Social Security: Maximizing Your Retirement Income

Please join the Pennsylvania Capital Management Team as we talk about how to maximize your Social Security benefits in retirement.

 

Donna Zanetti: I am Donna Zanetti, Director of Client Services here at Pennsylvania Capital Management in Huntington Valley, Pennsylvania. I’m joined by Andrew Randisi, one of our Senior Financial Advisors and Certified Financial Planner, and Lesley Buck, who’s the Manager of our Client Services in my right hand. I couldn’t be here without her.

Our topic for discussion today is Social Security and when to optimize your retirement income. Also joining us, who I hadn’t introduced, is a very special guest. He is a high school math teacher at our local high school. He teaches AP statistics, so he’s a math guy, and just so happens to be my husband.

Now, we have had a few discussions. Hello, Mike. We have had a few discussions over the dinner table, over a couple of glasses of wine and beer, about when to take Social Security. We have a difference of opinion on this and sidebar. My husband should be an attorney because he can argue anything, any contra argument to the cows come home.

Obviously, what we’re doing here is an educational approach and we’re not giving advice to anyone in particular. So I hope you take it in the spirit that it’s given. That being said, Mike, why don’t you tell us a little bit about you and where we’re at in our life, our lives.

Mike Zanetti: All right. So my name is Mike.

I’m a high school math teacher. I’m currently 61 years old. I will turn 62 in February. And this is more than likely going to be my last year of teaching. So I’m going to be retiring in June. So I’ve done some research and I’m trying to decide when I should start taking my Social Security. When I get my statement every year, I see that when I turned 62, I can get 2, 390 a month, which is about, wait,

Donna Zanetti: wait, stop right there.

So Mike did this spreadsheet. Andrew, do you, can you bring that up?

Andrew Randisi: You’re happy to,

Donna Zanetti: because the math guy that he is, we have it all handwritten down and we can show you exactly what our software at work could do, but to prove it out, Mike had

Andrew Randisi: thousands of dollars a year for sophisticated software. It takes your Social Security, your wage income, your future income, it kind of extrapolates it out throughout your lifetime.

Or you can just write it down in a blank piece of college ruled paper and just go year by year by year. Look how

Donna Zanetti: nice that is. Come on.

Mike Zanetti: Okay. So I’m deciding when should I take Social Security. If I take it at 62, I will get 2, 390 a month. However, if I wait until I turn 67, I can get 3, 465 a month. Or if wait until I turn age 70, I can get 4, 333 a month.

So my question to Andrew is when do you suggest that I should take it? What are the advantages and disadvantages of 62 versus 67 versus 70?

Andrew Randisi: Sure, Mike. Great question. And I would say it’s a multi faceted approach we want to take when we decide when to take the timing of Social Security. So the first thing that we always want to ask for would be longevity in the family.

Longevity in the family. History, if you are unhealthy right now, You might, or going to be, you think you might see some more illnesses come along down the road and shortly out pop up. You might be more inclined to take your Social Security benefits earlier or at, or at full retirement age. Which for full retirement age, that really depends upon your birth date.

For most of us that are born after 1960. So full retirement age, when you can collect 100 percent of your Social Security benefits, is age 67. So in this case, in Mike’s example, he’s born, he’s one of those born after 1960s. You’re a baby

Mike Zanetti: boomer, Mike. Are you the tail end of the boomers? I am like the last year of the baby boomers.

Last year of

Andrew Randisi: them? Okay, we’ll, okay, we’ll put you

Mike Zanetti: in the baby

Andrew Randisi: boomers. Okay, so 67 then would definitely be your full retirement age. Or, if you want to wait till the maximum you can wait to defer is 70. And with each year you defer, you get an extra eight percent. So by the time you’d be 70, you would get 124 percent of your benefit.

