On-Demand: Social Security Benefits
- Aug 18, 2022
During this one-hour presentation, we will cut through the complications of Social Security and provide you with the basics to get started to determine when to apply, as well as provide you with knowledge of the options available. In this one-hour presentation, we will cut through the complications of Social Security and provide you with the basics to get started to determine when to apply, as well as provide you with knowledge of the options available.
Daniel Gibson: Thank you, Bella, and thanks for everyone for joining us in our program today.
Today's topic, Social Security, the basics, our objective today is to provide you with a foundation so that you can grapple with this important topic whether it's for yourself personally or if you're consulting with a client friend or loved one. Let's face it, this is a very important topic and decisions have to be made, which with today's advances in healthcare, if you're retiring in your early sixties, or even mid-sixties, or even almost 70, let's face that this is going to be a 30-year, possibly a 40-year effect on you, so it's a very important topic.But also, what's important to keep in mind is that before you make any decisions or act on any strategies possibly that we've suggested here in our program, that you do your own research, you speak to your advisors that are equipped to help you, because again, the effect is pretty permanent, it could be 30 to 40 years. So hello again, my name is Dan Gibson, I am a partner in the New Jersey practice of EisnerAmper, I work in the private client services group and happy to have you with us today. Larry, you want to give yourself a brief intro, and then hand it back to me, and we'll start this off?
Larry Seigelstein:Absolutely, Dan, thank you so much, thank you, Bella. And I wanted to thank everybody for joining us today, we know how busy you are, so we really appreciate the time. Again, my name is Larry Seigelstein, I'm a managing director at EisnerAmper Wealth Management, part of Eisner Advisory Group. Basically, this is an important subject and as part of what we do at the wealth management side is we are... Basically, our plight is to help our clients achieve all of their goals and objectives, and obviously give them the highest probability of success to achieve their game plans. And Social Security should not be dismissed, it's really an important part of the overall planning, it should not be looked at in a silo, it really should be looked at as an overall plan as far as the decisions you're going to be making and hopefully what Dan and I talk about today will help lend some guidance and we'll go from there. Thank you, Dan.
Daniel Gibson:Okay, thanks, Larry. All right, so we'll start this off, but what we're going to do initially is we're going to zoom back and look maybe at a 30,000 foot view here of just retirement in general, showing how Social Security is as Larry was talking about it, it can't be treated as a silo, it's got to be treated in connection with all the other things that you have to be thinking about when you go on through retirement. So first of all, the objective here is reaching financial independence, how do you get through retirement? Many of us do well in our careers, whether we own our own business or whether we're successful employees and we've accumulated assets and income along the way up until our retirement point, a lot of us do our estate plan, we do our wills, we set up our trusts, and we prepare for our eventual demise, but that's that in between part when you retire and when you pass away, you want to be able to fulfill whatever dreams you want during that period of time, so it's important you want to reach that financial independence.
Long-term care, you absolutely want to address that. If you think long term care insurance is expensive, you getting sick in your older age is very expensive, so you'd rather at that point, have it and not need it than need it and not have it, as the saying goes. Social Security, which is what we're going to talk about in much more detail today, when do you start it? How do you optimize it much like Medicare? Which we had at seminar on last week, those of you that may have missed it, it's on demand, you can go back and watch it. But again, what are our options? When do we start it? If we mess up and we sign up for it late, how do we address that? How do we not sign up late for Medicare? So those are some of the issues that you want to be able to address going to retirement. So that leads us to our first polling question, Bella.
Daniel Gibson:And again, just to reemphasize the point that's made in the first slide, this is really a holistic thing that we're doing, we encourage those that are either going at it themselves or maybe if you're working with others in this area, there's plenty of advisors who do the work here as well at EisnerAmper, but whoever you have as the experts that are out there helping you, we would suggest and recommend that you don't go through planning for retirement alone.
All right, very good. I think we're listening. All right, so yeah, we're still the 30,000 foot view, we're looking at the financial independence in retirement, several questions, issues you want to ask yourself, have you arrived at what I call the Land of Financial Critical Mass? You continue to work or not work, it's your choice. If you continue to work, you work because you want to, not because you have to. Have you built that engine we talked about? Have you created enough wealth to get yourself over the finish line to retirement? Again, if you've managed things well enough during your career or during your life, do you go a certain point when you... Your sixties or seventies, where you basically say to yourself, "If I've done well and I've won the game, why do I keep playing?"
