m thinking let the stocks go to their heirs. There is a revocable trust to get the step-up in basis. Total estate is well below the estate tax exemption.” The biggest dilemma that Roger’s got here is “what to do for bonds and cash. Right now I have them in short term and medium term bond index funds and laddered 1 to 2 year CDs. I know fixed income right now is just horrible, but I wonder if I’m missing something. I’ve considered Munis but given the COVID recession I think there might be more risk than usual. I’ve also looked at a 3-year guaranteed annuity but I don’t know that the interest difference is worth the hassle.” I agree with that. “I could take some of the bond money and put it into preferreds, but that would also expose more portfolio to stocks. I’d love to hear your thoughts on the allocation as well as what to do with the bond cash allocation. Obviously your comments will only be taken as entertainment value. So feel free to entertain away.” So Rogers living in the world that we all live in, is that he can’t find yield in fixed income.

Al: Yep, that’s very true right now.

Joe: So he’s like I got 33% S&P 500, we’re not going to sell the stocks, we got unrealized capital gains and they’re taking 2% or 3% from the portfolio. A lot of money in bonds and cash and it’s like the yield on this is dog doo-doo. Welcome to the world we live in with very low interest rates. Is there something else that- like if he goes preferreds, MLPs, there’s all sorts of ways that you could create income with a higher yield. But he just said it himself. He’s like okay if I try to get a higher yield, what’s going to happen? He’s going to take on more risk. And you can go into high yield bonds or preferreds, but they act almost like stocks in a downturn. So if you’re willing to try to get the upside but are willing to take the downside, well then by all means. But just understand the risk and return relationship of whatever investment decision that you have. Cash in short term bonds is the riskless asset, that’s why you’re not getting any return on it. But it’s going to be your buffer when the market corrects.

Al:  Yeah that’s exactly right and I think that to me the allocation is probably pretty close. I might have a little bit less in cash just because bonds pay more than cash. And earlier this year when the market went down we got some good returns in bonds and that’s what the whole point of bonds is, they help buffer the stock market. But I would- on the stock side, I would probably go Wilshire 5000 or total stock return instead of just the big boys, the S&P 500. And I would probably, maybe I would do a quarter of that or 33% of the stock portfolio in international, maybe a total international fund, just to get a little bit more exposure that way. But there’s just not a lot of return in bonds but it’s better than cash.

Joe: Yeah he’s got 70% in – that’s not yielding anything. So as a total return portfolio, it’s like man this thing is probably getting 1% or 2%, 3% total return because the bonds are flat, sometimes negative yields and the S&P is doing its thing. Well the S&P is at all time highs so you want to maybe have a little bit more stock but break it up Al, I agree. Maybe have a little bit more international, emerging market exposure. That’s going to give you more return in the overall portfolio. So if they’re only going to spend for the next 10 years, 3% of the portfolio. Maybe have 15% in cash and have them spend down the cash and then you can take on more risk in the other portfolio that’s going to go to the heirs. If there’s a long term care need, you still got a lot of the portfolio and fixed income. So I think he’s doin’ the right thing. He could probably get a little bit more creative but it all really depends on the life of his buddy or the relative when he needs more cash. Because if he’s just taking 3% he’s got enough in cash and he’s got a 10 year timeframe. I mean it’s-  I think he’s on track. I wish there was a silver bullet to say Hey try this ticker or try this or when it comes to safety there’s a relationship there with the return and low risk means low or no return in this environment.

Confused on the concept of asset allocation? In the podcast show notes at YourMoneyYourWealth.com, I’ve posted a blog, a video, and previous podcast episode on what asset allocation is, how it differs from asset location, and what the right asset allocation is for your retirement to help you get up to speed. If you have a question about an appropriate asset allocation for your retirement investment portfolio, click Ask Joe and Al On Air there in the podcast show notes, or sign up for a free financial assessment for a deeper, one on one dive with a Certified Financial Planer professsional. Whether you read a blog post, ask a question or get a financial assessment, it’s all free, so you cannot go wrong. Click the link in the description of today’s episode in your podcast app to go to the show notes and avail yourself of all this valuable free stuff, and don’t forget to share it with your friends.

Stock and Bond Allocation: Jack Bogle & The Bogleheads’ Rule of 100 or Rule of 120 for Investing?

