There are many pieces of the financial puzzle to consider as you prepare for retirement, including Social Security.
Today, Jeremy Keil takes an in-depth look at the intricacies that come with planning for Social Security, and he explains how your decisions can impact what your retirement will look like for you and your spouse.
In this episode, you’ll learn:
- Whether Jeremy believes Social Security will go broke
How Social Security has changed in the past
The importance of knowing your full retirement age
How Social Security differs from your pension
Join Jeremy now to learn how important Social Security planning is as you journey towards your ideal retirement!
The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.
Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration.
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Retirement Revealed Episode 5: Planning Ahead For Social Security
Are you ready to uncover your retirement solution? Learn more as Jeremy Keil and his guests guide you along the path of retirement and reveal the five steps you need to take to solve your retirement puzzle. Now onto the show!
Aric Johnson: Hello and welcome to Retirement Revealed with Jeremy Keil. Today we're taking a break, and let's find out what that's all about. Jeremy, good morning. How are you?
Jeremy Keil: Doing well, Aric, how are you doing?
Aric Johnson: I'm doing great. I hear we're taking a break today. That's kind of nice.
Jeremy Keil: We're breaking into our series. We have a five episode series about our five step retirement process. Last time we were talking about our second step, how much do you make in retirement, and said that just because you retire doesn't mean you stop making money from pensions, annuities, and social security. We realized just how important it was to dedicate some more time towards the social security part. We thought, let's just cut in, take some extra time, and take one specific episode to dive in specifically to social security.
Aric Johnson: All right. So we are stepping out of all the steps that you have, and we are honing in on social security. This is a timely subject. We are at year end and everybody is thinking about what this next birthday means to them. I know that there's different ages that people hit for social security, and I know we'll be talking a little bit about that. What is the most important thing that we need to talk about today? Where do we start?
Jeremy Keil: Yeah. It’s all important. There's a lot of stuff there. Let me just say this quick too. If you haven't listened to the last episode on pensions and annuities and if you're somebody that has a pension or annuity, go back and listen to that. If it's not quite there on your device, go to retirement-revealed.com and you'll be able to see that episode. So if you have a pension or annuity, definitely check that out. When it comes to social security, more people have that than pensions and annuities. So we thought, let's just dive into the social security piece.
Aric Johnson: All right. Sounds good.
Jeremy Keil: Yeah. Well, let's get started. Something we hear all the time is that social security is going broke. I'm guessing you've heard that too, Aric?
Aric Johnson: Yeah, and I attribute it more to the media trying to make people panic so that they watch their news. Hey, social security's going to run out of money, so tune in and listen to what we have to say about it, and that's not even what they say about it.
Jeremy Keil: Yeah, that's exactly it. I hear this stuff all the time. We've given tons of seminars about retirement and about social security specifically. We just gave one a couple of weeks ago to the Wisconsin Institute of CPAs. These highly intellectual CPAs know their stuff when it comes to finance, but they don't happen to dive into social security that often. So they asked me to give a talk on social security, which was fun to do. We heard there, hey, social security is going broke, but then I asked them as CPAs, what do you think broke means? What do you think broke means, Aric?
Aric Johnson: Broke is when I first got married to my wife. Broke was when I was excited to have a ketchup packet that I was putting on a saltine cracker. That was broke.
Jeremy Keil: Yeah, exactly. So when people say broke, I think they mean zero, like social security has got nothing. That's just not correct. If you look into that, they give you these four page statements that talk about how much you'll get from social security. Of course, you got to go online now. They don't quite send them out as much as they used to. You can print it out in color and make it green to feel nostalgic of when they used to send you the green four pager. If you read that front page, it says that in 2034, so 14-15 years from now here in 2019, social security will not have enough money to meet its obligations, but that doesn't mean zero. What they're talking about is that when they promised $100 to somebody, they'll only have $77. No one wants a 23% pay cut, but when people come in and talk to us, they say, social security's going broke. I better get it while I can. Well, broke doesn't mean zero. When it comes to social security, it means a reduction of 23%. That's what they're projecting. We'll talk about if it will or won't be fixed, but if you think it won't ever be fixed, please use a 23% reduction. Don't use a 100% reduction. Don't plan on nothing. Plan on 77% of whatever they're promising you because that's what the money will be like.