That’s the difference between that 3465 number and 4333. So looking with longevity, if Members of the, if you have a say, members of the family are going to live beyond, living long into the mid 80s, late 80s, late 80s, early 90s, then it might be more, I might, you might be more inclined to want to take your Social Security a little bit later at, or towards 70.

That way you’ll be able to maximize the benefits. Now, let’s take a look at your spreadsheet. And see if our software is right on the nose or pretty or is in the same ballpark as from what you’re in at your findings were so if we might you take your if you take your benefits at social at 62 the earliest that you’d be eligible, you’re going to get about 20 almost 29, 000 little under 29, 000 a year.

And if we would take it 67, you’ll get 41, 500. Now, when that first break even point comes is long about age 77 exactly for. Very close to what we, to what our software comes out with. Usually it’s between 76 and 77. That’s the break even point on taking Social Security between 62 versus 67. Now, if we look at that next break even point, if you think longevity, okay, Mike, in the family has, I’d say your mom, she lived well into her nineties, didn’t she?

Mike Zanetti: Yeah. So yeah, it’s funny you asked that question. Cause so my dad died when he was 41. So that would incline me to say, Hey, maybe I should take her early. As opposed to my mother, who died when she was 91, so maybe I should wait and take it. So that’s almost like a coin toss, you know?

Andrew Randisi: Well, you’ve lived past that.

You live past dad’s life expectancy, or you probably have more mom’s genetics.

Mike Zanetti: Yeah. Yes. I hope so.

Donna Zanetti: We’re hopefully counting on that. Yeah. And

Andrew Randisi: it sounds like you’ve recently it’s also sounds like you’ve recently gone to the doctor. You’ve gotten a full clean bill of health. Yes, I have. Okay. So it doesn’t.

So unless you get struck by a bolt of lightning or hit by a cement truck, it sounds like you are going to live since you’ve already made it to 61. It sounds like you probably are going to live another. We’ll call it 20 plus years. Okay.

Lesley Buck: And Andrew, by breakeven, when you say 76, 77 is the breakeven point.

So if you, if Mike lives past 77, it would make sense for him to wait.

Andrew Randisi: Exactly. Now that would be between, there’s two breakeven points between 62 and full retirement age from Mike’s instance, 67. Then the next breakeven point, so that comes us, that brings us down right here where he highlighted in orange the, uh, the set age 77 because the benefit is 458 cumulative benefits at age 77 versus 457 and change taking it at 67.

And then the next year is when, then by year age 79, it jumps higher and it makes more sense for him to take it 67. Now when we look at the next period would be set 67 versus 70. Now Mike didn’t complete. The analysis all the way, but if you added a few more years here, the next breakeven point would be somewhere around 84, 85, when waiting till 70, the cumulative amount of benefits would be higher than taking it at full retirement age would have been 67.

We all don’t know how long we’re going to live, unfortunately. We all don’t know how long we’re going to live. Because if we did, we would just spend all of our money and live for the day. But I’d say if Mike felt that you think you were going to live into your advanced age, so mid 80s, early 90s, then it might make more sense to wait till it to wait till age

Mike Zanetti: 70.

So I have another question for you, Andrew. Let’s just say I have a twin brother and we’ll call him Chris. So, I decided to take my Social Security at 62, and he decides to take his Social Security at 67. So, on the eve of our 67th birthday, I now have 143, 400 in the bank, and my brother Chris has zero. So to celebrate our 67th birthday, and the fact that Chris will be taking So we go out to the bar and have a couple of drinks and sadly we were both tragically killed.

So I now have 143, 000 and my brother has none. So why, how can you convince me that I should wait to take it? Because I could take that money and invest it and basically leave it to my heirs and my brother unfortunately cannot. So what can you tell me to convince me that I should wait? Because I don’t personally, I’m not, I if the federal government is going to give me some money, my advice is I’m going to take it.

How can you convince me? Otherwise, sure.

Andrew Randisi: I’d say with that here and that you’re the money that you would have received. If you think you’re going to be if you think you’re going to be able to get a higher rate of return that went than what. The government would pay ’cause the go, and that’s

Donna Zanetti: per year.

