Ep. 155 – Wine Down – Social Security Questions Answered

We understand that social security isn’t the most exciting topic to talk about or listen to, but some questions need answers.

In this episode of the Secure Your Retirement podcast, we answer 3 major questions on social security over a glass of Rosé wine. We talk about social security benefits, taxes, and the right time to take social security.

Listen in to learn why you need an individual financial plan that dictates the right time to take social security rather than waiting until age 70.

In this episode, find out:

●     How to know what your social security benefits will be through the ssa.gov website.

●     The process of applying for social security once you know when to take it.

●     Understanding how spousal benefits work in social security.

●     The current youngest age that you can take your social security benefits.

●     The things to consider when taking social security early to avoid penalties.

●     The importance of having an advisor to help you think through the tax side of social security.

●     Why it is subjective when it comes to the right time to take your social security.

Tweetable Quotes:

●     “When you know when you want to apply for social security, you want to apply 3 months before.”– Murs Tariq

●     “If you’re taking social security, don’t think that it’s tax-free and you want to make sure that you run an analysis and you’re working with an advisor to help you think through tax.”- Radon Stancil


If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon Stancil:Welcome everyone to our April 2022 wind down. It’s amazing we’re sitting here in April, but we love this episode. We get to bring Morgan on. We get to have some wine or some champagne, and we get to talk about fun things like, today we’re going to talk about Social Security. Isn’t that fun? You excited?  
Morgan:I am stoked.  
Murs Tariq:So excited.  
Radon Stancil:So when we talk about Social Security, we do that on wind down day. So we can have a little bit of wine while we talk about Social Security. So, Morgan, can you tell us about what we’re drinking?  
Morgan:Sure. We are drinking rose from France’s Loire Valley. So I have not even tasted it yet. Anybody?  
Radon Stancil:I have. It’s very good.  
Murs Tariq:Yeah. I think it’s pretty good. I think rose’s just become something that’s like popular these days. I don’t know.  
Morgan:And I don’t think you should talk about Social Security while you’re not drinking rose.  
Murs Tariq:Yeah.  
Radon Stancil:Well, Social Security is a big, big topic. We get it all the time. You don’t retire today without thinking about Social Security. And if your younger, you might think, well, will I ever have Social Security? We’re not going to have that conversation today. But we do have, I guess, three major questions that we’re going to kind of go through. And the format we’ve been doing when we do our wind down with Morgan here, Morgan kind of walks us through the questions and then brings them up and we kind of go through everything. So, Morgan, can you give us our three major questions? And then we get right into number one.  
Morgan:Sure. So our first question is how do I find out what my Social Security benefits will be or how will they look? And then the second question is how is Social Security taxed? And then finally the big question, when should I take Social Security?  
Radon Stancil:Very good. So let’s go ahead and knock out number one, I think Murs is going to take it.  
Morgan:All right. How do I find out what my Social Security benefits will be?  
Murs Tariq:So I was actually sitting in the office the other day with a client and they were talking about how they used to get the statement in the mail every single year and that would tell them what their projected Social Security was. But you probably know at this point they stopped doing that, I guess, in a way to save paper and also to get people using their website a little bit more. So what we have found, the best way to understand what your Social Security benefits are, is to go to their website. It’s SSA, which stands for Social Security Administration.gov, G-O-V. Obviously we have ways to estimate what your Social Security could be, but when it comes to proper planning, we want to know the numbers straight from the administration. And so you basically, you’re going to create a login.  
 And just like with any login, you’re going to be asked some personal information, know it is that it’s the government’s website. So it’s as about as secure as you can get. You’ll put that information in and you’ll answer some questions. And then from there, it’s going to give you all the options when it comes to your Social Security. So, what age could take it, what your full retirement age is going to be, and then all the projections in between and all the way out to 70s. So that’s a really good resource when you’re talking to advisors, when you’re planning out your income for retirement, what it’s going to look like, knowing those numbers is absolutely necessary.  