Aric Johnson: Well that's just it. Taking a step back from what you just said, when we are going through the five steps, the goal is to reveal your ideal retirement strategy. The key word there is strategy, right? You can't strategize if you just keep saying that social security is going to be zero. I'm not going to have anything. The strategy comes in when you say, okay, the worst case scenario right now is that it could be down to 77%, a 23% reduction. I'm going to use that as part of my strategy to make sure that I'm still okay. It's better than zero.
Jeremy Keil: Yeah, it's better than zero. If people do the math based on zero, they'll probably make a different decision than if they do the math based on reality. That's part of our encouragement: know your numbers and do the math based on reality. Actually do the math and plug it into your plan. Use an expert that has helped people go through this type of stuff before. Don’t sign up for social security at a certain age because your buddy told you to or just because that's what your parents did or just because you think broke means zero. These things are not quite reality, so let's dive into some of the different realities. In reality they've changed social security before. Back in 1983, they changed it, but they changed it in such a way that if you were 40 or over, it didn't even affect you. They said, if you're close enough to social security, we're not going to change it for you. At the time, 40 was the age that they talked about where they didn't change a thing for those folks. Back in 2015 they actually made a slight change. It was just a little tweak, but they gave everyone a little bit of a heads up. They changed one part, just a small part of it. They gave you a six months notice, and for another small part of it, they gave you this four years notice. So they gave you a heads up. I mean, Congress can do whatever they want, but history has shown that they've given people a long runway to adjust to these changes that may or may not be made to social security.
Aric Johnson: Now, let me ask you a question. I don’t think I am using the right terminology, but I think you’ll get it. For the changes that are made, nobody's grandfathered into that, right? If they're making a change, it's a change for everyone at the age that they're at. Correct?
Jeremy Keil: In a way. Back in 1983, if you were 40 or older, you were still 25 years away from your full retirement age at the time. They didn't change a thing for them. So in a way, those folks were grandfathered into it.
Aric Johnson: Yeah. The question that I guess I'm asking has to do with my concern in reference to what you said earlier, that somebody might say, oh, I should take my social security as soon as I can because they might make these changes. If they were to make changes, it wouldn't matter when you were taking it at. The changes are still going to happen. Even if they give you a six months notice, a four months notice, or if they change it based on a certain age, I think it would be foolish for somebody to say, I'm going to take it as soon as I possibly can in case they make those changes. The changes are still going to affect you, even if you've already started to take it. It’s not going to matter.
Jeremy Keil: You got it. Well again, they can do whatever they want to change it. If you're a Congressman, you're in charge of the laws there, but history has shown what you just said. I think it would be foolish to make this rash decision and say, I've got to take this money right now in case they make a change later, especially when we're so far away from when there's truly a big issue coming up. If you're retiring in the next five or ten years, I wouldn't count on this change as a reason to show up at that social security office and sign up the instant that you can.
Aric Johnson: Because you can lose a lot of money, right?
Jeremy Keil: Well, that's just it. A lot of people just don't understand how social security works, and you'll read online a lot of times, you got to take it at 62 or you got to take it at 70. We don't have an opinion on which way you gotta go other than the fact that you have to work with somebody that's done this before. You ought to run the numbers based on reality. We talked a little bit about this 23% reduction as part of it. Another part of social security is just understanding how it even works. Most people just don't understand how that works. They're used to these pensions where they look at the last three to five years of your earnings or maybe the highest three to five years of the earnings. With social security it’s actually your top 35 years. So there could have been one year when you were 20 years old. It could be the last year that you had. It's quite a few years that are in there. That's important to know. It's important to help you figure out when it might be a good date to retire because if you're somebody that doesn't have too many years of working because you took some time off for schooling, spent time watching the kids, took a sabbatical, or whatever the situation was in those top 35 years, you might have some zeros. So every year that you work might be kicking out one of those zeros. In a way it's kind of boosting up your benefit by about 3%. That extra year of working kicks out a zero. All of a sudden you've got a real number in there, and besides the zero, that's a boost of roughly 3% if you run the numbers there.