Andrew Randisi: That’s it’s 8%. Now if you think you between eight, at between age 62, that five year period, you would’ve been able to earn five greater than 8% on your money. Then you might have some validity to that, but we can’t guarantee you’re going to get 8 percent a year every single year with the Social Security benefit.

We know, but waiting between 67 to 70, or if your full retirement age is 66 to 70, you’re going to get that 8 percent interest bet. You’re going to get that. You’ll see that 8%. Now, what you mentioned is you both get, you both pass away at 67, there’d be an example here what we want, would want to look at for survivor’s benefits.

So with that, I will look, pivot to my next example here, which is going to show in terms of a strategy, if you have, if you’re going to take a survivor’s benefit. What that meant, what will make sense on why it makes, it might make more sense to take it a little bit earlier or to take it to wait longer when I go to the next example, which is going to be this guy from our friends.

At Transamerica that put this together. So if we have, it’s usually going to be the higher earning spouse versus the lower earnings versus the lower earning spouse, a lower, the lower earning spouse might be more incentivized to either take the benefit early or at least wait till retirement age to take their benefit and allow the higher earning spouse.

So in this example, we’re going to, we’re going to pick on this couple, Frank and Helen. Frank, at his full, both of their full, both of their full retirement ages to make this exam, to make this cleaner, are both, are age 66. Full retirement age for Frank, he’s gonna get his 2, 600 a month. That’s what he, that’s what he gets.

Wills, he worked on the line, he made widgets his whole living, he’s make, gets 2, 600 a month. His wife Helen, and his wife Helen claims the spousal benefit. She’s collecting a full retirement age since she, she’s going to get a hundred percent of her benefits, but since she didn’t work that much, she didn’t work outside the home.

She gets 50 at four spouses. They can collect up to 50. They can collect 50 percent of the others of her spousal benefits. So she had 66, the higher of the check versus 50 percent of her husband’s or her check would be the spousal benefits. So she’ll get 1300. So they’re getting cumulative 3, 900 of benefits.

Now, we’re going to, Frank is going to pass away. When Frank passes away, he’s going to get that higher benefit, the survivor benefit is 100%. So Helen, because he made a lot of widgets, it made him take a heart attack for making all those widgets. So Helen will be able to get the 2, 600 a month as the 100 percent survivor benefit, as from the survivor benefit.

Now, if we claim weight later. and want to maximize those benefits. What we do, what’s happened here would be in this example, Frank delayed his benefit to age 70. Now we know women statistically, they live longer than men. So in this scenario, Frank, he still had that 2, 600 full retirement age benefit, but he chose to defer.

But what happened was Helen took her benefit. At 60, at full retirement age, 66. So she, she claimed it when she had, when she wanted it, based on her record. She got 600 a month. She worked a little bit. After the kids went back, after the kids went to college. Now, when Frank turned 70, he got 100 percent of his benefit.

That was the 34 32. Helen switched to Frank’s benefit when he started the claim. So now Helen’s benefit went from 600 up to 1300 because she can get up to 50 percent greater of 50 percent of her benefit or 50 percent of her husband’s full retirement age benefit. So that would have been the 1300. Now, the break even point for this, when Frank passes away, Frank’s still passing away.

The widget still gave him, still made him take a heart attack. Helen’s now getting 3432 in this example, versus in our previous one, she’d only be getting 2600. Because with the survivor benefit, the spouse gets 100 percent of the higher, the surviving spouse gets 100 percent of the, gets the higher benefit 100%.

So in this case, Helen would be getting 3, 400 a year versus 2, 600. That’s an extra 832 in benefits per year. Now there is of course a break even to that because Frank waited to take his benefits. So that break even point for Helen now becomes around age 86. Now we think since Helen is age 66. It’s very likely she’s going to make it to 86 just based on the actuary tables that the government’s given us.

