TRANSCRIPT
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#47 - Three Game-Changing Social Security Strategies
Eric Blake:
Welcome to this episode of the Simply Retirement Podcast, where we want to educate and empower women to live your retirement on your terms. I'm your host, Eric Blake. On today's episode, I'm going to share three little known social security strategies that could significantly impact your retirement planning. Before we get to our topic today, let me welcome Wendy McConnell. Wendy, how are you?
Wendy McConnell:
Oh, I'm good. Thank you for having me.
Eric Blake:
Excellent, excellent. How's everything going with you? Is the weather good where you're at or you still having challenges?
Wendy McConnell:
It's getting there. It's getting there. A little sun, a little warmer. Loving it.
Eric Blake:
Awesome. Well, what really quickly before we get to our topic, just a quick update on the International Women's Day event that we just held. By the time this episode comes out, we're going to be about a month past it, but I feel like it's definitely worth sharing. It was an amazing event. We had 90 women. We actually, we had people showing up that did not actually registered. So that was a fun little
Wendy McConnell:
Wow
Eric Blake:
Variable that I wasn't counting on.
Wendy McConnell:
How many people did you have registered?
Eric Blake:
We had 90, but then as will always happen, the last minute day of, you'll have a couple people that can't make it, they're not feeling well, but we had people showing up that actually could fill their spots. So whatever the other person chose to eat, that's what they had to eat.
Wendy McConnell:
There you go.
Eric Blake:
But it was really close that we had, we ended up raising, I feel like this story is definitely worth sharing. So we donated a thousand dollars to Ladder House Decor, which was our guest speaker was Shalanda Wagner, who has on the podcast on episode 39. What is really cool, as soon as I made that announcement, I wasn't ready for her reaction, number one. She just was extremely emotional, grateful. It was really cool. But as soon as I made that announcement, another member, somebody, they're not a client, they just have been to the last couple of events. They came up and said, Hey, we're matching that we're going to match your a thousand dollars. Wow. So by the time it was all said and done, $2,600 and that was just the day of. So I dunno what's happened since, but $2,600 was raised for ladder house decor as part of our event. So I was really excited. Yeah, she did a great job. It was a great, great event.
Wendy McConnell:
That's amazing news.
Eric Blake:
But yeah, it was really fun. So onto our topic for today. So one of the things I wanted to talk about really quickly before we get into these strategies, the reason I stress the importance of the last couple of years before retirement and even those first couple of years in retirement, the reason those are so critical is because a lot of decisions that you're having to make, they could impact you the rest of your life. You don't get a lot of do-overs when it comes to retirement planning, when you're making decisions about social security and some of these other things that go into this. And really that's typically the case with social security. You kind of make a decision and that's your decision. It's one and done. But there are three little no strategies that I want to talk about today that may be able to significantly impact your retirement income plan.
And these are strategies actually that many financial advisors aren't aware of, and that's why I think it's so important to work with a financial advisor that specializes in this phase of life. So basically what I'm going to do is I'm going to explain the strategy, share the requirements to utilize the strategy, and then even share a few examples of where these strategies might fit. And then Wendy, if again, have you have questions, clarifications, throw 'em in there. I'm happy to go deeper if we need to, but I think these are going to be really valuable as we get through 'em.
Wendy McConnell:
Alright, let's go.
Eric Blake:
Alright, strategy one. So strategy one is actually withdrawing your social security application. So when you think about withdrawing your application, what this basically says is if you filed for social security and then all of a sudden for whatever reason, you realize it wasn't the best decision, a lot of people that will file for social security say it's 62, it's in response to losing a job. They say, well, I got to have income. I'm eligible for social security. Let me start my social security benefits. But three months later, six months later, all of a sudden you found another job and now you've got the income and you maybe don't need the social security benefits.
Wendy McConnell:
You
Eric Blake:
Can actually request to withdraw your application. So the way this works is you have 12 months. So from when you file, you've got 12 months to withdraw your application. The big key that you got to be aware of is you got to repay all those benefits.
Wendy McConnell:
Oh no.
Eric Blake:
Yes. So you got to pay 'em all back, but it's like starting from scratch. So that's really the key. So if again, using that age 62 timeframe, you say, okay, if I apply to 62 and all of a sudden again 62 and six months, I realize, hey, I just got a decent paying job or a good paying job. I don't need the social security benefits. I don't want to have to worry about the earnings test. I'm just going to withdraw my application. I'll pay all those benefits back and start from scratch. But what happens is those benefits continue to grow again as well. So that's the key.
