Episode 4: Social Security

Published on: Jan 8, 2020


  • History of Social Security
  • How to decide when to claim
  • 2020 changes
  • Why it's important to meet with a financial advisor before deciding to claim
[accordion] [accordion-item title="Transcript (Click to see full transcript)"] Ben Christy: You're listening to Beacon Retirement Strategies, the podcast about you, your money, and creating the retirement plan to get you where you want to be. When it comes to putting together a retirement plan, there are lots of things to consider. This podcast is dedicated to taking a few moments to break down some of the more complex parts of retirement to put into terms that we can all understand. This is Ben Christy, And of course beside me is one of the most caring, professional, and kind advisors in all of Nashville, Mr. Pete Benson. Today, we're tackling a very common topic and one that just about every American is going to need to make a decision on some point in their lives, but especially the baby boomers that we're talking to. Of course, I'm referring to social security. We're going to take a look under the hood and talk about what you need to know when claiming social security, particularly as you look at 2020. Pete, as always, thanks for joining me in studio for another episode. Pete Benson: Great to be here. Thanks for having me. Ben Christy: As always. Let's start at the beginning and just talk briefly about where and why social security even came into being, because we're really talking about a system that has been around for almost 85 years. That's kind of hard to believe. Pete Benson: Yeah. I love to study history and looking back in the history, it's impossible to talk about the history of social security without talking about the 32nd president of the United States, Franklin Delano Roosevelt. Ben Christy: FDR, that's right. Pete Benson: FDR. He came into office in 1933, and of course this wasn't too many years after The Great Depression. Wow, that's a hard time to come in. Much like we remember 9/11, the country was very sensitive to the economy. Ben Christy: Yeah. I can imagine. Pete Benson: America was in a state of rapid industrialization and FDR wanted to ensure that American citizens would be okay in the event of an economic downturn. He announced a series of programs aimed at providing relief to Americans. Many critics said that these programs were too conservative. In 1935, just a couple of years later, FDR announced his second deal. That was The Social Security Act that was signed and passed. Pete Benson: Some of you who are younger don't realize that that's when it was started. The idea, at its root, is this, workers pay into kind of a pension fund system. Upon retirement, 65 years old is the date that they set then, they would receive payments back from that same fund in portion to their own payroll deduction over their working years. Ben Christy: Pretty smart back then. Pete Benson: It seemed like a really good idea. Ben Christy: I mean yeah, great idea. Pete Benson: Social security was set up as an insurance rather than a welfare program. Over the last 85 years, there've been many amendments to the act that was created then, and they've added now dependents, spousal benefit, survivor benefits, disability benefits, and more, and you really need to know all you can about this. Ben Christy: Yeah, but to your point, it started out as a very, it was complex from the beginning, but the idea at its root has really not changed, it's that insurance program that really helps people as they, particularly, as they go into retirement. Again, retirement years continue to push further out. It's no longer 65 like it was back then. Pete, on the surface, it seems like something like claiming social security should be a simple decision. I mean, it really, it boils down to timing when you look at it. You either take it early or you take it late. The interesting thing about social security, as you peel back the onion, the onion that is social security, it's a whole lot more complicated than I think a lot of people give it credit for. It's impacted because the decision that you make has what we call that ripple effect, right? If you're not looking at the different factors, you could be triggering higher taxes, you could look at doubling your Medicare premiums. You could end up forfeiting thousands of dollars in spousal benefits. There's a lot to consider as we look at social security. Pete Benson: Yeah. It should be simple, but so should operating a cell phone. When my seven year old granddaughter hands me a phone and says, "This is what you do, papa, it's very, very simple." Well, guess what? It doesn't seem simple to me. It's very complicated. When it comes to social security, a lot of people, they just turn away from it. It's like it's too complicated, so therefore I'm just going to pick a time and just be good with it and not worry about it, but that's not really smart [inaudible 00:04:31]. Ben Christy: Right. Right. Pete Benson: It can be tricky, and you need to know, because listen to this, according to Forbes, social security benefits, kind of like a $1.5 million annuity, even if it was $1 million annuity for a lot of families. Ben Christy: That's still nice. Pete Benson: And should be considered the foundation of your overall retirement plan. There's like 2,700 and some rules in the handbook. There's literally hundreds of additional rules about those 2,728 rules that are called the program operating manual system. Ben Christy: Operating manual, that's right. That's a mouthful. Pete Benson: Remember that. I know you've got it memorized, but this is important. It really