Aric Johnson: Wow, that's great.
Jeremy Keil: Yeah. It is a big deal because when you're trying to figure out when it might be a good time to retire and how much money you are going to make, social security is a big piece of it. On the other hand, there might be people that started working when they were 60 years old. Here they are at 60. They've got 45 years of good earnings, so their next year of working after that might not be kicking out any of those top 35 years because they've had such a good number of years working that working extra might not be really affecting their social security overall.
Aric Johnson: Yeah, and if you are able to kind of look at that, it may be something where if your year isn't going to contribute to your social security, you may be able to make a decision that you want to cut back to part time. If you don't need the income, you could cut back to part time and not work as much because even if you worked full time, it wouldn't change what you're getting for social security. Maybe you have that flexibility to slow down a little bit or spend more time doing something else besides work.
Jeremy Keil: Yeah, that's exactly it. You've got it. So just knowing how it works will help you make good life decisions. Related to that, we talked about this green four pager where it gives you a nice summary on top saying based on your full retirement age you will get $2,000 or whatever it happens to be. Of course it’s in smaller print, but what's interesting is that if you flip over to page two it says that if you earned this dollar amount until your full retirement age, your benefit would be this. So you might be 55 thinking this is your last day of retirement, and if your full retirement age is 67, when you flipped over the second page they are assuming that throughout the next 12 years you will make just as much money as you made last year. Well that might not be your situation, so all the time when we're working with folks, we go right to the social security website. They have an estimator where you can grab your real life information and plug in what you think your reality is. They've got to make an estimate for everybody, and their estimate for everybody is based on this idea that whatever you earned last year, you'll keep earning until you hit that full retirement age. So this example of 12 years of earning great income might not be reality, and you might be thinking, oh, I'll get this high number. You better go through that estimator, plug in what your true situation is, and find out what your actual full retirement age amount is going to be. I just used that phrase “full retirement age”. Do you happen to know what your full retirement age is?
Aric Johnson: When my wife lets me? I really don't know. Based on when I was born I think I am in the 67 and a half category. Somewhere in there.
Jeremy Keil: Yeah, so right now it's basically 66 thru 67. If you were born in 1954 or earlier, it's 66. If you were born in 1960 or later, it's 67. If you're in between those two, you're somewhere in between 66 and 67. It's important to know that age for a couple of reasons. One of them is sometimes people feel like they can't actually retire till they hit their full retirement age, so it's almost like they're waiting on permission from the government. That's not quite true. You can retire whenever you want, but that full retirement age amount is important because that dollar amount that they show you on that first page of their statements saying, you're going to get $2,000 or whatever it says on there, that's how much they’re promising you on that specific date. If you happen to take social security early, you're getting a reduction from that amount. If you happen to take it later, you're getting an increase from that amount. So it's good to know how much they're promising you and when they're promising it to you, and there's a whole bunch of different rules that come into play when you're below your full retirement age compared to when you're at or above your full retirement age. So knowing that that date and knowing that age, which is going to be somewhere between 66 and 67, will be important, especially because a lot of times you get to this area and you still think it's 65 because that's what it was for your parents. 65 is what it was for so long. They've changed it a little bit, but what they didn't change is Medicare. Social security and Medicare somewhat go hand in hand. They somewhat don’t. We'll have to get to Medicare at another time, but a lot of people still think 65 is the big deal because that's what the Medicare age happens to be.
Aric Johnson: Got it. Yeah, I would love to get a Medicare specialist on the show with us so you guys could just talk while I learn.
Jeremy Keil: Yeah. It is important. We like to say 65 will be your favorite birthday because when you get on Medicare it seems like it's a lot easier to be on Medicare than to buy your own insurance and get it through the company. It's kind of a joke we like to make that 65 will be more fun than when you turned 21 because you get to be on Medicare there for the rest of your life
Aric Johnson: And you will remember it a lot longer.
