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7 Social Security Myths · Retire and Thrive

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  Our goal here on this episode is to make you aware of some of the
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  myths about Social Security. Most of us have contributed to
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  Social Security for years and years.
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  And if we simply focus on is it ever going to run out, then of
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  course we're going to want to take it as early as possible.
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  If you've got income coming in, it could be from any source.
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  It could be investment income, it could be retirement income,
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  it could be pension income. But if that number gets to be
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  too high, 50% of that Social Security may be taxable.
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  But a lot of people do believe that when they retire, they're
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  going to be in a much lower tax bracket.
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  That, I think is a myth, and a lot of people don't understand
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  that. Welcome back to another edition
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  of Retire and Thrive, where I help retirees build their
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  retirement with purpose, wealth, and confidence.
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  We're diving in a little heavier into the strategic side of
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  things for retirees. And today, Episode 28, I want to
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  touch on the seven myths that can have a big impact on
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  retirees as it pertains to Social Security.
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  So without further ado, I think the first myth that we hear
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  often is that as I'm getting closer to Social Security, I'm
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  going to take it as early as possible because I don't want it
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  to run out. And that seems logical because,
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  quite frankly, most of us have contributed to Social Security
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  for years and years. And if we simply focus on is it
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  ever going to run out, then of course we're going to want to
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  take it as early as possible. But the mistake in doing that is
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  that Social Security, based on current numbers, is not
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  anticipated to run out. I mean, we all know that the
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  government has faced their fair share of challenges with budget
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  deficits and overall debt loads, and it's continued to grow and
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  grow and grow. But I can't envision a time that
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  if you're receiving Social Security benefits, that they
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  wouldn't grandfather those benefits into you.
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  In other words, they can't just simply take them away.
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  So what I've seen do in the past is they may tax Social Security
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  IT, which I'll talk about, is one of them this year.
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  But ultimately, I can't foresee where most people as they
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  approach retirement are going to take Social Security early just
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  because they're afraid it might run out by the time that they're
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  65 or 67 or 70. The second myth is it's all
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  about break even. That's what matters most.
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  And I would say that is a myth from the standpoint that that's
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  not the only thing to consider is the break even point.
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  The break even point is if I lived to so long, what's my
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  break even taking it to 62 versus 65 or 67 or 70?
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  So that's what we refer to as the break even.
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  How long do I need to live? And there's so many other
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  factors into the Social Security.
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  And quite honestly, everyone is different in terms of what those
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  reasons or factors are that ultimately determine it.
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  But don't focus just on the break even because the break
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  even is not the most important component.
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  At the end of the day, it's all about cash flow.
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  If you remember, it's not an asset game, it's a cash flow.
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  We talked about that in the previous episode.
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  But today I want to just break some of these myths.
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  And a break even is certainly important, but it's not about
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  trying to maximize the most Social Security you can get and
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  trying to estimate how long that you're going to live.
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  It's more about how does it fit into your overall financial plan
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  in that I believe we'll find much, much more important how it
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  fits into the overall financial plan than just simply looking at
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  saying if I'm going to live to be 87 years old, then I'm going
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  to wait and take it until age 70.
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  Or if I think I'm not going to live to be age 80, I'm going to
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  take it at 62. There's so many other components
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  that we're going to just touch on here as as myths, but don't
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  focus solely on the break even. The third myth is ignoring
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  spousal benefits. So spousal benefits, it gets a
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  little bit complicated here, but spousal benefits are a part of
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  Social Security that allows your spouse to receive benefits.
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  And a typical scenario might be is if they were not in the
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  workforce. So if we take a couple, one of
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  them maybe stayed home with the kids.
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  And let's be honest, it could have been the husband, could
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  have been the wife. In this day and age, we have a
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  lot of stay home dads. But if one of the spouses stays
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  home and the other spouses out in a breadwinner and has
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  continued to contribute to Social Security when they
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  retire, the spouse that hasn't contributed that much to Social
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  Security is going to be entitled to some benefits based on their
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  spouses credits that they've contributed or the dollars
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  they've contributed to Social Security.
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  And why does that matter? It matters simply because when
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  you take that Social Security, it can have many consequences.
