What’s the best way to maximize your Social Security benefits? In this episode, Tommy and John dive into this critical topic with expert Elaine Floyd, CFP®, who shares insights from her extensive experience in retirement and life planning. Elaine explains the intricacies of Social Security, emphasizing that your benefit and retirement strategy should be tailored to your unique situation, rather than following a one-size-fits-all approach.
Listen in as Elaine discusses the importance of viewing Social Security within the broader context of retirement planning and how delaying your benefits can be a form of longevity insurance. You’ll learn the four key strategies to maximize your benefits and how potential changes to Social Security could impact future generations like Gen X and Millennials.
Listen to the full episode here:
What you will learn:
- What piqued Elaine’s curiosity about Social Security. (3:30)
- Why the younger generation isn’t as fortunate coming into retirement. (7:45)
- Potential changes to Social Security. (10:00)
- The benefit of delaying your Social Security. (13:00)
- How to plan for longevity in your life. (20:20)
- Who might be impacted by the proposed wage cap. (31:15)
- Common myths or misconceptions around Social Security. (40:00)
- Whether Social Security benefits begin as soon as you turn 62. (45:30)
Ideas worth sharing:
- “Your primary insurance amount, the amount that you’re going to get when you claim your Social Security, is not officially calculated until you turn 62.” - Elaine Floyd
- “Claim your Social Security later, which is equivalent to buying life insurance, in case you live a long time. It’s longevity planning.” - Elaine Floyd
- “Social Security is not viewed in isolation. It needs to be viewed along with the person's other retirement resources.” - Elaine Floyd
Resources from this episode:
- Elaine Floyd: LinkedIn
- Social Security Intelligence Member's Group
- Mason & Associates: LinkedIn
- Tommy Blackburn: LinkedIn
- John Mason: LinkedIn
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Read the Transcript Below:
Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.
John Mason: Welcome to the Federal Employee Financial Planning Podcast. I'm John Mason, President and Certified Financial Planner at Mason & Associates. Folks, this episode is going to be so fun. You do not have the usual crew today. You have Tommy Blackburn, CPA, CFP, PFS, and with us, a very special guest, Elaine Floyd.
So before I introduce Elaine, I would like to read Elaine's bio and then absolutely, we're going to bring Elaine right into this podcast. So Elaine Floyd, Certified Financial Planner, Director of Retirement and Life Planning at Horsesmouth, LLC. Elaine Floyd is a Certified Financial Planner and Director of Retirement and Life Planning at Horsesmouth, a company that provides education and support to financial advisors.
Elaine began her career in 1981 as a registered representative for a major wirehouse and received her CFP designation in 1986. She is an authority on social security and medicare rules and strategies as a result of her intense interest in the subject and analysis of hundreds of cases which have been brought to her by subscribers to Horsesmouth’ Savvy Social Security Planning program.
Since 2008, she has answered over 20,000 advisor questions and has been quoted in leading publications, such as the New York times, Wall Street Journal and the USA Today. Ahe holds a bachelor's degree in psychology from UCLA. and currently resides in Palm Springs, California. Elaine, super impressive resume.
We are so fortunate to have you, to have Horsesmouth, Savvy Social Security, kind of on our team at Mason Associates. One, producing this podcast, but the technology that we've implemented in our business, we're so fortunate for everything you've done in your career. Welcome to the Federal Employee Financial Planning Podcast.
Elaine Floyd: Thank you, John. I'm so happy to be here. Thanks for having me.
John Mason: Well, it's definitely our pleasure. And Elaine, I think for our audience, we have federal employees throughout the country listening to what we're producing. And we've done a few episodes on social security previously, but this is going to be really unique because you have over three or four decades of doing this.
Elaine Floyd: I do. As you mentioned, I was a financial advisor in the 1980s and when I was working as an advisor, we didn't really have much to do with Social Security at that time. In fact, we told most of our clients, “Don't count on it. it probably won't be there when you go to retire.” And so it actually, in hindsight turned out to be good advice because.
People became then responsible for their own retirement. They started funding their retirement accounts and that was definitely a good thing, but my curiosity about social security was aroused in the early nineties. I was writing a book on retirement planning and I started studying the social security system in more detail and learned a lot about how the benefit is calculated.
I learned about the formula. I was very curious, actually, from my own standpoint. I wanted to know, when I go to retire, how is my benefit going to be calculated? When I go to claim my benefit, how will I know it's correct? And number three, is there anything I could do between now and then to improve my benefit? So those three questions basically drove my curiosity and my research into Social Security. What I learned is–what really blew my mind was the way the math worked. Now, we all know that if we look at our Social Security Statement, and we see that we can claim our retirement benefit as early as age 62, but if we wait until 63, 64, up until age 70, the amount will be higher.
And it shows on the Social Security Statement a little stair step graph that illustrates that, you know, higher benefit as you get older. The Social Security actuaries determined the formula based on the entire population, based on mortality statistics and all of that. So as it turns out, Social Security, the system itself, doesn't care when you claim your benefit.