Jeremy Keil: Yeah, you got it. I just talked about how you can take social security early or how you can take it late. In general, 62 is the earliest you can take social security, and in general, 70 is the latest you can take social security. It’s not quite exact, but it's pretty close. We can use this as a rough estimate, but pretty much every year you take it early before your full retirement age, you're going to lose about 8%. Every year you take it later, you're going to make about 8%. It's not exact every year because there's different laws that kind of come into play, but that's a close enough number to use. So if they promise you $2,000 at the age of 66, your full retirement age, and you wait till you're 70, you could be getting 32% more. That's a big dollar amount. That's $600. At the same time, if they promised you the $2,000 and your full retirement age is 66 and you take it early at 62, they're going to give you a 25% reduction, so you'll be missing out on $500 in that example. So it's a pay decrease or pay increase. Not too many people I know walk into their boss’s office and say, can I get a pay cut? More than half of people walk into the social security office and say, I know you promised me this, but just give it to me now. I'll take the pay cut. People are asking for pay cuts from social security all the time. That could be the best thing to do, but again, run the numbers. It just kind of goes counter to what we're used to. Most people want a pay increase, not a pay cut.
Aric Johnson: Yeah, and again, it goes back to strategy. It goes back to planning. If you can plan, even if you're in a position where you're not going to have a tremendous amount of funds, you can maybe figure out how to take it a little bit later. From what I understand it’s month per month, correct?
Jeremy Keil: Yes, and that's one thing we love about social security is that it is month per month. A lot of times people are used to pensions. A lot of pensions work in a way that you have to hit your birthday, so if your birthday is in the middle of September, you better retire afterwards to get that higher pension. If you happen to retire the day before your birthday or on your birthday, you have to figure that out because that can be a huge difference if we're using this social security amount of 8%. But in the case of social security, it's month per month, so it's not the biggest deal if you miss a month. You just go in the next month and you get it a little bit higher. Or you take it a couple months before your birthday so you missed out on a little bit. It’s only a couple months difference. It’s not this huge cliff where you better hit that hurdle to get that bump.
Aric Johnson: Exactly. That's good to know.
Jeremy Keil: Yeah. You mentioned strategy there, and there is one strategy I want to mention. I don't want to go into all of the details because it's a little complicated and it doesn't quite apply to everyone, but if you were born on January 1st of 1954 or earlier, there's a way to file what’s called file restricted. It's a way to start out with one benefit and switch over to another higher one later on. That's one of the changes they made in 2015. They kind of cut off that benefit, but they did allow it still for people that were born on January 1st of 1954 or earlier. If that’s you, this is a huge deal. We've run into several people in the past year who weren't aware of that. We help them get this benefit. We help them actually get checks in the thousands of dollars. A few folks got back close to six, seven, or eight grand from social security. They had no idea that they were missing out, and we were able to get them started on that and able to get them a check. If that's you, please reach out to us. Our website is keilfp.com. Reach out to us. Reach out to somebody that knows what they're doing with social security, but please just give us a call. Happy to walk you through that and figure that one out for you.
Aric Johnson: Yeah, that would be both of my parents.
Jeremy Keil: Yeah. There you go. So if they haven't quite applied yet or if they've applied in the last 12 months, there could be a way that they could file and change things around to get a different benefit. If you're going to do it, it's only because it'll be a better benefit for you.
Aric Johnson: Gotcha. Okay. So they have to have filed within the last 12 months?
Jeremy Keil: Basically. Yeah. A lot of people we've run into are individuals who are working or they're approaching retirement and they haven't quite filed yet. Some people have been waiting until 70 because they've heard that it's the highest benefit, but there's a different way they could have filed so that they still preserve that higher benefit but at the same time are still getting money from social security. So for those folks, and we've run into quite a few the last year, it takes a little bit of calculating, takes a form to fill out, you wait a month or two, you get that benefit, and you maybe even get a check back from social security that you weren't expecting. So if that's you give us a call. We want to help you and get you that money.
Aric Johnson: Yeah, absolutely. That's awesome. What else do we need to know? I mean, there's tons to unpack here.
