[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have, whether you're doing it yourself or working with a financial advisor. These episodes will help you break down complicated financial topics into practical, actionable steps. Our mission is to guide motivated people to become financially successful. Welcome to The Financial Call. This is Zacc Call. I'm here with Laura Hadley and Bart Wagstaff. Bart has been on before. You've talked with me. About many different topics. I think this is probably one of your areas of greatest expertise. Not, I mean, there's so many to pick from Bart , but , it's endless. It's just , just so endless. But I do think this is an area and then maybe it's Bart's personality, this extra like meticulous care that he puts into financial planning when it comes to how to bring a Social Security strategy together. That's what we're working on. So we've spent the last season, This whole 

[00:01:00] season is on Social Security and we're wrapping it up today. And once again, we know that Social Security is actually a part of income planning. It is just so complex and there's so many moving parts that we found that we needed a whole. Season to really go through all of that with you. So bear with us. This matters more than you think. And when you get it done right, you can forget about it after that. But there is so much here and today, we hope it all comes together for you. So we're gonna spend some time on some of the more complex strategies and how you actually put those in practice. So each of us has an example of. An actual analysis that we've done with hypothetical client data, but this data is very, very similar to what we see actually in the real practice. Before we dive in as a refresher, this is the end of season two, and we've gone through Social Security basics, how your benefit is calculated, spousal strategies, divorce and death, and then penalties like WEP and gpo. So today we will bring everything together except for 

[00:02:00] the penalties. We really don't need to go over that again, if that affects us. One, listen to our last episode, and two, give us a call. We can run those numbers for you and help you. It's a pretty rare thing, so it doesn't apply to that many. We're gonna skip it to bring it all together. Next season is on investing. This is an area we think most people need to be thinking about. Well, everyone really needs to understand investments, so we believe this will touch everybody. It'll be a really good season. I'm really excited about it. In fact, when we built out the guided path, this was the first. Category that we really built the entire, what do you call them? Agendas out. The whole guided path basically began with investing. We felt like we couldn't make that season one because you needed a few basics to get started. Intros to retirement income, then Social Security. And now investing. Okay, so let's dive into today. Today we need to talk about how do you do an analysis to best understand when to file 

[00:03:00] for Social Security. We've talked about all the different benefits that are available to you. So the first thing you should do, and technically we haven't talked about all of them. There are child and caregiver benefits and disability benefits. We haven't gone into those in as much detail, but we've talked about the basic benefits that are available to you. You first need to figure out which benefits are available to you, then put them in some sort of calculation that says, Well, at some point it makes sense to wait. Let's say you get a thousand dollars for filing today, but you'll get $1,500 a month filing in four years. You'll be behind for a while, but at some point that $1,500 a month is going to catch up to the thousand dollars a month in terms of total dollars received. We call that a straight breakeven age. The day or the month at which you've received the exact same amount from Social Security on either of those two strategies is your break even age. And that's usually about as far 

[00:04:00] as it goes. For most people, they calculated about that far. The problem. So we're gonna throw three main errors that we see. One of them is people forget to calculate a cost of living adjustment because cost of living adjustments are, I think we're gonna see one of the largest, I think we're on track for one of the largest ever, 5.9 last year. 5.9 was last year. That was like the biggest one in 40 years. Long time. I wouldn't be surprised if this year is bigger, just with as much inflation as we've seen, they tried to match that closely to inflation. It's not as much as inflation usually. They try to keep it pretty close. So that's one thing. A cost of living adjustment, oftentimes referred to as a cola. If you don't factor in the cola, your calculation will be off by a certain number of years. I think one of the other mistakes people make is they forget that Social Security filing is a team sport. I mean, they might look at the wife's benefit in a silo and forget about the husband's benefit. And we've talked about in previous episodes, there are spousal 

