How to Maximize Your Social Security Benefits with Marc Kiner & Jim Blair
How to Maximize Your Social Security Benefits Show Notes
Social Security is the backbone of so many people’s retirement plans, yet many of us get it wrong. In fact, the average family leaves over $100,000 in benefits on the table. Your retirement strategy must include a solid game plan for claiming and maximizing Social Security benefits, but it isn’t always easy to figure out what exactly is available to you – or how to get it.
Marc Kiner has been a CPA since 1980 and has focused much of his work since 2008 on understanding Social Security. When he needed help, a friend recommended that he reach out to Jim Blair, who walked away from his own retirement to co-found Premier Social Security Consulting. Now, they provide Social Security consulting for individual clients and education for financial advisors.
Today, Marc and Jim join the podcast to talk about the major mistakes that people make as they claim Social Security, how to craft a strategy designed to avoid these pitfalls once and for all, and how to find an advisor who can help you navigate this astoundingly complex system.
In this podcast interview, you’ll learn:
- How Americans leave as much as $3.4 trillion in unclaimed Social Security benefits behind.
- Why even Social Security Administration employees lack comprehensive knowledge of everything possible when it comes to Social Security.
- How to navigate benefits taxes and avoid accidentally crossing an income threshold that can drastically affect your finances.
- Why Social Security isn’t going to go broke – and taking benefits now because you think it will is a bad idea.
- How divorce can affect Social Security eligibility and payments.
- “If you’re working and don’t need the Social Security income and can delay it, you receive 75% more at age 70 over what you would have received at age 62. And that not only carries over for your benefit but for your surviving spouse as well.” ” – Jim Blair
[00:00:09] Dean Barber: Welcome to The Guided Retirement Show. I’m your host, Dean Barber. You can find The Guided Retirement Show on your favorite podcast app. Make sure as you’re listening, you’re going to love what you hear today, by the way, but make sure as you’re listening that you like the show, you subscribe to it, and you share it with all of your friends and relatives. Social Security, it’s the backbone of most people’s retirement and yet so many people get it wrong.
The average family is leaving over $100,000 in unclaimed benefits on the table. I’m excited to have Jim Blair, retired Social Security Administration employee, and Marc Kiner, a 40-year CPA who have teamed up to teach people how to get the most out of their Social Security benefits.
[00:00:56] Dean Barber: All right, Marc Kiner, CPA, and I would say somewhat of a Social Security expert at this point. Marc, welcome to The Guided Retirement Show. Thank you so much for taking the time to join me. And I think this is going to be fun because it’s nice to have somebody else to talk to that is as passionate about integrating proper Social Security claiming strategies to their retirement plan as you are. So, why don’t you start by giving our listeners a little bit of background of what it is that prompted you to dive into the Social Security system and really start to understand the complexities there. And why is that your passion now?
[00:01:41] Marc Kiner: Thank you, Dean. Great being with you today on your podcast. As you mentioned, Dean, my name is Marc Kiner. I am a CPA. Been a CPA since about 1980. As I was getting older and my clients were aging along with me, Dean, I was getting more and more questions about Social Security and I did not know who to go to for answers. So, in 2008, Dean, I bought three books on Social Security.
I read them cover-to-cover. I ended up with more questions than answers. So, I knew I cannot provide this service to my clients. So, one day, I was at a local restaurant called a Rusty Bucket, similar to TGIF nationwide. An attorney walked in, Dean, somebody I know for about 10 to 15 years. And I asked him if he knew anybody who could educate me about Social Security. Well, this individual said he knows somebody that works for the Social Security Administration. In fact, that’s his uncle, and his uncle is going to retire just a few months later.
Well, Dean, you probably know by now, his uncle ended up being my partner, Jim Blair. Jim and I talked in August of 2009, gave Jim the grand vision of where I thought this company would go. And, Jim, you flatly turned me down.
[00:02:58] Jim Blair: That is true. I was looking to retire and just go fishing.
[00:03:03] Marc Kiner: In 2010, Dean, January, Jim and I went into business together. And we set up Premier Social Security Consulting. At that time, our focus is to help folks across the country to understand and maximize their benefits.
In 2013, we began to educate advisors across the country. And so, we’ve been doing two things since 2010, the consulting for individual clients, and education for advisors. So, Dean, we’re really in this space. I devote 100% of my time in the Social Security world. I know it doesn’t sound overly exciting but I know it’s a lot of fun. Believe me, it’s a lot of fun.
[00:03:45] Dean Barber: Well, see, I started back in 2008 doing the same thing, Jim. And in fact, I think you read my book on Social Security. And it was written up in Financial Planning Magazine as one of the books that financial advisors should read in order to understand how to help their clients claim Social Security. But as you said, it’s almost impossible to answer all the questions in any kind of a written format.
Because just like everybody has a unique fingerprint or a unique thumbprint, everybody’s got a unique situation. So, their Social Security claiming strategy is probably going to be different than their friends or their neighbors, their relatives, or their coworkers. It’s not one of those coffee shop discussions where you can sit down and say, “Well, how did you do it? What did you do? Why did you do it that way? Oh, well, it sounds good. That’s how I’ll do it.” Unfortunately, I want to reference an article out of Forbes Magazine about a year ago.
And here’s a quote out of this article. The article in a study that was done by Forbes found that almost 96% of Americans are not claiming their Social Security at the optimal time. They are leaving upwards of $3.4 trillion unclaimed or nearly $111,000 of retirement income lost per household, all because people aren’t claiming at the right times. Now, that was a year ago.