Meaning maybe we need to take some risk off the table, we got 100% of all of our money in the stock market, do we take some out? Do we try to invest in stuff that protects principle as opposed to having growth? Keep in mind, you're going to have a 30-year vacation in retirement, every day is Saturday, so you're going to have a certain lifestyle and play time, decisions that have to be made. And you're going to go through a period of probably the longest unemployment period of your life, so you have to change your mindset, change that paradigm, the whole time as you're building towards your retirement, you're accumulating assets and now income becomes probably even more important than assets, so you change your mindset from an accumulation to what I call a de-cumulation of assets to support that cash flow, which again, could be 30 to 40 years.
Larry Seigelstein :Dan, before you move ahead, you mind if just add something if that's okay?
Larry Seigelstein :First of all, just to touch on a couple of points, we all know this on the call, that piece of mind is priceless, so what you really want to do is whoever you do work with, you want to make sure there's a measurable way that you know that your game plan is in effect and like you had said, as you know, we plan to the age of 95, you want to make sure you have... You called it a 30-year vacation, it's a long time horizon, you want to make sure there is a tool that you could use to find out the way to make sure that's going to happen. I would tell you, the other thing you talk about is the income, you call it de-cumulation, I like to call it distribution phase, but it's a scary time for people, Dan, because they're used to having a steady stream of income, now they've built these assets and then they're not exactly sure how to now build a new income stream for the next 30 years. So all the elements you're discussing are vital.
Daniel Gibson:Yeah, and those minimum minimum expenses that you've got to calculate and got to make sure that they are covered, and dealing with inflation for 30 years is also something that is hard to plan for. Okay, so still at the 30,000 foot view level, these are what I call the seven steps to retirement security, again, getting through that retirement phase of your life, have a plan and be flexible in that plan, optimize your Social Security, which we're going to get into that in more detail, consider a hybrid retirement, look at am I going to just completely not work or am I going to work? Am I going to maybe donate some of my time? What are those hobbies? What are those things that I want to do with my play time? Address the retirement risk, I think the number one retirement risk is longevity risk and like what Larry and I were talking about in the previous slide, are you going to outlive your money?
This risk is probably the most important risk because it has the biggest effect on all the others, you have inflation risk, that's a silent killer that sneaks up on you and it;s that punch that you don't see coming, it really can hit you hard. Market risk, no telling, none of us have a crystal ball to where the markets are going to go. Withdrawal risks, very important, you hear about this 4% rule, well, I think one of the leading advisors out there have... It might be MorningStar that said recently, that it should be more like 2.8%, I think it actually should be 2% to be conservative. The order of return risk, what happens if you go into retirement and all of a sudden there's a severe bear market? And you're taking out four, maybe 5% of your accumulated assets, could have a big effect on the latter retirement years.
Again, review medical care options, we pick Original or we pick Advantage, what about our drug plans? That stuff. Again, I would refer you to our webinar that we did last week on that topic, long-term care, do we pick a premium-based or do we pick an asset-based policy? A big decision there. Again, secure retirement income versus assets, we've accumulated a lot that we have enough income to cover those minimum expenses that allow us to do the things that we want to do, how do we generate that cash flow? Again, the income is probably much more important than the assets being held through retirement.
Just to give you a simple example here from a standpoint of income, you have a wife and husband, they have annual cash flow being $125,000, they've gone through their checkbook, let's say over last two or three years and they they've concluded the fact that they need $125,000 as a minimum to maintain their lifestyle and they look at their cash flow sources, Social Security takes 45,000, they're taking 2% withdrawal out of their investments, 55,000, neither one has a defined benefit pension. They may have 401k, but it's not a defined benefit plan where they're actually getting the money every month as long as they breathe.
So there's a shortfall, they have a $125,000 need, got 45,000 Social Security, $55,000 as investment income, that's a $25,000 shortfall, how do they plug that? Do they build up additional wealth? How do they do that? They continue to work to plug that hole. Do they delay taking Social Security to get more cash flow from 45,000? When they look at annuity project products that are out there, that basically what you're doing is you're building your own defined benefit plan, give you guaranteed income to the lifelong into retirement. You've got monthly checks coming in as long as you and your spouse is breathing, so you can cover these cashflow needs that you have.
