Social Security Basics

In this video, Matt Blocki from EWA discusses key considerations for Social Security planning. He covers the age range for receiving benefits, factors like longevity and marital status, and the impact on your portfolio. Matt emphasizes that the decision should align with your overall financial plan. He also mentions a potential break-even point around age 90 for delaying benefits until 70. While it may affect your inheritance, it’s unlikely to impact your own financial security significantly. The video offers a general guide and encourages viewers to ask questions for more personalized advice.

Video Transcript

Hello, Matt Blocki with EWA. Today I’m excited to talk about general planning around social security and some important points to consider when determining how to maximize benefits and also when is best for you and or your spouse to start receiving the benefits.

General framework for social security. So the ages between 62 and 70 for retirement benefits, 62 is the earliest you can receive, age 70 is the latest you can delay. Every year that you wait, in generally speaking, there’s an 8% compounded return on your monthly benefits, meaning your payments go up.

By the time you’re 70, they will be maximized. Your payment will be the least amount per month at 62. But there are some major considerations that should be taken into effect when determining which age is best, such as longevity, are you married, what is your portfolio size, what is your tax bracket, et cetera.

So I’m gonna cover the basics today and we’ll welcome any questions in specific to your financial plan if you’d like to discuss further. So first thing is first, between the age of 62 and what we call your full retirement age, here the consideration is, are you still working?

Do you have an income? If you make an income above $18 ,960 in 2021 and you’re receiving social security benefits, every $2 you make above that limit, offsets $1 of actual social security benefits.

And this is dependent on when you were born. The full retirement age could be anywhere between 66, add two months, add four months, add six months, all the way to 67 right now. It’s all determined when you were born.

So what you say for the sake of today’s video at 67. So if you’re considering taking benefits between 62 and 67, make sure that your income is less than that approximately $19 ,000 limit or else there’s gonna be some major reductions.

The second thing to take into consideration is are you married? If you are married, the breadwinner, so let’s just say that you have one spouse that’s getting $3 ,000 a month and one spouse that’s getting $1 ,000 a month due to a big wage difference.

The spouse that is getting $3 ,000 a month, if that spouse passes on, the surviving spouse, if they’ve been married 10 years or greater will stop their own benefit and will start to receive 100% of the higher benefit.

So if that spouse takes it, let’s say at 66 and it’s 3 ,000 versus delaying it until 70 when it’s about 4 ,000 a month. Even if that spouse dies, God forbid around 75, for example, which then we would say, well, we should have taken it 66, but that may not be the case because if that surviving spouse lives another 15 or 20 years, that’s 4 ,000 a month that’s going to the surviving spouse for the rest of their life versus only 3 ,000 a month that’s going to the surviving spouse.

So when looking at social security, if you’re married, it has to be as a family, it has to be as part of a total financial plan in determining what is best for you. The other thing we have to take into consideration is what is your portfolio?

Do you have a, is social security your only source of income in retirement? Most likely if you’re a new WA client, social security is very relevant. It’s an income stream, it’s sustainable, but your portfolio is going to be a main source of your income and how you live your life by design during retirement.

So in looking at your portfolio, if you take it early, that means you’re getting income from the government and you’re taking less from your portfolio. So we call this a reinvestment calculation. So just as an example for someone between the age of 66 and 70, if someone takes the benefits at 66 and those first four years, they reinvest that money at a 6% rate of return versus someone that waits all the way until 70, assuming that this person receives 3 ,000 a month here, 4 ,000 a month here, The break even point actually is age 90.

90 years old is when the cumulative money you’ve received from Social Security plus the time value, what the money’s worth from the reinvestments. That’s when age 70 takes over and everything past age 70 is now icing on the cake.

However, if this person and their spouse died before the age of 90, then you’d be much better off taking it at 66. So what I wanna make very clear for viewers of this video is most likely if you have a portfolio size that’s substantial in return of retirement and you have Social Security and a pension and other sources of income, this decision will not affect your plan.

It will affect your inheritance or the kids, the charity, whoever’s receiving the money when you pass. That can make a difference, but are you gonna be okay if you take it at 66? Are you gonna be okay if you take it at 70? Most likely the answer is absolutely yes.

So the question becomes is how much do you wanna pass on to your kids or charity? How efficient do you want that to be? Social Security can make a major effect into that, but when I say major effect, it may not be that major for some people.

Cause when you look at the difference here for someone that lives, let’s say between 86 to 90, which is what the government’s expecting when they determine these benefits, the amount difference in today’s dollars, we’ve seen anywhere between 30 to 60 ,000 in that present value, meaning there may be 30 ,000 to $60 ,000 more that you’re passing or less that you’re passing based upon which age you decided to take the Social Security benefits.

What this will have no effect on is whether you’re okay. Now I can tell you from a psychological barrier of financial planning that usually taking it at normal retirement age, most people are comfortable with because it’s very easy to spend money that the government’s depositing in your bank account every month versus you.

You know, we talk about climbing Mount Everest, you had to get to the top, save, save, save, and then you get to the top and now you’re getting down. Just breaking the habit of saving is very tough for most people that retire, but also then taking money out of your savings as another second and bigger barrier that you have to jump.

So taking Social Security, for some reason, I’ve never had a client regret spending their Social Security check, it’s money that they were forced to pay to the government, their whole working career, and now they’re getting it back and it’s like, okay, here’s our fun money.

So from a piece of mind, knowing that the present value difference for your kids or a charity may only be 30 to $60 ,000, money should be here first to help you achieve your life by design and then secondly, to give you peace of mind.

So when looking at it from that angle, sometimes we view that it’s just a great stress relief to take it a little bit earlier. This is a discussion we would love to be a part of. There are certain loopholes that still exist in the Social Security.

If you were born before 1953, you can claim based upon your spouse’s record, then switch back on your own record, claim now, claim more later. It’s one strategy if you are divorced and we’re married at more than 10 years to your previous spouse and are now not married, you may be eligible to receive Social Security benefits from your ex and therefore by delaying your own benefits until you’re an older age.

There’s lots of strategies and loopholes today was just meant as an overall guide system and an overall education on how the Social Security Administration views benefits and the assumptions they make and how this affects your plan specifically.

We welcome any questions and we look forward to discussing this in more detail. This is Matt with EWA.

Show Full Transcript

Recommended Videos

Plan for Your Child with Special Needs with a Trust
10 Tips for Current Retirees - Tip 6- Don't Base Investment Allocation on Your Age
10 Mistakes That Retirees Make and How to Avoid Them: Tip 5-Not Addressing Inflation
3 Best Financial Decisions We Have Seen
5 Tips for Parents- Tip 3- Put Proper Time Into Researching Additional Scholarships
Backdoor and Mega Backdoor ROTHs