This information is from the transcript of Episode 14 of the Walk the Talk Podcast about Social Security.
Click here to listen to the Podcast Episode 14: Social Security
Her Retirement Walk the Talk Podcast Episode 14: Social Security
Transcript
Lynn:
So we talked about guaranteed income sources, two main ones, social security and defined benefit pension income. There’s two other guaranteed income sources that you can create, one is a guaranteed income from annuities and one is from a HECM loan or what’s called a reverse mortgage. So this is kind of how sources of retirement income breakdown for households aged 65 and older. Social security makes up about a third, then you’ve got those personal retirement accounts at 20% investments, other, maybe real estate income, that kind of thing and then current employment earnings.
Lynn:
So this is how it breaks down for households aged 65 and older. So I’m going to transition and we’re going to go through social security. So in this section, there’s quite a bit of information because social security can be a little complex, lot of information, a lot of rules so bear with me as I get through this section. I think if you found a buried treasure, it would affect your social security check. It would probably be part of provisional income, which we will talk about.
Lynn:
Social security represents probably the biggest source or close to the biggest source of income for many people. It was signed into law in 1935 during the great depression and it offers a guaranteed income stream along with longevity protection, spousal protection and even some inflation protection, which we’ll talk about. So social security and women, okay? We talked about some of the challenges that we women face and I’m going to just refresh your memory on some of these as it relates to social security.
Lynn:
So women earn less than men. So that means that they’re saving less, but they’re also putting less into the social security, which oftentimes translates into a smaller benefit. And women are in and out of the workforce more than men, so the typical woman is in the workforce for 32 years, typical man, 44. Because obviously we’re more likely to take breaks for caregiving and raising children. I know I did that, taking care of elderly parents. And then this also can impact your retirement benefit from social security.
Lynn:
And women are less likely than men to have pensions or other retirement plans. It is noted though that when we do save in a retirement plan, we actually are better savers. Only 22% of retired women receive income from pensions compared to 28% for men. And women are more than twice as likely as men to work part-time and that means that sometimes we’re not able to qualify for those 401ks and other retirement plans. And of course, the longevity factor.
Lynn:
So here’s a social security snapshot, the number of Americans who receive benefits, 63 million. The maximum monthly retirement benefit is around $3,000, the average monthly retirement benefit is 1412. And the difference between the average monthly benefit of men and women is about $300, so just over. And women account for about 56% of all social security beneficiaries. And two-thirds of those beneficiaries are 85 and older and about half of all unmarried elderly women rely on social security benefits for 90% or more of their income.
Lynn:
Now, I don’t know how many teachers are here. I know my mother does not get social security because she was a teacher for 35 years and she wasn’t married long enough to my dad to collect on his social security benefit. So I just have a quick question. How important is social security income in your retirement? If you want to just throw that in the chat, that would be great. I want to move on to… Yes, Kate, very. Many Americans leave up to $110,000 on the table by getting their social security wrong, getting the timing of their social security wrong.
Lynn:
So knowing when to claim is one of the most important decisions you’ll make in retirement. So couple of things, one is you claim benefits early and you and your spouse may face a steep and permanent cut in monthly income. But if you wait till later, you may collect a payout as much as 50% higher. So how do you decide? So let’s learn a little bit about social security before answering this question. And for those of you that don’t get social security benefits, you can do one of two things.
Lynn:
You can take a quick break. You can listen and pass this information along to a friend who does get social security, or if you just want to be more knowledgeable about social security from political perspective, we’re going to talk a little bit about that. So how is your benefit calculated? It’s your highest 35 years of earnings and the index for inflation and then the average, and it’s a really complicated formula that social security administration has put together.
Lynn:
And when you were employed and you pay social security payroll taxes, you can earn up to a maximum of four credits a year by making at least 5640, and you must earn at least 40 credits over 10 years to qualify for a retirement benefit. So again, at least 40 credits over 10 years to qualify for a retirement benefit. And social security tax is assessed at 6.2% for employers and employees, and the earning threshold is 1428 with a maximum tax of 8853.