Larry Seigelstein :Dan, just one comment on that, sorry. Related to the shortfall, the thing you talked about in the earlier slide, where you talked about the market returns, you got to remember if, let's say we use the term, sequence of market returns, if you happen to retire into a down market, now you're facing even more of a challenge and that shortfall becomes even greater. So you're right, going back to work is an option, potentially becoming more aggressive in your portfolio to make up for the loss of the asset base or adjusting your lifestyle, and I'm sure Dan, you agree that neither three of those are really appealing for the folks on the phone or our clients, so that's why the planning becomes really vital on that.
Daniel Gibson:Absolutely. Again, it's a piece that gets missed going into retirement that has to be considered much more thorough to make sure that we properly plan to get through retirement and not just to retirement. Right, so yeah, just to mention, here's our four-legged stool of the things that we need to talk about. We've got investment income that can include the required minimum distributions that you'll get, a pension, and most of us, I would say the greatest generation, which was before the baby boomers, a lot of them had defined benefit plans. A lot of us baby boomers and generation X and Zs are looking to retire, we're not going to have that defined benefit plan, we're going to have a 401k, which means that we have the risk now to provide ourselves a pension and how do we do that? And one of the ways is the guaranteed lifetime income through an immediate or deferred income annuity.
And Social Security, Social Security, if you think about it, that is an annuity that you get, because you're going to get that once you go into retirement and it's probably one of the better annuities that are available out there for people, because you're going to withdraw it until you no longer breathing. And there's an inflation factor that's built into Social Security, which may not be when you're buying an immediate or deferred income.
So we're going to dive into Social Security now. So as many of you may or may not know in order to qualify for Social Security, you need to have 40 credits to qualify, one credit equals approximately $1,500 in earnings per quarter, that's for 2022, you can only get a maximum of four credits a year, so that means you have to work about 10 years. So most of us probably listening in on this call, you're probably going to meet that without a problem, it's the calculation of the benefits which gives some issue because the calculation is done using the 35 highest earning years for the lifetime earnings. And if you don't have 35 years of earnings, those are going to show up in doing your average, and you've had issues, an example would be someone who has taken time off to raise their kids, right? You may have had a gap of several years where you weren't earning anything at all and that would drive down the numbers that you might ultimately get in doing your Social Security calculation.
Larry Seigelstein :I'm sorry, go ahead.
Daniel Gibson:Yeah, I'm not going to get into too much detail on the calculation itself because it's a little bit too far into the weeds on this, but just from that standpoint, you got some planning on planning that 35 years of high earnings.
Larry Seigelstein :Sorry, what I wanted to add was, Dan, and it's a point that you brought up related to potentially someone taking some time off, just want to point out that those years do not have to be consecutive, so it doesn't matter if there's gaps in between as you had alluded to it, the 40 quarters, the 10 years, it could be an aggregation of multiple working phases, just so people are aware of that.
Daniel Gibson:Yep, good point. Okay, so just a little history that's in here, when Social Security was first enacted, 65 was the retirement age and quite frankly, back in those days, it was a push to get to 65 and as we know these days, we're looking at people that are in the fifties or sixties, there's probably a pretty good chance you're going to live well past 90 and maybe even to a hundred, again, the advances of healthcare in that time could definitely extend lives. But in the 1980s, it's like it is now where there seems to be an impending implosion in Social Security, people are fearful that it's not going to be there, so there was a big correction made and one of the biggest parts of that correction was extending the full retirement age. So as you can see, depending on what year you were born in on the left hand side, your full retirement age could vary, and it phases up until 67 for those born in 1960 or later, your full retirement age is 67.
This just illustrates the early versus late benefits that could be encountered when taking Social Security early as opposed to taking it later, right? So in this example, we have someone who is... Their full retirement age is 66, so they're going to get 100% of their benefit. If they did it early at 62, which you're able to do, every dollar that you would've taken at 66 is discounted to 75 cents, all right? So you take a discount, you take it early, if you wait until age 70, for every dollar, you would've taken it full retirement age at 66 at age 70, it's an 8% increase per year, which is pretty nice, I'm not sure you can get a safe increase like that each year, but Social Security, you can, for the dollar that you can get at age 66, you would get $1.32.
Larry Seigelstein :Dan, I just wanted to touch on that real quickly, so over time, did you realize part of this seminar today is to emphasize to people that this is a decision that's going to potentially impact them for a very long time, so it's not something that should be made in haste, again. There's significant differences related to it and what we try to also think about, we'll talk about it in the latter part, is when this decision... It's not just made about yourself, we want you to also consider your spouse and how that impacts them and their lifetime. So it's something that should be considered, you talk about the 8% per annum, it's going to be hard to be, especially these days, so when you talk about a potential someone who's out at a 66 full retirement age, 30% on top of the guaranteed, that it's something to consider based on individuals plans.
