 Personal Finance PowerPoint Presentation When to take Social Security Prepare to get financially fit by practicing personal finance In prior presentations, we've been focusing in on retirement planning In prior sections, we've talked about investment goals, strategies, tools Now honing them down to the specific goal of retirement planning Quick recap of the typical types of sources of incomes you might have In retirement, which could include employer pension plans Which might include the 401k plan in our list We've talked about in prior presentations We've got the public pension plans Which we could include the 403b plan here We can compare the public pension plans to the employer pension plans Similar except working for the public sector Working for the government for example We're also going to include in this section the benefit programs Like the big one we're talking about here Social security, you might include other benefit programs Such as Medicare and Medicaid But we're going to be thinking about social security here You got the personal retirement which may include IRAS Or other types of savings that we have specifically for retirement And annuities of specific kind of vehicle We might get into a little bit more for retirement planning Focusing here, we're looking at information primarily from Investopedia when to take social security The complete guide which you could find online Take a look at the references, resources Continue your research from there This by Amy Fontenille updated April 25th, 2022 As we think about social security You can think about the two ends of social security Usually we're thinking about when we're putting money into the social security For taxes and then what we're focused in on here The benefits when we're getting the money back from social security That's what we're focused in on that time There is some relationship between the two Because the amount of money will get back Will be dependent in part on how much we put into the system And when we decide to start taking the money When our retirement age will be Which is our main focus at this point Also remember that if you're further and further away from the retirement age Then you want to be more and more skeptical of using it As your major planning for retirement Because the laws could change going forward If you're close to retirement Then you would expect that they're not going to pull the rug out from under you If you're further away from retirement I would be much more skeptical to be dependent upon the social security If you have it, great If it's not there, you'd like to be able to set up a plan So that you'd still be okay, hopefully Okay, so here we go When to take social security, the complete guide So clearly the question would be Should I take the social security as soon as possible I might get longer amounts of payments then But the amount that I get might be shorter or lesser So the question would be What would be the best maximizing strategy To maximize my social security earnings So if you're about to retire You may be wondering whether you should start claiming Your hard earned social security benefits now Here are a few key factors to consider in making that decision When can I start collecting social security Now the age is one of the things that they're extending As time passes and we would expect them to continue To increase the age as people live longer And as they try to afford the payouts For the social security as time passes So the minimum age to claim benefits is 62 If you are turning 62 and need the income From social security to support yourself Then you can start claiming your benefits now However, if you have enough other income To keep you going until you're older You may want to delay increasing the size of your monthly benefits So the basic idea would be If you take the money earlier Then that's great because you'll get the money earlier And you'll start getting the payments earlier But you might have a decreased amount of payment That you're going to get And then if you could wait Then it could be more beneficial to wait And get the larger or full amount of the payment By claiming it at the full retirement age So what is full retirement age Sometimes called FRA The size of your monthly social security benefit Depends on a few factors including How much you earned over the years The year you were born And the age when you started claiming down to the month So these are the factors to get involved here With how much you're going to calculate For the benefits that you will have The earnings years How much earnings were subject to social security Meaning how much did you pay into the system And then what's the year that you can retire Given when you're retiring And the law that's going to be applied there And are you going to take the money earlier Or wait till you hit the full retirement age So you'll receive your full benefit If you start claiming when you reach What social security considers your full retirement age The FRA So that's when you get the full benefit retirement age If you go earlier than that You might have a lesser amount Sometimes also referred to as normal retirement age FRA was 65 For social security began But it has been raised to 67 For anyone born in 1960 or later So we would expect maybe they're going to keep on Increase in this full retirement age In order to deal with the fact that we can't afford This whole thing But anyways To find your FRA See the chart below So you got the year of birth We got the 1937 Or earlier 65 1938 65 and two months 1939 65 and four months 1940 65 and six months 1941 65 and eight months 1942 65 and ten months 1943 to 1954 1966 1955 1966 and two months 1956 1966 and four months Down to 1960 Which would be at 67 At that point that would be 1960 Or later at this time So how to calculate social security benefits Let's say your FRA is 66 If you start claiming benefits at age 66 And your full monthly benefit is $2,000 When you'll get $2,000 per month So if you start claiming benefits at age 62 Which is 48 months early Then your benefit will be reduced to 75% Of your full monthly benefit Also called your quote Primary insurance amount In other words You'll get 25% less per month And your check will be $1,500 So obviously you'll get a lesser amount