Okay, Marc. So, maybe that’s 95.5%, not 96% anymore, but still, the vast majority of Americans don’t understand that Social Security claiming timing isn’t synonymous with the date that you retire. But our industry, the financial services industry, and I think even a lot of CPAs will just say, “Well, just file for Social Security as soon as you retire.” You don’t know how it’s going to be there. Right?
[00:05:31] Marc Kiner: Let me say a couple of things on that point, Dean. Jim, let’s address one thing first though. It is likely, Jim, that somebody goes to a cocktail party and a friend of theirs is talking about when they began their Social Security, that this other person may just follow suit. Does that happen a lot?
[00:05:49] Jim Blair: Yeah. They’re going to follow that person’s advice. As you were saying, Dean, that each situation is different. I think what people are doing as well is they look at their Social Security as their benefit. They’re going to be much better off if they look at it as a household income. So, we want to figure out, when is the best time for each member of a couple to decide when to start their benefit.
And it may mean that one person starts a little earlier that allows another person to delay. It also means that they need to take into consideration any survivor benefit. And that’s one that they miss all the time. They don’t even think about that. What is the amount of money that’s going to be coming in when one of us is gone? And by the time they figure that out, it’s too late.
[00:06:39] Marc Kiner: And, Dean, everybody is different just like you said. It’s not one size fits all. So, Jim and I, when we teach a class, we really emphasize and focus on three words, situational Social Security. And that’s because every client of every advisor across the country will have a different situation in terms of what their Social Security should look like. Maybe folks are single. Maybe they’re married. It might be some young kids involved.
Maybe we’re looking at benefits for a surviving spouse, maybe a divorced spouse. Quite possibly that somebody was a public employee. We have to look at some of those issues. And, Dean, it’s also possible that many people now can still follow restricted application. So, they have to be aware of what the parameters are there. So, everyone across this country, there are what? 76 million baby boomers out there, Dean. Everyone is a different situation. So, about a year or two years ago, we coined the term situational Social Security to fit everybody. And everybody is unique and we do understand that.
[00:07:43] Dean Barber: Well, and I think what you’re saying is 100% right. I want to ask Jim, a question because I’ve got a story that I think is kind of interesting. When I first started teaching Social Security classes to the public, I had a lady, Jim, and you’ll appreciate this, I think. I had a lady sitting in the front row of the class that I was teaching and she was taking copious notes and just, I mean, it was like she was hanging on every word I was saying.
And the program finished up and she sat there and she was still writing notes. And everybody had gone and she was still sitting there. I said, “Man, you took a lot of notes.” I said, “You must have a lot of questions.” And she looks at me and she says, “Dean,” she said, “I didn’t want to say anything during your class but some of these things you’re talking about you just can’t do them.” And I’m like, “Why would you say that?” And she said, “Well, I work for the Social Security Administration and I haven’t heard of 90% of what you’re talking about.” And so, I said, “I’m pretty sure I’m right. What I’d like you to do is go back and talk to a supervisor, some of the highest levels, and make sure that what I was saying was right.”
And she called me the next day and apologized and she says, “You were right on all that stuff.” She said, “But I hadn’t even heard of it and I worked for the Social Security Administration.” So, Jim, what’s going on with that?
[00:08:52] Jim Blair: Well, that is a little scary that that happens. And take the restricted application, for example, we first learned of it in my office. Somebody wrote about it in an article that an individual had written and was talking about the restricted application. They came to me and said, “Can this be done?” We had to do a little research and sure enough, it could. What happened was they made some changes in the law that allowed that to happen but didn’t really get the information out to the employees.
So, unfortunately, this means a lot of people go into the Social Security office or talk to the folks in the 800 number, and they’re not getting the correct information. Just like that lady, they’re not aware that these types of strategies are available. So, it is a little scary. Now, one thing that I will speak in a little defense of the folks that I used to work with, sometimes it depends on how you ask a question, and if you ask it a little different, you can get a different answer. So, sometimes people will get different answers from what they think is the same question when in reality it isn’t. But these strategies not being known, it is a little scary.
[00:10:13] Dean Barber: Yeah. And I think that there’s another misconception is that if I want to know how to claim my Social Security, I go to the Social Security Administration, and they’ll help me figure out what my optimal claiming strategy is. That’s not the case, though, right, Jim?
[00:10:29] Jim Blair: That is not the case. In fact, it was a commissioner in the past, they’re gone now but they haven’t changed anything yet. The commissioner told them not to talk to people about their filing options. People are smart. They have access to the internet. They know about their finances, and they’re going to make the right decision. So, they’re going to decide before they come in, this is the right time for me to take my Social Security benefits.
And I talk to people all the time. And when you hear their situation and what they’re telling you, you’re thinking, and sometimes I tell them, sometimes I feel bad about it, too. But, you know, if you have done things a little differently, you could have drawn benefits in a different way, and ended up with a higher monthly benefit amount. And it’s all because the Social Security Office told him about it.
[00:11:20] Dean Barber: Yeah, and a lot of times those higher monthly benefit amounts are not just a couple of dollars. I mean, you start thinking about the cost of living adjustment that starts kicking in at age 62. Even if you don’t claim, that cost of living adjustment starts kicking in. And so, if you look at a historical cost of living adjustment of say 2.8%, that typically means that from 62 to 70, your benefit’s going to double but that never shows up on your Social Security statement or your estimate that you get when you go online.