[00:05:00] benefits available. If one spouse files, it unlocks the door to have a spousal benefit kick in, and so you have to really consider both spouses. Benefits simultaneously as you do a breakeven analysis and the survivor benefit. This brings in Mike's scenario of his grandma, his grandpa filed as soon as he could. It lowered its benefit, locked it in, and then he passed away like nine months later and the grandma was left with the smaller benefit when she could have delayed that and had it be a lot larger. So talking about the survivor, It could be beneficial to delay, but then you talked about, well, that person needs to file in order to unlock the spousal benefit, so maybe it makes sense for them to file earlier. So it can make it pretty complicated, the different scenarios. You got it. We'll talk about multiple scenarios today, but the third and probably the most easy mistake to make, Is a little bit more complicated. It's called the break even with growth. So I'm not gonna talk about spouses for a second because it makes it easier. Let's just say Jane 

[00:06:00] has a Social Security benefit of $2,000 a month. She could choose to pick up that Social Security benefit. But if she doesn't, it will grow. Oftentimes it's close to about 8% per year. It's not that exact amount. We've talked about that previously every year, but it's close to it. Let's say Jane takes her Social Security benefit, that's $2,000 that she's able to leave in her 401K or IRA and not withdraw that month, and every month that happens. That's over a course of a year, could be $24,000. That she gets to leave in the portfolio and then there's growth on that money as well. So that's the simplest way of thinking about the break even with growth is most people are forgetting. The effect of that growth has on how long it takes for you to catch up. Because if she takes it early, she gets the growth in the portfolio because she left the money there. If she decides to delay her Social Security benefits, she needs to get that $2,000 from somewhere.

[00:07:00] We are operating under the assumption that she's going to spend the $2,000. Either way, I guess she could just. If she didn't need it. If she didn't need it and didn't want it, she could just be more frugal and not spend the money. But if you operate under this assumption that she's gonna spend it from someplace or under the assumption she could take it and invest it. So anyways, you get the idea. If she decides to delay it, delay her Social Security benefit, and she takes the money from her portfolio, she will never see the growth on that $24,000 for that year. Usually that goes for two or three or four years. And there's some amount of money that exists in their portfolio in one circumstance that does not exist in the portfolio. In another circumstance, we'll talk a little bit about the exact math here. Well, I was just gonna simplify it. So if somebody is missing out on the growth that they could have had in their portfolio, if they delay filing, it's going to delay their break even age. Exactly. There's more money that you have to make up for. Yeah. You have to make up for that. Missed. Because they didn't get the growth in their portfolio cuz they took the money from their account instead. 

[00:08:00] So it may add years to the end of their break even. And this is a hard one to calculate because all of a sudden now we have to take in some assumed growth on the portfolio. Like how much do you make it grow? At what rate? So we typically try to use an individual's risk tolerance. To get a guess for how much we think their portfolio might grow. So most people would never even think that their investment risk tolerance affects their break even age on Social Security, but it absolutely does. So we'll talk about that today. I hope that that's clear enough, but I'll jump right into a scenario. Anything that Bart or Laura that you would add before we go into these scenarios? I kind of like just to. An analogy about the break even, cuz this can be a confusing topic. What really is that break even? I like to compare it to a horse race. If you have a slower horse that's starting earlier, that would be taking a lower benefit earlier, and then you have a horse that's faster, but it's starting later. Initially that first horse is gonna be ahead, cuz it started earlier, but 

[00:09:00] eventually that second horse that started later that's going faster is going to catch up to that first horse. And then every year after that lap, after that, that second horse is going to be winning the race. So just to think about it that way, that's when. Your break even ages. It's when that second benefit has caught up to that first benefit. Every year you live after that first break even age, you're making more money by delaying. How long have you been using this horse analogy? Yeah, that's a great analogy. Oh, a few years. I dunno. I like that. I know. Me too. And it's like you're just hoping that the race goes on long enough for the second horse. For the second horse to catch. To catch up. Cause if the race ends, if someone passes away before that break, even age before the horse catches. You should have bet on the first horse. That's a good point. I like that. I was just gonna say, you know, I think it's great that we have these calculators that are at our disposal to help clients make decisions. Because there's a lot of variables in Social Security. To your point, Zacc, it can be super confusing. We know the numbers. The one thing that we don't know is how long you're gonna live. But at least these Social Security tools that 