Daniel Gibson:Absolutely. I'm going to put some more numbers to this, so this would be taking that chart and putting some dollars to this thing. So let's say you're full retirement age, you were going to get $2,000, if you turned on Social Security at 62, you'd get $1,500, if you turned it on at 70, you'd get $2,500, so again, it's put some dollars to what we just talked about. And remember, however you turn it on or whenever you turn it on, it's basically permanent and it's going to take you through the rest of your life, and we'll make a point in the next slide here, but Larry, I don't know if you had a point you want to-
Larry Seigelstein :No, but Dan, this is a great slide, it really shows the power of waiting between 62 and 70, you're talking about potentially over a lifespan, if it's 25 years, you're talking about almost $300,000 difference, I don't think anybody would mind that in their pockets.
Daniel Gibson:Absolutely. This is a good stat, I think it's very important, it shows a difference in the average lifespan, when you hit 65 in 1960, you were expected to live to 66 as a male, 73 as a female, now in 2020, look at those numbers, you're going to 84 and 87 respectively. And that's an average, right? So half the people are living less than that and half the people are living more than that, so just keep that in mind as far as lifespan and the amount of time spent through retirement.
Larry Seigelstein :And I sat with a client yesterday, their genes are good, they lived up to about 104, 105 each, so like you said, this is the average, but obviously there's a bunch of numbers above that that people have to potentially plan for, even though we talk about that plan and they say, "Oh, I'm not going to be around in 95," we still have to make sure they have that plan for it.
Daniel Gibson:Yeah, don't count on that. And it's just some good stats here, it's really telling. And the thing I think I zeroed in on the most was if you look at the age 70 line there, 2% of men take benefits at age 70, and if you think about it, not to be chauvinistic, but most men are the ones within the couple that are probably making the most and would have the most benefit if they waited until 70, getting the most benefit and remembering the fact that the male is going to probably pass away statistically much sooner than the woman is, and the larger of the two benefits between the man and the woman is going to take whoever the survivor is to their demise. So it's telling and it's a little surprising because I think people are not taking the advantage of that waiting period to increase their Social Security, because I think it's extremely important from a standpoint of covering those cash flow needs into retirement the couple.
This is just showing here, the earnings limitation, again, not going to get into the details on this, but just be careful if you do decide to take Social Security before your full retirement age, you're susceptible to losing some of those benefits if you continue to work and you're earnings exceed certain limitations, and this year in 2022, it's just shy of $20,000, if you make more than that, you're going to start losing dollars in your benefits. You do get a break in the year in which you are turning full retirement age, it's about $52,000, but just keep that in mind if you decide to take the benefits early.
Larry Seigelstein :And then I would say people are not aware of that when they turn it on, depending what age they are, they'll see that number on that part of the paycheck, but also they if they are over 65, potentially on Medicare, and they're earning that also... You probably covered that last week, that's tiered related to how much you earn, that will also have a... Let's just say a reducing impact on what they're collecting from Social Security as a whole.
Daniel Gibson:Right. Okay, so just in general, in my opinion, I think a strategy, you would come to me and ask me, without me knowing anything else, knee-jerk reaction would always be able to say defer the later the better. However, obviously it's got to be taken in context of what your health is, what your financial situation is which could indicate an entirely different decision. But just keep in mind, a lot of people get... Especially us accountants who are most of the people on this call, we're breaking out slide rules and abacuses to try to figure out the break even, and I get all that, but just remember, Social Security, it is an annuity, if you hate annuities, then you shouldn't be taking your Social Security checks, because it is a lifetime annuity with inflation protection.
And it's a hedge against longevity risk, all right? So you want to be able to max out as best as possible. Again, if I were advising someone, I would say the higher earner who's going to get the most benefits should defer to 70 if at all possible, if the other lower earner wants to start taking the Social Security sooner, I don't have a problem with that, but the higher earner's benefits is what's going to take the couple through both of their deaths, all right? Once someone passes away within a couple, that higher Social Security's is what's going to take them until the survivor's death. Okay, so it takes us to polling question number two.