Lynn:
Now I share these numbers because there will be some numbers in this presentation, obviously not for you to remember, but you can go back to this presentation. There’ll also be a social security guide on the class materials page, and you can go back to that guide to re-reference any numbers that I talk about. So how do I know what my benefit is? Well, you can go to, this is a clickable link, you can go to that website if you haven’t already, I actually just did it about six months ago, and you can see what your social security statement is online.
Lynn:
So interestingly enough, similar to other financial literacy issues and topics, most Americans get a D as my grandmother used to say, D for dummy, most get a D on a social security quiz. So let’s do a quick quiz, true or false. So if you want to participate, you can just participate and answer the question in your own mind, or you can throw it in the chat. But under current social security law, full retirement age is 65 and no matter when you were born. False. So good job for the people that said false.
Lynn:
Someone 65 in 2021 has an FRA is 66 in four months, and someone aged 60 today has an FRA of 67. So claiming before those ages, those full retirement ages means a reduced benefit. So when can you claim your benefits? Benefits are based on the age when you claim them. So the earliest you can claim social security, 62, full retirement age is 66 to 67 and the latest age is 70. So what is your full retirement age? So you can look at this chart to see when it is. I was born ’60 and later, so mine is 67.
Lynn:
So I’m going to let you guys go back and read these because there’s some different claiming options for individuals. So this is claiming age 62 and this is the case for claiming at 62, this is the case against it, and this is the bottom line. So I really wanted to include this so you could go back and look at these different cases. I just don’t have a lot of time to go through each one, but it’s really good information. And there’s a link down here so you could go see the full article, the source for this article.
Lynn:
And this is claiming at full retirement age, the case for it, the case against it and the bottom line. And then claiming up until age 70 again, for, against, and the bottom line. And then included is some strategies for couples. So if there was a 62, 70 split, either way filing restrict, good information and claiming survivor benefits early. So next quiz question, true or false. If I take retirement benefits before my full retirement age, they will be reduced for early filing.
Lynn:
Kate says, true. True. If I take retirement benefits before my full retirement age, they will be reduced. Good job. So how does filing early or later affect the monthly benefit? So here you can see my full retirement age is 67. At age 62, I would get 70% of my benefit at age 70, 124% of my benefit. So here’s Todd, he was born in 1956 as an example, his full retirement age is 66 in four months. At age 62, this would be his monthly and his annual benefit. At full retirement, this would be his monthly and his annual. At age 70, this would be as monthly and his annual.
Lynn:
This is Maryanne as another example. Birth year 1960, FRA, 67. These are her monthly benefits and her annual benefits. So how does claiming age affect your lifetime benefits? Well, by delaying, you might increase not only your monthly benefits, but also your lifetime benefits depending on how long you live. So this is just a summary of what that benefit looks like. Age 62 would be over $500,000. Let’s see, at age 70, you’re looking at $633,000. This just reminds me of another quick mom story.
Lynn:
So my mom was talking about millionaires, I guess she was listening to a show and how millennials want to be millionaires and what they’re doing for that. And she said, “Geez, I could never dream of being a millionaire.” And so what I told her was, “Well, you retired from teaching at 62. How much do you think your pension is actually worth between 62 and you’re 86 almost now? Add all that up and you’re going to be surprised at what benefit you’ve been able to get from your teacher’s pension.”
Lynn:
She just never thought of it in those terms, she just thinks of her monthly check that she gets, but when she added it all together, she was shocked. So true or false. My social security benefits are taxed. Good. Because there are a lot of people that think that… False. Trick question, they are not, unless your provisional income is above certain levels. So what is provisional income? It’s a calculation, another calculation. It’s your adjusted gross income plus non taxable income plus half of your social security benefit income, that equals your provisional income.
Lynn:
So this is up to 50% of benefit may be taxable if your combined income is between 25 and 34,000 and you file it single, 32 to 44 if you file married filing jointly, up to 85% of your benefit may be taxable if your combined income is over 34 and you file as single or over 44 and you file as married filing jointly. All right, next question, true or false. Once I start collecting social security, my benefit payments will never change. All right.
