Part I: What's Important To Know About Social Security? Artwork

Emotional Wealth

Emotional Wealth is an American video, podcast, and Blog hosted by Wealth Advisor, Lon W. Broske, CFS®, CFP®. Using the current most relevant financial climate and topics, Lon is able to give his opinion on what is really going on with your finances. Topics include stock market performance, retirement savings, current events and how they impact the financial climate, general financial education and tips, and much more! Investing involves risk. Loss, including loss of principal, may occur. No investment strategy can guarantee positive results, nor can it protect against loss in periods of declining markets. Past performance does not guarantee future results. Thank you. Securities offered through Royal Alliance Associates, Inc. (RAA), member FINRA/SIPC. Investment advisory services offered through Pines Wealth Management, LLC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. 11475 Olde Cabin Road #220 St. Louis, MO 63141 Phone: 314-432-2334

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Emotional Wealth

Part I: What's Important To Know About Social Security?

September 28, 2020 • Lon W Broske, CFS®, CFP® • Season 1 • Episode 4

Emotional Wealth Podcast - #1 Social Security, by Lon W. Broske, CFS®, CFP® .

This podcast "What's Important To Know About Social Security," will walk you through the basics and give you some insight and strategies on how and when might be a good time to consider filing for your Social Security Benefits.

Here is What You'll Learn

How can you coordinate spousal benefits & Survivor Benefits? (Three Opportunities to maximize benefits)
How many people are receiving Social Security?
Who receives Social Security?
Longevity: What does this mean for your future as we live longer and longer?
Important Terms & Definitions:
Primary Insurance Amount (PIA)
Full Retirement Age (FRA)
Windfall Elimination Period (WEP)