is. Ben Christy: Great point. Pete, if we say our goal today is to break down some of the complexities when it comes to social security and dig into just what people really need to know to help them make the best decision possible when it comes to claiming their benefits. With that in mind, where's the best place, what's the best place for us to start as we look at the conversation? Pete Benson: There's two quick things, but these are huge. Social security is a foundational piece of your income and retirement. In retirement, Ben, it is all about income. If this is the foundational cornerstone, then man, this must be important. That's the first thing, realize how important it is. The second thing is, plan ahead. Plan ahead. Plan ahead. Plan ahead. Once social security is claimed, there is no going back anymore. I mean, it's one and done. Ben Christy: Hey friends, if you're ready to take another step toward retirement with confidence and peace of mind, then head over to beaconcm.com and find a few ways you can get started. First, you can always schedule a time to come sit down with us and get that second opinion or see just how your portfolio stacks up. If you're wanting to learn more about developing a solid game plan for retirement that makes sense for you, we'd love for you to join us at one of our dinner events or our lunch and learns. There are several events to choose from each month at different venues around the city. Again, that's beaconcn.com to register for one of these free, no pressure, no product, just retirement education information event. Now, back to the podcast. Ben Christy: Pete, one of the things that we do as a firm is we start with the social security analysis. It's a foundational component, really for probably 99% of clients that come in, are prospects that, potential clients that come in the door. It's one of the game plans. Again, if they've not yet filed, that we're going to run for them. Of course, this is where we sit down with an individual or a couple, and we look at their situation, their particular circumstance, their environment that they're in and we pull in a lot of data to help direct them as they look to make this decision. I see you've got the analysis right there in front of you. Share some of what information we gather and why it's so important in helping someone really make that right call. Pete Benson: Too much is at stake. We also rely on the experts. We pay into a software that allows us inside information, if you will, in knowing what to do. We have access to this thing called the Social Security Retirement Income Estimator that we do for families. This thing is like 15 pages long, but we really have taken the mystery out of how to take your social security and what the best way is to get the most out of it. Typically, we will provide for you maybe three, four, or five different scenarios based on spouses, what your ages are, what your earnings have been. We need to have a social security statement. We dump all that information in, and then what comes out is kind of comparisons. If you file at age 62, let's say you wait until full retirement age and you both file then. Pete Benson: Let's say that one of you does it then, and the other one waits till age 70. Then, what if you both wait until age 70? What if you one takes it at 62 and the other one 70? What if there's a spousal benefit that one can draw off the other? There's just a lot of different scenarios, but what we try to do based on the information we gather is give you the four to five top ways. Let's start there, at least, and see if that makes the most sense and make sure that you understand that you don't take social security just randomly in a vacuum. That it's really a part and a very important puzzle piece of the entire picture of your retirement. This is something that we do and it makes it really easy to compare. Again, it's called the Social Security Income Estimater, very, very important. Ben Christy: Yeah. It's huge. I mean, when you can look at the different options that someone really has and these aren't theoretical, right. They can look at it. Right. Pete Benson: It makes it easy, even though it's complex. We make it easy for you. Then you have something to look at and study. Ben Christy: It's on black and white. It's something you can literally consider, talk through with your family and kind of know what you're getting yourself into. I couldn't imagine I'm looking to claim social security without something similar to this, if not this very thing. Pete Benson: Well, in the example that I'm looking at here, this couple, the cumulative benefits over their retirement was going to be between $1.2 and $1.6 million. When they say could be a $1.5 million annuity to the family, that's not that far off. Ben Christy: Yeah. Yeah. That's an average for a lot of the people that, particularly in this area of the country. Pete Benson: Certainly. Ben Christy: We all know all too well, particularly you and I, as we look at trying to keep up with all the rules and the regulations and the policies that come with social security, we know that that one of the constants is change. I mean the social security program, it feels like the changes are almost an annual event. We just kind of sit there and you can almost mark your calendar for it. Changes are going to be rolling out. Of course, sometimes those changes have to do with formulas. The way some of these things are run. Sometimes it has to do with kind of the legislative framework of the underpinning, the way the social security system is set up. It seems like we're consistently working to keep up to date on really what's that latest