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#19 - Navigating Social Security and Retirement Planning for Caregivers


Are you a caregiver (or will be) with concerns about your financial future? 

In a compelling episode of The Simply Retirement Podcast, host Eric Blake turns the spotlight on women's unique retirement planning needs, especially for those who are serving as a caregiver or very likely will be one day. Caregivers often face specific challenges that can drastically alter their financial future. As a seasoned financial professional specializing in retirement planning, Eric explores the specific challenges women encounter when taking on the honorable role of caregiver for parents, family, or close friends. This interview comes from a special Virtual Caregivers Conference hosted by Jeannie Dougherty, certified money coach. The conference was a passion project for Jeannie designed to support both caregivers and their families and was inspired by Jeannie’s 11 years serving as a caregiver for her parents, who both suffered from Alzheimer's. 

 Key Highlights: 

  • Savvy Social Security Planning: Learn the importance of understanding Social Security, highlighting nuances in eligibility for various benefits
  • Case Study Insight: Eric presents a poignant case study of a widow facing financial difficulties, emphasizing the need for personalized financial planning
  • Navigating Early Retirement: Explore the implications of early retirement decisions on Social Security and health insurance
  • The Emotional Factor: Recognize the significant emotional stress caregivers endure, underlining the crucial role of professional financial advice
  • Simply Retirement Roadmap: Eric introduces a structured planning process for comprehensive retirement planning
  • Social Security for Divorcees: Clarify eligibility requirements for ex-spouse benefits and potential Social Security policy changes
  • Full Retirement Age and Work: Highlight the importance of understanding full retirement age and its implications on benefits
  • And much more!

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Episode Transcript

Eric Blake: Welcome to another episode of the Simply Retirement Podcast. I’m your host, Eric Blake. On this show, we provide education and support for women throughout the retirement journey. In today's episode, I'm sharing an interview that I did with Jeannie Doherty. Jeannie was a guest on Episode Nine of the Simply Retirement Podcast. She is a certified money coach for individuals, couples, and businesses.  Jeannie also has a background as a caregiver. She spent 11 years caring for both of her parents, who suffered from and ultimately passed away due to Alzheimer's. Because of her passion for supporting caregivers, she recently organized a virtual caregiver conference to help caregivers and their families. The conference covered topics on both emotional support and financial education. In this conversation, I discuss the challenges faced by caregivers when it comes to planning for retirement, specifically focusing on the implications that caregiving can have on Social Security benefits. This is especially important if you've taken time out of the workforce to care for family or if you chose to — or even had to — retire earlier than you had planned. We’ll share a link to the conference in the show notes. For now, please enjoy my conversation with Jeannie Doherty.

Jeannie Dougherty: Hi everyone. Thank you so much for being here. We are with Eric Blake. Eric has a wealth of knowledge, and he is going to be sharing some amazing information about Social Security because it’s often misunderstood, misrepresented, and underused in many ways, especially if you're a couple. 

Let me just share a little bit about Eric. He believes in supporting women throughout their retirement journey. It's not like a one-and-done thing. It doesn't matter if you're single, widowed, divorced, or you're just ready to get involved with your financial future. He's your guy for the most tax-efficient retirement planning. So, Mr. Savvy Social Security, you start.

Eric Blake: I really appreciate the opportunity to participate in this event. As you said, I feel that Social Security is one of the most underrated or undervalued aspects of retirement planning, especially when it comes to caregivers. Caregivers frequently have spent some amount of time out of the workforce, or they may have had to retire early. So the decisions around Social Security become that much more critical. You don't necessarily have to get it perfect, but you want to make sure you're at least aware of what your options are, and that you understand how the benefits work and what you're eligible for. That's a huge one. And I'm going to hopefully be able to share some of this knowledge with everybody today.

Jeannie Dougherty: All right. Can you tell me what people — and particularly women — typically try to plan for when it comes to Social Security planning, especially caregivers? 