Jeremy Keil: Yeah, quite a lot of stuff. One thing is that there's so many different ways you can file. You can file on your own benefit as a retiree. They call it a retirement benefit. You can retire on your spouse's benefit, and you can retire as a survivor benefit. That means you are married to somebody and they passed on. The interesting thing is we like to say a lot of times that we're not a therapist, but we are going to ask you about your past relationships. It's important to know what benefits you're qualifying for, and you might be qualifying for a benefit on a marriage that ended years ago because you can actually get a spousal benefit when you are not married to somebody anymore. If you were married to them for 10 years or longer, you might be eligible for that spousal benefit. If you were married to them for that amount of time of 10 years or more and they've passed on, you might be eligible for a survivor benefit, so there's a lot of things in terms of the different ways that you can file that are worth figuring out to get those benefits that you might be eligible for. Real quick too, a lot of times when you and your spouse are looking at this, it feels like you don't quite do it together. It’s like I'm going to do this while she can do that. You really need to plan this together because there's ways to figure out the best way to take this benefit. Perhaps somebody takes it earlier than they expected. Perhaps somebody takes it later than they expected, but that combination might give you both a better benefit. It's just so interesting, especially when it comes to something we don't like to think about. As people are approaching their retirement, who wants to think about when one of them will be in retirement while the other is not because they passed on? Who wants to think about that? But that's a big deal. We've run into so many widows, and oftentimes the widow is the wife. She becomes a widow maybe in her mid eighties or early nineties or whenever it is. She might lose her husband, and she's living on the benefit that her husband made a decision on 20-30 years ago. That's a huge deal. Most widows would prefer to have a little bit more vs. a little bit less. If you plan together, you can figure out the best way to take social security in a way that benefits both of you. It’s really important to keep in mind how it’s going to help out the widow, whether it's the husband or the wife. There are ways you can figure that out so that you're boosting up that survivor benefit for that widow by a few hundred bucks every single month, and trust me, she might need it. If you have two benefits, it’s going down to one. When there’s two people, you get two benefits. When there’s one, you only get the one, so you have to plan and figure out the best way to get this benefit for that surviving spouse later on.
Aric Johnson: Nice. Yeah, that's so important. I don't know what spouse wouldn't want that for their significant other.
Jeremy Keil: Yeah that’s exactly it. Sometimes you sacrifice a little bit. If you're the one that’s kind of pushing out that benefit and waiting on it to help out the widow later on, we encourage you to go ahead and do it while reminding your spouse that you are doing it for them.
Aric Johnson: Yeah, exactly. Good.
Jeremy Keil: Another thing is that this is probably the biggest decision of your life. This might be the biggest financial decision of your life when you add up how much you will be getting from social security, especially if there’s a couple. It could be hundreds of thousands of dollars. It could be close to a million dollars. This is a huge decision that you're going to make in your early sixties that could be affecting you into your eighties and your widow into the nineties. Unfortunately, a lot of people try to figure out how they can get the most amount of money the next month, and our encouragement to you is to figure out how you get the most amount of money over your lifetime and what the best way to file is to help you out with that.
Aric Johnson: Yeah, absolutely. I mean, there's so many things that people just do not know. Again, it's nice to have friends to talk to about stuff like this, but you have to consult a professional who knows. Just because your neighbor took it at a certain age and said, oh, this works out great for me, doesn't mean it's going to work for you. It's just not part of the same plan. Let me ask you a question. Maybe you know the answer to this. Is there a way to pause social security? Let's say you took it at age 63 and then you realize you took it too early. Maybe you can pause it for a year and gain 8% back. Have you ever heard of anything like that?