And that lesser amount could stick Even after you hit the full retirement age Usually But you'll get it for a longer period of time So you've got to kind of weigh the pros and cons You could take into consider life and expectancy And so on If you're going to die fairly soon That you think you might benefit Or you might get more money earlier If you're going to live a good while going forward Then the $2,000 How long would you calculate the break-even point? How long would you have to live Before the $2,000 higher amount Would recap the early payments That you would be receiving You can calculate when that break-even point would be So to reduce benefit Won't increase once you reach age 66 So you'll continue to receive it for the rest of your life It may go up over time due to cost of living adjustments Colas but only slightly So once again That reduced benefit won't increase once you reach age 66 So you might say Well, if I get the early benefits of $1,500 Then maybe when I get full retirement age They'll increase it to the full amount of $2,000 No, that's not the case Because again you got the benefit of getting paid $1,500 For that timeframe And that's going to make up for the fact That you're going to get a lesser amount Going forward from that point in time So again you can kind of calculate what the break-even will be It may still increase but due to the inflation adjustments Meaning normal inflation adjustments Due to the time value of money could increase it But they're not increasing it to the $2,000 If you would have waited for the full retirement So you can do the math for your own situation Using Social Security Administration SSE Early or late retirement calculators So they got tools on the website To help you to punch in these numbers and do the calculations One of a number of benefit calculators provided by the SSA They can also help you determine your FRA The SSA's estimate of your life expectancy And benefit calculations Rough estimates of your retirement benefits Individualized projections of your benefit Based on your personal work record and more So you can use a lot of those tools online You might want to use those tools online To kind of supplement your own worksheet That we talked about in a prior presentation On how you can kind of put these calculations together Because that can help you to do what if scenarios If you could put the stuff in like Excel for example Then you can do scenarios and say Okay well what if I waited a little bit more time Or what if I worked more What would that have an impact on my full retirement age calculations And so on and so forth And again clearly your life expectancy Is one of the things you'd want to kind of consider In terms of taking early benefits Versus waiting until the retirement age And so there we got that, that's another factor So what happens if you claim after your FRA Full retirement age If you wait until your age 70 to start claiming benefits Then you'll get an extra 8% per year Or in total 132% of your primary insurance amount 2640 per month In the example above for the rest of your life Claiming after you turn 70 Doesn't increase your benefits further So there's no reason to wait longer than that The longer you can afford to wait after age 62 Up to 70 the larger your monthly benefit will be Nevertheless delaying benefits doesn't necessarily Mean you'll come out ahead overall Clearly is not simply to get the largest amount of payments That you're going to be receiving because to do so You're delaying the payments into the future So clearly if you wait until you get the maximum amount At 70 and then you die at 72 Then you're not going to be increasing your benefits But if you maximize the amount at 70 And then you live to be 120 Then it's likely that those higher benefits Might outweigh the fact that you waited longer Before getting the benefits which again You can kind of calculate using a break-even type of calculation To figure those kind of estimates Which will be dependent in part on your life expectancy Other factors should be considered Including your expected longevity And whether you or your spouse plan to file for special benefits It always kind of makes me laugh When I feel like what happens when they figure out the key That everybody's going to live another 100 years Or something like that Our social security program is going to die Because it still doesn't matter So you should also consider the tax Investment opportunity and health coverage implications Your likely longevity So much of our strategy on maximizing Social security retirement benefits Depends on guesses as to how long we'll live Of course any of us could die in an accident Or get a dire diagnosis next week But putting aside these unpredictable possibilities How long do you think you'll live? How are your blood pressure, cholesterol, weight And other health markers How long have your parents and other relatives lived? So you can use actuarial tables To get an average of how long people will live But clearly you can get kind of a more personalized Idea of your individual circumstances as well So if you foresee an above average life expectancy For yourself, of course I'm living to be 240 Then you may come out ahead By waiting to claim benefits If not, then you may want to claim your benefits As soon as you're eligible To make an educated guess about when to claim Try doing a breakdown analysis The analysis can tell you When the total benefits you would receive By waiting will begin to exceed The total you would receive By taking benefits earlier In other words, usually the idea The decision would be Should I take the early benefits or wait till full retirement age Although you can go from full retirement To a later time as well But if you think about that process Then you've got to think how long What would my life expectancy have to be Before waiting until Full retirement age Would be beneficial Meaning I would have to live longer For waiting to the full retirement age To be beneficial And then if you think you're going to clear that In terms of your living capacity Then you would think it might be worthwhile From a total dollar standpoint To wait it out and get the higher payment So if for example You get $1,500 a month Starting at age 62 Or $2,000 a month starting