[00:11:52] Jim Blair: And you know, the difference of a benefit taken at age 62 with the reduction for age versus waiting until age 70, it’s a 75% difference in your monthly benefit amount. Granted, you’re going to wait to take it but if you don’t need it, if you’re working, you don’t need the Social Security income and can delay it, you receive 75% more at age 70 over what you would have received at age 62. And that not only carries over for your benefit but for your surviving spouse as well.
[00:12:25] Dean Barber: And, Jim, that number is without taking into consideration any cost of living adjustments, correct?
[00:12:30] Jim Blair: That is correct.
[00:12:31] Dean Barber: Yeah. So, you factor in that cost of living adjustment and that’s where I got to, you know, you could have doubled the amount 100% more by the time you reach age 70 with any inflation at all. Now, there have been some years, and I want to talk about this because it’s been a recent past where there was no cost of living increase on Social Security. And then the following year, where there was a cost of living increase, the Medicare premiums went up so much that people didn’t even get more Social Security. What’s going on with that?
[00:12:59] Jim Blair: Yeah. Well, that happens a lot. The Medicare premiums eat up a large portion of someone’s cost of living increase. Now, there is a provision that Social Security has. It’s called the hold harmless rule. And what that says is they will not lower someone’s net Social Security benefit because of an increase in the Medicare premium. So, the years that there is no cost of living increase, there still could be an increase in the Medicare premiums.
Well, if you’re getting a Social Security benefit, your premium doesn’t go up. It stays the same. But next year, then when there’s a cost of living increase, it all goes to that premium until you catch up. And so, your gross check may go up but your net check stays the same. And it can be that way for three or four years, where you don’t see an increase in your spending money that you’re receiving from the Social Security Administration all because of your Medicare premium.
[00:13:58] Dean Barber: Yeah. And I don’t think a lot of people take that into consideration when they’re doing their planning, Marc.
[00:14:04] Marc Kiner: You are correct. No doubt, you are right. And, Dean, I think since 1975 is when call adjustments became automatic. I think, Jim, correct me, I think we’ve had three years of no call adjustments, 2016, 2010, and 2011. And, Dean, let me trust your memory. What’s the highest call adjustment in history since 1975? What do you think?
[00:14:31] Dean Barber: 13.5%.
[00:14:33] Marc Kiner: Close enough. 14, Jim?
[00:14:35] Jim Blair: Yeah. It was 14.3. You were pretty darn close.
[00:14:38] Marc Kiner: Yeah. In the early 1980s. Dean, that was when you were able to get 15% to 20% on your money market account.
[00:14:44] Dean Barber: That’s right.
[00:14:45] Jim Blair: Those mortgages were about 18%, 19% too.
[00:14:47] Dean Barber: Right. I’ll take the lower interest rate environment for spurring the economy now for sure. But what’s happened with interest rates and what’s going on with cost of living adjustments, it has been a difficult time for the people that are in retirement. And one of my main reasons for going and diving into the Social Security rules and trying to understand how people could maximize their benefits was all stemmed from the Great Recession of 2008.
Whenever you’d literally couldn’t go anywhere, there was no safe haven, there was no place to hide, except for cash and rates were crashing down to nothing. And I’m thinking there’s got to be something. I’m missing something as a financial planner and that’s when I dove into all of the rules in Social Security and learned that, oh, my gosh, there’s money here and it doesn’t have anything to do with the stock market. It has nothing to do with the economy. It all has to do with the decisions that people make and getting them educated that how you claim your Social Security and how you pair that with your spouse, you talked about that earlier, could make $100,000 or more difference over a lifetime. And that was reflected in that Forbes article just last year.
[00:16:00] Marc Kiner: Agreed 100%. You know, it’s not necessarily waiting until age 70 that’s the best for a couple. Some other strategies that we talked about many times in the class that we teach is if the wife is eligible for her own benefits. She should consider taking her own benefits at age 62. Sure, she’ll take a 25% haircut but that might allow the husband now to wait until age 70 to maximize his Social Security benefits. And, Dean, if the husband is born by January 1, 1954, we all know what he can do, right? He can follow a restrict…
[00:16:37] Dean Barber: Yeah. A restricted application, yeah.
[00:16:39] Marc Kiner: Yeah. To claim benefits off the wife. And in this way, he could at least collect a spousal benefit while his benefits grow and earn 32% off to age 70. So, she collects early, he waits to age 70. And if he was born by 1-1-54, he can then file for a spousal benefit and collect that while he’s waiting for his full retirement age up to age 70.
Another thing that people need to think about is if a husband can collect his benefit at 66, let’s assume that’s the full retirement age, should he wait to age 70? Or by wait to age 70, sure, we’re maximizing his delayed retirement credits but now if a spouse is looking to collect a spousal benefit off his work record, now she has to wait four years in order to do that. So, is it better for their higher earner to collect at 66 to allow the spousal benefit to be paid earlier? Or should the higher earner wait until age 70, which would delay spousal benefit benefits by four years?
And let’s complicate it just a little more. What if you have some kids under the age of 18 or 19? If a husband takes his benefits at 66, a kid might be eligible for a benefit at that point. He waits to age 70. It’s possible the kids may age out. So, those are definitely some issues you need to think about. And we call that situational Social Security. Now, Dean, we know that only about 4% of all individuals wait to age 70. Am I right, Jim, about 4%?
[00:18:08] Jim Blair: About 4%.
[00:18:09] Marc Kiner: So, Jim, what’s a more popular age?