Joe: Keith writes in Alan. “I’m trying to see if the late Jack Bogle’s age related stocks versus bonds holds true to your opinion today. The theory is my age, 60 years old, percentage in bonds and the remaining 40% in stocks.” I don’t think that’s Jack Bogle, Keith. Isn’t that your age minus 100?

Al: Yeah and then because that didn’t work they changed it to 120? Minus your age? Keep goin’, we’ll answer the question.

Joe: “I’ve retired from the military and a utility company, both bringing a pension. I also have a service connected disability income and $1,000,000 in my IRA. My current investment is 60% in stocks, 40% bonds with the Vanguard advisor. My question to you is when I hang up my hat and leave work, should I switch to a conservative 60/40 bonds/stocks as Mr. Bogle and the Bogle heads have advised? I don’t mind the risk but just in case the market turns downward I don’t want to have to return to work again and recover from substantial market losses. I’m a fan. I’ve been watching and listening to you all for years.” I appreciate that Keith, really enjoy the email. But so this is the age of the rule of 100 or the rule of 120, which I hope that Mr. Jack Bogle didn’t come up with, because it’s the worst thing you can possibly do. Stupidest thing I’ve ever heard of in my life.

Al: I think I will say it this way, it’s what you do when you have no other idea what to do and have done no financial planning and have given it no thought whatsoever. It’s probably the-

Joe: If you have an IQ of 4.

Al: It’s probably better than nothing but boy, this is not the gold standard. This is-

Joe: This is annuity salesman came up with this to sell more fixed annuity products. Because-

Al: Because you get older, you’ve got to go safer.

Joe: You’ve got to go safer and then this is the safest investment that you can get into and it’s a fixed product. So you know like Red Hat, Green Hat or Hot Money, Fast Money, Cold Money- all that stupid-

Al: Oh yeah. You’re 70. You have 70% and fixed and I got just the product for ya. I wouldn’t be surprised-

Joe: You got $1,000,000 Keith. Well, you need 70% in this fixed annuity that’s going to pay me a nice 7% commission. So no, what you have to take a look at- so Keith he’s got a pension, he’s got disability, he’s got $1,000,000, he’s gonna have Social Security potentially. So it sounds like Keith is set up with his fixed income. So it’s not 60/40, it’s not your age. We have clients that are in their 90s that have millions that it’s for their grandchildren. So you’re 90 minus 100. So 10% in stocks, 90% bonds and it’s for a kid that’s in his 20s? You would lose your license. That’s really bad advice.

Al: The general concept which is get a little bit more conservative is a general rule as you get older is okay and sound. It’s just that when you look at everybody’s situation, everyone has a different answer because their circumstances are differently. We’ll have people in their 40s that maybe all they should handle is 30% in the stock market just because of a whole variety of things. Maybe they’ve got a whole bunch of stock options, they’ve got a whole bunch of money, they’re risk adverse and they don’t need to take a risk to cover their lifestyle. Well it has nothing to do with 100 minus 40. Or 100 minus 60. Or 100 minus 90. What happens when you get to 105? Then you have to have 105% bonds and you could short the stock-

Joe: You short the market. And you gotta give 5% of your stuff to the Treasury.

Al: Maybe that’s it. Yeah.

Joe: I like where he’s goin’ because I think a lot of people might be hearing the same kind of bad advice. Here’s a rule of thumb, I think is better Keith, is that it takes a little bit more work than just taking your age minus 100. You have to look at, what are you spending? Let’s say Keith is spending $60,000 a year and maybe his pension and Social Security is paying him $40,000 a year. So you look at the shortfall. So if he’s spending $60,000 and the shortfall is $40,000, he’s going to be short $20,000. And in that case he might want to go 10 years. Let’s say he’s a pretty conservative guy. He wants to be a little bit more conservative. So go 10 years in fixed income. So 10 years of let’s say a fixed income of your income need. So if he needs $20,000 a year times 10 years would be $200,000. So in Keith’s situation he’s got $1,000,000. So we might recommend an 80/20 portfolio, 80% stocks/20% bonds, because it’s very specific towards his goals.