Lesley Buck: We’re going to swing this around to Mike. Mike’s wife gets less benefits when he dies at 67 than Chris’s wife when he dies at 67.

Andrew Randisi: Correct, because Mike chose to take it before his full retirement age.

Donna Zanetti: Ah, so Mike would be selfish in that regard if he were to go to the bar and get It would hurt me and Chris’s wife would benefit more.

That’s what you’re saying.

Mike Zanetti: So

Donna Zanetti: one might be saying you’re selfish. No, just

Mike Zanetti: kidding. Another question for you, Andrew. Another reason I’m thinking about taking it early. Because you always hear stories about Social Security that it’s insolvent, that it’s going to run out of money. So my, again, my idea would be is take it before it’s no longer there.

What are your thoughts on that?

Andrew Randisi: I know that’s a big, that’s a big issue that always is coming up in the headlines. And we want to, like, And I’d say, unfortunately, we’ll say both. It’s being highly politicized, but we really want to describe what’s actually happening. So the old age and survivors insurance trust, that is what actually pays out the benefits.

Now, this trust is projected, so the government projects it every year. I think we even got an extra year just on the way how things shook out. They can pay 100 percent of everyone’s benefit until 2033. Now at that point, what’s going to happen would be, going forward, 2034 and beyond, this is unless The government does anything, so the, that trust will be able to pay out 80 percent of the benefits.

So it’s not like 2033 is going to, 2034 is going to come, boom, no one’s going to get any more benefits. You’re going to get a 20, you would take everyone that would be claiming would be getting, would get a 20 percent haircut now. And that’s just solely because that’s solely because. The younger population with how that gov, how the, that trust gets funded.

It gets funded with people. Self-employment do self-employment taxes, your payroll taxes, the taxes that they’re come that’s coming in are just not able to pay everyone that’s on that the government has on the till right now. So you’ll get a, you’ll see a 20, you would potentially see a 20% reduction in benefits.

Now that would stay the, that same level unless congress acts. Until 2097 and then at 2097, it would drop down from about 80 percent of the benefits to about seven to about 74%, 75%. That’s if Congress doesn’t do anything. Now we know politicians are highly motivated to get their act together when it’s comes to when they want to buy votes.

We’ll see what we’ll see what the next Congress decides, but most more than likely this issue is probably not going to get resolved until probably the 11th hour. Which would be probably 2031 or 2032, they’ll finally decide. Now, really, how do we fix this? Because there’s just not enough younger people to pay, have jobs, get jobs, pay weight, that can keep the system afloat.

What really do we have, what really inevitably do we have to do? We’re either going to have to do some things with raising taxes, whether that being raising the tax itself, which no one likes to pay more taxes, raising the wage base. The wage base is often argued. It’s too low. I believe it’s around 160, 000 is what the max is.

What’s the max, the max wage base, anything above that you, they don’t take Social Security tax out anymore. They still take Medicare, but they don’t take Social Security. Or you can cut benefits or raise the retirement age at all of those. Sound very unpalatable, but there’s most more than likely going to be going to be some compromise of a combination of all the above to kick Social Security, kick it, kick, continue to kick the can and make sure everyone gets their benefits.

Because if they don’t do that, then the government’s going to have to further deficit spend, which we already have trillions and trillions upon trillions of dollars in debt.

Mike Zanetti: So, I, I still remember it was either Al Gore or George Bush that Social Security was in the lockbox. So, let’s hope it stays there.

But here’s another question. Let’s say I decided to take it at 62, and I’m like, oh, wait a second. Andrew’s correct. I should take it at a later age. Is it possible for me to change my mind and decide, like, at 63 that I want to wait until 67 or 70, or am I locked in only once?

Andrew Randisi: Sure. So, if you take your Social, if you take your Social Security benefits, prior to full retirement age, the gov, the government will give you a, we’ll call it a one year trial period.