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  In other words, if the working spouse takes Social Security
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  early, then that's going to reduce the amount that the
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  spouse is going to get who didn't contribute to Social
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  Security or contributed to smaller amount.
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  If the worker contributed maximum to Social Security
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  during their working years and delayed till their full
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  retirement, then the surviving spouse may take theirs early and
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  they will be penalized. So all these different rules
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  make it fairly complicated and the myth, or in this case the
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  lesson is and #3 is don't ignore the spousal benefits, which kind
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  of ties in to myth #4 is ignoring survivor benefits.
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  So let's step back and let's talk about survivor benefits
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  'cause this also gets a little bit complicated.
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  What survivor benefits really is implying, which makes sense by
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  the title, survivor benefits just says if a couple is married
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  and one of the spouse passes away, the surviving spouse has a
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  decision to make. They can keep their own Social
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  Security or they can collect on their deceased spouse's Social
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  Security. And why is that important?
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  Well, it's it's ignoring spousal benefits is important because
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  let's run some example here. Let's say we've got a husband
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  and wife. The wife was the bread in her.
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  She made $100,000 per year and the husband maybe made $70,000
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  per year. So maybe the wife was would
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  would get something around $3000 per month and the husband would
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  get $2500 per month. And untimely at age 70, the wife
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  passes away and the husband has a decision.
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  Do I want to take Social Security of my own at 2500 or
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  would I take my deceased spouses at 3000 a month?
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  Of course he would take her 3000 a month.
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  Well, why is that important? Well, here's a little bit of a
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  strategy. If you take the higher earner
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  who's contributed more to Social Security, and remember if they
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  delayed taking that Social Security, it's going to be that
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  much more. So if that spouse who passed
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  away prematurely took Social Security at 65 and she received
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  $3000 per month. She may have been able to get,
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  and I'm just using examples here, but she may have been able
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  to get close to $4000 per month that she waited till 70.
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  So with the higher income earner who's contributed more to Social
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  Security delaying that Social Security longer then the
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  surviving spouse would get more. Now if in this case the wife
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  lived longer then it didn't do her a lot of good other than the
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  increased amount if she outlived her husband because then the
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  surviving benefit doesn't apply because her income in that
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  scenario if she delayed till 70 would be $4000 a month and he
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  remember was at 2500. So if he predeceases her she
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  would still get her $4000 a month and lose his $2500 per
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  month. The 5th myth, myth, or strategy
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  if you will, is not understanding how working
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  affects your Social Security benefits.
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  So there's two things that factor into this while you're
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  working. And 1st, let's understand what
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  full retirement means. Full retirement is the age at
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  which Social Security declares you to be fully edible eligible
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  and get all of your benefits from Social Security.
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  And as I mentioned, people now that are in their late 50s,
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  early 60s, that full retirement is age 67.
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  So let's just use that in this example.
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  So if my full retirement is age 67 and I start collecting it
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  before my full retirement, there's two things to consider.
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  One is the penalty and two is the taxability penalty.
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  Taxability as it affects your Social Security.
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  So first let's talk about the penalty.
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  The penalty states that if I start collecting Social Security
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  prior to my full retirement age, 67 and I am working and I make
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  so much money that now I'm going to be taxed on my Social
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  Security benefits. That number, the amount that you
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  can earn and not be affected does vary year after year and it
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  does go up. So I would encourage you to go
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  online and check what is the maximum income I can earn based
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  on the year that you're looking to do it or draw Social Security
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  and still not have a penalty in Social Security.
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  The dollar amount isn't as relevant as the concept here.
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  The concept if I'm 64 years old and I make $35,000 per year and
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  I'm drawing on my Social Security and the 35,000 is
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  considered earned income or outside income, earned income,
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  whether it's through a business or whether it's through W2
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  wages, then part of my Social Security becomes penalized.
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  The second component to that of knowing what your earned income
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  is and this continues on and doesn't necessarily have a
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  factor based on full retirement, but it's the taxability of
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  Social Security. So if you have too much income
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  based on your overall Social Security benefits, up to 85% of
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  it can become taxable. So if you've got income coming
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  in, it could be from any source. It could be investment income,
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  it could be retirement income, it could be pension income, or
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  it could be wage income for that matter.