They don't care whether you claim it early and get less or claim it later and get more. But what matters is for each individual person, of course, they have their own situation. And in doing the math of it, I realized that by the time you add in those delayed credits, you add in cost of living adjustments, and then if you outlive what's called the break even age, you can get far more in social security benefits over your lifetime than if you had claimed earlier.
And it's this math that I started doing early like in the 90s, I started working on this, that really kind of launched my career really as a social security expert.
John Mason: Well, it's amazing that your curiosity has sparked kind of like the fuel to the fire, like really ignited something in this industry because I think social security originally, when it started back in like 1935, really designed as a lifeline.
It was like how do we make sure that the elderly, our seniors in our population basically aren't destitute if they haven't saved something, right? So it started out as a lifeline and through certified financial planners and financial planning and everything that we're doing, three CFPs on this podcast, it's turned into like a luxury retirement planning vehicle and not a lifeline, hasn't it?
Elaine Floyd: Yes, it has. And primarily because of all of the people that we counsel don't count on social security, they started funding their retirement and now they're in retirement and pretty set as far as their own assets are concerned and then the social security on top of that, and it really is turning out for, let's call it the older boomer generation, are pretty well set now. It's starting to change, I have to say, because in thinking about how the generations approach social security, as I said, the boomers, the older boomers weren't counting on it.
The younger boomers, yes, and Generation X coming up behind because social security has been so much in the news because boomers have been collecting their benefits. It's just sort of in the zeitgeist now. Everybody's talking about social security. So these younger people coming up on retirement now aren't quite as well set with their own resources. They have been counting on social security. And you're absolutely right that at this point in time, social security is no longer the lifeline that it used to be, especially with the clients of financial advisors. But we definitely cannot do away with Social Security because there is, if we do, if benefits are substantially cut or if the system were substantially revised in some way to even if it were to go away, we would find ourselves back in the situation we were in 1935 when Social Security was enacted because of widespread poverty.
John Mason: It's fascinating. We have been counseled for so long. You counseled, Mike and Ken counseled, our other friends in the industry have counseled folks to not count on social security. And we're not throwing boomers under the bus. Like if you're watching this on YouTube, Tommy and I are millennials.
Elaine's not a millennial. So we're not throwing an entire generation under the bus, but millennial or boomers are going to have an interesting thing because they likely won't be impacted, I would assume, by any material changes that come to social security. You mentioned Generation X and that, I think we've read Generation X can be maybe a little angry, like they're not boomers and all of these changes, like maybe they're the first generation that could be impacted by all of this stuff.
So I'm curious, do you think, what do you think the changes will be to Social Security? And for our audience, we're not saying that we have any inside information, but all three of us have been dedicating quite a bit of our life to understanding Social Security. And Elaine, your thoughts on what potential legislative changes could be coming, we see it debated. It was asked the other night in the presidential debate, what changes? And I don't know if any questions were actually answered during that debate.
Tommy Blackburn: I don't think you had clarity out of those answers.
John Mason: So what do you think is coming and who do you think is going to be impacted first? Is it going to be Gen X? Is it going to be us, the millennials?
Elaine Floyd: Okay, huge question. First of all, before I get to that, I want to say there is a feature embedded in the formula that all of you youngsters who haven't claimed Social Security yet don't even know is coming and it's a good thing. And it is this.
We are all familiar with the Social Security Cost of Living Adjustment, right? Every year, benefits are adjusted upward for those of us who are already receiving our benefit. Benefits are adjusted based on the cost of living, which is tied into the Consumer Price Index, right? As prices go up, our benefits go up.
Alright, there's another index called the Average Wage Index, and for people who are under age 62, they don't know it, but their benefits are increasing. Their future benefits that they're going to receive are increasing in line with increases in wages. Wages tend to increase faster than prices. The average, I think, over the past 20 years, the consumer, the COLA, the cost of living adjustment, has averaged about 2.6% a year. The average wage index has gone up about 4% a year. So the good news for all of you who haven't claimed yet, who aren't 62 yet, is when you get there, your benefit will be probably higher than you expect. It will replace a larger percentage of your income than you think it might.
So there's that. That said, that itself is one of the things that might get changed. And there's a lot of talk in the industry about potential, possible changes to the social security formula, and it all comes down in the end to a matter of either raising taxes or lowering benefits, one or the other, or a combination of both, right?
When we talk about lowering benefits, it could take the form of raising the full retirement age. It could be any number of things, but one of the things that has been considered is that slowing of benefit increases. As I mentioned, benefits are rising in line with wage increases. That could change.
That is one of the formulas that could change. So for those of us who have studied the system, who know, who understand all the nuances about how the formula works, there are a million ways that formula can be tweaked to restore solvency to the system without really hurting any one group of people very much.
