Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered [inaudible 00:00:23] offered through Cambridge Investment Research, Incorporated, a broker-dealer, member FINRA, SIPC, investment advisor representative, Cambridge Investment Research Advisors, Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s Financial Focus program.
Nate Kreinbrink:
Good morning, and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. This is Nate Kreinbrink bringing you today’s show. June is moving right along. It’s hard to believe end of the week we will be middle of June already. Obviously, I think all schools, teachers probably done for the year, finally. So I guess it’s safe to say it is officially summer. And looking at the extended forecast, looks like we are going to finally start having some summer temperatures as well in the extended forecast with upper 80s, some 90s coming up here. Again, it is much welcome. I think everybody’s ready for it. Pools are starting to get opened. It seemed for a while we’d have those nice temperatures, but then wind, rain, cold stretch to follow it up. So I think it’s here. It’s a lot of summer camps, activities, all that kind of just getting kicked off and in full swing. So excited to see it, excited to have it. Enjoy it and be safe and enjoy that warm weather because in January, February, it definitely is much wanted.
So for today’s program, I know there’s a lot of topics kind of in the headlines. Fed is ending up their two-day meeting today, looking at where things are going to be with interest rates, where those inflation numbers, which are also getting sent out today for May, where those come in. And obviously, that’s going to impact what the Fed is going to decide to do with interest rates. Are they going to keep them the same or are they going to look to still project to do some rate cuts this year? March was kind of the first projection of where that was going to come in at. Obviously that never happened. June was the next one, so that’s not going to happen.
So again, are we looking at September? Are we still looking at even a potential rate cut for 2024? So be interesting to see from their press conference, what they release and what we can take from some of the discussion that they had to maybe forecast what it’s going to look like for the rest of the year. So again, with interest rates remaining where they are, markets have kind of hovered and been a little bit choppy, just waiting for that to kind of play itself out. So again, big press release coming up from the two-day Fed meeting that concludes today. Obviously, going forward with a couple shows when we get that, may be able to take that information and kind of dive in to see again how that impacts your investment accounts with interest rates remaining where they are or if they do end up being cut.
There was some small chatter that maybe a rate hike, which is something we haven’t heard for a little while, may be in line to get that inflation number. Inflation has been hovering around the 4% range. The Fed would like to get it down to around two, and it hasn’t been able to break down into that barrier. So again, we want to look at where that’s going to play itself out and again, how that impacts you and what we can take from that.
The other topic that again continues to keep popping itself up with meetings that we have with questions that get brought up to us, calls that we have coming in, just going to the grocery store, running into somebody having questions with it. And then again, it is Social Security, and again, when to file for the benefits, how the benefit works. If I continue to work and I file for my benefits, how is that going to impact me? When should I take it? And all those questions go into it.
And again, with that and with everything else that we do, the answer is always “Well, it depends.” And again, it’s not us skirting around the question, but you can’t answer that question with a blanket sentiment because it’s different for every single individual out there because their situations are different. Are they married? Do they have another spouse that’s working? Do they have other income? What are their other assets? How are they looking at breaking down those assets? So again, there’s a lot that kind of comes into play when you are making that decision to say, “Hey, yeah, if you retire, you should take it at this age or this age and you’re going to be good.” Because again, it’s going to be different for every single individual for their claiming.
So your Social Security benefit, just a quick refresher, the earliest for the majority of people out there that you can take it off of your own record is age 62. That is the earliest that you can file for your benefits. Now again, obviously that does not mean that everybody should take it at 62, especially if you are still working. So there’s another magical age that comes into play when making these decisions and it’s knowing what your full retirement age is. So your full retirement age is the age that your benefits are no longer reduced and any reductions… And when I say reductions, it’s if you would take it prior to your full retirement age. So your benefit’s going to be reduced a little bit because you’re taking it early. So you’re going to get more paychecks. The checks are just going to be smaller.
But we need to understand what that full retirement age is. For anybody that was born in 1954 or earlier, your full retirement age is 66. For anybody born in 1960 and after, your full retirement age is 67. If you were born in those years in between there, it’s going to fall at 66 and some odd months. So for instance, if you were born in 1955, your full retirement age is 66 and two months, if you were born in 1956, it’s 66 and four months, and so on and so on up until 1960 and after it’s age 67.