at age 66 Then you will receive You will have received roughly the same amount In total benefits by age 77 Or so at that point The higher monthly benefits That you get as a result of waiting Will begin to pay off So she's saying that So if you compare these two By the time you get to 77 Then I believe she's saying That the benefits that you got from the early payment Of the $1,500 Will then be outweighed By the higher payments If you would have waited until the later time To 66 And then any amount of life Past 77 Then it would be more beneficial to have The higher benefits So if you think that you're going to clear 77 Fairly easily You would expect then if you could wait Then it might be worthwhile from a total dollar standpoint To wait if you're going to die significantly Before 77 Then you would think maybe you want the money now The social security website Will tell you that regardless of when You start claiming your lifetime benefits Will be similar if you live As long as the average retiree The problem is that not everyone Will have an average life expectancy Hence all the different Claiming strategies So if you look at something on average That's great but the average isn't Representative of one individual Person who could be outside Clearly could be outside the average By a significant margin So claiming spousal benefits Because of the program's spousal benefits Being married can further complicate The decision of when to take social security So now you've got the benefits How can you split the benefits between The two individuals Remember traditionally We had a situation where you had a one income household And still it's still a case where You're going to have one person If you have kids that is probably going to be Sacrificing some work time For the kids and therefore paying less Into the social security And you don't want them to not be benefiting From the social security program Because of course they're caring for the kids So the work and so on So how do you deal with the social security For a spousal kind of situation So some divorced spouses are also Entitled to benefits based on Their ex-spouses work record Spouses who don't qualify for their own Social security Spouses who don't work at a pay job Or don't earn enough credits To qualify for social security on their own Are eligible to receive benefits Starting at age 62 Based on their spouse's record Spouses with claiming benefits on your own Record, your spousal benefit will be Reduced if you take it before reaching Your FRA The highest spousal benefit that you can Receive is half of your benefit That your spouse is entitled to After FRA While spouses get a lower benefit If they claim before reaching their own FRA for retirement age They will not get a larger spousal benefit By waiting to claim after Their FRA say Age 70 So that higher waiting longer Than your full retirement age situation There might not be beneficial in that case However, a non-working Or lower earning spouse may get A larger spousal benefit if the working Spouse has some late career High earning years that boost Their benefits So when a spouse dies When one spouse dies, the surviving spouse Is entitled to receive the higher Of their own benefit The deceased spouse's benefit So now you've got the other spouse Maybe didn't work as much Because maybe they were taking care of the kids If the one that was a higher wage earner Died, then you would think it would be reasonable That they should get access to possibly The higher benefits given the fact Given that situation So that's why financial planners often Advise the higher earning spouse To delay claiming If the higher earning spouse dies first Then the surviving lower earning spouse Will receive a larger social security check For life And the higher earning is probably going to die first Because that's how it is When the surviving spouse hasn't reached Their FRA for retirement age They will be entitled to Pro-rated amounts starting At age 60 Once at their FRA for retirement age The surviving spouse is entitled to 100% of the deceased spouse's Benefit on their own benefit Or their own benefit Whichever is higher So no more File and suspend Note that the claiming strategy Called file and suspend Which allowed married couples Who have reached their FRA For retirement age to receive Spousal benefits and delayed Retirement credits at the same time Ended as of May 1st 2016 So if you have that in your mind You've got to refresh your mind Whatever Spouses born before January 2nd In 1954 Who have attained their FRA For retirement age may still be able To file a restricted application It allows them to claim Spousal benefits while delaying Their own benefits up to age 70 Taxes on your benefits Your social security benefits may be Partially taxable if your combined Income exceeds certain thresholds We might dive into this in a bit more detail later Then the question is if I get a benefit Is that income tax And obviously from a tax standpoint The IRS usually says everything's taxed Unless we say it's otherwise But this is kind of like a benefit program So then it's taxed based on Your income level and you have thresholds We might get into later more But in any case, regardless of how much you make The first 15% of your benefits Are not taxed So the SSA Social Security Administration Defines combined income Your adjusted gross income That's kind of like your basically How much you earned minus The adjustments above the line deductions Or schedule one deductions Plus non-taxable interest for example Municipal bonds interest Plus half of your social security benefits Your combined income So if you file your federal tax returns As an individual And your combined income is $25,000 To $34,000 Then you may have to pay income tax Of up to 50% of your benefits If your combined income Is more than $34,000 You may have to pay tax On up to 85% of your benefits If you're married filing a joint return And your combined income is $32,000 To $44,000 Then you may have to pay income tax On up to 50% of your benefits If your combined income is more than $44,000 You may have to pay tax On up to 85% Of your benefits Of tax benefits Let's take a look at an example then Let's say you receive the maximum social security benefit For a worker retiring at F.R.A.H