John Mason: I have so many questions. I know Tommy does too. So Tommy, I'm going to fire away some questions and then you please hop in with some questions that you have. So Elaine, admittedly, I don't know this answer. So we have the average wage index and then we have the CPI. So if you're receiving benefits, that's a different category.
So I know your story, hopefully, you're okay sharing. You delayed your benefit until 70. So as you were delaying, you got the one, you didn't get hammered for claiming early. Then you got all the delayed credits at 8% for delaying past full retirement age. And you worked so your high 35 got even higher.
Are we also understanding that because the average wage, so the average wage index also got higher. So is it, did you benefit from not claiming early, delaying the average wage index and CPI? Do you benefit from all four of those by delaying?
Elaine Floyd: No. Not the wages. So up until 62, age 62, it goes up with average wages from 62 on.
So here's the other thing that people don't know this because it's not really advertised and it's not apparent on your statement, but your primary insurance amount, the amount that you're going to get when you claim your Social Security is not officially calculated until you turn 62. If you're under 62 and you're looking at your Social Security statement and it's showing you how much you can expect to receive when you claim, those are estimates.
They're just estimates. But once you turn 62, your benefit is, I won't say locked in, but it is calculated based on bend points and your earnings are tabulated. I won't go into the whole formula here, but age 62 is when that happens. And then once your primary insurance amount is calculated at 62, it's adjusted each year for the cost of living. So prior to 62, it goes up with wages. After 62, it goes up with prices. So you're right, and I do like to emphasize that I consider myself the poster child for maximizing Social Security because I delayed claiming. I didn't claim until I was 70. I've continued to work.
So I've improved my benefit each year. So even though I'm already receiving my benefit, I'm still working, I'm still paying into Social Security, and every year I get a little bit of a bump in my benefit. And then those cost of living adjustments have also increased. So to give you an example, I just did a calculation.
When I turned 62, at that time, knowing that's when my PIA was going to be calculated, I calculated it, and because I didn't trust them, I calculated it by hand, downloaded the worksheet, calculated my own PIA, and if I had claimed my benefit at 62, I would have received around $1,500 a month.
Well, I knew better than that, I kept working and I knew that I should delay so I ended up claiming my benefit at 70. I am now 78. So I've gotten the benefit of all of those costs of living adjustments, all those years of earnings. And then of course the delayed credits, my benefit now, $4,600 a month.
John Mason: Unbelievable.
Tommy Blackburn:So very material difference there, definitely from cashflow perspective. It's always good to hear those live examples and to put some numbers versus just percentages behind it. I think it's easier for people to relate to the numbers, the dollar figures that is.
You started off talking about a breakeven age and that's a question I think John and I ge, all of the advisors here at Mason, as we're counseling folks on a social security strategy. It's usually a common question of, “Well, what's the break even age?” And since you've now gone through this, as you said, the poster child, I was curious if you wouldn't mind commenting on that break even age question.
Elaine Floyd: Sure. So financial advisors have historically approached the social security claiming age from a break even standpoint. So basically, you can either claim early and get a lower amount, or you can claim later and get a higher amount. So that's the choice. And the question is, and this is where the math comes in, at what point, at what age will you be better off having claimed at 70 when in terms of total cumulative benefits?
And this is the kind of thing that people can't really figure out just by looking at their social security statement. And this is why we created software to do this math. But, basically, in a nutshell, it comes down to if you were to compare claiming at 62 versus claiming at 70, and again, it doesn't matter what your benefit amount is, but just comparing those two, possible claiming ages, your break even age would be about age 78. So if you were to live longer than age 78, you would receive more total benefits by claiming it's 70 versus 62. This is why I'm out on the stump with this message now because I just turned 78 and so many people, when they're 62, they go, “Oh, 78. That's a long way off. I'm probably not going to make it to 78. I probably won't live that long. I'm going to go ahead and get my benefit now at 62.” And I'm here to tell you 78 is not that old. Most of us are going to live longer than 78. And that's why I'm very much advocating delaying claiming if possible.
John Mason: People make decisions out of fear all the time. And sometimes they also make Illogical statements, Elaine, we shared this on a thing you and I did together where we were co-presenting and as financial advisors, we have to, “Do we have a life insurance hole? Do we have an estate planning hole? What's our social security game plan?” And humans are funny because let's say you identify a life insurance need and you're like, “Hey, Joe and Sue, we should really think about a term life insurance policy.” And then Joe and Sue are going to say, “I don't need that life insurance. I'm going to live forever.”
And then you flip it around and you're like, “All right, well, we should definitely delay social security.” And they're like, “Well, I'm going to die tomorrow.” Well, like, well, you can't have it both ways. And people do have this, maybe it's not irrational, but a fear of not living long enough. And you mentioned 78 or 79 is the breakeven. You're factoring in, your software's factoring and things that you can't just like jot down really quickly on a 3x5 note card.
Elaine Floyd: Yeah,
John Mason: And only one spouse, if you're married, has to live that long, right?