Welcome to the emotional wealth podcast where Certified Financial Planner speaker and consultant Lon Brodsky will discuss strategies that can help you to successfully navigate today's challenging financial environment. And using emotional discipline and focus, you'll discover how he educates his clients to stay on track with their financial goals. Now, here's long. Hi, and welcome to this edition of emotional wealth. My name is Lon Brodsky, I'm a certified financial planner with pines wealth management in St. Louis. And remember, our focus in doing these podcast is very simple. We want to help educate our clients, we also want to help educate investors. Because we firmly believe that an educated client makes better, more intelligent decisions with less emotion. That being important, which ultimately helps keep them on track with their financial goals. Well, the idea for today's podcast was really a story. And I was talking with my dad, oh, I don't know probably about a week ago, week or so ago. And we were talking about what seems to be top of mind topic with everybody these days, as we were talking about the election coming up. And again, I'm not here to talk about politics. I won't tell you the particulars of the subject that we had. But we were talking about the election. And dad made a comment to me, my dad to give you some background. He's 81 years old. He's a factory guy. And retired has been retired about 20 years and his primary source of income is Social Security. I kind of chuckled a little bit and I said that What do you mean? He said well, if this if he wins a social security's gonna get taken away. Where did you get that idea? Well, I read it somewhere. And I I saw it in a headline and, and and maybe I heard it on the news, I don't know. But I know he's gonna take away my Social Security. You know, if this is a misconception of my dad, my dad's a smart guy. He's probably one of the smartest guys I know. But he has this misconception about social security. I told him, I said that that's impossible. You realize that right? Oh, no, it's not that they can Institute they can change, make change Social Security wherever they want. And I said, Dad, calm down. Okay. back the panic truck up. Okay, let's just calm down for a minute. First of all, I can't take away your Social Security, because social security is impossible to deplete. Now, they may talk about a surplus that's going to run out in 2035. But the Social Security system is set up to where it cannot ever run out of money. I can hear in his voice kind of question me a little bit. What are what do you mean that can't run out of money, I'm hearing all the time that the Social Security system is gonna run out of money, said No Dad, what you're hearing is that the Social Security system is going to run out of surplus, not money, because the Social Security system is set up as a pay as you go system. In other words, the people who are working today that are not retired, that are paying Social Security tax on their income, that's whenever you get a paycheck, you'll see that fica column, underneath your paycheck or on your paycheck stub, that gets taken out before you receive your money. You know what that is? That's Social Security tax. I said that everybody that's working today that earns under $137,000, will pay that FICA tax that goes into the Social Security system. And that is what pays your monthly check, or helps to pay it, I should say, doesn't pay it entirely. Some of that surplus pays it for those that are still working and paying Social Security tax, those that are receiving Social Security benefits are receiving is that tax, or a portion of it. So it's a pay as you go system, they can't run out of money. As long as people are working, they'll be put, there'll be putting money in the Social Security system, and this year, which is 2020. And what a dumpster fire every year, it's been right, I think we can all agree about that. 20 2020 has been one disaster after another, under $137,000. You're paying Social Security tax that FICA tax on 100% of what you earn. Now, if you're fortunate to earn over 137,000, then you're not paying FICA tax on that amount over and above 137,000. Any income earned below that 137,000. And so he couldn't quite understand that concept, that the Social Security system by law cannot run out of money because it's not set up that way. It's set up as a pay as you go system, those that are working are paying the benefits of those that are receiving now what they talk about in 2035, which seems to be the year that everybody has been thrown around. And everybody I mean by the press and by the media, is that 2035 days now what exactly does that what's important about that 2035 day without 2030 date is the estimated year that the Social Security surplus will run out right now and the Social Security system, we're running a deficit every year. In other words, we're paying out more than what is being brought in? And where's that deficit going to come from? How are you going to cover that deficit, where you're going to cover it with surplus, that's what they mean by 2035. So security system will run out of money. So security system in 2035, will run out of a surplus. Now at that time, and who knows what's gonna happen between now and then because so many things can change. In 2035, the Social Security system is going to run out of that surplus. So at that point in time, some changes need to be made. And I don't know what those changes look like. Maybe they reduce benefits. Maybe they change the retirement age, I don't know. Nobody does, just understand that they're not going to take away your Social Security check dad. Okay. So if you're listening, pay attention, you're not going to take away your Social Security benefits. Social Security system is not going to run out of money, it's impossible. So just remember that, that conversation, I was driving home, and I was thinking, you know what, that's probably a pretty important topic to talk about. Because there's so many things that you can talk about Social Security, a lot of people don't know about, you know, those that are getting closer to Social Security, let's say within five years, those people are filing or thinking about filing for benefits. And there's a lot of things that you should be thinking about. When you file for benefits. I want to take just a minute and talk about the eligibility for Social Security. Because even before you talk about how much benefit you're gonna be receiving, you got to talk about whether or not you can receive benefits, right? Okay, that's more important than the amount you're going to be receiving, you got to first of all, you got to determine whether or not you're eligible. And for all those young people out there listening today, how do you become eligible for Social Security, where it's very simple, it's a formula. And that formula is based upon how much you earn. And you can earn 1400, and $10. So for every 1400, and $10, and the maximum amount of credits you can have in one year is four. That's it, you can only earn four credits. Now you need 40, in order to be eligible for benefits, not a rocket scientist. But I do know that if I can earn a maximum of four credits per year, and I need 40, to be eligible for in the 40, smells like Yep, 10, you need to be working 10 years, and paying FICA tax for those 10 years in order to be eligible for benefits. There's three ways that you can receive benefits and Social Security, right? There's retirement benefits, which is the most common, there's survivor benefits. And there is disability benefits. What I want to focus on in this podcast is really retirement benefits and survivorship benefits, spousal benefits go along with survivor benefits, that discussion, but I really want to focus on those areas, because that's what predominantly what we're seeing out there, a lot of our clients have questions about those two areas, spousal benefits, survivor benefits, which is again, one of the same and retirement benefits. That seems to be top of mind with a lot of our clients. So that's what we want to focus on in this in this particular podcast. And so this reminds me of another case where I had met with a client, let's call him john. And john has been a client of mine for 20 plus years, know john very well, he owns his own business. And I've advised him on his financial planning