Wendy McConnell:
What happens if you paid taxes on those benefits?
Eric Blake:
That's the tricky. So you got to pay all the benefits back. So that's where you got to be prepared that if this strategy is going to make sense, you got to be willing to pay every dollar back that you receive every dollar in benefits back. So it's not a situation where you can say, well, I paid 22% tax on my social security benefits, or seven or 10 or 12 or whatever these crazy percentages they give you to pay back to pay taxes on. You got to pay every dollar back in order to fully start from scratch. But once it's approved, the other thing you got to be aware of is that again, your benefits will grow just like they would've otherwise. Again, it's just like starting from scratch, but you also got to worry about or be aware of if someone else is claiming benefits based on you having filed. So we're talking primarily spousal benefits, those are going to stop as well.
So you got to be aware of that. So again, a really good strategy in the right circumstances. One of the things, I'll just give a couple of examples of where this might come into play. I talked about one where you lost your job or you lost a source of income and this is a way to get additional income, and all of a sudden, again, you get a new job and you're going to be okay. Cashflow wise. One was also, we had a situation where we had a prospective client going through our Simply Retirement roadmap process. Went through a really, really tough divorce, very emotional. She really hadn't been in a position of being able to work in the past, so she didn't really have any earnings history or work history. So she, okay, well, I'm retired, I want to move forward. I got my own life now.
I do want to work. I actually want to work. She had just turned 62. So she said, well, I'll start my spousal benefits and I'll start working and that'll be my income. Unfortunately, she wasn't aware of the earnings test and we won't spend a whole lot of time on the earnings test in this particular episode because I want to do a very specific episode on that topic. But just know that if you earn above a certain amount and you're below full retirement age, you could lose some of your benefits. You have to pay some of those benefits back. So for her, it could have been, Hey, let me just start over. Let me withdraw my application. I'll pay those benefits back and then start from scratch. Just keep working, making the income that she needed to meet needs and go forward. So that's one of the
Wendy McConnell:
Agree things you have to think about before making these decisions. Absolutely. You're saying you can go back and change it, but it would be easier to not make the mistake to begin
Eric Blake:
With. It is, but again, if you've got 12 months, so a lot of people aren't aware of that to say, again, within 12 months, if for whatever reason it wasn't the right decision or my circumstances have changed, I have a 12 month window to basically do a do over.
I think it's very, again, the other thing is, I'll also throw this one out there, tax implications, depending on what your income is, maybe you could be retired at 62, you've got income or you've got withdrawals coming from your IRAs, maybe you have a pension of some sort, so you've got enough income to cover your needs and you turn on your social security and all of a sudden you're paying taxes at a higher rate because you turn your social security on. That might also be an example of, Hey, let me again back that out. Get my do over, repay those benefits and then allow my social security to continue to grow to a future time and move forward from there. Again, that's one of the biggest key, I think is just knowing that, number one, it's available that you can repay the benefits within those first 12 months and that your benefit continues to grow if you do actually withdraw your application.
Wendy McConnell:
Okay, that sounds good.
Eric Blake:
So again, one time opportunity, again, you just get to do it once, but again, it can be pretty powerful in the right circumstances.
Wendy McConnell:
One chance for an oops,
Eric Blake:
One chance for an ups. The next strategy is actually what is called suspending benefits. And this is going to be a little bit different. And so when we look at this, it actually, the first requirement is you have to be full retirement age. So once you reach full retirement age, and again, keeping in mind full retirement age is going to be somewhere between 66 and 67. If you were born in 1960 or later, your full retirement age is going to be 67. But once you've achieved that age, you can actually request to suspend your benefits, stop 'em in their tracks, stop 'em right there. You no longer receive benefits, you don't have to pay 'em back. They just basically stop. But they also then continue to grow. So let's use again, some of the examples that we've shared a little bit earlier where let's say I stopped my benefits at 67, I suspend them at 67.