So if you take it at 62, you decide as you’re coming up to your 63rd birthday, I really think I’d like the higher benefit. I really think I’d like to hire the benefit. I have plenty of assets to live off of. I don’t really need it. You can call them up, stop paying. They will stop paying the benefit. The catch 22 is though, you have to pay back all of the benefits that you received for the past year.

And then it gets, is

Donna Zanetti: there interest on top of that or no, you just pay

Andrew Randisi: it all, but you just pay it all back.

Donna Zanetti: So you could almost think of it as a loan. Take it. Yeah.

Andrew Randisi: You can pay it all back in full. Now you also are able to do that in between the 70 period. That’s a little bit different. They’ll actually let you keep the benefits.

If you say you take it at 67, you go a year, 68, you decide, Hey, I don’t need this. I want to wait until 70. They’ll stop it. And it just freezes. You won’t get any more checks and then you’ll, your next check will pick up when you’re 70. That’s the only, that would be the only difference if you’re in, if you’re before or after full retirement age.

So are my benefits tax, taxable? Your benefits are taxable. That’s also another sticky wicket that, uh, a lot of individuals That was a

Donna Zanetti: question from the field, by the way.

Andrew Randisi: Don’t, uh, necessarily know about. So, Social Security, we can, the tax bills that were reformed back in the late 80s, under the, the Reagan administration, created this adjustment, this income thing called combined income.

And this determines how much Social Security is taxed. So I’ll use it as an example for Matt, for a marriage, for married joint filing couple. So if a couple is earning between zero and 32, 000, your Social Security benefits may be taxed, may, or probably not going to be taxed at all. If you’re in between.

32, 000 and 44, 000. They could be taxed up, up to 50 percent of the benefits could be taxable. And then if you’re above 44, 000, up to 85 percent of the benefits could be taxable. Now what’s been a bit onerous for a lot of retirees is. Most of the income tax brackets, they get adjusted for inflation. This hasn’t been adjusted for inflation since the late eighties.

So more and more Americans are saying, if you have other, you have pension income, you have Social Security income, you have dividends and interest. They’re saying more of the benefits taxed. Each year that’s for fed a lot of states a lot of states don’t tax Social Security benefits There are a few that

still do I got maybe one more question for you So is there a maximum amount that I can make I don’t have that problem, but someone like mr Bezos or something you get more of a benefit more money you make Would he make, I don’t know, 10 million a year?

Andrew Randisi: Got it. So with that, I’d say, so for that question, it usually, you’re, the wage base max is at 160, 000. So if you make Else will sell you, you’re Jeff Bezos or you are Jalen Hurts making 53 million a year versus financial analyst making 160K, he makes the max as well. You’ll both receive the same, roughly the same Social Security check at your full retirement age.

So as an example, in 2024, for as an example, the average retiree gets 1, 907 of Social Security benefits. That’s average retired couple. It’s about three, a little under, a little over 3, 000, 3, 033. And now the maximum that you can get, what an individual can get at full retirement age for 2024, so this would be retiring at 67, would be 3822.

And then if you’re at 70, the maximum someone can get would be 4873. So it’s a nice chunk of, it’s a nice chunk of money depending upon where you fall in the income bracket. Now, oftentimes we’ll see that more low, lower, more lower and middle Amer, middle earning middle class Americans, Social Security is the majority of their retirement income.

And then we’ll see for more, your higher earning Americans, Social Security is more or less than a quarter more than level, but less than a quarter of your income and more like the icing on the cake or for retirement.

Mike Zanetti: Excellent. Now I think I’m ready to make my decisions. I got a lot of good information.

Donna Zanetti: We’ll talk about this over another dinner.

With that, thank you everyone for joining us on this webinar. We would be happy if you ever have any questions to do a no obligation complimentary Social Security analysis as to when it’s right for you. Everyone is their own individual person or couple, and they have to make those decisions together. Um, thanks again.

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