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 Inc., a dealer, member FINRA, SIPC. Investment advisor, representative Cambridge Investment Research Advisors Inc., 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. Again, hopefully everyone had a very happy, enjoyable, safe and cool, I guess as cool as you could be, 4th of July this past weekend. It was, again, a lot of great activities in the area. Obviously the 4th of July committee down at the riverfront put on another great program with the parade activities. Again, Wiffle Ball Tournament and Bags Tournament and everything that they had going on capped off by the firework show at the Lumber Kings that night. So again, another great way to showcase what we have right here in our own backyard. And again, kudos and a big thanks to the committee members and everybody that had a hand in putting that on. Again, another great event for it. Again, summer is moving right along and it’s hard to believe that we are approaching the second week here in July, and again, it seems to be you get past that 4th of July weekend and boom, boom, boom.
Next thing you know, we’re talking about returning to school, and I know kids aren’t quite obviously ready for that, but it will be here soon enough. So, enjoy every minute of it. Stay cool. A lot of great activities I think planned in the area for the rest of the summer, so take in those, support those and enjoy it. For today’s program, it seemed to be, we’ve had a lot of… Well, me personally, I’ve had a lot of questions lately regarding Social Security, and I know Social Security has kind of been front and center in the news from a different perspective, probably over the past seven, eight months regarding the taxation of Social Security and what that would mean. Obviously, the new bill that just got passed and signed into effect there July 4th, we’re spending some time kind of dissecting what was included, what it applies to, who it applies to, and so we’ll probably maybe next week talk a little bit more on that.
I’ll have Andy Ferguson on talking about taxes, and a lot of that has to do with that. So, wanted to kind of say, but again, going back to Social Security, it’s important to remember that Social Security in and of itself has never really been taxable. Okay? It becomes taxable when your income jumps over certain thresholds, whether it’s up to 50% of your benefit is taxable at your current tax rate, or up to 85% of your Social Security benefit is subject to tax at whatever tax rate you are. Again, the max that you would ever have, for example, in a thousand dollars monthly Social Security benefit would be $850 and would be taxable at your current tax rate. Not at 85% tax, but at your current tax rate. And I think that’s a misunderstanding that a lot of people necessarily didn’t really have was that again, it says that again, being tax-free is part of the tax bill or whatever, whether it is included or think in a different way with some tax deductions that are going to be applied.
But again, it never really was taxable. It became taxable when your income was over certain thresholds. So again, whether it was going to be tax-free or not, it wasn’t going to impact a whole lot of different people anyways with where we were going with it. But again, understanding how that thing was taxed in the first place. The other part of it is understanding how your benefit is calculated. So when you look at, or if you’ve got your paper statement in the mail, or if you set up your online account through ssa.gov, you can go on there and you can see what your benefit is going to be at different ages. The newer statements now up in the upper right-hand corner will have a little bar graph that says, “Again, at 62, this is what your benefit will be.” 63, 64, 65, 66, 67, all the way up to age 70, it will give you a yearly breakdown approximately of what that benefit is going to be.
Now, it’s important to remember that that benefit is assuming that you are going to be working and earning roughly that same wage that you have reported on your last reported earnings on your social security. It’s assuming that you are going to continue to work to that age and make that same income. It doesn’t mean that, hey, you can retire at 62 and still get that same amount at age 70 that that statement says. No, it’s assuming that you’re going to continue to work to that age. So that’s an important thing to keep in mind when you’re looking at those statements to say, “Okay, what does that mean and how do I change it?”
The other part of that is that it is using your 35 highest years of earnings. So again, if you have a work history and you have 40 years of earnings history that you have reported that they’re using, they are kicking off the five lowest years in using the 35 highest years of earnings to calculate that benefit amount. Okay? Now, again, it works the other way as well. So if you only have 32 years of earnings, you’re three years short of that 35, so they’re going to use zero for those three remaining years to calculate your benefit. So if you continue to work a little bit longer, and if you’re short in those years, anything that you work is going to raise your benefit because anything that you pay into it or anything that you earn obviously would then be higher than a zero.