round of changes. Again, 2020, no different. Pete Benson: Changes. Ben Christy: Change is coming. Pete Benson: Changes again. Here's the thing, none of us get some easy paper in the mail that says, "Here's the top changes for social security next year." When I go over these with people, it's the first time they've ever heard tell of them. Ben Christy: Yeah. Pete Benson: Just to give you in a nutshell, and this isn't all of them, but benefits are increasing. This helps you to budget for the year to realize that there's going to be a 2.8% increase for those of you who are receiving this. Again, that might mean that you can take less out of some of your other monies because this is increasing. Ben Christy: That keeps up with inflation, right? Pete Benson: Yes, it does. Ben Christy: That's one of the reasons behind that. Pete Benson: Well, supposedly it does. Ben Christy: Well, it's attempt to keep up with inflation, right? Pete Benson: It's a help. Ben Christy: Yeah. Pete Benson: Then a higher monthly maximum payout. If you haven't taken social security yet, and you're looking at your full retirement age and you knew that there was a maximum amount that you could get, well, they've increased that by $150. Now as you're planning for the future, maybe a bigger part of it, if you're a higher income earner can come from social security because you've maxed out and then the retirement age, the full age is going to increase. Those of you who are younger, well, guess what, they just moved the goalpost again. Ben Christy: Kicked the can, there it goes. Pete Benson: You were thinking you were going to take social security at a certain age, and now you're not. You can see how important it is to keep up with these things. Then, the earning cap increases. Now you can make up to $137,700 next year, and those earnings are what they base the benefit off. Then, disability benefits increase. Some of you may get disability and really need it. You're going to get an increase. These are just a few of the things, and there's so many more that you need to know about, that we'd love to be able to help get some information in folks hands just so that they, information is power, and they're going to make powerful, good decisions based on accurate information, not outdated. To your point, Ben, outdated could be just a few months ago. Ben Christy: Absolutely, because it changes so quick. You know, Pete, for me, it boils down to a very simple idea, simple concept. There's a lot of things in life I think that you can do on your own, right? You can run, you can swim, you can bike. I mean, heck you can play a good game of solitaire on your own, but when it comes to retirement, particularly when you look at the slice that social security could play and that foundational component of income, that's a scary thing to do alone. Pete Benson: We call certain people, and not in a derogatory and negative way, but they just have been more do it yourselfers. They've been really good at like saving up some money in retirement. When you get to retirement, the rules change and it becomes much more complex. I used an analogy recently with a couple, and I said, "Well, if you realize that you needed some type of even minor surgery, would you order off Amazon and get a scalpel and do your own surgery on yourself because that was easier and cheaper so you thought? No, the first phone call would be to somebody who you thought knew the name of the number one surgeon in the country, and you're going to that person." Ben Christy: Exactly. Pete Benson: When it comes to social security shoot, we work at this 10-12 hours a day, every day of the week for decades, we can't keep up with it. Sure enough, there's no possible way that one person out there being a do it yourselfer is going to know the best way to maximize their social security. The tragedy is they're leaving their money on the table by doing that. I would say, get expert advice. Ben Christy: Yeah, that's true, because Pete, I agree with you. I think so many people do it theirself, DIY, they look at the social security administration and again, nothing against their organization, and they call them and they talk through a few numbers and they think, "Okay, they're going to help me make the best decision." The reality is they're not financial advisors. They're looking at a portion of your situation in a little vacuum. They're not looking at the holistic, the totality of that retirement game plan. It's hard for them to really speak into what's happening here. Pete Benson: Yeah. I mean, you really need to look at this as part of your overall retirement plan and that's done with a true retirement planner, wherever that person is that you can find. Ben Christy: That's perfect. Well, Pete, it's always good hanging with you and thanks to everyone who joined us today for another episode of Beacon Retirement Strategies. If you'd like to learn more about how to create a winning retirement game plan, or to hear us break down some more of the complexities when it comes to retirement, visit Beconcn.com/podcast, and you can hear a lot more of the topics that we've covered. As always, Pete, we want everybody to remember that peace of mind in retirement requires a plan. Voiceover: Investment advisory services offered through Beacon Capital Management, LLC, an SEC registered investment advisor. Beacon Capital Management, LLC is neither an affiliate or subsidiary of TD Ameritrade Institutional, Fidelity Investments, Beacon Accounting and Tax Service, or Knight Legal.[/accordion-item] [/accordion]
What you need to know when claiming Social Security

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