EPS 35 – When Should You Take Social Security? Myths, Math & Money Social Security: more math, less myth

In this episode of Pink Money, Jerry Williams breaks down the confusing—and often overwhelming—decision of when to start taking Social Security. From age 62 to 70, Jerry explains how timing impacts your monthly benefit, why “take it early and invest” isn’t always the best advice, and what realistic returns look like compared to the hype.

He also dives into full retirement age rules, earnings limits, taxation of benefits, and life expectancy considerations. Whether you’re planning for yourself or helping someone else, this episode delivers a clear-eyed look at how to make Social Security work as part of your retirement strategy.

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Transcript

UNKNOWN: 0:01

Thank you.

SPEAKER_00: 0:53

Welcome to the Pink Money Podcast. We talk about all about things related to money from a gay perspective. And I'm your host, Jerry Williams. And, you know, lately, I think that I have heard ads about taking your Social Security about three times a day at least. It is just so crazy, probably because of the age that I'm getting to. I'm over 60 now, so I think that's probably why. But it just seems like those and Medicare seem to be the most popular ads that I consistently see across a wide variety of different places. But anyway, it started making me think about... How much people know, don't know, et cetera, about Social Security. Because it's kind of a mystery. And you don't really think about it too much until you really start to get to the point that you really need it. Or can take it, either way. And so I was also listening to somebody who was mentioning that a lot of different people are saying you should take it as soon as possible instead of waiting. Sometimes they say you should take it as soon as possible because it's going to run out of money. I don't think that's really the case. I think that depending on the right administration that gets in, I think they're always gonna. have social security because it's a safety net. Now, whether it is completely social security or something like the universal basic income, you know, I'm not sure about that. But as we sit here today, it's, you know, the same old thing that it's the same old bent has always been. So that's where I'm going to jump off at. And, you know, one guy was also mentioning, I don't really listen to other national financial advisors like, um, Dave Ramsey or Susie Orman. I mean, I've heard them before. Don't get me wrong, but I don't listen to them with any regularity. So I'm not 100% familiar with all that they expose on a regular basis. But anyway, he had mentioned Dave Ramsey saying, again, you should take it as early as possible and you should take it. And even if you don't need it, the best thing you can do is save it and invest it. And he was saying that you would come out ahead in the long run. If you put it in the market, you should be able to get a 12% return. Now that's the part that really caught my attention because I was thinking, now that's pretty ballsy to say you're going to get an annual 12% return. And I think that's far from the truth. And, I mean, when you really look at the market overall, I mean, in the last 30 years, let's just say from, you know, 94 to 23, the average return has been somewhere in the vicinity of 9% to 10%. And if you're looking at maybe just the last 10 years, he is right. You can get somewhere between 12% and 14%. Now, I mean, these most latest returns are because, you know, the market has been really, really strong since– You know, the 2008 financial crisis when everything went, you know, all went to hell. And then, you know, we've had a pretty strong recovery since. And the point that I'm thinking about is you can never really trust the market. I've seen so many times where people really counted on the market to support their portfolio, and it just wasn't there. I mean, again, thinking about 2008, I think I've shared this story before. You know, when so many banks went bust, you know, people lost everything. And so many people were concentrated in one particular stock. And then when that stock went bust, then their portfolio went bust. There's always a good case to be made for having a diversified portfolio. But that aside, it's really kind of scary when you put all your eggs in one basket and you're really counting on that income. So I guess then you have to really decide when are you going to take your Social Security. Should you take it at 62, which is the earliest you can take it, or should you wait? And... It really, really, you know, I guess my basic answer is always it just depends, right? It really depends because if you don't need the money, you can certainly just let it sit in there and grow until it's your full retirement age. So your full retirement age, I'm just going to say FRA since it's... apparently gonna be easier for me. If you were born between 1943 and 1954, your FRA is gonna be 66. If you were born in 1955, your FRA is 66 and two months. If you were born in 1956, your FRA is 66 and four months. If you were born in 1957, it's 66 and six months. Born 1958, 66 and three months. In 1959, it's 66 and 10 months. If you're born 1960 or later, then your FRA is 67. So that's when you can claim your full Social Security. And that just means that you're going to get the most you can from Social Security if you wait until then. And many people do, but I believe that the average time that most people take it is around 65. That's just when... It used to be that was basically retirement age for almost everybody, 65. But that just really depended... on you know how much you had saved maybe you were going to get a pension and maybe you had you know other resources available to you and that was you know doable nowadays a lot of people just haven't saved as much as they have in the past a lot of people don't have pensions like they used to have and so because of those things retiring at 65 may or may not be an option at least maybe completely many people just still work and work and work and work until as long as they can. And if you're married, that certainly might relieve some of the burden as long as your spouse has been working or can work. If you're on your own, then obviously things are going to be a lot more difficult. But I'm going to go with just the assumption that you're going to be single and on your own. But a lot of these situations apply to being married as well. But if you... Just say, for example, just to kind of throw it out there, let's just say that you were going to wait and take your Social Security and delay it