Larry Seigelstein :While we have a minute, Dan and Bella, I just wanted to... I'm just trying to stroll through the questions here, and somebody had talked about... It's a valid point, it's something you addressed, Dan, related to the break even point, and this particular poll question relates to well, if I wait till 70, my break even point is in the range of 12 years and potentially, that is the case, and I would just say that this is not a hard and steady rule, it's obviously based on personal facts and circumstances, and I know dealing with clients, some people want to take it as soon as they can, our job is to educate people on the long-term ramifications of what that might be. The break even point might be 12 years or whatever that number is, well, what happens if there's another 18 years that you live? That's what we want to try to think about and plan for.
Larry Seigelstein :Okay.
Larry Seigelstein :Thank you, Bella, thank you, Dan. So what we're going to get into a little bit is spousal benefits, and I want to start with the fact that what used to be, because some of the people on the call might have been able to take advantage of this, I know we've had clients who are... Dan and I talked about it, there was what was considered a loophole in the IRS where there was a strategy notice file and suspend, and that was a maneuver for married couples, the older spouse could file for benefits, suspend the benefit, which allowed the other spouse to collect a spousal benefit while both of their benefits would maximize utilizing the delayed retirement credits at the age of 70. Unfortunately, I will tell you today that is no longer in effect, that was eliminated as part of the Bipartisan Budget Act of 2015.
So it's a little different today, there's also used to be something where some people are able to take care of something called restricted application, which is also a similar type of strategy where you could use it off of your... Where you would apply off of your spouse's benefits when they hit a certain age. But let's talk about what's available today, if you're married and you're eligible to receive... Basically you'll get the greater of the spousal benefit or your own benefit, so if yours is higher than your spouse's, also automatically Social Security will pick that up.
So if they're alive, you could pick up 50% up to your spouse's full retirement age benefits, okay? While the spouse is alive, and what's going to happen is, you'll get that benefit also amount once the spouse passes away. So again, that's why we talk about... And when that gets locked in, it's something that is a permanent decision, okay? Now, in order for the spouse to collect it, the other spouse has to be already starting their benefits, otherwise you cannot begin to collect. We talk about the fact that you could start as early as age 62, but because of that, based on what you saw before, that's about a 28-and-a half percent reduction in the benefit, okay? And again, there are no... Just as a point to show you guys, no additional benefits for delaying after your full retirement age, that's when you're going to get maxed out, it related to spousal benefits.
Daniel Gibson:Yeah, when you're leveraging off of your spouse getting Social Security off of their record, you can't go any further than the full retirement age, there's no delaying at that point.
Larry Seigelstein :Thanks, Dan. So this will show you numerically, if you are married and you decide to collect earlier than your full retirement age, the percentage that you'll be reduced. So you'll see, if your full retirement age is the age of 66 but your spouse starts taking it at the age of 62, you're going to get a 35% reduction permanently in your spousal benefit. And you see what happens if you're full retirement age is 67, that number goes to 32.5%. So when you're planning, again, you want to be sure of and be cognizant of the decision. Also again referring to the surviving spouse, you never want to think that way, but we have to hope for the best but prepare for the worst, if something were to happen, how will your spouse be impacted by that early decision or that early filing?
Okay, so surviving spouse benefits, you're entitled to the 100% of the deceased benefit amounts, again, if it's greater than your own. So typically, and I'll go through this in the next phase, you got to be married at least nine months for your current spouse, and we obviously know there's situations where there are multiple divorces and/or things that might happen, or losses, or widows, but what the Social Security Agency administration will calculate is out of all those choices, which is going to be your highest, best favorable outcome? Part of this is to receive spousal benefits, you need to remain unmarried, excuse me, through the age of 60 or 50, if you are disabled, and being remarried after those ages do not affect your eligibility, okay?
So again, you can begin as early as the age of 60, but once again, that will also cause a reduction in your benefits. So your retirement age is 67, you'll see that that's when you get 100% if you do it any time between 60 and then you'll see that reduction that remains permanent.
Daniel Gibson:And I see a question here regarding how do you qualify, but I think the rules are very similar to those, that if you could qualify for disability under Social Security, that would qualify for the disabled age year of 50.
Larry Seigelstein :Thank you, Dan. And one thing I wanted to point out, this particular chart is actually for those born before January 2nd of 1962 or later, born after 1/2/1962 or later, the percentages will differ for those born prior those dates, I just wanted to point that out. This next particular slide is really talking about... I'm not going to get into the weeds on this one, we talked about the eligibility on survivor benefits, you have to be married to a spouse for at least nine months, married to an ex-spouse for at least 10 years and did not remarried prior to age 60. Again, you're going to receive the highest benefit, if eligible, for multiple survivor benefits.