Elaine Floyd: Yeah, exactly, only one spouse and the other part of it is people tend to think of Social Security a lot of times from an investment standpoint. “Oh, I could take that money early and invest it and make more.” We like to think of Social Security more from an insurance standpoint, a protection standpoint.
And so the reason people buy life insurance is on the off chance that you die early. So we're saying Social Security, claim it later, which is equivalent to buying life insurance, basically, in case you live a long time. So it's longevity planning. It's planning for the worst, which is a very long life, right?
Tommy Blackburn: That is very well said. And I think too, as we tell people, as you went into, we've got those cost of living adjustments. So it is that long life of not only do we live long, but if inflation is higher, we've got a natural built-in protection there. I don't know if anything fully captures it.
Maybe it does. Our softwares are fairly robust. We get excited too about what we call the tax window, which if we have the resources is saying if we can push off that income, all of a sudden we've created a little bit more tax planning window. Because we know social security and required minimum distributions are coming so we have a window of creativity potentially.
Elaine Floyd: Yeah. And John, I want to follow up on one thing you said about only one spouse having to live, longer. And, again, this is just such an important aspect of social security and that is the survivor benefit. And if one spouse dies, and if that spouse's benefit is higher, then the other spouses, then the lower-earning spouse will step into that higher benefit.
So we talk about husbands and wives, higher earners, lower earners. In the vast majority of cases that I've seen, it's the husband who is the higher earner and who will statistically die sooner. And so the strategy there is for the husband to claim at 70 to maximize his benefit, get the most that he possibly can while he's living and then once he passes, his benefit will presumably pass on to the surviving spouse and then as long as she lives, it will continue. So this is like the key way to maximize social security is by having the higher-earning spouse claim at 70.
John Mason: We absolutely, you know, your software does such a good job and we should probably come back to the software at some point.
It breaks down for financial planners and we show this to clients all the time, kind of like the four main strategies of claiming social security. Both claim early, both claim at full retirement age, both claim at 70. And then there's a really nice one that's like one person claims at 62 and the other claims at 70.
And that tends to be our favorite, one, because it seems to be the most digestible and like tolerable among humans. And the number two is if you only get to keep one benefit post-death, you want the highest one. And you also kind of want the biggest dispersion between the highest and the low, at least in our opinion.
So we're big fans of it's strategy three on all of the PDF outputs where one claims early and one claims at 70. And we use that, for all the reasons you just said, Elaine, but there are folks on this podcast who retired military, have a 40,000-dollar pension and declined survivor benefits. So when they die, their military pension dies with them.
Maybe we declined survivor benefits on FERS. Maybe we have a VA disability that won't pass to the spouse. Maybe we have an ex-spouse who's getting a portion of retirement. There are so many things that pop up, but one of the things we can do is buy that insurance by delaying until 70. Maybe that allows us to kind of right a wrong here and kind of fix the fact that maybe we don't have survivor benefits on a military pension, for example.
Elaine Floyd: That's great. And I just real quick, I want to mention that social security, of course, is not viewed in isolation. It has to be viewed along with a person's other retirement resources. And that's, of course, what you do, and it brings such value to the client relationship.
Tommy Blackburn: While we're on the survivor, as John and I were chatting ahead of time, I was trying to think of some common questions that we get. And on the survivor one, I think one we'll get to is, “Well, that's great, John,I'll commit to delaying,” and many times we counsel people, it's just a month-by-month commitment to begin with, right?
Like we can always go back and file, there's ways to retroactively file, but if we do this strategy, then the question is, “Okay, I've made it to 68 or maybe 69 and I die before I ever filed, like, did everybody just lose out on me delaying?”
Elaine Floyd: That's a great question. And the answer is that if you're delaying your benefit and you die, the survivor benefit to your surviving spouse will be the amount that you would have received if you had claimed your benefit that month. So it would include all the delayed credits month by month, up until your date of death.
Tommy Blackburn: So we still did get the benefit of the strategy, particularly that insurance for our spouse. Maybe we didn't get to get it as big as we wanted, but we do get credit. So to speak for the amount of time we delayed.
Elaine Floyd:Yeah, for sure.
John Mason: Elaine, we were kind of game planning during this podcast and we were talking about the changes that have, it was spooky, wasn't it? Those were scary changes that happened back in 2015.
It was Halloween, I believe. And if I'm getting my story right, if it's not completely accurate, it sounds good, is I'm pretty sure there was a presidential debate, something was happening, and the question was along the lines, like what changes are happening to social security? What are you going to do to fix it?
I'm pretty sure whoever was on stage said that no changes are coming. And then that night, bam, a bomb went off and all of the advanced social security claiming strategies, file and suspend, claim now, claim more later. These strategies went away seemingly untalked about. Nobody noticed unless you were working with a financial planner.
The question that's kind of a three-part question is did you know that was coming? How did they do it without like, they never asked our opinion. They're like, “Hey, John, Tommy, what do you think?” Or, “Hey, everybody that's been paying into this for 30 years, what do you think?” so how did they do it? Did you know it was coming?