[00:18:12] Jim Blair: Somewhere between 66 to 68. There’s a lot of people that don’t necessarily file at age 66. Although full retirement age is working its way up, people turning 62 this year, therefore retirement age is 66 and eight months. So, a lot of people are waiting beyond a little bit because they’re working a few more years. So, maybe 68 seems to be more popular than 70. But it just depends on the individual situation.
[00:18:42] Marc Kiner: And we know, Dean, that about 30% of folks claim at 62. Now, it’s not always a bad thing to do to claim at 62. Like we said earlier, maybe the wives collect their own benefits at 62, and that gives the husband an opportunity to wait until age 70. So, collecting at 62 is not necessarily a bad thing, something to think about.
[00:19:01] Dean Barber: No. And just because one spouse files doesn’t mean that the other one should.
[00:19:07] Marc Kiner: Correct. Yes. However, though, for one spouse to force it, we all know, and you probably weren’t talking about this, Dean, but for a spousal benefit to be paid, the spouse you’re looking to collect off of must be receiving a benefit.
[00:19:21] Dean Barber: Sure.
[00:19:22] Marc Kiner: So, if their wife wants to collect a sponsor benefit off the husband, the husband needs to be turned on his benefits for that to happen.
[00:19:29] Dean Barber: Hey, Marc, what about this and I’ll get you guys’ take on this. So, let’s say that you’ve got somebody that is full retirement age now here in 2020. And they’ve turned 66 so they can file for their benefit but they’re still working and they’re going to continue to work for another two or three years and they’re working to a point where even if they file, they won’t get a check. Can they file and not get a check and the spouse then files for the spousal benefit because that individual has already filed?
[00:20:00] Marc Kiner: It’s too late to do that, Dean. You cannot file and suspend. Is that what you’re referring to?
[00:20:05] Dean Barber: No, I’m not talking about file and suspend. I’m talking about if you filed but you’re still making too much money, well, over 66 I guess you’re going to get it anyway. But let’s say that we’re 63 or 62 or whatever. So, you’re below the full retirement age and they file but they don’t get a check. Does that allow the spouse to then file for spousal benefit?
[00:20:22] Marc Kiner: No. If the higher earner is not receiving a benefit due to the earnings test, that’s what you’re referring to, nobody can collect a benefit off of his work record or her work record, that would give you the spouse and/or kids. And so, let’s say that’s my situation, Dean, I’m 63 making, Jim, don’t listen to this, $5,000 a year. I have a second job. Okay.
I will not be eligible for Social Security benefits because of my earnings test and my wife, she’s trying to claim a spousal benefit off my work record. She wouldn’t get that either. So, the earnings test would affect me and the spousal benefit at the same time. Like you said, Dean, though, once I turn age 66, my full retirement age month, the earnings test goes away. I could be making that $500,000 or receiving my full benefit and my wife can receive her spousal benefit at the same time. So, full retirement age, that’s a key. That’s a key age in all of our discussions.
[00:21:20] Dean Barber: Absolutely. All right. So, let’s make this a little more complicated. I want you to put your CPA hat on here for a few minutes, Jim, because I’ve seen scenarios where and there’s a number of different Social Security calculators out there that do a fairly good job of taking into consideration each spouse’s earnings history and showing all the different iterations. And in most cases, if you got a couple that’s aged 62, you’re going to have somewhere north of 500 different iterations on how that couple could claim their Social Security, right?
But you can’t just use that calculator by itself and make the ultimate decision because there is a special provision in the tax code called provisional income that is determined or is used to determine how much if any of one’s Social Security is taxable. So, what those Social Security calculators tell us is the right claiming strategy may be the wrong claiming strategy because it causes adverse tax consequences. So, you can’t just look at Social Security in a vacuum and try to make your decision there.
[00:22:34] Marc Kiner: Dean, excellent point. That’s Section 86 of the Internal Revenue Code, the taxation of benefits. They became a law back in 1983 by President Reagan. President Clinton followed up in 1993. So, Dean, up to 85% of your benefits may be subject to income tax. I say it this way, up to a whopping 85% of the benefits may be subject to income tax, Jim, out of Social Security is that?
[00:23:00] Jim Blair: Social Security will tell you only 85% is subject to federal.
[00:23:04] Dean Barber: Oh, I thought they’d say 15% of it is going to be tax-free. That sounds even better.
[00:23:08] Marc Kiner: That’s a good one. I like that, Dean. So, you know, the problem with the taxation of benefits, Dean, is that these laws were set into place back in 1983 or in 1993, just depending on kind of what level you’re looking at. And these income thresholds are not indexed for inflation. So, this is how it currently works. If you’re filing a joint return with your spouse, if your provisional income does not exceed $32,000 then none of your benefits are taxable.
If your provisional income is between $32,000 and $44,000, up to 50%, I said up to 50% of the benefits may be taxable. And if your provisional income exceeds 44,000 then up to 85% of the benefits may be taxable. I don’t do tax returns anymore, Dean. I have no desire to do a tax return anymore. However, when I did do them, we’d have folks that were in the $32,000 range, not paying a tax on their benefits at all. And then they go down the boat.
They win $20,000 on the slot machine. Now, they pay tax on that $20,000 and maybe up to 85% of the benefits. You need to look at the taxation of benefits when you look at the proper claiming strategy because you may be paying tax not only on the benefit but also on additional income at the same time. So, it definitely is not a vacuum. However, every year, more and more folks around the country pay tax on their benefits because these income thresholds are not indexed for inflation. It’s basically a tax increase.