And if you're eligible for your own benefit and a survivor benefit, one can be activated early without reducing the other. And what we want to show you here, Dan, is really just the impact of Claire versus when John takes out his Social Security, you'll see there's about $110,000 swing if John were to wait to the age of 70 and that, again, how Claire's impact over her lifetime is fairly significant.
Daniel Gibson:Yeah, we're hitting this hard today, but we both think it's at least something that should be taken serious consideration before making decision on when you're going to turn on your Social Security.
Larry Seigelstein :Okay, so what are factors that impact survivor benefits? The deceased filed for benefits before they passed, what age did the deceased filing for benefits? And what age is the survivor filing for the benefits? And we're going to try to get into that, give you the macro look of it. Okay, so here we go, I know this slide has a lot of information and really, we always recommend in situations like these, obviously consult your local advisor, we're here as a resource, do the research, but the Social Security administration, believe it or not, is a very good resource, we always recommend going in there in person to make sure that out of all your options, that you are maximizing them, and I always recommend talking to a supervisor there who might have more knowledge than others to be able to guide you in these things.
So here we go, if the deceased did not file for benefits, yet they died before full retirement age, that's where we talk about determining widows reduction limits. But basically, you use the deceased's full retirement age benefit, so in other words, if I had deceased at 62, we're going to be able to use utilize when... Again, without filing early, when I get full retirement age, I would've gotten what my spouse would've gotten at their full retirement age of 66, so it's going to be adjusted for survivor's filing age, of course. If the deceased did not file for benefits but they died after their full retirement age, the survivor gets 100% of the deceased's primary insurance amount and that also includes delayed credits that might have been earned, okay?
If the deceased did file for the benefits but filed on or after the full retirement age, again, they'll get whatever the spouse was getting upon their date of death. And the last one talks about the deceased did file for benefits but filed before full retirement age, and Dan and I were discussing this, this gets involved with something called the widows limit. So basically, it becomes the larger of the actual benefit of the deceased or 82.5% of the deceased full retirement age benefit, and we'll talk to this on the next slide. So really, there's no point in time where the survivor, really it's worth waiting because they're not going to get more than the 82.5% reduction, whichever is greater, so this next page will illustrate that.
Daniel Gibson:This is a protection that's built into the system in the event that the deceased spouse collected... Let's go to the extreme example, they started collecting Social Security at 62, if they passed away, the widow or widower would get a smaller amount of... Obviously, a small amount Social Security with full retirement age. But what the government has allowed is that they've allowed the widow to get 82.5% of the full retirement age benefits they would've otherwise have gotten, but that's limited, so there's no point of waiting any point past to try to get more full credit, because the government's always giving that break by giving you the greater amount between what the deceased spouse had and that 82% of the full retirement age benefit.
Larry Seigelstein :Absolutely. And this is their way to ensure that the widow really does not receive more than the worker would be receiving had they still been alive, that's the way they instituted this. So we talked about switching strategies, let's talk about the surviving spouse, let's say she turns on the survivor benefit at the age of 60. You'll see again, she's getting that 28.5% reduction, so now she's getting $1,144 for a certain time period, okay? But the key that we want you to take away from here, you're allowed to switch. So basically, she's taking the benefit off of her deceased spouse for nine years, but at the same time, she's allowing her own benefit to allow for delayed retirement credits from the age of 67 to the age of 70. So now she turns on her own benefit, so she's taking 1,144 for that time period and then she's able to switch to her own benefit, which is obviously significantly more at 1,860 per month.
Daniel Gibson:Right, this is one of those strategies that Larry had mentioned, the file and suspend strategy, which was gotten rid of probably seven or eight years ago, which was a good strategy, but this strategy still has stayed on in a limited use, because what has to end up happening is that the survivor's own benefits have got to be higher than what their survivor benefits are.
But by doing the switching strategies, as you can see here, in this case, the survivor has turned on their survivor benefit here, which at full retirement age, within 1,600 bucks, but they turn it on at 60, because again, remember survivors can turn it on at 60, so they're taking a discount, so they collecting a little over $1,100 a month, all right? For the next 10 years, it's decent amount, I can't do the math real quick on that, but it's a decent-
Larry Seigelstein :It's a decent amount, exactly, Dan, it's money that some people, if they weren't aware of this opportunity, they might have forgone 10 years of some additional helpful supplemental income, especially at a time of transition when they've lost their spouse, it could be very fruitful for them.