Lynn:
Linda says false, false. False, social security offers a COLA to keep pace with inflation. So again, you can go back to reference this but since 2000, the average COLA increase has been 2.1%. So true or false? If I delay taking social security benefits past the age of 70, I will continue to get delayed retirement credit increases each year I wait. False. There are no additional delay benefits beyond waiting until age 70. If I have a spouse and he or she passes away, I will receive both my full benefit and my deceased spouse’s full benefit. False.
Lynn:
So when a spouse passes away, the surviving spouse is entitled to collect one benefit, hers or her spouse’s. Most surviving spouses are women. Now, it makes it really important for the highest earning spouse to consider delaying until 70 if possible, which locks in the higher benefit. And this is a link to an article about the highest earning spouse. So true or false. As a divorced person, I might be able to collect social security benefits based on my ex spouse’s earning history. Anne says yes. False.
Lynn:
If you were married for at least 10 years and you haven’t remarried, you can choose to use your ex’s social security earnings record to determine your benefit. It doesn’t matter if your ex has remarried, all that matters is that you haven’t. So well, I guess you could look at that as true or false, but basically you can’t be remarried. So once you’re remarried, you can’t claim. But it doesn’t matter if your ex has remarried, all that matters is that you haven’t.
Lynn:
So a little more detail on that. Again, for those people that are divorced and want to go back and look at this information, you were married for at least 10 years, you must be divorced for two, you must have attained the minimum age required, you are unmarried and your own worker benefit would be lower than your ex spouse’s benefit. True or false. Earnings from a job will reduce my benefit. It depends. Yeah, earnings from a job if you’re under full retirement age, it will, if you have not reached full retirement age, it will not.
Lynn:
So again, this is another chart that basically shows you what happens too in each scenario. So before full retirement age, it’s a dollar reduction for every to the earnings exceed the annual limit. In 2021, it was an 18,960. If in the year you reach full retirement age, it’s a $1 reduction for every $3 that your earnings exceed 50,520. At a full retirement age, earnings will not affect your benefit. So when you’re trying to figure this out and your earning some income prior to that full retirement age, it’s good to pay attention to this.
Lynn:
So true or false? Social security is going bankrupt and there won’t be any benefits left when I retire. Good. So by 2034, 79% of a person’s annual benefits will be funded. So if nothing is done to the social security pot of money, you can expect to get 80% of your social security benefit if you are claiming social security by 2034. And you know what’s causing this, right? So in 1945, the ratio of workers to social security beneficiaries was 41 to 1, in 2013, it was 2.8 to 1, and by 2035, they’re predicting it to be 2 workers to 1 social security beneficiary, big issue.
Lynn:
So what changes can we expect? Restructuring social security always seems to be on the political agenda. Possible future changes may include delaying full retirement age, reducing cost of living increases, modifying the benefit formula to reduce basic benefits and potentially increasing payroll taxes. I guess we’ll have to wait and see. So signing up for social security, there are three ways to apply, I listed them here. And I just wanted to give you a quick tip.
Lynn:
The social security administration also handles enrollments for Medicare. So you should use the same process to sign up for Medicare three months before you turn 65 even if you’re not ready to start receiving social security retirement benefits, you can apply for your retirement benefits later. So three months before you turn 65, put a note on your calendar. So here we are. So when should I claim social security and how do I avoid leaving money on the table?
Lynn:
Well, the answer depends because everyone’s situation is different. You must do a retirement income projection which includes social security and all your income sources, right? And if you’re married and you have a spouse and I think there’s like… I don’t even know the exact number of social security claiming strategies, but there’s a lot. So I think the most important thing is to make sure that you get that projection done, that includes everything and potentially talk to a social security expert or a retirement specialist who can really help you identify, “Okay, I’m going to retire at 62. My husband’s going to retire at 67 or we’re both going to wait,” it really, really depends on what you’ve got going on.
Lynn:
You want to determine your maximum income, you want to assess your breakeven analysis and you want to integrate the benefit with all your retirement assets. There are some social security calculators out there, pretty interesting. I mean, it kind of just gives you an idea of what you’re looking at, but you have to make sure that whatever calculator or tool you’re using integrates all your income sources to try to make the best data based decision. Like I said, there’s literally hundreds of claiming strategies.
Get a printable copy of the transcript PDF here!
Check out the main Podcast page here for more informative episodes.