Morgan:So then once you know those numbers, are you automatically applied or is there an application process?  
Murs Tariq:No, you’re not automatically applied. And that’s a great question because we really want to think through when do we apply and that’s going to be another question that we kind of go into here in this wind down, but the process for applying once you know when you want to take it is pretty simple. If you’ve already set up that login at ssa.gov, you can actually do an online application. I think that’s going to be the smoothest way. Obviously, if you like to be talking to people, you can call the 800 number for Social Security. I’ve heard that there’s some rather long wait times there. And as well, if you have an office in your location, I know we have one here in Raleigh. The best thing there is you can set an appointment, if you want to talk to someone face to face.  
 But I think the majority of people, once you have your login, your kind of already set up to go ahead and apply. And it’s a pretty simple process. As far as timing goes, I’m pretty sure you can to apply as soon as three months before the time that you want to start taking your benefits. So, and it takes a couple months for them to get it to you. So when you know when you want to apply, you want to apply three months before as just a good rule of thumb.  
Morgan:What about the spousal benefit part of Social Security? I don’t really understand that.  
Murs Tariq:So that’s a big question and that’s one that’s a little bit, could be a little unknown and it’s something that is need to be known. And I’m going to throw that one over to Radon, because there’s some math here and there’s somethings that you would want to understand. Ultimately, the spousal benefit is great and you want to understand what it is and whether or not it applies to your situation.  
Radon Stancil:So ultimately the way Social Security looks at it is, is an individual has their own benefit, or you can choose the spousal benefit. So why would a person not just take their own benefit when I say that, their own dollars versus the spousal benefit? Well, sometimes, and we see this on either side of the spectrum, one of the spouses earns more than the other. Maybe one of them worked longer than the other in the workplace. And so their credits, I shouldn’t say their credits, but the amount that they had that went towards Social Security makes their number, a bigger number. So let me walk you through a couple of examples. One example is this. Let’s say that you have a couple, and let’s say that one of them goes to work and the other is at the home and they help raise the children at home and they don’t go out into the workplace.  
 Well, the way that Social Security looks at it says if you’re married for at least 10 years, and that person that is out in the workforce is working well, then both of you qualify for Social Security, but the stay at home spouse who did not go out into the workplace for those years, didn’t earn dollar credits toward their Social Security. So now let’s take them all the way down. To make this real easy let’s pretend they’re the exact same age. So they turn 67. Let’s just say that’s full retirement age. So 67, the spouse that worked has Social Security benefits based on their dollars and I’m just going to make the numbers round here of $3,000 a month. But the spouse that did not work, who stayed at home with the children, let’s say in that case, or maybe even they went to work later after the kids got into school or whatever that might be, but let’s say that their benefit is only a $1,000. So you look at that, you go, okay, the spouse that worked has a $3,000 benefit. The one who stayed at home only has 1,000.  
 Well, the way the Social Security Administration works is they say, you either get your personal benefit or half of the higher number, the spousal benefit. So in this case, instead of that one who stayed at home and maybe didn’t work as many years, instead of them getting a 1,000, they get 1500 of that benefit. So half of the other spouse. Now, again, Murs talked about the weird math here. If they’re not the same age, then we just have to make sure that we look at the numbers a little bit different. So I’ll give you a quick example. Let’s say that the one who went to work and has the higher number, let’s say that they are two years older than the other one.  
 Okay. So now you get down the road and the one who’s 67 files for their $3,000. But the other one’s only 65. If they apply early, the spouse who didn’t go to work and let’s say that their spousal benefit again is $1,000. They could take, not their spousal benefit, but their individuals 1,000, but they go, no, I want to opt in for the spousal benefit. It will not be half because you are applying early. And so they reduce your benefit. And so instead of being 1500, it might be 1350. Okay. Or some number like that. Here is the thing I want you to take away from this. You want to understand the spousal benefit. In fact, we had a, the situation that just happened, this is one of those good stories. The couple comes in, we’re looking at all the numbers. The person had waited until they were 70. They had like a $4,000 benefit.  