Eric Blake: There are some key points you want to understand when it comes to Social Security. It starts with knowing the eligibility guidelines or eligibility rules. First of all, with your own benefit, you need to know whether you have enough work history to qualify for a retirement benefit, to know what that looks like, and how it’s calculated.  You need to know what you can expect at different ages. 

If you’ve been married, whether you're currently married or divorced or widowed, you understand how spousal benefits, ex-spousal benefits, survivor benefits, and even ex-survivor, and ex-spouse survivor benefits, you want to know how those work and what you potentially could be eligible for. This information is crucial to making good decisions for yourself, especially if you’ve been a caregiver. Again, whether you've had to take time out of the workforce or you retired earlier than what you thought you might, or maybe you were forced to retire depending on who you're taking care of. That can be a big factor as well. 

Jeannie Dougherty: Totally, totally, totally. So you gave us a bunch of different scenarios, and I was wondering if you could share with me and the rest of the audience whether there is a particular type of caregiver or woman who you've helped and it's just gone really well for them after they realized, “Oh, is that what my Social Security does, and is that how it adds up as an asset to my retirement plan?”

Eric Blake: Anytime you're talking about retirement planning, you want to look at all aspects. You know, Social Security is a big piece of that, but taxes are also crucial. We never want to pay more to Uncle Sam than we need to. One of the scenarios that comes to mind is something of a sad situation, but as we've been able to help this individual, we've been able to open things up and make sure she's going to be okay, which is our ultimate objective as a financial advisor and planner.

She was in the position of caregiver for her special needs son, and she was in and out of the workforce for over 20 years. She also had a daughter who is now in her early twenties, a great young lady. The woman’s husband was the one who was earning the paycheck and accumulating Social Security earnings, and at 62, he decided that he was going to retire and start collecting Social Security. In a lot of these situations, that's often the case —the husband is making all the decisions because they think that's what's best for them, or the family, or whoever they think it might be best for. If you're making these crucial decisions, you hope that it's more of a team effort or joint conversation, but in this case, it wasn't the situation.

So he retired at 62, started collecting Social Security benefits, and unfortunately, within about three months, he passed away. Not only that …, a month before that, her special needs son, whom she’d been nurturing for over 20 years, passed away, too. Both of them passed away from COVID within a matter of about 30 days. They went to the hospital the same day.

Not only did she face the challenge of losing two family members, but she was a few years younger than her husband: she was 57, 58 when he started collecting his benefits, so she wasn’t even eligible for survivor benefits in this case. You can't start survivor benefits until you're at least 60, so she still had a couple of years to go. One of the challenges with Social Security planning is that if you start collecting at age 60 when you're first eligible, it's going to reduce whatever the potential benefit could be.

If you look at how benefits are calculated and see that he started early, it means that her survivor benefits were reduced. She had enough years of earnings to qualify for benefits, but her benefits were significantly less than what his was, and she still had a couple of years before she was able to get anything from the Social Security system at all.

So she’s lost her son. She’s lost her husband, and she's got a daughter who she's caring for. She's trying to care for a daughter who's going through the normal, early twenties challenges: boyfriends and all that good stuff, and she's wanting to be there for her. The daughter lost her brother and lost her father. 

They're just trying to figure out how to make this work. Not only did she have no access to Social Security benefits … she didn't have benefits, period. She didn't have health insurance. She didn't have any of this because he had just retired. Maybe Cobra was more of a possibility, but how was she going to be able to afford Cobra with no income?

When you look at these scenarios, this is where having a financial advisor who you can trust or someone who’s had experience working with women, or caregivers specifically and who understands what some of these different variables are, really becomes that much more important. Somebody you can trust to help navigate these issues. 

In this case, her husband had a 401K when he retired, and he’d left it at his previous employer. What's tricky there is that most people think that with IRAs or 401Ks, 59 ½ is the key age. I can't get to my money until I’m 59 1/2.

For her, she had the option as a spouse to roll that money into what's called an inherited IRA. Not to go into the weeds, but what that means is it gave her access to that money before 59 1/2. She could take taxable distributions, the same as any IRA or 401k distribution.