And earlier in our conversation, you mentioned average wage index as a potential thing that may go away. And I would like you to elaborate on essentially like what can be changed, what has to have a law passed and what can just like, they just slide through without anybody knowing.
Elaine Floyd: That's a really good question. And just to fill people in, the changes that you're talking about that happened in 2015 didn't affect a lot of people. There was a strategy, there were a couple of strategies that we were recommending that were allowed married couples to squeeze a few more dollars out of the system without going into great detail on it because people can't do it anymore, so there's no point in really talking about it, but I knew about it, it had been talked about.
It was kind of like one of those too good to be true things. And I knew that it was doomed just because, and what they said at the time that they changed, it was only people wealthy enough to have financial advisors were using this strategy. And it basically took advantage of spousal benefits in a way that was never intended.
Spousal benefits are supposed to be for non-working spouses or very low-earning spouses. And so that was the reason for the change in the rule. Now, when we talk about potential legislation, and yes, we were blindsided in a way by that rule change. It's like, wait a minute, we thought Congress had to act in order to make major changes to Social Security.
It does when it comes to the benefit formula and certain things like that. But what we were talking about there was just a change in, being able to claim a spousal benefit. before you claimed your own. And so I think when it comes to major changes that people are going to really notice, that's really going to affect people's benefits, those are going to have to be hammered out in Congress.
And we're going to know about it far in advance. Usually, when they do something like this, they phase it in over a long period of time. The last time Social Security was majorly changed was in 1983. And those amendments phased in, that was where the, full retirement age was raised from age 65 to age 66, and then eventually 67, phased in over a very long period of time. And so I think that if we're talking about most likely, situation, that would be it. That it would be, Congress would be smart about implementing some combination of tax raises and benefit cuts in a way that would hurt the fewest people and it would be phased in over a long period of time so people could plan for it. And that's how we think it will play out. Of course, we always have to say, politics is politics and nobody knows really what's going to happen.
Tommy Blackburn: I'm curious as we talk about some of the potential solutions here and it is all educated guessing, I think, and conversate, but you know, as you said, who knows what they'll ultimately come up with.
So one is pushing back that full retirement age. You mentioned, and then you've also talked about the inflation adjustments and that they could change the formula to kind of water down the crediting of inflation, how that's calculated. Another one we hear of, and maybe as a working professional, it comes to our mind more, I wonder if that falls into this camp of tax increases, is removing the wage cap.
So currently there's, I don't remember what it is right now, it's about 170,000 I think, once you earn more than that, it adjusts with inflation, you stop paying social security taxes. And is that what you mean when you say a tax increase, or is that just one of the potential tax increases?
Elaine Floyd: Yeah. That is one of them. So yes, there's been, and this is one that has, of all of the things that have been proposed, a fairly high likelihood of passing, and that would be either raising that wage cap so that people are paying Social Security taxes on all of their wages instead of just up until up to that 168,000, I think it is now, or another thing that's been proposed is to keep the wage cap in place, but then tax, earnings over 400,000.
So only the very high income then would people would be paying the 6% on their wages. And then as that tax cap is adjusted for inflation, it will eventually get to 400,000 and then, social security taxes will be collected on all wages, and this would go a long way toward, reducing that funding gap and restoring solvency to the social security system.
Tommy Blackburn: And out of curiosity, if they remove the wage cap, does that change the benefit calculation for folks? Now, you would have earnings being taxed at up to like 400,000 of wages or something. So does that mean you pay more in but your benefit would be higher as well?
Elaine Floyd: So that is one of the things that they're talking about. One thing would be that they would just tax it and not change the benefit formula. Another proposal would be to tax it and add a new like tier to the benefit formula so that you would because they don't want social security to be discounted by wealthy people. Everybody needs to buy into the social security system and it's very important for high earners to also buy into social security, basically. Yeah. And so that would be another thing. It's a great question and nobody knows the answer, of course, at this point.
John Mason: And social security is already kind of like disproportionately proportional or it's not, I wouldn't necessarily say it's fair in the formula, but maybe it is fair in like general context of life.
But the lower income you make, the higher income replacement you have from social security. As you get closer to that wage base, you are replacing less and less as a percentage of your total income. So I think, Elaine, what you're saying is if we have this new tier. You're not getting a dollar back for every dollar you put in.
Maybe you're getting 10 cents back for every dollar you put in as an example. So that spread's only going to naturally get wider, I would assume, if a new tier is introduced.
Elaine Floyd: Yeah, that's exactly right.
John Mason: And you had mentioned, sorry, Tommy, you had mentioned the 400,000, so sometimes we hear that as like a donut hole.