as long as possible. And if you did that, then the longest you could delay it would be at age 70. And that's when you would get the biggest bang for your buck, if you will. And you'll get the most money you can from Social Security. But if you decide that... I'm not sure if I'm going to make it to 70 because that's really kind of the most critical factor here is how long do you think you're going to live? No one knows, right? But if there's a history of poor health in your family or you know through whatever circumstances you're not going to make it to 70, then there can be obviously the best case is to take it as soon as possible. And again, if you need it because it's... you know gonna help you because you don't have any other resources well then take it you know it's there go ahead as long as you've made your 40 quarters which is what the IRS considers your ability to get Social Security at you know no reduced rate then take it then you can also check for your particular situation on social security's website and you can go to i believe it's my social security and then you can look at your account and you can see you know what your earnings are and what they project you're going to be able to take i think it's a good idea always just to look at your social security benefits and just see you know what it is and just to have some rough idea and it always helps in your financial planning as well because when you're specifically working with your financial advisor you're trying to construct a retirement plan, you definitely want to take Social Security into account. Now whether you want to rely on it to a large degree or not rely on it at all, that depends on you and your advisor. And you can run scenarios with or without having Social Security. And it also depends, again, on your spouse, whether your spouse works, doesn't work, may work, et cetera. Your spouse is young or old. You know, if you have a spouse, again, all those factors come into play. And with the help of your financial advisor, or I guess you can do it on your own if you're capable, then you should be able to run these various scenarios and have a real good idea of whether you're going to be on track or not and maybe come to a more definitive decision decision about when you're going to take it now of course if you're young then you know you're just going to play out this scenario to the best best of your ability but as time marches on you know when you're in your 40s and 50s and you know maybe 60s then you know you're you're already there and you really need to make wise decisions because you're going to take it sooner rather than later and like i said you can't wait you can't wait you can never take it i suppose if you never never want it but You really want to decide when's the best time for you to take it. So when you take your Social Security, sometimes it's taxed and sometimes it's not taxed. And that just depends on the income that you're earning at the time. So because the Social Security Administration takes into account how much you are earning So your earned income goes into the calculation, and it will either not impact your monthly benefit or it will impact your monthly benefit because there's only a certain amount of money that the IRS allows you to earn during the time you take Social Security. So if you... If you're under your full retirement age, there's an earning limit. And for 2024, it's$22,320. If you earn more than that, then Social Security deducts a dollar for every$2 you earn above the limit. And in the year you reach your FRA, the earnings limit is higher. In 2024, the limit is$59,520. But that only applies to earnings before you reach your FRA. And then it's more steep, meaning it's$3 you earn per year. For every$3 you earn, a dollar is deducted from your benefits. And then, again, when you reach your FRA, you can earn as much as you want without it affecting your benefits at all. So if you are capable of waiting and you still are able to work, whether you get a W-2 or you're self-employed and you don't really need the money, but waiting beyond your FRA isn't really going to help you, the average amount that it increases every year that you wait is about 8%. So looking back at the market, looking at that, you can kind of see that maybe it is better, right? But there's just no guarantee. So the fallback always is the government, meaning the U.S. government has always been strong. It has always been... you know, the backstop for pretty much everything. Will that always be the case? I don't know. I think we hope that that will always be the case. But again, it depends on your belief system and whether you have strong beliefs that the U.S. government is always going to be there. So we've seen some scary times when, you know, it looks a little shaky. And I remember when the U.S. credit rating got affected as well. And that had never been seen before. And that was when Congress can't make up their damn mind and played games with keeping the government open and whether they were going to pay their bills. And that affected the U.S. credit rating, which had never been seen before. And that, again, just kind of leads to some panic in the market because that means, hey, is the U.S. going to default on any of their obligations? So again, just not a good thing. But beyond that, so when going back to income and taxation, it depends really on your filing status. So if you're just a single or you're head of household or you're a qualifying widow, your combined income If it's less than$25,000, no Social Security benefits are going to be taxed. If your income is between$25,000 and$34,000, up to half or 50% of your benefits might be taxed. If your combined income is more than$34,000, then up to 85% of your benefits may be taxed. So if you're married filing jointly, I'll just run through that quickly. Your combined income, if it's less than$32,000, no benefits are taxed. If your income between 32 and 44, and that's your combined income, up to 50% may be taxed. If your combined income is greater than$44,000, up to 85% of your benefits may be taxed. If you're married filing separately, in most cases, 85% of your Social Security benefits are taxable regardless of your combined income. It's difficult when you file married filing separately for whatever reasons you're filing because you really get taxed and penalized and don't get the benefits of married filing jointly. So, again, another situation to run through with your financial advisor, why you're filing separately and whether that continues to be in your best interest or not. And if your financial advisor... isn't well steeped in taxes, it may be a good idea to