 And the spouse who didn’t work, had a benefit of around 1,000, somewhere in that area. Or in fact, they didn’t even think she qualified actually, because she never works. They just thought, oh, we’re just going to get my Social Security. We went no, you get half of their Social Security. And they were like, oh my. It was almost like their found money here. The spouse who stayed at home actually got, I think it was around 15, $1,700 because it was based on his 66 and six months deal. So it was almost like, wow, we didn’t even know we were going to get this. This is pretty cool. So spousal benefit is huge. You want to understand it. Just understand it. There’s some math we got to think through and it looks at that, but you definitely want to understand it. If you don’t understand it, or you have questions about it, we’re glad to talk to you about it.  
Morgan:So what is the absolute youngest that you can take Social Security? Not that I’m quitting or leaving or anything, but.  
Radon Stancil:Right. So currently it is 62, is what the youngest that you can take Social Security, provided that we’re not talking about a disability or something like that. Just a regular benefit is 62. Obviously it’s going to be reduced. So when you look at the numbers, that what Murs talked about, when you go to the ssa.gov, they’re going to have, what’s called FRA or full retirement age. And for somebody retiring today, that’s about 66 and a half, 66.7. So if you look at that, that’s going to be your FRA. So if you want to take benefits at 65, 63, 62, you’re going to see that reduced in that number. Now you can wait as late as 70 and continue to get step ups in your benefit. Once you get to 70, there’s no reason to wait any longer. There is no more step ups after 70. So really 62 is the youngest. There’s no real good reason to wait until after 70, but that’s kind of the range.  
Morgan:Are there penalties though, to taking it?  
Radon Stancil:I’m going to let Murs handle that one. Murs is my penalty guy.  
Murs Tariq:So there are things you want to think about when you’re taking Social Security early. And early basically means before full retirement age. So for some of you, it may be 67, for some 66 and a half, but it’s all based off of full retirement age. So any dates, any time before full retirement age is considered early. So if you decide to take it at 62, what you need to be aware of is that there is a little bit of a penalty there in the sense of they’re going to compare, what the Social Security administration wants to know is, Hey, are you taking this early because you actually need the money or are you just taking it to take it, but you already have a nice income coming in. If you already have a nice income coming in, somewhere in the realm of around $20,000 a year, then there is going to be a penalty on the dollars that you get.  
 There’s a specific formula to that. But essentially what you want to be thinking through is that if you are planning on taking it before full retirement age, have a good idea as to what your income is going to be. If you’re going to be working part-time or if you’re not going to be working at all, or you’re going to be making a full salary, if it’s going to be above somewhere in the realm of 20,000 a year, that you’re earning outside of Social Security, there will be penalties involved. So you just want to consider that because it’s going to reduce your overall benefit. Not to say that it doesn’t make sense. You just want to think through it as much as you can.  
Morgan:Gotcha. All right. So our second question here, how is Social Security taxed?  
Radon Stancil:Yeah, this is a subject that obviously is a sore spot for many people because people feel like, Hey, I paid into this Social Security deal. Why am I being taxed on it? And that’s a topic for another day. So right now we’re not going to talk about why or the politics of it. We’re just going to talk about how it works. Okay. So the way it works and we’re going to talk about two different scenarios. Let’s just go through the married filing jointly. So you’re married and you file jointly on your tax return. Basically, if you have less than 32,000 of income, you don’t pay any taxes on Social Security. Well, that’s very rare that somebody is a married couple is going to make less than $32,000 a year. So this idea of not being taxed is probably void. So, or just not going to be the case.  
 So here’s the numbers. If you make between 32,000 and 44,000 of adjusted gross income, then up to 50% of your Social Security is taxable. So if I make $3,000 a month, $1,500 of it would go on my tax return and I’d have to pay tax on the 1500. That’s where I’m at on that. Now, if I make more than 44,000, more than $44,000 in taxable or adjusted gross income, then I’m going to have 85% of my Social Security be tax. So I got a $1,000 coming in, $850 a month will be taxed. So it’s considerable. We have to think about it. I’m going to give you the single numbers, the single numbers, instead of starting at 32, start at 25, it’s 25 to 34, and then anything above 34 is 85%.  