Jeremy Keil: Yeah, you got it. That's called suspending your benefit. It was a little more prevalent a few years back. They kind of tightened the reins on that more recently. That's one of those areas where when you hit full retirement age you get more privileges in a way than before that retirement age, and there can be plenty of reasons that you do that. That's why we use specialized software to figure out the best way for you to file. I'll tell you a quick story. We got a client that had gone through and filed for social security. We decided that was the best time for him to file for social security. Then just about a year later, his mom passed away, he inherited some money, and he said, hey, where should I invest this? Where’s the best place to put this money? We were going through trying to think of different options when we said, wait a second, you filed for social security 11 months ago. It's been working out fine, but the amount you've been getting is pretty close to this amount you just inherited. Let's just say it was $2,000 a month, so he inherited about $24,000. You've got $2,000 a month coming back. Why don't you repay your social security that you've got, refile, and then you're going to get an 8% boost. What else can you find that will do something like that? So it was a special situation, but it just seemed that it was the best place for him to kind of get a little bit of a do over there. He paid back what he got and started getting about 8% more than he was originally. Fortunately he was within that time frame when he got the inheritance, and he was within that 12 months where he could kind of get a redo. So it’s interesting. It's fairly set in stone but don't think it's 100% set in stone. It’s worthwhile talking to your financial planner and letting them know all the different situations that are going on so that they can help you make a good decision there.
Aric Johnson: Yeah, absolutely. Such great information Jeremy. Thank you so much. Are there any closing thoughts for today?
Jeremy Keil: Yeah, I've got two of them. We'll get through them quickly here. A lot of people think retirement and social security go hand in hand. They think, if I retire today, I have to take social security tomorrow. That's not the case. You should retire when you want to and when you can afford to, but you should take social security when it gives you the best benefit to your plan. If you think they're married together, they're not. We’ve helped people file for social security before they retired. We’ve helped people file for social security years after they retired. Retire when you want to and when you can afford to. Take social security when it gives you the best benefit to your plan. Lastly, we don't have a dogma about whether you should take social security earlier or later, but we do have a little bit of a dogma when it comes to finding someone that's done this before. Find an objective retirement expert to help you make these different decisions. Run the numbers. If there’s two of you, consider how it affects the both of you, and especially consider how it affects that surviving spouse. A lot of times when you think through how long your retirement might be, it’s probably longer than you're thinking, so run the numbers based on a little bit longer timeframe than what you were originally thinking.
Aric Johnson: Yeah, absolutely. For everyone out there that is listening and saying, you know, I've taken social security. I don't know if I made the best decision at that point. I don't know what the options are, and it's tough to Google these things, right? I mean, there's so much information out there. You'll get lost in a heartbeat. But for those of you that are out there, I would encourage you to reach out to Jeremy and his team. Jeremy, how do they get ahold of you if they want to review some of the interesting things that they heard on this podcast so that they can start putting together a strategy that they don’t already know about since they are not the expert? How do they get ahold of you to do that?
Jeremy Keil: Yeah. You don't know until you ask, and we don't know until we can learn a little bit about you and run the numbers with you. But check us out online at keilfp.com, or you can give us a call at 262-333-8353.
Aric Johnson: Fantastic. Again, thank you so much Jeremy. I appreciate your time and I know the audience appreciates it as well. Audience make sure that you tune in next time as we're going to continue the five step retirement process that Jeremy is outlining. If you haven't heard the first two, go back and listen to those podcasts, and I appreciate you listening to the Retirement Revealed podcast with Jeremy Keil. If you have not subscribed to the podcast yet, please click the “Subscribe Now” button below. This way, when Jeremy comes out with a new podcast, it'll show up directly on your listening device. This makes it much easier to share these podcasts with your friends, family, and neighbors that are talking to you about their retirement. Again, thanks for listening today. For everyone at Keil Financial Partners, this is Aric Johnson reminding you to live your best day every day, and we'll see you next time.
Thank you for listening to the Retirement Revealed Podcast. Click on the subscribe button below to be notified when new episodes become available. Visit Retirement-Revealed.com to learn more. The information covered and posted represents the views and opinions of the guest and does not necessarily represent the views or opinions of Keil Financial Partners. Keil Financial Partners does not provide legal, accounting, or tax advice. Consult your attorney or tax professional. Representatives have general knowledge of the Social Security tenets. For complete details on your situation, contact the Social Security Administration. Keil Financial Partners is a part of the Thrivent Advisor Network, a registered investment advisor. The Content has been made available for informational and educational purposes only. The Content is not intended to be a substitute for professional investing advice. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.