They will continue to grow until age 70. So age 70 is always the maximum social security benefit. It never goes higher than your age 70 benefit, whatever that might be. But suspended age 67, start again at age 70, that's a 24% increase. That's 8% per year, 24% total suspending benefits, again, just basically stopping them once you've actually achieved full retirement age. Again, that's really the key. Now, again, keeping in mind that if there's anybody receiving benefits based on your record, if you suspend benefits, those benefits are also going to get suspended. So if your spouse is getting spousal benefits, they can no longer get those benefits if you suspend your benefits. So again, that's where I use a little bit different examples. Again, some of these examples are going to be very similar, but I would say one of the examples that you might think about is let's say for whatever reason, the higher earning spouse, the one that would be suspending, they said, you know what?
I would really like spouse, my lower earning spouse to have a higher death benefit or higher survivor benefit if something were to happen to me. That might be an example of where that might come into play where you say, okay, at full retirement age, I started early, I started at 62 or 63. It's already been reduced because I filed earlier than my full retirement age. I would like that to be a bigger number for my spouse if something were to happen to me. So you have to wait until full retirement age, just like I said at the beginning. You wait until full retirement age, you request your benefits to be suspended, so they stop right there, but then they continue your increase. So that survivor benefit, your benefit will increase at 8% per year, which is also if you're the higher earning spouse, would be the resulting survivor benefit if something happens to you. So that's an example of where that can really come into play and be pretty valuable, especially if you've made the decision to start really early. If you started, say 62 or 63, you are getting reduced benefit, but you would like to have a bigger survivor benefit down the road
Wendy McConnell:
So you don't have to pay anything back. Or say, I started 62, I go to 65, and then I'm like, wait a minute, I just got this really good paying job and now I want to go to 70. We don't have to pay anything back. We just have everything kind of frozen
Eric Blake:
At full retirement age. So depending on what your year of birth is, somewhere between 66 and 67, you can't suspend until you've reached for whatever your particular full retirement age
Wendy McConnell:
Is. Okay, gotcha. All right. Thank
Eric Blake:
You for clarify. Yeah, absolutely. So you don't have to pay anything back, but your benefits stops. So obviously that one source of income stops, you got to have some other sources of income, whether that's, again, it could be employment, like you said, I go back to work and decide whatever reason to go back to work, or maybe I get an inheritance. That's another example that will come up from time to time where I inherited a decent amount of money. I've got that coming in to fill that gap and let me again, suspend my, retire, my social security benefits, grows my benefit, increases my potential survivor benefit from my spouse. So that's a really, again, really valuable tool in the right circumstances. And that's again, another one a lot of people aren't aware of that can be very helpful as far as increasing both your income and your survivor income as needed.
Wendy McConnell:
Okay,
Eric Blake:
Next one. So this is one I've actually touched on when we did the episode not too long ago on the Social Security Fairness Act, and this is what is called the sixth month retroactive benefits. So again, full retirement age is the key. So you have to be full retirement age, so 66 to 67 depending on your year of birth. But you can actually say, okay, I am going to use an example because I think it's a little bit easier to explain the strategy, but let's say I wanted to wait until age 70. I want to reach age 70 to maximize my benefit, but maybe I turn 70 late in the year I want to retire and start social security all at the same time, but maybe my age 70, my 70th birthday is in December. Well, if I've got a full year of salary and I start social security benefits, now I might be pushed into a higher tax bracket. So what, instead if I said, okay, yes, I turned 70 in December, but I'm going to wait to actually file into the following tax year. So let's say you turn 70 in December of 2025, you wait until maybe May of 2026 and say, okay, I'm going to file, but I'm going to request retroactive benefits up to six months. So again, you get a lump sum. In this case, you actually get that six months paid as a lump sum.
Now, again, I like one of the things to keep in mind is that you use a little bit different example. Let's say you're going to retire at 68 and you want to get six month retroactive payments back to when you're 67 and a half. The thing to keep in mind is yeah, you waited until 68 to file, but if you request that six month retroactive payment, your benefit, your ongoing monthly benefit will get reduced. So we talk about these delayed retirement credits where every year you wait, you get an extra 8%. But if you said, well, if I'm requesting six month back pay, it's going to also reduce your ongoing monthly income by that same six month window of time. So that's again, one of those that can be, if you're, let's say you're in a cashflow pinch or something just unexpected happens, you say, Hey, well, I haven't filed for social security yet. I can file for social security and request a lump sum of the previous six months. That can get you out of some pretty sticky situations depending on obviously what your benefit is. So if you said, my benefit is $2,000 and I request six months, that's $12,000 that you potentially could receive to get you out of whatever that issue is.