go to a tax expert and seek competent tax advice who can really drill down and work with you and find the best solution for you. I'll just leave it at that. So in all cases, you really want to work with an expert so that you benefit from the best advice. And you can go into this blindly or you can go into it as best prepared you can be. If you do take it early, you know, one of their, you know, several benefits of really taking it early, meaning if I take my money early, I'm getting it and I can do whatever I want to with it. So I can spend it, you know, as I feel, see fit, you know, I can invest it. I can save part and, and, um, Again, if you have a shorter life expectancy, then you're going to get the most out of it. But you just have more flexibility if you take it early. But if you do wait, then you receive a larger monthly benefit. So... once you do take it that amount will never change it is set it is what it is there used to be a time years ago where if you took it and you had the money you could pay it back and that would reset your social security benefits that's no longer the case it is what it is when you take it and it won't change so you get a larger monthly benefit if you wait and the longest you can wait is up to age 70 and then it just stops so there's no point in waiting after that If you think that you're going to live longer, then, again, it might benefit you. I think the average life expectancy these days for a man, I think, is age 70-something. No, it really depends. I think for women, it's a little longer. And I think that... Let me just look real quick. I think it's... For men, yeah, 74.5. For women, it's 80.4. Now, I know that Social Security will look at this a little bit differently, and they will also use a different life expectancy table. Now, how everybody gets there, I don't even know that. It's always been a mystery to me. But I think that you can look at your own family and use that sort of as your guide. Again, it's hard to say. I know that my mother, she had a stroke when she was 59. And... I was always worried that she wasn't going to make it very far. Because my grandmother on my mother's side, she lived until she was 96. My dad, however, died when he was 65. But my mother is now 85. So she just continues to keep on kicking. Now she has dementia at this point. Not full blown on where she can't take care of herself. But it is certainly a concern. But anyway... it's really difficult to say obviously what your life expectancy is going to be. But that just, like I've always talked about before too, you know, I think that you should plan as best you can with your financial planner to look at, you know, your financial planning in the sense of what does my estate plan look like. I think that's probably the wisest thing you can do. But, you know, they say that one way of looking at Your life expectancy is to not take into account entire life expectancy, meaning a lot of tables put together like this 74 and a half, you know, that takes into account age, you basically zero all the way to age 100, maybe beyond that too. I think most average is about 120 now. I know life insurance when it used to go up to age 100 in terms of, you know, the life expectancy tables. But now I think they use 120 on average because people are living longer. But my point is that they say if you use those average tables, they aren't 100% accurate for you because that takes into account people who die in there. you know, infants and teens and 20s, etc. So, you know, how helpful is that when you've already made it through all that, right? And then if you want to look at your more relevant life expectancy, look at your cohort. So people who are at your age, you know, what is the average life expectancy at 40, 50, 60? you know, etc. And that may be more helpful. Because again, you have a much better idea, because it's maybe more accurate, if again, that's how you see things. But nevertheless, it just is a good way to determine, you know, in terms of your planning, what you think is relevant to you. I know that on the Social Security, their website, they have a retirement uh life expectancy calculator that you can just plug in you know your gender and your age and it will kick out to you you know what they calculate based on whatever again methods that they're using um it will calculate your life expectancy um and yeah again just so that you know um i think let's see i'll just plug this in for me it says if i'm 61 in nine months, I'm expected to live 21.8 years. So I should kick off at 83.6 if I'm 62. 83, still the same, 83.6. 67, I'll live to 85.1. And age 70, I'm supposed to live to like 86. So, you know, who knows? I don't know. You don't know. No one knows. Only God knows. So, again, you just plan based on... I think the most appropriate way. I think that most financial planners, I know that what we did was ran most people's plans out to age 90. And because I think that we thought at that time that that is a good way to just make sure that you don't run out of money, but you don't run it all the way out to, let's say, 120, which very few people are probably living to that. But again... That's entirely up to you. So taking Social Security again, you just want to really determine for yourself when is the best time for you to take it. And it's really difficult. But, you know, going back to, again, investing it, whether you really believe you can achieve a 12% return on average or not, I don't know. I would say you should probably not plan for that. That just seems a little unrealistic for me. But I think that if you were looking at maybe a 7% return, I think that's probably a lot more doable and achievable. If, again, going back to whether you are comfortable investing or not on your own, okay. Good luck to you and do what you think is best. It may be better, though, to, again, keep a diversified portfolio and work with a financial professional and let them do their job to construct a portfolio for you or invest in mutual funds. Again, and you can do all stock. You can do a 60-40. You can have, you know, small caps, large caps, mid, global. You know, it really just depends. So work with your financial professional. That, again, is my best advice so that you can. have your ducks in a row so when the time comes that you do do do do when you decide to take social security that you're ready to take it you know what's going to happen it's not a surprise and you're fully capable and ready of making the best decision for you so I think that I'm going to leave it right there and other than that I will talk at you next time music

UNKNOWN: 24:30

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