What it did for her was to give her enough income to qualify for ACA coverage, Obamacare. So, she could get health insurance. Her daughter could get health insurance, It gave her a source of income that didn't force her to have to immediately find a job. She could let herself grieve, and she could help her daughter grieve and try to get through this thing together. It made sure she didn't lose her house. They still had a mortgage on the house, so it made sure she could still pay her bills. Her caregiver role changed a little bit, but you've got a daughter who is working full time, actually two jobs to help make ends meet. You need to have resources to make all this happen.

That was the opportunity for her to stay in her home and to have enough income to get by until she gets to the point where we can turn on Social Security survivor benefits if it makes sense, or look at what her options may be. She might start her own benefits for a short period and then switch over to survivor benefits. There are so many different options or potential options, but you have to know what they are to make this whole process work. 

Jeannie Dougherty: You bring up an excellent point, Eric. When you're a caregiver, many times it is like your full-time job, whether you get paid for it or not. We don't always know when that position is going to end, and we have to prepare for life afterward. You're right. Social Security is a vehicle for that.

But if somebody decides, “I'm done, I'm not going to be working anymore at 62,” then that's exactly what it is. I’ve seen quite a shift in people who are around 57 or 58 and who want to stop working, and I say, “You could, but then you have to pay for your health insurance, and you won't get Social Security until you're minimum 60 or 62, whatever it is. Do you have enough cash hanging around for the next three years?” And they say, “What?”

I’ve seen this being promoted more than once in Congress, and I do think there's some truth to it for some families, that you might have to be prepared for working until you’re 65 or maybe 70.

And why is that? Sometimes it's due to the caregiving gaps that you've had to cover, but also unexpected things can happen. It sounds like your client knew how to take care of her son. She'd been doing a great job, and her husband and her son died because of a global pandemic. Who knew, right? And here we are now. There was no way to plan for that. It's just one of those unexpected things.

Eric Blake: I think they weren't on the same page financially. It's such an important factor when you're talking about a couple. But whether you’re a couple or an individual, evaluating your options comes down to understanding, at least to some extent, how the Social Security system works. If you think you’re going to retire at 57, one of the things you can always do is figure out how many years you have in the Social Security system? Is my benefit going to be reduced if I make that decision? I always say that it's not necessarily wrong to make the decision, but you want to make sure you have all the information. 

For example, when you're looking at your Social Security benefits, your own personal retirement benefit, it's based on 35 years of earnings. Some indexing for inflation goes into that, but if you retire at 55 but you've been working since you were 20, you've got your 35 years. You can log in to SSA.gov and find out what your projected benefit is, and as long as you're comfortable with that amount it's okay to go and do so.

You've got a window of time that you've got to fill. If you're a caregiver, are you working part-time? Are you trying to work full-time and care for somebody? If that's why you're deciding to retire, you want to make sure you know what the implications are of stopping work. What is it going to do to your Social Security benefit? 

If you're going to make the decision, make sure you're making it with all the facts.  I always say that if you're making decisions based on emotions, when it comes to financial aspects, there's a higher chance that it's going to be the wrong decision.

Jeannie Dougherty: Well, that's true. As a money expert myself, I try to encourage people to have a healthy money brain instead of an unhealthy one, because an unhealthy one costs you. You really need to be able to do this magical thing we have in our brains, this money brain that allows us to forecast, but most people don't know how to do that, which is why I love talking to somebody like you, Eric. You can look at the numbers and say, “If you went a little bit here and you did a little bit over there, this is what the situation is going to look like.”

I feel like that's really important for people to see, particularly when they’re caregiving, because they’re often emotionally very stressed, practically tapped out, and trying to figure out a way through this. So, when you can say, “Here's what your Social Security's going to look like, here's where it's going to go, and here's how it's going to get done, that's true financial planning and worth every penny, in my opinion.

Especially when people are saying, “I have to figure this out. I have to be able to do this.” To be able to handle this situation without feeling that you’re just rolling the dice and hoping it will be okay. 

