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 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. 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. Well, this is Nate. I have Mike joining me today. Winter’s here?
Mike Steigerwald:
Officially again, yes. Been quite mild, but here it is.
Nate Kreinbrink:
We’ve been fairly fortunate and knew that we were due for something at some point, and I guess here it is. The rest of the day today, the rest of the week, looks like it’s a chance for some more, so be safe. Enjoy the snow.
Mike Steigerwald:
Yep.
Nate Kreinbrink:
Make a snowman.
Mike Steigerwald:
Yeah. Kids will love it, I’m sure of that.
Nate Kreinbrink:
All those people down in Florida that got it when we did not, they’re now sitting like, “Say, hey.”
Mike Steigerwald:
They’re laughing at us now.
Nate Kreinbrink:
You get what you deserve, I guess, and that’s what we have. It’s almost there. We are almost to March. Spring training, I’ve seen, is going to be starting up here very shortly. Some of the early attendees I think have already showed up.
Mike Steigerwald:
Yep.
Nate Kreinbrink:
Football season is done. March Madness will be here before long. I’m thinking positive things.
Mike Steigerwald:
Yeah. The good thing is, like you said, the later it gets, the more likely you get in a 40- or 50-degree day sprinkled in there that’ll melt out all the white stuff away.
Nate Kreinbrink:
It will, and we will appreciate it when that day comes. Like I said, in the meantime, drive safely, be safe and enjoy it. Today’s program, I know Mike and I, we were talking yesterday afternoon when we were deciding on what we were going to go over, and obviously a lot of different topics. Last week we were on, we talked rollovers and some of those things that go along with it.
Another topic that, again, is one of the most prevalent when it comes to making the retirement decision … and again, for a lot of people oftentimes is one of the biggest assets in retirement … and that’s their Social Security benefit. There still remains a lot of questions that go along with it. A lot of, I think in some cases, misinformation, misunderstanding of information as far as what applies to them, when it applies to them.
The, “Yes, you can do that, but,” they don’t understand all the buts that go along with it. Again, a lot of times that decision is irrevocable. You make it and you’re pretty much stuck with it to, again, live with a reduced benefit, live with a penalty, live with whatever the case it may be. Again, anything that we can do to continue to educate that.
Again, when we look at Social Security, we look at it as one piece of the retirement puzzle. One adage that I’ve always said, and it still remains true, is that when you retire and when you claim your Social Security benefit needs to be two separate decisions. I think a lot of times people lump that as one decision, that, “I’m retiring yesterday, I’m turning my Social Security on tomorrow.” That may not always be the case.
Mike Steigerwald:
Yep, and it comes down to, again, a similar type situation that we talk about on the show, which is your situation is your situation and only yours. Between you and your family, do you have the possibility of two Social Security benefits? Is it just you? All of these things play a factor into making these decisions, which again, to your point, Nate, sometimes are irrevocable, and are pretty big decisions. Having some strategy behind it, thinking about what the various scenarios are, and it could be for you today and long-term are key in making these decisions.
Nate Kreinbrink:
Absolutely. Again, when you look at those decision-makings, I mean, I still get the whole thing is like, “I’m going to take it as early as I can, because I don’t know how long I’m going to live.” Well, that’s the magical question right there, is you tell me how long you’re going to live and we’ll tell you exactly when you should take it to maximize that benefit. I joke with people and say, “Well, no one’s ever given me that right answer yet,” but I think we need to change the way we think about that benefit. In most instances it’s think of, okay, what if you do live longer than what you thought you were?
Mike Steigerwald:
Right?
Nate Kreinbrink:
Right? Instead of planning to live shorter, what if you live longer, which again is a reality in today’s world. With advances in medicine, people are living longer and everything else. Again, having that larger benefit to, again, 30 years instead of, again, thinking you’re only going to live 20, and now all of a sudden I’m 30 years into my retirement and, gosh, I wish I would’ve had a little bit more when I took it.
Mike Steigerwald:
Yep.
Nate Kreinbrink:
Those are the kind of decisions to do it. Like you said, sometimes that decision impacts everything else. The one I think that is largely misunderstood is the earnings test. The earnings test basically applies if you file for your benefit before your full retirement age. For anybody that was born in 1954 or earlier, your full retirement age is 66. Anybody born in 1960 or later, your full retirement age is 67. If you fall in there, it’s 66 in two months, four months, six months, eight months, ten and so on, depending on the year you were born.
Depending on when you were born, if you file for your benefit before that full retirement age of yours, the earnings test comes into play. Basically what it’s saying is that if you file for your benefit and you have earnings, if you make above a certain amount, they are going to withhold a dollar for every $2 that you make above that limit. When I say withhold, they’re basically going to reduce your benefit by that amount. Again, when you hit your full retirement age, they gradually pay you that money back, but again, you are essentially locking in a lower benefit by taking it early, and if you’re still working and have income above that threshold, you’re not even getting all of your benefit. It’s a double negative for that, in the sense that you’re getting a smaller benefit and you’re not even getting all of that smaller benefit.