[00:24:45] Dean Barber: Yeah. One of the things I see happening all the time, Marc, is that so our industry, the financial planning and financial services industry has told people to claim your Social Security as soon as you can so that I can keep managing more of your money and keep getting paid more. And I think it’s kind of self-serving and don’t take anything out of your retirement accounts until you have to.
And it used to be age 70 ½ until the SECURE Act came around December of last year, now it’s age 72, that you have to start taking those required minimum distributions. Leave that tax-deferred money in there as long as possible. Well, in the scenario that you just laid out, if somebody is already claiming Social Security, they’re paying zero tax, now all of a sudden, they got to take a required minimum distribution. Not only is that required minimum distribution taxable, that required minimum distribution could cause Social Security to become taxable. It could cause some qualified dividends or capital gains that were otherwise untaxable to become taxable.
So, somebody in a very low threshold could see sleeves of income taxed at 49% because of the, I call it, the snowball effect of what one source of income causes another source of income that was tax-free before to all of a sudden become taxable. So, now for $1 of a required minimum distribution, I’m paying taxes on $3 and it’s insidious.
[00:26:00] Marc Kiner: Yeah. One time, Dean, when I was doing tax returns, I had a lady who had a whole bunch of annuities. One year, she wanted to take out let’s say $20,000 and from the annuity in that space, it was basically, most of it was taxable. Now costs are so scraped from going to a non-taxable event to a taxable event. It was really difficult to explain to her what was happening but she was paying tax on that annuity, and now on her Social Security benefits at the same time. It’s a shame. We need to index these dollar amounts, income amounts. We need to index this stuff for inflation.
But you know, there’s a proposal in Congress, Dean, to double the threshold, maybe make it $50,000 for a single person, maybe $100,000 or so forth to husband/wife filing and drawing tax return. That would in effect decrease the taxability benefits. But, Jim, what else does that do? When you don’t collect as much in tax monies, what does that do to the $3 trillion Social Security trust fund?
[00:27:07] Jim Blair: Well, it’s less revenue into the Social Security Administration because that’s kind of the silver lining, although nobody buys this argument. But the money collected on your Social Security benefit for taxes, it gets credited to the Social Security trust fund. So, now let’s make it a little more solvent. That doesn’t make anybody any happier to hear that but at least they do get some money I think. And in 2019 that was $35 billion added to the trust fund does make a little bit of a difference. But it’s still when you’re looking at your individual taxes, you’re more concerned with your own income versus the Social Security trust fund.
[00:27:53] Dean Barber: Okay. Let’s take a quick break. This is The Guided Retirement Show. I’m Dean Barber. We’ll be right back.
[00:27:59] Female: At some point in everyone’s life, you have to go to school because let’s face it, a good education is important and just because you’re nearing retirement age or you’re already there, it doesn’t mean the learning stops. One of the easiest ways to learn about retirement is at Modern Wealth Management’s Education Center. There, you’ll find things to read, to watch, and to listen to about important retirement topics. So, go to BarberFinancialGroup.com. Click on the menu dropdown. It’s in the upper right-hand corner and select Insights.
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[00:29:14] Marc Kiner: You need to look at the taxation of benefits when you look at the proper claiming strategy because you may be paying tax not only on the benefit but also on additional income at the same time. So, definitely, it’s not a vacuum. However, every year, more and more folks around the country pay tax on their benefits because these income thresholds are not indexed for inflation.
[00:29:52] Dean Barber: Welcome back to our program. I’m Dean Barber. Alright, so here’s another thing that I have a problem with when it comes to Social Security and I think that the vast majority of Americans believe that Social Security is an entitlement program. The reality, in my opinion, is that they have paid into the Social Security Administration through the FICA tax every single paycheck that they’ve ever earned.
And guess what, their employer made a dollar-for-dollar match into Social Security for them on their behalf. Now, I would say that if somebody had been putting in money into a 401(k), and their employer had made a dollar-for-dollar match into that 401(k), their entire working career, that they would actually be looking at that as their money. And yet, somehow because it’s called Social Security, people forget that it’s their money. And the claiming strategies that you guys are talking about, that I’m talking about are designed to help people get more of their own money back by making smart decisions.
[00:31:03] Jim Blair: You hit the nail on the head there, and it’s something that just drives me crazy when people call this an entitlement program. We’re going to reform the entitlement program, Social Security. It just drives me nuts.
Although my wife always has had to remind me, when I hear this on TV, and I start yelling at people, “They can’t hear you.” But it still drives me a little nuts because it’s an entitlement program only from the perspective, “It’s your money. You paid into it. You’re entitled to get it back. And you’re entitled to collect what was promised to you.” So, yes, you’re absolutely correct. It is your money. And even though your employer match what you paid in, it’s still your money. And that’s what it’s there for.
[00:31:48] Marc Kiner: Dean, let me add a couple of things to that. The fact that the US Treasury kind of tends to rate the Social Security trust fund whenever there’s extra cash means now that they have to sell additional bonds and incur more debt to pay Social Security beneficiaries. And that’s one reason that they consider this an entitlement. However, though, I look at it a different way. If they did not write the Social Security trust fund, the national debt would be $3 trillion higher than it currently is. So, Dean, what is it currently? About 20…
[00:32:25] Dean Barber: 24 trillion probably and rising rapidly.
[00:32:29] Marc Kiner: Yeah. You got it. So, if they did not raise the Social Security trust fund, that debt level would be $27 trillion. But nobody looks at that at all. I wish that they never did take the money out of the Social Security trust fund. It should have just stayed there. I also wish back in 1980, they decided to invest some of the Social Security trust fund into equities. Too late now to do that.