Daniel Gibson:The quick math on that is what? It's probably almost $15,000 a year, which is not anything to sneeze about, but then you can see that by the time they hit 70, that survivor's own benefit they could switch over, they've gotten the credit for delaying it, right? So they would've normally gotten $1,500 at full retirement age, now it's over $1,800. So this works in those cases and again, in today's world, there may be some applicability here because you have both the husband and wife working in those cases and the higher benefit in this case, it may actually work for them. So it's not something that it's probably that rare, but it's probably more common than you'd think.
Larry Seigelstein : And I think what ends up happening, Dan, it's just an awareness that these things can happen, people might assume certain things based on their not full retirement age or they're not aware of the fact that they might be able to collect, or survivor's benefit, or divorce benefit, whatever it may be. And we want them to be aware that these things are out there, where they could get some extra income because of that.
Daniel Gibson:Yeah, and we're going to go another strategy a little bit in the next couple of slides, but this was in the case where you get survivors out, it's not an ex-spouse situation.
Larry Seigelstein :Absolutely. So that's going to lead us to our next polling question, so I'm going to send it back over to Bella for a moment.
Daniel Gibson:So I think that one of the things that we're emphasizing here is that people could be unknowingly leaving some dollars on the table when it comes to Social Security, so it's probably again, not pushing that you necessarily need to use EisnerAmper as your advisor, but whoever you're using, have someone that you're using to help you through some of these decision processes and making sure that you're not leaving a balance on the table at the end of the day.
Larry Seigelstein :Terrific, Bella, thanks. Yes, the red tells the truth as we showed on the last slide, you could do that switching strategy up to the age of 70, which actually includes what Dan and I were talking about related to taking advantage of the delayed retirement creds, she was able to get an extra 32% on top of her own benefit by waiting and then switching at an opportune moment. And no, there's no delayed retirement credit that's after the age of 70, so that's really the maximum benefit you're going to be getting. Thank you Bella. I know we're running out of time here, so I'm going to try to accelerate a little bit, so we talked about divorce, spouse benefits, what's going to happen is some of the qualifications are you cannot have been remarried through the age of 60, if you did, but you divorced before 60, you're still going to be all right, but part of the eligibility requirement are you had to married for at least 10 plus consecutive years and divorced for two years or more before you could start.
The ex-spouse must be eligible to receive Social Security, and again, the other spouse doesn't need to be collecting, as long as they are eligible, in other words, if they've reached full retirement age, the ex-spouse will be able to solicit and put in an ex-spousal benefit, okay? Spousal benefit is again, 50% of the ex-spouse's full retirement benefit amount, you could start as early as age 62 and as we learned earlier, 60 of the ex-spouse is deceased, but benefits again, would be reduced by the 28.5% if you do that.
And as you're doing this, what Dan touched on earlier, earnings tests are going to apply if you have not reached full retirement age, after full retirement age, the earnings test goes away. This is a review, basically just talking about this sort of review, so the ex-spouse is entitled to 50% of an ex-spouse's benefits if again, married for 10 years, divorced for two, and the ex-spouse is currently unmarried. Now, if you have a ex-spouse who passed, that's what the second part is, if the ex-spouse was entitled to a benefit or even disability benefit at the time of death and you're married at least 10 years, you are eligible, and again, the ex-spouse would have to be not remarried until the age of 60. And I'm moving along, let me know if you have anything you want to add.
Daniel Gibson:No, that's good, Larry, keep going.
Larry Seigelstein : Okay, so this emphasize it, again, the longer you wait in this chart, the better off you're going to be from an ex-spousal benefit standpoint, but you'll see here, you hit the block or the barrier at the age of full retirement age, there's really no reason to wait beyond that. Again, there'll be no delayed retirement credits, so when you hit that full retirement age, that is going to be your max related to an ex-spousal benefit. We covered this again, if the ex-spouse has passed, again, you could file for benefits as early as age 60, again, you have the flexibility of retaining the higher of the benefits for the ex-spouse or potentially, we talked about if there's multiple marriages, your new spouse... And we talked about the flexibility to have that switching strategy done, okay? And we talked about the fact that you could do that switching strategy as our poll question stated up until the age of 70.