[00:10:00] we have are as scientific as we can get in helping people. Make a really educated decision as to when they feel it's best for them to turn on their Social Security benefit. Of course, we don't have the crystal ball. We don't know when we're gonna blast off to that next great existence, but we can at least arm people with that information if you need to get to this age for it to be worth your while to delay your benefit. So I was in charge of picking the examples, and so of course I picked the most straightforward, easiest example to go through. So here's mine. And it was fun cuz I said, Oh, this is what I'm doing. Bart. Laura, good luck. I picked John and Susan. $1,600 is John's primary insurance amount. Pia, we're gonna move a little bit faster here as we go because you guys know these terms. Hopefully by now, if you don't go back and listen to the other episodes. Susan's PIA is 2300. So Susan was born in 1955. John is 1956, so Susan's a little bit older than John. Actually, you know what? I changed it. 

[00:11:00] I'm so sorry. I changed the ages because it made a little more sense for us. More applicable to people now. So 1960 and 1964. John was born in 1960. Susan is 1964. Same numbers. Hopefully that gives you an idea. So John's 62, now Susan is 58. That's the bottom line. Okay. So they have different options available to them, and if John files as early as he can, his benefit will only be a little bit over a thousand dollars. 1,120. So John's full retirement benefit is 1600, but he's going to get only 1100 if he files at 62. This is the slower horse. In Lara's example, and then if John were to file later at full retirement, We think his benefit might be closer to 1,724. Now, you might say, Well, why isn't it 1,600? That's because we're doing a little bit of a cost of living adjustment on that. We have about five years until John hits his full retirement age at 67.

[00:12:00] So in that case, we need to account for that growth. It's about 1724 $1,724. So then we said, Okay, well what if John files as early as possible and Susan files as early as possible? Susan's also going under a reduced benefit and hers would be closer to. 1,700 instead of 2,300. I know we're throwing a lot of numbers out there, but you just have to get a rough idea. They're getting about 70% of their benefit when they file early, so we compare that option, both of them filing early with an option where John stills files early and Susan waits until her full retirement. And the reason you might consider this is, well, we want that survivor benefit to be as big as possible. Susan's benefit is the larger of the two. So if we make that one a little bit bigger, if one of 'em dies, they can take advantage of Susan's larger benefit for the rest of their life. So that means if one of them dies, John's benefit is 

[00:13:00] gone. And sometimes people don't do that. That survivor benefits conversation where the reality is if one of them dies, John's benefit's gone. Let's get as much of that as possible. So we see that the smaller of the two benefits, it often makes sense for you to file for the smaller of the two benefits early. So that's what we're comparing here, John, taking it early in both scenarios, and now it's just Susan choosing between 62 and 67. The break even age for this is 81. Let's see here. 81 for John, 77 for Susan. That's 2041. This is a straight break even so if they live that long until 2041. They will from that day forward be better off on a straight break even analysis. Remember how we talked about that? It's considering cost of living adjustments, but it's not factoring in the growth of the investments. That's what most people do, and in terms of an analysis. So they might say, Well, 77 and 81, that's great. We 

[00:14:00] should live that long, which I think is probably true for most people. , but if we factor in the growth and for this couple, I ran it at a 5% growth rate. So nothing too crazy in terms of high growth. Their investment, Yes. Thank you. So their investments are growing at 5% and it adds six years to the break even. So that money that is created by them being able to leave their portfolio alone because of the growth on their portfolio. It will put them six years ahead if they decide to take Social Security early. So think about that for a second. That's at a 5% growth rate. I'm gonna change it to 8%, and all of a sudden, John needs to live to 101. We don't realize how important this break even with growth is if they can earn an 8% average growth rate on the money they do not have. John needs to live to 101 and Susan needs to live to 97. I have a client that after running this, he basically said, I'm taking Social Security early, cuz he is a very high risk tolerant individual. 