That trust fund, Dean, is going to be gone by 2035. In each year, beginning in 2021, that trust fund will operate at a deficit, meaning more money will go out that’s coming in. So, it doesn’t make any sense now to invest that trust fund in equities because it’s only going to last another 15 years anyways. But they should have started to do that years ago but yet, everyone was afraid to, I’m sure. That was stock back then.
[00:33:26] Dean Barber: But you got to remember, Marc, we had just come out of a 10-year period from the late 60s up to the late 70s, where the stock market had done absolutely zero. We had the end of the Vietnam War and you had the energy crisis and all those things going on, and the stock market was a horrible place to be. And of course, at that point in time, as you know, bond instruments were yielding some pretty tremendous numbers that we just don’t see today.
[00:33:56] Marc Kiner: Okay. And that’s a very good point. There’s no doubt. $0.25 of the railroad trust fund is invested in equities. So, the railroad trust fund is in a better situation/condition from a solvency point of view than Social Security.
[00:34:11] Dean Barber: Well, and ask yourself another question. Social Security is really a form of an annuity. What do insurance companies do with the money that they have that’s an annuity? Do you think they just stick it in a fixed account like what the government has done to Social Security? No. They invest in real estate, they invest in equities, they invest in private equity. They do things with that money in order to try to grow it so that they can actually be able to afford to pay the obligations that they have in the future. It’s called liability-driven investing and our government has failed at that miserably.
[00:34:42] Marc Kiner: Yeah. I think over the next 75 years, Dean, don’t quote me, I think like a $15 trillion deficit. I didn’t use to know that figure because we do a trust fund webinar each year. These are $15 trillion deficits over the next 75 years. That seemed slow.
[00:35:06] Dean Barber: Now, Jim and Marc, what we are talking about today is what has caused so many people to say, “Okay. Well, if that’s the case, I’m just going to take Social Security as soon as I possibly can and get as much out of it as I can because it sounds to me like it’s going broke.” I challenge that notion. And what I say is let’s make the assumption that there’s going to be a reduction in benefits.
Let’s make the assumption that there’s going to be that 15% reduction in benefits by 2035, like what they’re talking about. And then let’s look at the different claiming strategies and assume on all claiming strategies that there’s going to be that 15% reduction, and then make a decision as opposed to just making a knee jerk reaction to say, “I’m going to get as much out as quickly as possible,” because one thing for certain, Social Security is not going to go away. It may change in the way that it’s there. But if we use our assumptions of that future change in determining our claiming strategy, that allows us to make a more informed and intelligent claiming strategy as opposed to just saying let’s just take it as soon as possible.
[00:36:16] Jim Blair: That is what I tell people is the worst reason to take your benefit at age 62, “So, security’s going broke, I’ll get my money while I can.” You’re still going to receive money, as you said. People are still going to be working. They’re still going to be paying the Social Security, They have ICA tax, and they will have money come again enough. They estimate at this point to cover 79% of their obligations.
Under current law, and this is kind of the easy way of saying it, everybody would see a 21% pay cut. We know that’s not going to happen. We don’t know exactly what’s going to occur but I think odds are real good that they’re going to raise the full retirement age to age 70. Not for people that are close but people in their 40s, 30s, 20s, they’re probably going to see an age 70 full retirement age. They’re also going to raise what you pay Social Security tax on. In 2020, the maximum amount of earnings you pay Social Security tax on is 137,700.
They want to receive Social Security tax on about 90% of wages. Right now, they’re at about 83%. So, we’re looking at a raise to about $240,000, $250,000 of income subject to the Social Security tax. Those two things alone according to the Social Security Administration would take care of 93%, 94% of the deficit that we’re looking at. What Congress does best is wait until the last minute to do anything. They will wait to the last minute. Certainly, the earlier they would make changes, the less painful it would be for everybody. I don’t think lower-earning individuals are going to see a change to their income. Higher earning individuals may see what a lot of people are scared of, and that’s means-testing.
[00:38:15] Jim Blair: But it doesn’t appear that they have an appetite to take somebody’s full Social Security benefit away from them. They’re going to change how they compute the benefit. Maybe you pay the tax on the 250,000 but you only get the credit and the computation of the 137,000.
[00:38:33] Dean Barber: Right. So, just because you pay more taxes on more of your income when you’re working doesn’t mean that your benefit’s going to get any bigger is what you’re saying. And I think today, Jim, that if you look at Social Security, it’s already being means-tested. It’s means-tested in the amount of it that’s taxed. There’s also the means-testing when you look at the Medicare premiums, as you have higher income. And so, to me, it’s there in some form already today but I think you’re right. It’s going to get worse. But that just makes it even more critical.
One of the things I think, as a financial planner, with well over 1,000 clients and growing, the people that I see that come in that are serious about wanting to get their Social Security right are the people that have already done a good job of accumulating money. Most of them have well over a million dollars saved for retirement and yet, they’re still saying, “I really want to make sure that I get my Social Security right.” Why? Because they know what I said a few minutes ago that it’s their money and they want to make sure that as much of it comes out as possible.
[00:39:43] Jim Blair: Well, the other thing too, Social Security is a lifetime benefit. Unlike some of your other sources of income, you will see that as long as you live and if your spouse steps into your shoes upon their passing, they’ll receive the survivor benefit for their entire lifetime. Regardless of how long you live, those benefits will be paid. Not necessarily true for your other sources of income. So, the more of a percentage you can make your income and retirement your Social Security benefit, the less you’re going to pull from your other sources of income, and the longer it’s going to last. So, it’s a very important step for people to consider when they’re getting ready to apply for benefits.