Also, again, always tax planning is also an aspect of this where, like I said earlier where you say, well, I would rather not push myself into higher tax bracket, so I'll wait file for an application and then request that six month retroactive payment. Again, really a really good strategy in the right circumstances.
Wendy McConnell:
So there's taxes. They really make us question everything. Right?
Eric Blake:
Well, I think again, that's where tax planning is so critical and where that always fits in. You can always talk about retirement income as a puzzle. So you've got all these different puzzle pieces because obviously if you're thinking about some of these strategies, number one, you most likely have some other source of income or it's a, you're in a difficult situation where you need cashflow. So you have to put all these pieces together and understand what the tax implications are. Understanding that with social security, for example, if that's your only source of income, and again, you have to start at maybe some reason you have to start at 62, whatever it might be, it might be a health issue. Again, it might be a job loss. If that's your only source of income, then you probably don't have to really worry about the taxes so much because you're not going to pay a whole lot. If that's your only source of income, you're probably going to pay zero. But if you have some other income sources, again, a pension, or you have IRA distributions, or if you are working, if you're over full retirement age and you decide to continue working and get your social security benefits, then you definitely got to understand what the tax implications are and plan for that. And that's actually as I guess a precursor toward the next episode, we're going to talk about how you actually pay taxes in retirement. So a foreshadowing here.
Wendy McConnell:
Yeah, it's always taxes. What's the nice thing?
Eric Blake:
Always taxes. Always taxes.
Wendy McConnell:
The only two things you have to do is pay taxes and die.
Eric Blake:
Yeah, something like that. Hey, but I always say, we want to reduce your lifetime tax liability. We'll pay our first share. We just don't want to give Uncle Sam a tip.
Wendy McConnell:
Right, exactly.
Eric Blake:
So those are the three key strategies that, again, a lot of people aren't aware of. So just a quick recap on these. Number one is withdrawing your application. If you file too early, you want to do over, you've got 12 months to withdraw and repay the benefits that you received up to that point. Number two was suspending benefits. Once you've reached your full retirement age and you decide that you don't need the income yet, or maybe you'd like to increase your benefit for the surviving spouse, you can suspend the benefits and again, they will continue to grow. That's a big key here is they will continue to grow. If you were to do that, third strategy was the six month retroactive benefits. If you delay filing but later change your mind, you can file and claim up to six months of past benefits. And I don't think, actually, I want to come back to something I kind of glossed over when I was talking about the Social Security Fairness Act.
One of the things we talked about is for individuals that may be subject to the government pension offset, GPO is where you may never have filed for benefits. In the past, you never filed for survivor benefits. You never filed for spousal benefits because you had a pension. You were a teacher, you are a police officer, and you got a pension for non-security covered work. Well, if you never filed, then you're not getting some of these retroactive benefits that been, that are part of the Social Security Fairness Act, where they're going to be paying back paying to January, 2024. But if you never filed, you're not getting that. Well, if you meet the guidelines for the six month retroactive benefits, again, overflow retirement age, you might actually be able to get an additional lump sum using that particular strategy if you are subject to government pension offset. So that's something to be aware of as well. I want to make sure I got that in there. I mentioned it briefly, but I didn't actually go through the details of that. So if you never file for benefits because you were subject to GPO, and now you're going to file and you're overflow retirement age, look at utilizing that six month retroactive benefit payment.
Wendy McConnell:
Okay.
Eric Blake:
And again, understanding these options can really help you make smarter social security decisions that fit into your personal retirement income plan. Wendy, any other thoughts or questions, clarifications that you think that I missed?
Wendy McConnell:
No, I think that you pretty much summed it all up for me, Eric. Thank you.
Eric Blake:
Fun stuff. I can tell how much you like
Wendy McConnell:
This stuff. It's my favorite. I just love it.
Eric Blake:
Well, if you've found this episode helpful, please be sure to subscribe and share it with someone who might benefit. If you have any social security questions or topics you'd like us to cover, you can visit www.thesimplyretirementpodcast.com. You can find the Ask Eric link. Feel free to plug in a question or topic suggestions.
Until next time, please remember that retirement is not the end of the road. It is the start of a new journey.
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