Al: And I think that’s right. And the other way to look at it is you go through the same math and figure out $20,000 is what I need. What’s my portfolio? $1,000,000. So I need- I have a 2% draw rate. And then you can sort of add maybe a percent or more for inflation and add some for growth and taxes and so maybe you need a 4% or 5% rate of return and then you figure out a portfolio that’s going to earn that rate of return. That’s a little bit harder than what you just said. But both are appropriate measures and that’s why you get different answers for everybody regardless of their age because everyone’s situation is different.

Joe: If I’m going to sit at your kitchen table Al and ask you how much money you have and how old you are. All I got to do is put 100 minus your age and say this is what you need, sir.

Al: And you need to pay me a bunch. Because I’m smart enough to know this formula.

Joe: So here’s your financial plan.

Should We Take a Coronavirus-Related Distribution (CRD)?

Joe: Tom from Chantilly, Virginia. I remember seeing Chantilly, Virginia, Is this Tom a regular or is he catching a second wave?

Andi: I think this is the second time. I think this is the second time Tom has emailed us, maybe a third.

Joe: Or maybe he’s introducing our show to the other people in his neighborhood. “Joe, Big Al and Andi. My wife is getting laid off in December and I want to take advantage of the CARES Act COVID 401(k) withdrawal strategy.” That would be a CRD Tom, a coronavirus related distribution, “Based on your podcast, it’s my understanding that we could take up the $100,000 out of our 401(k), pay the tax over a 3 year period and not incur the 10% penalty. My plan is just to put the money in a brokerage account and take advantage of the long term tax diversification. Given that taxes will eventually go up, is there any benefit in paying the taxes all in one year? Depending on the outcome of the election, I could also consider paying in a 2 year period since it takes time for new administration to implement the policy. What are your thoughts? As always, thanks so much.” Well if he can take advantage of the CRD Al- so what that means is that he could take $100,000 out of a retirement account. He could pay that money back over a 3 year time period or pay the tax over 3 year time period. So $100,000, $33,000 of income would show up on the tax return each year for the next 3 years. So he’s saying you know what? Maybe I don’t do that, maybe I just have the $100,000 show up on my tax return this year and I’ll bite the bullet and I’ll pay the tax. Tom, look at your taxable income and find out how much room that you have in your current bracket is what I would do. So I would run a little bit of a tax projection to show maybe because someone had a coronavirus incident- so he got diagnosed, his wife did, she got furloughed, laid off. Whatever. So their income is probably lower this year than previous years. So he needs to do a little bit of math to look at roughly what was my taxable income last year?. Make some adjustments for this year of what- how much that’s going to be reduced. Take a look at the top of whatever bracket and if it’s in a fairly low bracket say like 22%, maybe you do pay the tax this year. If it’s higher than that maybe you push it out over 3. What do you think Al?

Al: Yeah I agree with that. One thing he mentioned is maybe I’ll do 2 years and that’s not an option. You can do it all in one year or you can do it in 3. You’re not allowed to pay the tax in 2 years. So those are your choices and when you think about changing tax rates. We know under current law the tax rates will change in 2026 back to what they were pre-2018 which is about 3% more for each bracket roughly than where it was before. If you look at what Biden is talking about, he is only- he’s basically talking about keeping the same brackets unless you’re in the highest bracket maybe going up to 39.6% or something like that. That’s when you’re making more than $622,000. So I don’t- and plus that would have to be a change that got through Congress and the Senate which it seems these days unlikely for those kinds of things to happen. So I wouldn’t worry too much about that. I mean I think you’re right Joe.  I think you look at the tax bracket. If you can accommodate it all in one year and want to do that, great. Otherwise, if you’re in the same bracket each of the 3 years I would just defer it over 3 years. Why pay tax earlier than you have to considering the time value of money?

Joe:  Yeah, without question. I think what the only caveat is he’s thinking if there’s going to be a significant change in tax law. So maybe the 22% tax bracket goes to something significantly higher where he could have paid it all at 22% bracket vs. going into the 25%. You pay 1/3 of it on the 22% and then the other 2 years is going to be somewhat higher.

Al: And you don’t really have to decide until you file your return which would be April 15th or even October 15th.

Joe: Of next year.

Al: Of the following year. And by then I think there’ll be a lot more clarity on what’s going on. So I would kind of wait till there’s more clarity before you come up with your strategy.

Joe: Very good. Very good. Thanks a lot for the question.