[00:40:27] Dean Barber: Yeah, good point, Jim. You know, another thing that I think people really have to think about when they’re going to try to determine what’s the best-claiming strategy for them is they’ve got to think about their family health history, and they’ve got to think about their current health. And when you’re doing that, don’t just think about your health but think about the health of your spouse.
So, let me give an example. Let’s say that we had a couple both aged 62 and the husband didn’t take very good care of himself, and he winds up with some sort of a chronic illness that he maybe has five to seven years left to live. And so, he just says, “Well, forget about it, I’m going to take my benefits now and I’m going to at least get some money back out of the system,” totally ignoring the fact that if he delayed it, his surviving spouse would get a much larger benefit because she’s only going to get one of the two. She’s not going to get both after he’s gone.
[00:41:21] Jim Blair: I had that question yesterday. “You mean, I don’t get both? I don’t get my own benefit plus my widows benefit?” And the answer is no. You’re going to get the higher of the two. So, although there are some strategies that you use with widows, if they are somewhere between age 60 and 70, if they have their own work history as well. So, that is definitely an issue that people have. They don’t think about that. And then by the time they find out, it’s too late.
[00:41:55] Marc Kiner: So, Dean, you’re right. Social Security may very well be a joint lifetime benefit. When we meet with somebody, we don’t maximize benefits for a husband or wife. We’ll maximize benefits for a husband and wife. And so, if the husband doesn’t have great genes in his family, and he’s not likely to live that long, the wife will probably outlive them. And so, him way beyond full retirement age up to age 70 still makes sense for the two of them together, just not for him individually. So, Social Security may very well be a joint lifetime benefit. And we tell our advisors, “Don’t forget that.”
[00:42:33] Jim Blair: And you know who wants you to take your benefit at age 62? The government.
[00:42:40] Dean Barber: Absolutely.
[00:42:40] Jim Blair: Why? Because over your lifetime, they’re going to pay you less money. People are living longer and longer. On average, a male in his 60s is looking on average at about 84, female 87. Social Security tells us half of those folks will live to their upper 80s, early 90s, and a quarter of those folks will live to 95 or older. Of course, they don’t tell us which one of us those are. We have to figure that out on our own. But, like you said, we have to look at not only the one individual’s health but the couple’s health, each individual, because that survivor benefit could be paid for many, many years.
[00:43:20] Dean Barber: That’s right. And I always tell the person that scenario where I just have and I’ve had that happen many times. I would turn to the person that says, “Well, I’m only going to live for six or seven more years so I’m going to get as much money out as possible,” and I’m going to tell, “If you’re only going to live for six or seven more years, then you’re going to be dead and you won’t care.
So, I’m not even going to ask you about it. We’re going to talk to your spouse and find out what they want to have happen because they’re the ones that are going to be alive and trying to survive and need the income.” And so, you’re right. You have to do it for the couple. So, Marc, would you talk about, or Jim either one of you, maybe you guys can chime in on this together. Talk about a couple of your most popular claiming strategies that you teach in your classes and that you see that are applicable to the majority.
[00:44:05] Jim Blair: Yeah. We’re still in the stage where a lot of people have access to what we call the restricted application. So, that means if someone was born January 1, 1954 or earlier, even though they are right now at their full retirement age, a lot of those folks aren’t receiving benefits if their spouse regardless of when they were born, as long as they’re old enough to draw Social Security files for benefit. Instead of taking your own, you can file as a spouse, get half of your spouse’s full retirement age benefit, and wait until you’re aged 70 to collect your own.
What that does is it gives you income and it lowers that breakeven point because a lot of people won’t know the breakeven point waiting from full retirement age of 66 to 70. Normally, your breakeven point is about 12 ½ years. But if you can file that restricted application, you might cut that breakeven point down to six years, five years. In some cases, there’s not even a breakeven point. You’re ahead of the game from the very beginning.
So, that’s an important strategy. Another one, another good one that people are looking at is maybe the younger individual goes ahead and files a little earlier. And they’ll take their benefit at a reduced rate because they’re taking benefits before their full retirement age. They may not even be working now, brings income into the household, brings enough income into the household where the higher-earning individual is either still working or maybe drawing a pension. There’s a few of those folks out there that still get pensions. They’re drawing some type of pension and they can delay their Social Security until a later date and get the delayed retirement credits and get a higher income. And then they end up overall with more income in their household.
[00:46:04] Marc Kiner: And, Dean, can we talk about divorced spouses for a few minutes?
[00:46:08] Dean Barber: Yeah. You can divorce as many of them as you want. As long as you were married to them for at least 10 years, and they can all get the benefits.
[00:46:14] Marc Kiner: You got it. So, let’s say, Dean, I have three ex-spouses out there, Betty, Amber, and Chloe. I was a higher earner. They can all draw off me at the same time. Let’s say I’m the lower earner. Betty turned 62 first. I can claim for a spousal benefit off of Betty. Amber turned 62 a couple of years later, and my benefit off Amber would be higher. I can switch the benefits off her.
And then Chloe turned 62, two years later. I can switch again, get benefits off of Chloe. If you’re the lower earner and as your ex-spouses turn age 62, you can switch from one ex-spouse to another. And if you’re the higher earner, they can all draw off you at the same time. And if you have an ex-spouse that was born by 1-1-54, they can file a restricted application off their ex and they can wait until age 70 to collect their own benefit, which would have increased by delayed retirement credits. So, Dean, everyone’s situation is different. And that’s why we really do emphasize situational Social Security throughout our class. It’s very important for advisors to understand that.