Eric Blake: You and I are going to be biased toward seeking professional guidance when it comes to making such a huge decision, but it seems hard to make the argument that you wouldn't want to seek help before making a decision around retirement or stopping work. For every prospective client who comes to us and asks how we can help and what they should be thinking about? That's why we do what I call the Simply Retirement roadmap for every prospective client. We just make sure that we sit down and identify what their goals are, and what they’re most concerned about. What keeps them up at night? Once we can identify those things, we can identify what their resources are.

With that information, we come back and say, “If I were you and I was trying to get from Point A to Point B, what would I be doing? We evaluate things like retirement income, what happens if they’re going to retire before they’re eligible for Social Security, and where's your income going to come from? How much are you going to need? How much do you want? If you're caregiving, sometimes your time's a little bit limited, but it doesn't mean you don't want to have fun, go out to eat a few times, or take a trip here or there. But we need to know what that's going to cost.

If it costs X amount, where's that going to come from if you don't have Social Security coming in? We invite you to retirement income. We look at your tax planning. There are different scenarios. If you're under 59 1/2 and you're taking money out of retirement accounts, or if that's the only place you have retirement money, you have to make sure you understand what your options are. What are the tax implications? If you have to take money out of those retirement accounts before you're 59 1/2, there are ways you can do it without incurring what's typically a 10% early withdrawal penalty, but you have to know what those options are. And if you don't, that increases the tax burden. That's what I talk about. We're all okay with paying our fair share to Uncle Sam, we just don't want to leave a tip. If you don't understand those 10% rules, that's paying more than you need to. Tax planning is asset protection. Then, of course, we address investment planning and make sure we structure a portfolio.

If you need income from that investment portfolio, how does that work? How do we make sure that you've got enough income coming out of the portfolio? 

More importantly, what happens in challenging years? 2022 was a challenging year, to say the least. When we have a year where the stocks are down, bonds are down, everything's down, how do we navigate those difficult periods? You can't just say, “I'll just turn off my income, I don't need it this year.” Normally, that's not the case. 

We need a strategy: a plan going into it, not while we're in the middle of it. We can't figure out what our strategy is for dealing with a difficult market in June of a difficult year. We need a strategy well in advance, three to five years ahead of when difficult periods happen, because they're going to happen again, right? We've gotten through 2022, and 2023 has been a little bit better. Five years from now, 10 years from now, we're going to go through another challenging period. What is your strategy for dealing with those markets when they come your way? 

Jeannie Dougherty: Here's something I hear a lot about caregivers, particularly if they've been married previously: that if they've been married previously, before that magical 10-year period, you will collect a portion of your spouse's, Social Security if they made more than you. That was my understanding. 

Eric Blake: Yes, 10 years is the magic number for divorced spouses to be eligible for an ex-spouse benefit or an ex-spouse survivor benefit. That's a big one. A lot of people don't think about that, especially if the divorce happened several years ago. They don't think about the fact that they may be eligible for a survivor benefit based on an ex-spouse if they were married for 10 years. Unfortunately, the rules have changed a little bit in the last handful of years making it a little more restrictive. But basically, if you were married for at least 10 years, you're potentially eligible for up to 50 percent of your ex-spouse's benefit if that benefit is higher than your own. That's a big key. If the ex-spouse's benefit is $2,000 a month and yours as the divorced spouse or caregiver is $500 a month, we can say, “Well, 50% of my ex-spouse’s benefit is a thousand and that's more than my 500. You need to be evaluating that and look at when you will be able to start taking that benefit. Those ages still become important. There's still a full retirement age. It’s when you reach full retirement age that you would get the maximum of 50% of your ex-spouse's benefits. That's crucial. For most people, it's somewhere between 66 and 67. If you're born in 1960 or later, your full retirement age is 67. That's when you can get that 50% maximum ex-spousal benefit.