Who Will Win the Race for the White House? Will The Next Congress Be Red or Blue? Do Elections Even Matter for Financial Markets? Are Your Taxes Heading Higher? Our Executive Vice President and Director of Research here at Pure Financial Advisors, Brian Perry, CFP®, CFA, is in the middle of writing a series of blog posts on this very topic called Decision 2020: Your Money and Your Vote. You can read the first three installments right now in the podcast show notes, and be sure you’re subscribed to the YMYW newsletter to get updates when Brian publishes the next three installments on taxes and building an election-proof portfolio. Click the link in the description of today’s episode in your podcast app to go to the show notes, read the podcast transcript, access Brian’s latest blog posts, subscribe to the newsletter, and send in your money questions.

When Should We Claim Social Security?

Joe: Larry writes in somewhere near Columbus, Ohio. “Hey Andi, Big Al and Joe.” God, that’s annoying. “Love love love the show. Yours is one of the few podcasts in my rotation that I faithfully listened to every week. You are the car talk of personal finance, extremely informative while being incredibly entertaining. I have a question regarding when my wife and I begin to draw Social Security. I’m 58, she is 60. We both retired within the past year. We are considering waiting to age 70 before either of us draw Social Security. We are fortunate to have saved more than significant post and pre-tax savings from which we will draw to pay for living expenses until age 70 and beyond. My expected Social Security payment at 70 will be $3000. My wife’s is going to be $1800. So $4800 combined. We both are in good health and hope to live past a break-even point and maybe into our 90s. My question is, given that we can- given that we can-”

Andi: “- forestall-”

Al: forestall.

Joe: “- forestall-” Forestall.

Andi: Hold off on.

Joe: Forestall and 7 years ago- okay. “- drawing on Social Security until we are eligible for the maximum benefit, should we necessarily do so? Is there any circumstance in which one of us might want to consider drawing earlier or which delaying for a larger benefit is not financially meaningful? Thanks for your opinion and insight.” Okay, so he’s saying hey just because we can afford to forestall our social security benefits, should we?

Al: Yep, that’s what he asked.

Joe: And he’s looking at this as an investment, Alan, not necessarily insurance so we can answer this two ways. I guess the insurance way is- if you think you’re going to live into your 90s then forestall. Because it’s a guaranteed income stream that you’re going to have for the rest of your life.

Al: I would say if you’re both going to live into your 90s, which hopefully you do, then you both delay. If one of you for some reason has impaired life expectancy, I would have Larry at least, then wait till age 70.

Joe: Because he’s got the higher benefit.

Al: He’s got the higher benefit, and then maybe his spouse could then draw earlier. Because if one isn’t gonna make it till let’s say 80, maybe at 75, then you might as well get that other spousal income early and then the- whatever spouse survives the other one gets the higher benefit. So that could be a reason why you wouldn’t do both at age 70.

Joe: Or do you do this. You take it at 62 both of you and then invest it. You don’t need it. You have other assets and then just be more aggressive with it. I mean what’s the goal? Is it like when I die, I’m on my deathbed and I want to add up all the money that I got from Social Security if I took it at 62 and invested it; took it at 67 or 70 and spent it. It depends on what you’re trying to accomplish. If you look at it as an investment you can run any assumption that you want and probably taking it early at 62. And then using a fairly high expected rate of return would probably give you the highest amount of money but there’s no guarantees there. I guess there’s no guarantees in life. We believe that if you push it out as long as you can, it’s a guaranteed income source by the Federal Government promising us that today it has a fairly high probability of paying out vs. getting maybe an 8%, or 10% or 12% rate of return in the overall markets. So you just have to take a look at what risks you’re willing to take.

Al: I think you said it right Joe. The key is we kind of look at this as insurance. It’s backed by the government. And by the way say what you want about the government, our government also controls the money supply so they’re going to make the payments. So, could they change the rules? Maybe. And so there could be a concern about means testing. It’s been discussed; there’s nothing in the works right now but means testing would mean at a certain income level or certain asset level maybe you don’t get all your benefits. It’s possible. There’s nothing being discussed right now and I actually- Joe even if something like that happens it will probably happen for someone probably younger than 50. Wouldn’t you say? It probably won’t happen with the baby boomer generation, which they’re a part of.