him and his wife, and unfortunately, his wife passed away. Not exactly unexpectedly, she did pass away about a year and a half ago. And so John's approaching 62, and he's thinking about winding down the business, possibly selling it and getting out because he wants to enjoy retirement. And that's understandable, given what he's been through his wife had suddenly passed, though she was ill for quite some time, john wanted to take advantage of social security. And in talking with john, he said, Lon, listen, I get it, the fact that there may be penalties involved, but I want to take it at age 62. I put into Social Security all these years, I worked like a dog since I was 19 years old, I've been contributing to the Social Security system, I want my benefit age 62. I get that, you know, for john was an emotional decision. And he wanted to receive his benefits as early as he possibly could. I said, john, we really should talk through this and talk about the advantages versus the disadvantages. And he said, I don't care what the disadvantages are. I just want my Social Security. And the more I talked and the more we spent time focusing on that, the more I realized that it really was an emotional decision for john, and we don't want to get to the point to where emotional decisions are driving our investment decisions. And so why don't we talk through the age 62 reductions because John's full retirement age is 67. I said, john, if you retire at age 62 here's what's going to happen. So security system is not going to be kindie. irregardless of and there's no magical strategy here, by the way, okay with social security. It's easy It's not that everybody should do x strategy, or everybody should do y strategy. It's not that way we have to understand is a specific strategy that you're thinking about how it fits into your financial plan. And that's what we do with john. So the first step we have to do is understand what happens at age 62 or so security benefits. Well, the Social Security Administration is going to reduce your benefits, john, and John's John's like, yeah, yeah, I know, I get all that. And so as we started to talk through the actual specifics behind that reduction, john had second thoughts. Because again, the emotional side told him that he deserved it. He's put into it all these years, he just lost his spouse, I want to enjoy life, I want to take my Social Security benefits. But as we started digging through the numbers, in fact, I told him, I said, john, the Social Security Administration is going to reduce your benefits point five 6% per month, for up to 36 months, that you retire early. If your full retirement age is 67, and you retire at age 62. That's five years. So the first 36 months of that five years, they're gonna reduce your benefit point five 6% every month. And if your reduction, if you retire earlier, or earlier than 36 months, they're going to reduce it further point, four 2% for every month, up to 24 months, that's a total of five years. And that five years means that you're could potentially see a 30% reduction in your benefit. And john was kind of like, wow, okay, so I knew there was a reduction I didn't know was that big? Yes, john, it's that big, it's 30, potentially 30%. And by the way, that's per month, it's not by year, it's per month, it's one the month that you retire. So that reduction could be pretty substantial. And the other thing to consider is that that reduction stays with you for the rest of your life. So if you get a 30% reduction in age 62, and let's say you live to be 150. Because you can't outlive Social Security income, it will pay you as long as you live, right? But that reduction stays with you. If you live to be 150, you're getting 30%, less check at age 150, as you did at age 62. That reduction never goes away. something to consider. We also had another thing to consider. So that was number one. Number two was Did you plan on working? We talked about that. So john, let's talk about you. I know you want to sell the business, I understand your frustrations, I understand your emotional attachment to where you've been, the business is part of you. And you just want to you want to think about retirement. And so john wasn't sure he could sell his business right away, he thought maybe he might sell it and then still continue as an employee, perhaps to help transition with the business. So he wasn't going to stop working at age 62. But he was definitely going to slow down. I said, Well, the other consideration that you have to think about is income. Because if you're gonna retire early, and you're still going to earn income, guess what, now the Social Security Administration is going to reduce your benefit even further. So not only do you get an age based reduction, john, now you're going to get a income based reduction that is even more restrictive. JOHN goes, Well, I had no idea that you mean, I can't work past age 62. Yes, you can. Absolutely you can. But to understand, if you're receiving Social Security benefits, they're going to reduce your benefit. If you earn over $18,240 in 2020, you can't earn any more than that. If you do, they're going to reduce $1 of benefits are going to be withheld for every $2 and earnings above that 18,002 40 and 2020. And by the way, that 18,000 to 40 is not set in stone that changes every year. So if you earn more than 18,000, you think you're gonna earn more than 18,000. So Well, certainly I am. I'm earning more way more than that. Now, I'm not going to work for $18,000, I'll be a consultant for probably quite a bit more. And I said, Well expect your benefits to be reduced $1 benefits would help for every $2 above 18,002 40, with the exception being when you reach your full retirement age. If John's full retirement age for this year, say for instance, and he were still working, then in your retirement year, you can earn up to 48,600. That's the only exception to the rule. john was not aware of that. But you can earn to earn up to 48,600 in the in your full retirement year, your fr a year, you can earn up to 48,600 before $1. And benefits is withheld for every $3 above that 48,600. And so that was something that john was taken aback by because not only do you get penalized for your age, which by the way is a permanent reduction. Would you talk about that, and now you have an income reduction. But the thing here that john didn't consider is that income reduction now goes away after you reach your full retirement age. So one reduction is permanent, the other is temporary. So that was something that john and i had to talk through and we actually decided that maybe filing age 62 was not the wisest decision financially for him. It was more of an emotional decision than it was a financial decision. And so as we talk through that and look at the numbers, we ultimately decided that 862 we would not be filing simply because the penalties were too great. He was not in a position with his company. And where is that with his business that he could sell it very easily and and completely walk away because he still was interested in working. So that's that that's a story that I think makes an impact on that emotional decision. We want to step away from from making that decision with emotions, and really looking hard at how it's going to impact our financial plan. So thank you for taking the time to listen to our podcast. We firmly believe that the greatest gift you can offer anybody is the gift of time. Hopefully, you got a couple strategies that you could potentially use in your own financial plan and some things to be thinking about as you apply for Social Security or as you think about how to incorporate security into your financial plan. Be sure to subscribe to us on your favorite podcast channel, or looking for suggestions for future podcasts. And if you have a question about this podcast, please feel free to reach out to us by email podcast at pines a wealth.com. Again, that's podcast at pines wealth calm as your email address, or you can call us one 800 for 676567. Once again, that number is 1-800-467-6567. We're also on social media. Don't forget to follow us there, Facebook, Twitter, or LinkedIn and look for part two coming in the next week. Thank you for listening. Have a great day. Stay safe out there. We look forward to seeing you on the next podcast of the emotional wealth.

Transcribed by https://otter.ai