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  But if that number gets to be too high, the first threshold is
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  50% of that Social Security may be taxable.
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  As an example on the taxability of Social Security, let's assume
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  you're receiving $3000 per month in Social Security benefits or
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  $36,000 per year. If my income is high enough, too
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  high I should say, the first threshold is 50% of that Social
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  Security becomes taxable. In other words, prior to then
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  there is no tax on that Social Security.
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  But if you hit a certain income threshold in that example, you
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  would have half of that or approximately 18,000 would be
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  taxable. Now how much of that is is your
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  income tax going to be? That's going to be based on what
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  tax brackets you're in. The point being is that in that
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  case 50% of your Social Security would be taxable.
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  It would fall in as regular income.
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  And then if your income is higher than the next threshold
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  is, 85% of your Social Security can become taxable.
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  And again, it's not all 85%'s gone as taxes, it's just 85%
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  becomes taxable. The 6th myth that I want to
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  touch on is believing that once you retire in, specifically in
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  Social Security, the taxes just magically disappear.
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  Now, I don't know, that's a little aggressive of a myth, but
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  a lot of people do believe that when they retire, they're going
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  to be in a much lower tax bracket.
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  That I think is a myth and a lot of people don't understand that.
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  And what can happen is if you're working and you talk about
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  getting Social Security and you have other income sources, as I
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  mentioned in myth #5 that you may have 50 or up to 85% of your
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  Social Security, that becomes taxable.
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  But in this case, taxes will not disappear.
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  Many, many retirees pay actually as high or sometimes even higher
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  tax brackets than when they were actually working.
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  So that is definitely a myth. The taxes do not disappear.
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  And the 7th myth is or mistake I should say is not coordinating
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  your Social Security benefits with your investments.
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  I could spend an hour going into this discussion.
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  We could give examples, but I'm going to try to keep this pretty
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  high level. So let's just talk about two
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  separate. We've got that income from
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  Social Security and potentially we've got portfolio over here.
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  We've got withdrawals. We talked about this in Episode
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  27 last week with those withdrawals versus income.
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  But when those two are not coordinating, what happens is
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  often times people get surprised.
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  And unfortunately when they get surprised, it's too late.
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  It may be March of the following year when they're sitting down
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  with their accountant and their accountant says, why did you
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  pull out so much out of your IRA account?
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  And you may say, well, I was under the impression that I
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  could pull out much more and still be in lower brackets.
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  And your accountant may say, however, you've now slipped into
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  50% of your Social Security has become taxable.
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  So that's going to cost you more taxes.
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  And so when you don't coordinate that with your investments, it
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  can be very, very challenging. Not only is the Social Security
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  become taxable at 50 or 85%, but you could be over here pulling
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  money out of your portfolio. And it may be big ticket items
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  like we talked about. It could be a car, it could be a
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  trip. It could be gifts to children or
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  grandchildren, but it's crucial that the left hand talks to the
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  right hand. When you're talking about Social
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  Security over here, you're talking about your investment
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  portfolio here. They do go hand in hand and they
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  definitely make a difference. And I know we're talking about
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  Social Security on today's episode, but I would say not
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  only trying to coordinate Social Security and your investment
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  portfolio, but look at all sources of income.
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  If you do have a monthly income on a pension, coordinate that
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  with your Social Security and your investments.
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  And if you've got other income sources, have all of it
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  coordinated because it does matter.
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  And again, our goal here on this episode is to make you aware of
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  some of the myths about Social Security or mistakes.
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  And this last one, it's very critical that you coordinate
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  your Social Security with all income sources, including your
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  investment portfolio. Thanks again for watching
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  episode 28 on Retire and Thrive Podcast.
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  We'll look forward to seeing you next week on another episode.
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  Fortress Financial Group, LLC is a registered investment advisor.
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  Advisory services are only offered to clients or
• 16:21
  prospective clients where Fortress and its representatives
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  are properly licensed or exempt for licensure.
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  The opinions voiced in this material are for general
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  information only and are not intended to provide specific
• 16:31
  advice or recommendations for any individual.
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  All indexes are unmanaged and may not be invested into
• 16:36
  directly. Investing involves risk,
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  including loss of principal.