Joe: Stranger things have happened because they changed the claiming with the file and suspend and everything else. They grandfathered just a short window of people. Usually they grandfather a lot larger group of people. But yeah, I don’t know. You look at this. I agree with you. If they got a large pension will they means test it? Probably. It could happen. So, I don’t know. There are all sorts of things that I guess you could look at depending on how you want to look at the system.

Al: But I think the key is that it’s like people look at this as break even then when you pass away, who cares?

Joe: Who cares? You’re dead. No one’s ever complained and said ‘dammit.’

Al: ‘I should have claimed it earlier.’

Joe: “I should have claimed early. Man.’ They’re on their deathbed. ‘You have any regrets?’ ‘Yes. I should have claimed my Social Security benefits earlier. Dammit.’ Then they croak.

Can I Claim Social Security Benefits On My Ex-Spouse or Does the 1954 Rule Prevent It?

Joe: We got one from Dean from Chicago, Alan. “I enjoy the combination of knowledge, honesty and friendly banter that makes your podcast educational and entertaining. I’m getting mixed answers for the divorce spousal benefit from the SSA website. I was born November 1954. My ex-wife was born March 1953. We were married 24 years and have been divorced 17 years. Can I claim divorce spousal benefits or does the January 2nd 1954 spousal rule prevent it? I’m born after January 2nd and she was born before January 2nd. I’ve not claimed Social Security yet but my ex-wife has started. Was hoping to hold off my claiming SSA benefits till I turned 70 and get a monthly boost using the ex-wife’s benefit. Currently my Social Security benefit’s around $2700 and hers is $1900. Thank you for looking at my question.” Oh thank you  Dean. So Al, what he is looking at here is he wants to file a restricted application on his own benefit. He wants to file a spousal benefit on an ex-spouse’s record and claim 50% of that benefit because he is full retirement age. And he wants to let his own benefit accrue the 8% delayed retirement credit until his age 70 and then turn his on. That’s the gist of what I’m trying to understand from his question.

Al: That’s what I get too and unfortunately I don’t think Dean, you’re going to like the answer. Because there was a rule change as you identified on January 2nd 1954, and this is right off the Social Security Administration website. I’ll just kind of read a couple little blurbs here.

Joe: Well the rule wasn’t changed in 1954.

Al: I’m sorry. It was changed recently. Yeah. Thank you.

Andi: ______ 1954.

Al: It affects people that were born before or after January 2nd 1954. So it was what, 65 years ago. We’re finally getting round talking about it. Okay let me start over. Whether you were born before or after January 2nd 1954, makes a difference.

Joe: Right.

Al: So if your ex-spouse was born before January 2nd 1954, ex-spouse being you Dean, and has already reached full retirement age, they can choose to receive only the divorce spouse’s benefit and delay receiving their own retirement benefit until a later date.

Joe: So if Dean was born before 1954- January 2nd 1954, he would be able to file the restricted application and let his accrue. But he was born after January 2nd 1954, by a few months.

Al: Yeah by about 10, 11 months. And so now here’s the second sentence ‘if your ex-spouse’s birthday is January 2nd 1954, again Dean, being the ex-spouse, or later, the option to take only one benefit at full retirement age no longer exists.’ You can take the spousal benefits Joe, but then you’re deemed to take your own benefits. So you can’t get the delayed retirement credit, is kind of what he’s asking.

Joe: Right. It’s going to- it’s going to- he could take his- he could try to take the spousal benefit now but it’s basically going to give him his own benefit. It’s going to be the higher of the two.

Al: Higher of the two, that’s right. So there’s zero benefit. So if he wants to wait till 70, then wait till 70. But there’s unfortunately no way to game the system on getting the spousal benefit. That’s why they made that change because it was a pretty generous rule. And at some point the politicians felt that wasn’t the intent of the rule.

Joe: So yeah the old file and suspend- I mean we used to do that quite a bit. It seems like it’s changed quite a few years ago now and time flies.

Andi: Wasn’t that 2015 or something?

Joe: That was 1954 according to Al.

Al: That was even before I was born. How about that? And I’m finally getting around to it, right now.

Joe: All right.

Al: I was just going to say next week I’ll get to 1955 maybe through ’57.


Derails about Al, his wife Annie and their cat coming up, you don’t want to miss this!

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