[00:47:20] Dean Barber: And you know what I look at? And I love your analogy there but I don’t know, man. That would have worn me out having three different wives that I have to keep track of what their earnings were and when they turn 62. However, once I’m done with them, I’m done with them. I’m just kidding.
[00:47:32] Marc Kiner: No problem. I understand. We had a client not long ago, Dean, that was in that situation. He did not think he met the 10-year rule but at the end of the day, he did. He didn’t know he can claim off of his ex while his benefit is growing, earned delayed retirement credits. So, he was really happy when he met with us that he had those opportunities. And, Jim, I think I saw you did another consultation for one of his clients not long ago.
[00:48:02] Jim Blair: I did. Even though he referred somebody else to us. You know, when you get to show people, and this is the best part of the job when you get to show people, “Hey, look, you don’t have to take your own Social Security benefit. Let’s look at these other strategies.” And you can let your own grow but you still have good money in the meantime. Makes people feel happy. That makes me happy too.
[00:48:23] Dean Barber: You know, so when I put Social Security into the financial planning process, I can keep the investment strategy exactly the same, and then I started applying these different claiming strategies to the financial plan. And so, we’re investment agnostic here. We’re assuming the same rate of return across all different claiming strategies. What I’m looking for is net of taxes. What’s my net worth doing? And to me, that’s where the difference in Social Security claiming comes in. So, if the only change you’re making to the financial plan is the assumptions on how the couple is going to claim Social Security then you throw that breakeven calculator or that word, breakeven, out the window because those calculators can’t even come close to showing what’s the ending net worth going to be after taxes and all that.
So, you may wind up at, say, age 82, that 12-year breakeven that you had given as an example earlier, Jim, and in the reality, you may have $200,000 or $300,000 more in net worth because of tax savings and claiming strategies so your breakeven wasn’t even right. That’s why I think it’s so important that you don’t just look at Social Security in a vacuum that you actually bring it into the overall financial plan.
Because at the end of the day, what are we trying to do? We’re trying to live a life in retirement, the life that we want, with clarity, confidence, and control, and we want to leave as much of that money behind for our loved ones as we possibly can. And if we can spend the same amount and leave another $200,00 or $300,000 behind or you know what, maybe I could take that extra $200,000 or $300,000 and I could have taken my kids and grandkids on some super nice vacations over the years too and had more of a living legacy. That’s the way I look at it. That’s why I think that Social Security is such a critical part of the overall retirement strategy.
[00:50:19] Marc Kiner: And not all advisors, Dean, understand the claiming strategies that folks have. So, you really do need to go to a qualified and competent advisor that does understand Social Security. I believe there are 2,700 rules and regulations out there is what I’ve read. And, Dean, you indicated that married couples could have over 500 claiming strategies. And I’m sure if you talked to other advisors, they may say 1,000 or more. But no matter what the number is, there are plenty of claiming strategies that folks have. And they need to meet with a competent advisor to understand what their claiming strategies are.
[00:51:00] Dean Barber: Yeah. There’s no question about it. Again, like we talked earlier, everybody is going to be in a different situation. I would implore anybody that’s listening to this podcast, share it with your friends, share it with your relatives. In my opinion, the optimum time to start making your decision on how and when you’re going to claim your Social Security is when you’re in your mid-50s. Don’t wait until it’s time to claim.
Work that into your overall retirement plan early and understand what your different options are. Because once you do that, that’ll change the makeup of the rest of your financial plan. It’ll change what you think you have to save, change the rate of return that you need to get on your money, and change the projections of taxes do in the future. It changes everything. But if you don’t start planning that early enough, then you wind up with yourself painted into a corner. Your choices become much more limited.
[00:51:54] Jim Blair: That’s absolutely correct.
[00:51:55] Marc Kiner: Agreed. Dean, we could not have said it any better than that.
[00:51:59] Dean Barber: All right.
[00:51:59] Marc Kiner: That’s why we were at a loss for words there.
[00:52:04] Dean Barber: Well, listen, guys, in the show notes, we’re going to have some information on how people can get out, reach out to you guys, if they want to get a consultation and talk to you guys. And you can talk to them when they reach out to you about how you charge and all that. Also, if there are any advisors listening to this, we’ll have some information in the show notes on how they can sign up for classes to be able to help educate their clients and lead them in the right direction. And also, in the show notes will be a copy of our Social Security Decisions Guide.
We hope that this has helped you make some, you know, at least know that there are choices that you have, things that you can do. And don’t forget what I mentioned at the very beginning of this podcast, according to the Forbes article last year, 96% of Americans are not claiming Social Security at the optimal time leaving upwards of $3.4 trillion unclaimed and nearly $111,000 of retirement income lost per household. Don’t let that be you. Take some action. Gentlemen, thank you so much for joining me here on The Guided Retirement Show.
[00:53:09] Marc Kiner: Thank you, Dean. I had a great time.
[00:53:11] Jim Blair: Thanks.
[00:53:11] Dean Barber: Absolutely. Thanks for listening to The Guided Retirement Show. If you like what you heard, we hope you’ll pass this podcast along to your friends and colleagues. Also, please leave us a positive review and check out our other shows.
Investment advisory service is offered through Modern Wealth Management, an SEC-registered investment advisor.
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Investment advisory services offered through Modern Wealth Management, Inc., an SEC Registered Investment Adviser.
The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Advisor. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.