[00:15:00] Plans on doing much better than 5%. This is case by case, so this isn't a blanket always. These ages are very specific to John and Susan in this scenario. I also ran a third Strategy. John waited until full retirement age, and Susan waited all the way until 70 and compared that against the second strategy where John takes it early and Susan's at full retirement. So both of them delay another four or five years on each of their benefits. This really maximizes. The survivor benefit, but it actually crosses meaning the break even, the straight break even is at the same year. So that third strategy where they wait five more years for each of them is the same year when strategy two beats one. And so we put this on a chart together. That doesn't always happen like that, but it's helpful to understand. And then it's the same break even with growth, pushing it out six years to 20 years depending. How aggressive they are. So it really depends. I've seen that break even with growth be only one or two years. Oh, another way of looking at that is

[00:16:00] if they're a super conservative investor, they're gonna put the money in a money market. It only adds one year to their break even. Wow. So if they're at a 1% growth rate, Then they should probably wait on Social Security even until the furthest out that they can spend their own money down. They're not earning enough on it to make up the growth they're losing on their Social Security benefits. So that's a lot. I know that's a lot of numbers in detail, but give us a call if you wanna talk about this. But the gist of this is even a simple calculation of a pretty straightforward Social Security benefit has a lot of nuance to it, and you're not going to be able to, without a pretty good tool, you might be able to do some rough estimate. This is something we offered everybody for free, and I'm not trying to pitch that necessarily. I'm just saying, just be aware of these two or three common errors, cost of living, adjustments, it's a team sport, and then the growth on your investments that you were able to leave alone. That's it for mine. That's great. 

[00:17:00] Yeah. That was awesome. Who's next? Bart's next. I'll go. Okay. For whatever reason, I run into a lot of survivor benefit scenarios, so I thought I. Cover that. And Laura, I know that you've got Survivor Benefit as well. Yours is even a little bit more complex than mine. So you set it up nicely. Bart. Just explaining, I'll just add to it. So I actually had this situation happen like a couple months ago. A lady that I helped, let's just call her Jane, her husband unexpectedly, had passed away. He passed away a couple years ago and she came to me wanting to know how to take Social Security when her husband was alive. They both worked, so they were married for 30 years. She worked longer, so his benefit was slightly higher than hers. She had about an $1,800 a month benefit at full retirement age. Pia, and his was $2,000 a month. So, She actually thought that she was just gonna get her benefit. So a lot of times

[00:18:00] it's just great to go talk to somebody because she wasn't even aware that she was able to take the survivor benefit. And I've actually run into that several times. The survivor benefit is his benefit, and so what we ended up doing so that her situation is that she's 64 years old, right? He would've been 66 right now. What's important to recognize with the survivor benefit is that his benefit stops growing at his full retirement age, which is this year. A lot of people, if they do know about Survivor benefits, they think that that benefit keeps growing. Everybody's heard of, I gotta delay my benefit till 70. That doesn't apply to survivor benefits. That survivor benefit stops growing at full retirement age. So what we ended up doing, what Jane didn't realize, Is that when we ran the calculator and the computations that Zacc's talking about with these great Social Security analysis tool that we have 

[00:19:00] was that her personal benefit was actually going to grow to be larger than the survivor benefit that she would've gotten. And what she wasn't aware of was that she could take her husband's survivor benefit and delay her personal benefit. All the way out to age 70. And so that's exactly what we did. So we ran her benefit. She's taken the survivor benefit, like right now, she is, like I said, 64 now because she's taking her late husband's benefit. Prior to her full retirement age, she's getting a slightly reduced survivor benefit because it goes off of the age of the person taking the benefit. So she didn't get the full 2000. She got about $1,900 a month, but she's getting this $1,900 a month. All the while we are delaying her personal benefit clear out to age 70, so another six years. And her 

[00:20:00] benefit grows to, with the cost of living adjustment, almost $2,500 a month and the break even age to Zacc's point, like the age that she has to live to. To make it worth her while to delay. Her personal benefit is age 70. And that's not far out there. Yeah. Cause she immediately, Cause she's already getting almost, She's be to entire, She's getting more than her benefit off of the survivor anyway. You got it. Yeah, for sure. That makes sense. You got it. She was extremely grateful for this information and so we started her survivor benefit and we are delaying her personal benefit and that if she goes clear out to age, I believe 90. I think we did 92. It's like an extra $150,000 cumulatively over if she were to go out that far. So it's a really kind of cool thing that we're able to help her out with and understand. So something interesting, her personal benefit was lower than the survivor anyways, but some people have it where. Their PIA is maybe 