But if you start earlier, if you start at 62, it's going to be significantly reduced. You have to consider that as well. One other caveat I like to throw out is if it's a divorced spouse situation, you're looking at ex-spouse benefits. As long as your ex-spouse, the working spouse, is 62 or older and the divorce occurred at least two years ago, the ex-spouse does not have to have filed for their own benefits for you to be eligible to file for ex-spouse benefits. That's a key difference between a married couple and a divorced couple. 

Jeannie Dougherty: I love that you were sharing all the Social Security rules and regulations that we all have to play by unless Congress makes changes, which they could. They could make more changes. It could happen at any time. I have a feeling that they're going to ask all of us to work longer before we can collect, and I think that's unfortunate for a lot of caregivers who might have to find another way to retire a little bit earlier or find a way to work part-time.

It'll be very interesting to see what happens, but Social Security is one of those things that literally saves families’ lives when they have it. 

Eric Blake: I think one of the things to keep in mind is that we know how Congress works. They're going to wait until the last minute or very close to the last minute to make any decisions there.: There are a lot of things that can be done. I tell a lot of our clients that it can be scary to hear on the news that Social Security is going to run dry, or that it's going to be bankrupt in a few years. As the projections work, that's what could happen, but there are definitely some solutions that could be implemented between now and 2034, 2035, whatever year you're reading, they could do a lot of different things.

They could extend the retirement age. They could change the cost of living adjustments. They could do several things. One of the things I tell our clients who are within five years of retirement or recently retired is that if they're in that age range, there's a pretty good chance they’re not going to be impacted: they’re going to get grandfathered into the current rules.

If you think about it, the most significant change we had in the Social Security system was in 1983. That's when they decided to extend the retirement age. Now it's 67, but that was grandfathered over time. That has occurred over several years and more than likely it's going to happen like that again. If you're already in your later fifties, early sixties, there’s a pretty good chance you're going to get grandfathered into the current rules and it won't impact you. It’s going to be the folks who are under 50 who are probably going to have to look at adjusting their assumptions on their retirement plan. The other thing I tell people is that, even now, they say that if nothing's done, nothing changes whatsoever. When we get to that point, 2034, 2035, at that point, worst case scenario, they cut every benefit by 25% and we move forward. That solves the problem. I don't think that's what's going to happen, but again, for those folks who are under 50, probably plan on about 75% of what your current projected benefit is and use that for planning purposes. That's probably not a bad way to go. Just plan on about a 25% reduction in whatever your Social Security statement currently shows. It's the idea that you plan for the worst and hope for the best.

Jeannie Doughtery: I just love how you gave this great example, Eric. By just saying, “Here's what the numbers look like. Here's what you do if you want to adjust by 25%.” How you plan can make a huge difference. That was really helpful. Is there anything else you want to share about Social Security? 

Eric Blake: Just understand the basics of how it works. Understand and find out what your full retirement age is based on your year of birth. That'll help you determine what your full retirement age is. Full retirement age is crucial because it's going to tell you whether you're going to get the full benefit that you're projected to receive. As a caregiver, you might take some time out of the workforce for whatever reason, there's a cause for you to get back in the workforce later.

The full retirement age is also the age when you can receive Social Security benefits and continue to work either as long as you need to or as long as you want to, without impacting your benefits. If you're working and receiving benefits before full retirement age, you might get a reduction in benefits if you're earning too much. That's why the full retirement age is such a crucial age to be aware of. And, of course, if you've been divorced, if you’ve been widowed, understand what you could be eligible for. Were you married for at least 10 years to an ex-spouse, whether they’re deceased or not. And if you're still married, understand that, if it's a recent marriage, you have to be married at least one year to be eligible for spousal benefits.

Those are the types of things you want to know so that you truly understand your situation. Consult a professional if you're not sure or you don’t know where to find the information. There are resources out there to help you answer those questions. 

Jeannie Dougherty: That's right. I want to say a big thank you to you, Eric, for a fantastic presentation. I know people will have questions, so tomorrow during our live VIP round table, he’ll be available for you to ask those important questions. Thank you so much, Eric. 

Eric Blake: Absolutely. Thank you.

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