So this is just showing again, the switching strategy with another example, with just some numbers. Karen didn't do anything with her benefit, she was able to take her ex-spouse's benefit, even though it was reduced at that point in time at 1,394 per month, took that from the age of 62 to 69, again, a great benefit to have, and then she was able to utilize her own benefit that was able to experience the delayed retirement credits.
Daniel Gibson:Yeah, the switching strategy is very similar to the one that we saw before for the non-ex-spouse. And the ex-spouse has taken advantage of the survivor benefits from their deceased ex-spouse through the age of 70, and then to the extent that they can turn their own benefits on it at 70 and get those delayed credits, it works out very well for them.
Larry Seigelstein :Absolutely. And I think this brings us to our fourth polling question and Bella, all yours.
Bella, as we have the time, and Dan, I just want to touch base, just a couple of housekeeping items for people, if you're not familiar... I remember depending on what demographic you are on the phone today, you used to get those green statements in the mail, you might have noticed, unless you're really at retirement age, you're no longer getting them. For those people as a resource, if you wanted to check out what your own benefits were, you go to www.ssa.gov, what it will show you is it'll show your income record, we ask you, we recommend you take a look at the income record because they're not always accurate, you want to fix that.
Going back, and we talked about early related to the 40 quarters, what happens if you had a year that was very good, but it was not recorded accurately from the administration? You want to double check that. What you'll find out when you do go on site, you'll see what your benefit will be at the age of 62, early retirement, what'll be at the age of your full retirement age, whether it's 66, 66 in next month, or 67, and what it'll be if you wait till the age of 70,
Okay, well, this is terrific. B and C is the answer, obviously it is, it is both for surviving current spouses and surviving ex-spouses. I just want to touch base on a couple of things, I think there was concern about it running out, and there is a concern, quite frankly, the entitlements, both Medicare and Social Security are an issue right now. As you guys all know, the government waits until the longest it can to try to fix a situation, as of right now, by 2035, payroll taxes collected will only pay approximately 80% of the benefits owed.
So as it stands right now, they're going to kick that can down the road as long as possible, but when we talked about it earlier in part of the plan, do we consider the fact that Social Security might not be there for all of us on this call at some point in time? It will be there in some form or another, even though I know there's a Republican, I think his name was Ron Johnson, who said he was trying to eliminate whatsoever, but it'll be something that's going to be challenging, there might be 80% of the benefits we're seeing, that's part one, I guess I want to add, the good news is that those people are actually collecting right now, you could tell your parents, your grandparents, that they're going to get an anticipated 11.4% raise in 2023, which will actually be the highest increase in 40 years, because of obviously what's going on with the inflation scenario in our world right now. Dan, is there anything you wanted to add?
Daniel Gibson:Quite frankly, based on what I've read, and seen, and heard, I don't see the Social Security benefits decreasing in the foreseeable future. There's some minor tweaks that could be done to the full retirement age, bring up certain individuals or certain demographics, ages, and maybe bring up the full retirement age to some folks that are going to retire later to, say 68, basically the same thing they did in the 1980s, which again, we're still feeling the reverberations of that to this day. Those that were born in 1960 can't get their full retirement age benefits in 2025, they're going to get it in 2027, right? So that's how long this thing has lasted. So I got to think there's going to be some tweak to the full retirement and probably some tweak to the dollar limit in which you continue to pay Social Security. Now it's probably around 150,000, I could see that being bumped up a little bit further than they had planned to try to cover that for the foresee future.
Larry Seigelstein : Yeah, Dan, that's a great point. And the other thing that I've been reading also part of the legislation or something that was written up in one of the bills was potentially turning it on again for those earners over $400,000. So they're exploring different means as far as how to increase the pool there for the future.
Daniel Gibson:Yep. Okay, Larry, you going to go to the next slide here? We could probably pretty much wrap up.
Larry Seigelstein :Oh, yeah. Okay, I think we covered this quite frankly, this is just talking about the fact that we want to make sure that yeah, Social Security is there, don't discount... And I know we're running out of time. It's a supplement for some, depending on what your earnings are, but you want to try to maximize it the best you can. Again, you utilize your resources, utilize the tools to see what is your best maximization strategy for you and your family, don't ever discount the fact that again, this decision should not be made in a silo, it's got to be part of your overall game plan.
Daniel Gibson:Great. Bella, you can take us to the end here.
Transcribed by Rev.com
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Daniel Gibson provides accounting, tax planning and consulting services to real estate and services industries and is a member of the AICPA and New Jersey Society of Certified Public Accountants.
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