[00:21:00] higher than the survivor. Mm-hmm. . And so if they called Social Security the office, they would say, Oh, your personal benefit's higher. Just take that. They don't realize that they can take the survivor and delay their personal, which will eventually be larger than their personal benefits. So that's just an idea. The Social Security office is great, but they don't know all these nuances, all these strategies, and especially, they're so close. Those numbers were so close between 1800 and 2000. That's one where it could tip either direction, but we find that usually with survivor benefits, your strategy's gonna go one way or the exact opposite the other way. Like for example, if she doesn't have work, I know she may be just recently retired, but if she wasn't working, she won't be penalized on a survivor benefit. And a survivor can take a benefit as early as 60, so she could. Let's just go through a quick scenario where let's say a retiree's not working and they're a survivor benefit. They could take the survivor at 60 and get that for an entire decade, and then it's 70 switch to their 

[00:22:00] own. But if they decide that the survivors, the larger of the two, they flip it, take their personal, take their personal at 62, but then they take the survivor benefit at their full retirement age, which is probably around 66 to 67, depending on birth year. So it's weird. It's like 62 and 67 is the strategy, or 60 and 70 is the other strategy. And you flip those benefits based on the math. Anyway, it's a really interesting one, but in this case it was. Do the 60 70 strategy, which basically is as early as possible on the survivor and then her own at 70. Yeah. But to your point, Zacc, if her benefit had been a lot smaller, we would have her flip her benefit on first because her benefit never would have grown to be as big or bigger than the survivor benefit at 70. So to your point, if her benefit had been a lot smaller, we would have had her flip her benefit on early. Tell for retirement age and then transition over to the survivor benefit to maximize the benefit. So there's, again, with 

[00:23:00] everything we're talking about, it goes without saying. There's a lot of complexity and everything we're talking about, and the one thing I've learned in doing Social Security planning is that almost every scenario is different, Different, different. Even though we're talking about survivor benefits, There's like a ton of different survivor benefits to which is a good example. Like Laura's situation. This gals married three times. Oh yeah. Linda has three different marriages. So we're gonna go through, we're gonna try to keep things as simple as possible. First, we're gonna figure out what benefits Linda is eligible for. So Linda was married first to Chuck, and Chuck passed away while they were married. Keep in. If they had been married 10 years and then Chuck passed away, she would still be entitled to the same benefit, but he passed away while they were married, he had a PIA of $1,800. Hold on those. Laura, you're saying if they had been married 10 years and divorced? And divorce. And divorce. Let's throw that in there. And divorce. Thank you. And then Chuck died. It would be the same as him dying scenario during the marriage? Yes. Yeah. Okay. Thank 

[00:24:00] you for clarifying. No, no. Just wanna make sure everybody knows, like she's still eligible for the benefits because they were married at the time of his death. But if they had been divorced, then the marriage needed to have lasted for 10 years. That was in a previous episode. Just wanna make sure. Go ahead. I just need to be married for, I think it's nine months. I believe so. It was either nine or 12. I'll look it up while we're talking here. clarify for it. It's nine or 12, so you can't go marry somebody on their deathbed for their Social Security benefit. And then Linda got remarried to Jerry. Their marriage lasted 10 years and then they got a divorce. Jerry's Pia was $2,400, and then Linda got remarried again to fill. Their marriage only lasted four years. So we talked through these three marriages. We're gonna talk about what Linda is eligible for based on these marriages. So Chuck, we kind of talked about it. She's eligible for the survivor benefit, so 100% of Chuck's PIA. So $1,800, that's one option that she has. Nine months, Bart, you were right. Should have 