Like you hit 170, then nothing, and then it picks up again at 400. Is there any talk that they want to start taxing? I say they like Congress, D.C. The infamous they. They want to start taxing more and they're going to have to because it's a revenue and a spending problem. Is there any talk that we're going to start now doing things like we've done for Medicare where we have the additional capital gains tax, we have additional taxes that now all of a sudden we're going to be paying social security on capital gains, investment income, interest income. Is there talk of that coming to, or are they just going to stop it at wages?
Elaine Floyd: There is talk of that, yeah, there is. It's like with Medicare and the, income-related monthly adjustment amount, the IRMA that we all know and love. It's basically a tax.
You can call it sneaky. You can call it a stealth tax. You can call it a smart way for the revenue, for the government to raise revenues. There are all kinds of ways to do this. And it's great that you're bringing this up, John, because people just kind of need to think outside the box in terms of all the possibilities that could happen.
And again, it comes back to our own planning. We can debate politics all day long. We can even get a little bit angry about what the politicians are doing or not doing. We can be worried. We can be fearful. We can be anxious. All of those things. But it comes back to how does this affect us and how we're planning for our own retirement and planning for the possibilities.
And like I said, back in the 80s, we told people about Social Security probably won't be there. And so people planned and that never stops. You just plan for your own retirement, your own situation. And you account for all the different possible things that could happen, but certain things are beyond our control other than, just planning for ourselves.
Tommy Blackburn: Control. Control what you can control is another saying. I think that's essentially what you're saying. Instead of getting too caught up in fairness or politics, it's what can I control in my plan and move there and make adjustments. I have some other questions and John, I was even kind of wondering revisiting the spousal benefit and maybe just explaining how that works.
But I realized we're also running on time here. We still have some time, I believe, but I want to respect that. So John, I have questions. However, if you wanted, if there's a path you wanted to go down in the interest of time, please steer us in that direction.
John Mason: Well, maybe we can, Elaine, go into like a rapid-fire round a little bit if you're okay with that, and these are some of the questions that I think we know all the answers to, but you may surprise us, and I guess I just want to say as we kind of leave the legislative topic and move on to the rapid-fire, in conclusion, is that We have to have a resolution to social security.
For those of you that are thinking I'm going to claim it now while it's good before changes are going to be made or there's reduced benefits, I think Tommy and I have long said that if they're going to reduce my benefits by x percent in the future, I want it to start off at the highest possible number.
I don't want to take a 25 or 30% reduction, start it early just to have it then further reduced even more. So if there's a benefit reduction coming, we would still say that delaying until 70 makes sense. And there are so many jobs in this country, guys, that are manual labor type jobs that are physically demanding that the answer cannot be push full retirement age back to 80 years old because Elaine, you're crushing it at 78, Mike and Ken are crushing it in their 60s. Tommy and I are just trying to keep up with all of you in our 30s. And the fact of the matter is there's a lot of people that can't get up and go to work at 78 years old anymore. So we have to have some sort of pathway for those folks to have reasonable benefits in their early 60s because that's when your back, your neck and your body doesn't allow you to do the things you've always done.
So I'm just putting that out there. And as we head into the rapid-fire round, Tommy, why don't you go first?
Tommy Blackburn: Well, what are some common misconceptions? we'll start back to some other questions, but I think it's a fun one. What are some common misconceptions you hear?
Elaine Floyd: Oh, gosh. Misconceptions. Well, first of all, I subscribe to a Facebook group. It's called the Social Security Intelligence Members Group, and anybody could, if you're on Facebook, you could join this group. Social Security Intelligence Members Group. And I scan this thing every single day and people come up with some really complicated questions in some cases, surviving spouses and just lots of different situations are presented there.
And then you see the comments and so many of them are just so so far off base. It is just, it's really incredible. I can't think of any specific examples right now, but they basically have to do with divorce spouse benefits, survivor benefits, things like that, dependent benefits that people just aren't clear on.
And I will say too that this is a long list. This is a service I should say that financial advisors can bring to people in terms of coordinating retirement benefits with other, it's called auxiliary benefits that people may be entitled to their survivor benefits, spousal benefits, divorce spouse benefits.
If you're divorced, you were married more than 10 years, and your ex dies, you could be eligible for a survivor benefit based on your ex. Maybe that marriage happened 40 years ago and you think your ex is out of your life and that marriage wasn't relevant anymore. Social security time, it could be.
So there are things that you talk about, myths or misconceptions. I think most of them revolve around these auxiliary-type benefits. And a lot of people don't know they're eligible for them or they don't know when they can claim them. They don't know what the rules are for them. And a lot of money is being left on the table because people just don't know.
Tommy Blackburn: Well, this is, interesting. Even as I think about practical implications, so we know there's a divorce benefit out there, my understanding, and please correct me if I'm wrong, is in order to pursue that further, just to get information, we usually need to go to the social security office. I believe you probably had to make an appointment these days to do that to then inquire what is my benefit I'm entitled to just to even get that piece of information. Is that correct?