 So what’s the end result, what I want you to take away from this. The take away is this. If you are taking Social Security, don’t think that it’s tax free. It’s not tax free. And you want to make sure that you run an analysis and make sure that you’re working with an advisor, a CPA, whoever it might be that helps you think through all that because there’s even other issues that we don’t have time to go into today. Like how does your Medicare premiums are going to be affected by your income? So all of that gets figured into this. So it’s just something you really want to think through. Make sure you’re working with somebody who has not only the investment side, but the tax side figured out. So ultimately you’re going to get taxed.  
Morgan:And then the big question, when should I take Social Security?  
Murs Tariq:So I’ll start this one off. If you go to Google, the answer is always going to be wait until age 70. And we disagree with that. And the whole reason is because Google or any article, they’re talking to a large, large number of people, thousands of people. And if you think about it, is it possible that they can give one answer that is the right answer for thousands and thousands of people? No, but it’s a generic assumption that obviously, if you wait until 70, if you know anything about Social Security, the longer you wait, the more your benefit grows. And so that simple answer. Yeah, wait until 70, but a lot of people can’t wait until 70 or it doesn’t make sense financially to wait until 70.  
 So the way that we approach it is all based off of our retirement financial plan, because we believe every family is different, every situation is different. So we want to analyze everyone individually. So what we take into account there is, okay, what is Social Security potentially going to be at the various ages? What other incomes do we have? We just talked about how Social Security can be taxed, how you can be penalized. We want to be evaluating that. What assets do we have to work with? And at the end of the day, what we’re trying to solve for is not the question of how much can I get from Social Security, because that answer is always wait till 70, but also you have to live until 90. All right. So the question that we’re trying to answer is first of all, if I’m not taking Social Security, where am I getting my income from? Typically, that answer is I’m drawing down my own assets. So I’m potentially reducing the benefit to my heirs by delaying Social Security. That’s number one.  
 And then number two is if I, depending on where I start my Social Security, what impact does that have on what’s left over for my beneficiaries? Or how does it save my own assets? How does it preserve my own assets? Think about it. You’ve been paying into Social Security for nearly, the majority of your working career, all of your working career and you want to optimize that as best as you can while you are living. And preserve the assets that you’ve saved, if there’s anything left over to go to the next generation, you want to be the most efficient about that.  
 So long story short, we take it from an individual perspective. It’s not always wait till 70. Sometimes it is take it at 62. Sometimes it’s take it at full retirement age or somewhere in between. I had a conversation just the other day, over a Zoom meeting. And it made sense for that person to take it right at 65. That is not her full retirement age, but 65 made the most sense based off of her situation and her assets. So everything is very, very subjective. And that’s why we work together through that whole scenario.  
Radon Stancil:Well Murs, I think you answered that beautifully. Morgan, you asked questions exceptionally. And so it was a great way for us to think through this idea. By the way, if you’ve listened to this and you went, oh my goodness, you said so many ages, you said so many numbers. What in the world is going on? And how do I figure this out? Go to our website, pomwealth.net, go to the blog page. When you go to the blog page, you’re going to see an article written on this very topic. And then I have all those numbers, all the different numbers that we talked about right there. You might be a good resource for you just to print that out and say, this is what I’m going to use as my guide and the website, all that will be there. The link will get you to the website. All that’ll be right there in that particular place.  
 And if you’re thinking, Hey, I’ve love to be able to talk to you and Murs and be able to get my questions answered, go to the top right hand corner of the webpage. Click on 15 minute complimentary phone conversation. We will hop on the phone with you and have a conversation and talk it through. We do that every single, almost every single day, but we’ll say at least every single week, we’re talking to people, helping them answer questions. So we look forward to doing that. Thank you very much for listening. We’ll talk to you next Monday.