Again, when you’re looking at, should I continue to work, do I need to continue to work? Well, that’s a decision that there’s a lot of things that go into play with that. Again, looking at what your social security benefit is, is another big part of that. So when they take those 35 highest years of earnings, they put that into their formula, and then they get what they call your primary insurance amount or your PIA. This is the amount that you would get at your full retirement age. So for anyone born in 1954 or earlier, your full retirement age is 66. Anybody born in 1960 or later, your full retirement age is 67, and if you’re anywhere in between those two ages, you have 66 and two months, 66 and four months, eight months, 10 months, and then up to where we get to 67. So again, knowing where you fall based off of your year of birth will give you your full retirement age.
That’s the year that you can take your un-reduced amount, okay? So anytime that you take a benefit prior to your full retirement age, it is going to be reduced. Basically the thinking is you’re going to get more paychecks. They’re going to be smaller, but you’re going to get more paychecks. So again, if we delay it later, you are going to get fewer paychecks, but those checks are going to be bigger. Again, as current law states, you still have that 8% increase every year from your full retirement age up until age 70 to take into account with that as well. But that 8% increase then is based off of your full retirement age amount. So again, it’s important to kind of see what that reduction is going to be and where we’re going to take it. Again, I am not here to say when people should for sure take it or everyone takes it at this one because again, it’s a personal decision.
It’s a decision that needs to be part of the overall financial plan to coordinate when those benefits are going to be. Some people, it makes sense to take it at 62. If you’re married, we need to look at coordinating the benefits for both spouses, because the other thing that I would challenge people is whether you are online and you’re looking at your statement, or if you get your paper statement, there’s a small box on the bottom of the second page that shows you exactly the total amount that you personally have paid into Social Security over your lifetime and the amount that your employer has paid into Social Security over your lifetime. Take your average full retirement age benefit, times it by 12 and see how long it’ll take you before you get your money back. Again, what we’re looking at here is, again, if you live an average life expectancy, you’re going to get on the average usually two to three times the amount that was paid in, you’re going to get back to you paid in benefits.
Again, that’s not guaranteed. Again, something passes away and we don’t get the benefits. I get all those scenarios. But again, it’s looking at it from a totality standpoint, and again, needs to be considered as part of the big planning picture. Not just because I retire, I’m turning my social security on, okay? We need to make sure that it is separate decisions and coordinating when that all is. Again, a lot of it comes into it, a lot of kind of unknowns, a lot of questions, a lot of, well, what should I do? When should I do this? How should I do it? Again, it’s different. Let us help you, let us run some scenarios. Let us look at some different claiming options that you have, and then we can make an educated decision. We can make an educated decision with all the pieces on the table that you’re comfortable with it, and again, is it going to impact anything else?
Let us know. We’d be happy to sit down with you and help out in any way we can. I want to mention a couple things here today. Every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of July will be donated to the Project People Program here in Clinton, Iowa. Another thing that I wanted to mention is that NelsonCorp is putting on a free shred event. It is this weekend, this Saturday, July 12th from 9 A.M. To 11 A.M. It will be held at the NelsonCorp Field Parking Lot. It’s 537 Ball Park Dr right down there on the riverfront. Come on down between 9:00 and 11:00 this Saturday morning, drop off some stuff.
We’re limiting it to four boxes a vehicle. Documents will be shredded on site there with it as they do with those shred event things. But again, just remember no staples and paper only. So again, this Saturday, a free shred event down at NelsonCorp Field Parking Lot. Hopefully, if you’ve got something, bring it on down to see us. So again, appreciate you tuning in today. This is Nate Kreinbrink with NelsonCorp Wealth Management, 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 Inc., a broker dealer, member FINRA, SIPC. Investment advisor, representative Cambridge Investment Research Advisors Inc., 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.