Elaine Floyd: Yeah, it is. And it's always a challenge when it's a divorce situation because they won't give out that information until you're ready to apply for the benefit. So the divorce spouse benefit would be 50% of his benefit, right? And it has to be more than your own. And so a lot of divorced spouses don't qualify for a divorced spouse benefit because they've been working. They've been developing their own earnings record and have their own benefit, which is more than half.
But, as I mentioned, when he dies,that survivor benefit could be more because that's a hundred percent, not fifty. And so that's an important thing for anyone who's divorced to understand. But again, yes, they would have to make an appointment to go into Social Security to get information about that.
John Mason: And really quick, because those are all really great points, in 2015, one of the rules that changed was claim, get some benefits on your spouse and delay yours until 70. And that's no longer, that's gone now. If you're a married couple, that's gone. But this claim now, claim more later strategy does still exist for survivors. So if your spouse dies, you could claim a survivor benefit until you're age 70 and then flip on your own retirement benefit. You could start yours at 62, claim the survivor at 66 or 67, and then all of this kind of like trickles down to the divorce spouse. So if you're looking for advanced claiming strategies and options that don't just put you in this deemed filing status all the time, then survivors, widows, widowers, you're going to have some additional opportunities.
We've used, for the audience, SSA 3288. It's a consent for release of information form. And we've been able to fill that out and put on the ex-spouse and put in there like, “Hey, I'd like to know how much I can get from my ex-spouse. Can you provide a calculation?” And we've had pretty good success using that.
so, Elaine, I don't know if you've used that before, but it's a trick we've used a couple of times, both for deceased and ex-spouses, the consent for release of information. And we typically just hand write in what we're looking for, like box nine is other social security records. And then we'll just like type in, this is exactly what we're looking for, and it's helpful.
Elaine Floyd: Thank you. That is new to me. I did not know about that. So thank you very much for that.
John Mason: Yeah. Our pleasure. It could be dependent on your relationship with your local Social Security office and how likely they are to play ball. And hopefully, we don't get anybody in trouble.
But yeah, that's potentially an option. So I guess next question, Elaine, this is a two-part rapid fire, is do you have to be 62 for an entire month to begin Social Security benefits or can you begin the month you turn 62? And then assuming you're delaying until 70, this is part two of the question, is it automatic or do you actually have to apply for age 70 benefits?
Elaine Floyd: Okay, number one, you have to be 62 the entire month so you can apply. Let's say you turn 62, where are we now?
John Mason: We're July 1st today. July. July 1.
Elaine Floyd: Okay, well, then there's that birthday rule if your birthday is on the first day of the month, so we won't get into that. Let's say you turn 62 July 15th, and you can apply for your benefit up to 3 months before you want benefits to start.
When you apply, you would specify an August 1st start date. but that's the only time, 62 is the only time that you have to wait until that next month. So you have to be 62 the entire month. When you turn 70, benefits are not automatic. And we've encountered people well over the age of 70 who never even claimed their benefit.
So that's something that you have to mark on your calendar to do. And again, you can apply up to three months before your birthday month to get the full amount, you want to start benefits in that birthday month. They have a weird way of crediting those 8 percent delayed credits.
I won't go into it now, but suffice it to say, you don't want to apply at like 69 and nine months. You want to apply at age 70 and have that benefit start in your birthday month.
Tommy Blackburn: And it's interesting. The gone past age 70 and didn't file, what are the rules on retroactivity there? Do they, if you went years past, do they back pay you or is it you get six months backwards and that's the best case?
Elaine Floyd: Six months only, that's the best you can get.
Tommy Blackburn: So very important not to miss that age 70 benefit. This is a little bit of a sidetrack, a tangent. I'll try not to go down too far.
But I had a client who was under the old restricted application delaying theirs to 70. So in the social security world, it was as if they filed on their spouse's record and their system is, I guess, how it's viewed. And then when it was time to file for age 70, we're big fans of doing this all online whenever we can.
However, this was not a part of their system when we tried to do it online because you are already collecting on a record. So you had to go through a different channel. And we called national, we called, which we assume we got some type of national rep. We got conflicting information multiple times, which I'm sure is no surprise to you.
But there was just confusion as to trying to get off one record and on to the other record and making appointments. Thankfully, as you said, this system is gone, that stuff's gone. So that's probably even why they were more confused. So not so applicable, but, maybe the point that I'm making is whenever we get a chance, we do like to do these online.
Elaine Floyd: Yeah. I always like to say that if you can avoid dealing with human beings, you're better off, do things online. They usually will, a person will follow up, just to get whatever information they need to verify your identity and all of that. But otherwise, try to do everything online.
Try not to do anything crazy or tricky. Even the earnings test, when people are under full retirement age and they work, then they encounter that situation where if they earn over a certain amount, a dollar in benefits is going to be withheld for every two dollars they earn over the threshold.
It's just a mess. Administratively, it is just a headache. And so I always advise people if you're under full retirement age and you work, do not file for Social Security.