Full retirement age in 2021 $3,148 Per month Your spouse receives half as much Or $1,574 A month Together you receive $4,722 A month Or $56,664 Per year And $38,332 Counts towards Your combined income for determining Whether you have to pay tax On part of your social security benefits Let's further assume That you don't have any non-taxable Interest, wages, or other income Except for your traditional Individual retirement accounts IRAs required minimum distribution So you got to take money out of your IRA Of $10,000 for the year So that's taxable generally Your combined income would be $38,332 Half of your social security income Plus your IRA distribution Which would make up To 50% of your Social security benefits taxable Because you've exceeded the $32,000 Threshold It's very simple Now, you may be thinking 50% of $56,664 Is $28,332 And I'm in the 12% Tax bracket So the tax of my social security benefits Will be $3,399.84 Fortunately The calculation takes other factors Into account and your tax would be A mere $225 You can read all about The taxation of social security benefits In the Internal Revenue IRS Publication 915 So it can get A little bit complex Is the general idea But as your income goes up More likely you're going to get taxed I believe the cap of the amount That would be taxed was at that 85% As your income That's kind of the general idea And you can dive into the weeds To see how the threshold Goes up And you can take a look at that publication To do so And you can read all about The social security benefits At today's marginal tax rates They may not have much of an impact On most people Still, tax rates and income thresholds Can change So it's worth remembering That you will lose less of your social security To taxes If you are in a lower marginal tax Bracket When you begin to collect So in other words From other sources Then you're going to have a higher tax bracket Because we have a higher progressive tax system Which may mean that more of your social security Money is subject to taxes And possibly subject To the higher marginal tax rates So if you have lesser income Maybe if you're thinking that later on At full retirement age You're going to have less taxable income Then how significant would that be In terms of how much you're going to pay Social security tax You might consider You should also note that if you decide to return To work even part-time And aren't yet at your FRA Full retirement age Your social security benefits may be temporarily reduced So if you're not at the full retirement age And you take the early distribution And then you work it may have an impact On the amount that you get So the reduction Is $1 for every $2 of Earned income Over $18,960 In 2021 And $19,560 In 2022 During the year when you reach your FRA Full retirement age Your benefits will be reduced By $1 for every $3 In income Over $50,520 In 2021 $51,960 In 2022 until the month When you become fully eligible So that money isn't lost SSA will credit it to your record When you reach your FRA Resulting in a higher benefit So investing your benefits So are you a Disciplined savvy investor Who thinks you could earn more By claiming early investing your benefits Then claiming later And receiving Social securities Guaranteed higher benefits So you might be thinking hey there's a time value Of money factor here If I get the money sooner If I spend it Maybe I can get the money And I can invest it And then I can earn a return on it Because I'm an investor man And I can put it on the stock market Or something and get a higher return And that might skew Our calculation for that break even point As to taking the money early Or waiting until the full retirement age So then you may want to claim Early instead of waiting until age 70 However, it's important to remember And you may lose a portion Or all of your invested money Even the sappiest investors can't predict How their investments will perform Especially in the short term If you claim early Invest in the stock market And average an 8% annual return Which is far from guaranteed Then you almost certainly will come out ahead Compared with claiming late According to an analysis By Dan Koeplinger Director of investment planning For the Motley Fool So however If your returns are lower If you receive reduced social security benefits Because you continue working past age 62 If you have to pay taxes On your social security income Or if you have a spouse Who would benefit from claiming social security benefits Based on your record Then another Koeplinger Analysis suggests That all bets are off So timing and your health coverage So your health insurance coverage Can also play a role In deciding when to claim Social security benefits Do you have a health savings account That's an HSA To which you would like to keep contributing So if so Note that if you're age 65 Or older Then receiving social security benefits Requires you to sign up for Medicare Part A And once you sign up for Medicare No longer be allowed to add funds to your HSA So if you have an HSA That might throw a little wrinkle in your calculations In terms of when you should Start to take the money The SSA also cautions That even if you delay receiving Social security benefits until age Until after age 65 You might still need to apply for Medicare benefits within the three Months of turning 65 To avoid paying higher premiums For life For Medicare Part B And Part D In 2022, the average monthly premium For Part D will be $33 Per month Versus $31.47 In 2021 If you enroll in a Medicare Advantage Plan, the average monthly premium Will be $19 per month In 2022 Versus $21.22 Since in 2021 however If you are still receiving health insurance For your spouse's employer You might not yet have to enroll In Medicare So we've talked about Medicare In its own kind of section In Medicare and Medicaid In prior sections In any case, the bottom line You don't have to take Social Security Just because you're retired If you can live without the income Until age 70 Then you will ensure the maximum payment For yourself and lock in To have enough other income To keep you going and your health And good enough that you are likely To benefit from the wait When you're ready, you can apply For benefits online by phone Or at your Social Security office