So once you find out what that benefit amount is at your full retirement age, now we can kind of start looking at what your benefit will be at the different ages, should you claim them. Now, when we have that age and you are continuously working and you are not yet full retirement age, this is the misconception that I think a lot of people have is that I’m going to just continue to work, start taking my Social Security benefits, start saving up that money, and life is good to do that. Well, that may not be the case depending on what your income level is.
There is an earnings test that comes into play. That earnings test is fluctuated every year. It’s roughly, it’s a little bit over it, but figure about 21,000 for 2024. So if you make above that limit, so if you make more than the earnings test limit in that given year, if you are before your full retirement age, for every $2 that you make above that, they’re going to withheld a dollar from your actual benefit. So again, if you make considerably above that amount, they’re going to withhold half of that difference that you make above that before you will even get a benefit. So again, it’s very important to know that because again, I’ve seen it where people have filed for that benefit early, are still working, are not yet full retirement age, and what comes up happening is that they filed their benefit, they locked in an early rate because they took it early, and they’re not even getting that benefit because of the earnings test is withholding a bulk of their checks. So they file in January, they may not get a check until August, September, October, if at all in that given year.
So again, it’s important to realize that and to understand that. Again, when you file, there’s other stuff that goes into play with it. It’s not just to file and then I’ll be good. I’ll take that money and save it because you may not get it depending on what your income is. Once you hit your full retirement age, the earnings test no longer applies. So again, if you were born in 1960, your full retirement age is 67, you’re making 50, $60,000 a year and all of a sudden you hit your full retirement age birthday and you want to turn your Social Security on, that could be a discussion that could halve it. And again, it’s not going to be reduced by any of the earnings test.
Now, that goes into the next point to say, “Okay, just because I can and it’s not going to be reduced, should I?” Again, this depends on what your situation is. Are you married? What other assets? How long are you planning to work? What is your health? All these decisions come in to make the best decision for you as an individual person. Because again, there’s a lot of times where delaying your Social Security is helping us do some other planning stuff with some of the other assets that you have. Because once you turn that on, again, not all of your Social Security benefit is going to be taxable, but depending on where your income is, it may be taxable up to 85% of what your benefit is in addition to whatever other income that you have.
So again, if we delay it for another couple years, we are again getting a bigger benefit when we do decide to turn it on, and it’s allowing us to potentially do some other tax planning procedures or whatever during that time period to maybe pay less in taxes with some of our other assets, i.e. traditional 401(k), traditional IRA, maybe through Roth conversions, using that as income to fund it for a little bit to max out that. Because again, when you are married, it’s an important decision not just for you but for your spouse as well should they be a surviving spouse and be eligible to take a survivor benefit should you pass away.
So again, there’s a lot of stuff that continues to go into when you claim Social Security. The biggest thing is not rushing into that decision. Make sure that you understand all the options that are available to you. If you do file, what is it going to impact and what will those impacts be on you from a financial situation, not just income-wise, but tax-wise as well? Because again, when you do that, there are other dominoes that are going to be impacted by what you do when you decide to file for your benefits.
So again, a lot of stuff coming in, but again, it’s important to understand what those options are. Because for a lot of people, making that decision on Social Security is an asset that’s probably going to be one of the largest, if not the largest asset that they have to make those decisions. And when you start to look at it the way things are set up with longevity, it could be an asset that is going to be paid out to you and/or possibly a surviving spouse for 30-plus years. So again, when you’re starting to look at that payment being paid out for that long of a time period, we want to make sure that we’re making a well-rounded decision and not a rushed decision to get into it to do that. Because again, it will impact you for the rest of your life when you go to do that with it.
So if you’ve got questions on that, feel free to give us a call. Let us run some numbers for you, look at some different scenarios, see how it ties into you. Because again, when you make that, a lot of times it’s a one and done decision. You can’t back and undo it or redo that when you do file for that benefit, unless there’s a few exceptions that could apply. But again, let us know. Let us help get those answers on the table. It’s too important. It’s too big of an asset to not to.
So before I do run out of time here, I did want to mention that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of June will be donated to the Clinton Humane Society. Again, this is Nate Kreinbrink with NelsonCorp Wealth Management, bringing you this week’s Financial Focus. Thanks again for tuning in, and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representatives securities offered through Cambridge Investment Research, Incorporated, a broker-dealer, member FINRA, SIPC, investment advisor representative Cambridge Investment Research Advisors, Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.