Again, as a general rule of thumb, again, if you are going to file for your benefit before your full retirement age, you need to make sure that your earnings are below a certain threshold in order to avoid that reduction. That’s where it goes into it a lot where people don’t necessarily understand that. They know there’s something within income, but they don’t necessarily know what it is. Then a lot of times, people misunderstand that. Their full retirement age is 65, because that’s what Medicare is. Well, it’s different.
Mike Steigerwald:
Not the case. Yeah.
Nate Kreinbrink:
Nothing is that simple in claiming …
Mike Steigerwald:
Of course not.
Nate Kreinbrink:
… with any of these things. Again, understanding all of that, and like you said, I mean, there may be some planning opportunities that people may want to look at with that.
Mike Steigerwald:
Yeah, and to look at the opposite side of that, Nate, and saying, “Wow, I’m working, and I’m past 62, still working.” Yes, could retire, flip on my Social Security income stream. In the reverse of that, if I stick it out and stay working an extra six months, an extra year, an extra two years, those are typically going to be higher income-earning years, which may end up even increasing your benefit when you do decide to take it, when it comes that time.
Nate Kreinbrink:
Right. When you go into that, I mean, the factors in the equation that they use is they use your 35 highest years of earnings. Again, if you continue to work and you have more than 35, and you have a higher earning than one of the previous 35 that they’re using, it’s going to take that higher income and kick out the lowest one, essentially using a bigger amount in your equation when they determine the amount that you’re going to get.
Again, to continuously work, one, avoids having to take that benefit. It potentially increases that benefit, and allows you to do a few more things as far as maybe some planning and retirement planning, looking at your cash flow. Another year of income where I don’t have to necessarily tap any retirement assets or anything to fund that retirement. Again, there’s a lot that goes into it.
On the flip side of taking it early is potentially delaying it. Again, any year, for every year that you delay it past your full retirement age up until age 70, your benefit increases by 8%. 8% is a pretty hefty number, especially when you start looking at some of the uncertainty in the markets today. If you have an asset of yours that you know is going to guarantee 8% rate of return for a given year up until I hit age 70, that’s kind of tough to turn down.
When you start looking at that benefit, and if you’re married and if your benefit is the bigger benefit between the two of you, that’s the benefit that’s going to continue on should the unfortunate happen and one of the spouses pass away. When one of the spouses pass away, one of the benefits stops, and the bigger benefit, it continues on. Again, you may not be delaying it just for your lifetime. You may potentially be delaying it for a surviving spouse during their lifetime as well.
Mike Steigerwald:
Yep, absolutely. Those are all, again, very specific decisions to each individual case, and you know the importance of asking the questions and using your resources to make sure all of your questions get answered, and that we can help come up with a plan that makes the most sense for you and your family.
Nate Kreinbrink:
I think when you look at what your benefit is, it’s a little tougher maybe than what it used to, as there’s not as many. They’re not sending out that paper statement annually like they used to. Again, there’s certain ages where you hit where they’ll start to send it out. If you have ever signed up for an online access through SSA.gov for your account, you will never get that paper again. You would have to log back into your site online to get that information. The good news is it’s up to date. Whenever you log in, it’s current with it.
It also gives you a chance to, again, verify your earnings, look back over your years of work history, make sure that those incomes are fairly accurate compared to what they should be, and then again, understand what your income is. Again, the way they have it now, I mean, you can look at every age. You can look at 62, 63, 64, 65, full retirement age, 68, 69, 70. You can see the increase each year that that benefit goes up by waiting an additional year. When you look at that, now you can make a more educated decision as far as when you should claim it, and have a better understanding as to what those amounts are going to be.
The other thing I always get people to open their eyes a little bit is when you look on the website, or if you do get a paper statement, towards the bottom of Page 2, there’s a little box on there that actually shows you the exact amount that you personally have paid into the Social Security Administration and the amount that an employer has paid into the Social Security Administration on your behalf.
When you add those two numbers up and just take an average 20- to 25-year life expectancy and see, okay, how much you would get back versus how much that you paid in and how much was paid in by your employer, you can kind of see, again, you are getting your money back. Living that average life expectancy, you’re going to get your money back and then some, as far as what you paid in. It’s not like, again, great-grandfathers, great-great-great-grandfathers, again where they worked to age 65 and the likelihood of them living another 10 years was fairly slim. Again, people are living longer, and again, we need to plan for that.
Mike Steigerwald:
Correct.
Nate Kreinbrink:
Again, you have questions with Social Security, you have questions on when to file, how to file, what this means, does it apply to me, there’s a bunch more that we can get into that, again, unfortunately we’re going to have to run out of time here before we can get into, but some different laws that are going to be tweaked and changed. Most notably, for those Illinois schoolteachers, those spouses of Illinois schoolteachers, people that worked for the railroads, and any other job where you may not have paid into Social Security and then up until now would not have been eligible for benefit, rules change. I think it’s going to be in your favor too, the way they’ve changed.
We will get into that on future shows, but did want to mention real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of February will be donated to the Therapy Dog Program at the Clinton Public Library. Mike, thanks for joining me.
Mike Steigerwald:
You bet.
Nate Kreinbrink:
As always, Nate and Mike, bringing you this week’s Financial Focus. Thanks 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 the 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.