Tommy Blackburn: I think that's a great point though about the call because when I, we use that with clients of, a good thing is they should typically call to confirm that what you filed is what you want.
And we also, I'm in the camp, John probably is too. If I don't recognize the number, I'm not answering. You can leave a voicemail and I'll get back to you. But when we file these applications, heads up, if you see a number you weren't expecting, answer the phone call, ‘cause it's probably social security calling to verify.
And Medicare usually, so sometimes, Elaine, we will have folks file for Medicare. And they're delaying social security and our understanding from talking with a Medicare expert we work with is you need to answer that phone call as well because even though you indicate on the application that's what you're doing, they won't process if they don't speak to you. So again, we want to do this online but take those phone calls.
Elaine Floyd: Yeah, and also they are aware. I mean, they're very much aware of scams. And if you say to them, “Well, how do I know this is really social security,” then they can give you a number that you can call it, if you want to do it that way. So there are ways to do this to ensure that you are talking to social security administration.
John Mason: Well, so much good information today, Elaine. We went longer than normal, hopefully, that's okay with you. It was an awesome conversation. As I reflect on, one big takeaway on this, it's like there's one, how many CDs you need for your bank accounts, when you should claim social security, what you should do, how you should be invested.
All of these are decisions that work in an entire context of a financial plan. But we do use software. We do use calculators to help us make these decisions. A warning to our audience is that if you put bad information into a calculator, it will give you bad information out.
So less politically correct way of saying that is crap in, crap out. You're not going to get the results you're looking for. You also may not be interpreting those results correctly, even if you've put the good information in. So we have AI that's going to help some things. We have calculators that help some things, but we still need a trained eye to make sure that we are deciphering and interpreting this information correctly.
So Horsesmouth, savvy, social security. Fantastic calculators, fantastic resources. I've been using them personally since they were Excel downloadable zip files now to their, more up to speed, webpage version. So things have drastically improved. I'd like you to share, briefly with the audience, Elaine, people who don't work with financial planners like us and you yourself are at a disadvantage because social security administration is not allowed to give advice or at least they're not supposed to. Then we have social security calculators that are available at no charge on the ssa.gov website.
And then we have your calculators, which I think are a lot more robust. So the questions are, do consumers have access to your stuff? And how does your stuff compare to what we're being given for free on the SSA website? And any thoughts on, you know, we have a minimum, we have a limited number of clients we can serve. How do folks get this information if they're not able to hire a CFP?
Elaine Floyd: Oh gosh, I don't know what to say to that. The main thing our software does that SSA calculators do not do, they're okay at estimating your benefit, but they don't project out over your life expectancy and with the cost of living adjustments.
And that is the type of math that people really need in order to determine when they should start their social security. And so that's what we do. That's what our software does. It's not that, I mean, it's robust, but it's not that complicated. There's no black box there.
You're putting in the primary insurance amount, your age, and your life expectancy and the cost of some estimate of cost of living adjustment. And all it does is it, you mentioned the Excel. It started out just doing it using Excel formulas and it just estimates the benefit going out over your life expectancy, and that will help inform when you want to take your benefit.
Now, we have just recently upgraded our software to now incorporate some of these auxiliary benefits. So if you are a widow, if you are a divorced spouse, if you have kids, and I've been surprised by the number of retirees who have either minor children or maybe an adult disabled child, and then you want to incorporate those benefits into the whole calculus as well. And so we started out, Horsesmouth started out as a resource to financial advisors. We brought the Social Security program online to enable you to advise your clients on it. We have never been really a consumer oriented company. That would just be a kind of whole different business model, different proposition to release something for the general public and then support that resource there. All I can say is I love our software. I love our financial advisors who use it. And the best way for someone to have access to that is to work with a financial advisor who has access to our software.
John Mason: Well, I appreciate you sharing that. We appreciate you sharing that Elaine and your software does a really good job asking questions that maybe ssa.gov doesn't know to ask. For example, if you're CSRS, you have a non-covered pension. Well, we need to check that box. If you're CSRS offset, that's a different story. Do you have dependent children? Different story. What none of these software programs do is they don't ask you the follow up questions where you divorced. Did you decline military survivor benefits? What other good things do you have going on and not good things going on? And so we don't make this social security claiming decision in a vacuum or in a silo. It has to broaden out over all aspects of your financial plan.
Guys, I think this was just an amazing conversation today. And thank you, Elaine, for giving us so much time and providing so much value to our audience. This has really been special.
Elaine Floyd: Thank you. It's been my pleasure.
Tommy Blackburn: Thank you so much, Elaine. It really has been an honor to have you with us.
Elaine Floyd:Thank you.
John Mason:Folks, This has been another episode of the Federal Employee Financial Planning Podcast brought to you by Mason & Associates. Elaine Floyd, Horsesmouth Savvy Social Security. If you like this episode, please rate us five stars. Leave a comment, send emails and questions to MasonFP like MasonFinancial planning@masonllc.net.
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