[00:25:00] gone in More Confidence is nine months if it's an accident or if it's not. Oh, if it's an accident, it's, it's any time you're not subject to the nine. That's right. But if you can put up with the person for nine months, you can go ahead and do it. Got Okay. Sorry. Go ahead. Perfect. So Jerry, Jerry, they divorced, their marriage lasted 10 years, but Jerry's still living. So Linda's entitled to a spousal benefit off of Jerry because they were married at least 10 years. But if you remember, a spousal benefit is half of the Pia. So from Jerry, his PI is 2,400. Linda is eligible to, for $1,200 from Jerry. So $1,200 from Jerry, $1,800 for Chuck. So we can kind. Maybe push away. Jerry's probably eligible. More money is better than less money. That's what Bart's known for. So we're gonna throw out Jerry's benefit. And then Phil, their marriage only lasted four years, so Linda's not eligible for a benefit from Phil. So, Linda has her own benefit. She's 

[00:26:00] worked as well. Her own benefit is $2,100. Basically she has three options, 2100, 1800, 1200. Well, Jerry's is the 1200. We're gonna throw that out. So basically we're left with the survivor of 1800 and her personal of 2100, and this takes us back to Bart's scenario. Since her benefit is larger, let's delay that benefit, let it grow. Let's take the survivor benefit now. 1800. You're eligible for it at age 60. Keep in mind, she's not gonna get the full $1,800 at 60 because she's filing earlier, so it will be a little bit less, but she will get to take that benefit. All the way up until age 70, at which point she can switch over to her personal benefits, which in the meantime have grown to over $3,000. If Linda had not worked, that spousal benefit off of Jerry would definitely be part of this equation, right? Mm-hmm. , we threw it out quickly because. It was less than 2100 her own pia, but let's say Yolinda had not worked and did not

[00:27:00] have a PIA of her own, all of a sudden the 1200 spousal benefit would be really important, and she'd be taking that as soon as possible and delaying the survivor benefit of 1800 until full retirement age. The one nuance of her work changed which spouse she pulls benefits from, and which ones you ignore. And just to throw this out there, some of you may be thinking, Well, I filed for my spouse's benefit and then switched to my own. Just like you're talking about survivors and then switching to your own. That was grandfathered in four people born in 1953 and earlier. Technically it's January 1st, 1954 and earlier, but if you were born before that date, You're not already aware of the strategy. It's pretty late in the game. You're running out of time before you're going to hit 70, and you should be really looking at that. But the bottom line is, let me see if I can explain this. It's almost like these are on different totem poles, different benefits, entirely survivor. And your own benefits are on 

[00:28:00] completely different totem poles, but then the spousal benefit and your own benefit, those are on the same one. And you can only pick the face for me from one. That's a terrible example, but you have basically these benefits are categorized and you can do the divorce and spousal and your own. They all fall in one category, but survivor benefits are on an entirely different metric and allows you to swap back and. Just interesting to note the break even of that strategy, taking the survivor benefit, delaying her own, The straight break even is 74 and the break even with growth is 75. So Linda's young, Linda's healthy, she's gonna live that long, she thinks. And so we're gonna go with that benefit, and that's a huge benefit for her. Now she's earning more than $3,000 a month, but in the meantime, while she was waiting, she got to pick up a nice benefit. And that's interesting. That example only adds one year. For the break even with growth, and that's because there's a pretty steady benefit between 1,820 

[00:29:00] 100. If there was a larger difference between those two numbers, the break even with growth would have more to make up and therefore more years to wait. So definitely individualized, that's for sure. Yeah. So we've gone through lots of different strategies here. Hopefully you can maybe relate some of these to your personal situation, but hopefully you can just understand, you really should know your break even before you. That really gives you peace of mind knowing, okay, what's the likelihood of me living to this age? There's no black and white answer. If people knew exactly the day they're gonna die, we could get it perfectly, but really, people don't know that and so we're just doing the best that they can. But knowing these breakevens can help you so much in making that decision and having confidence in your decision. Thanks, Laura. That wraps up season two. Season three is investing. Come back. We do this every two weeks and we throw these episodes out for. I think people are really gonna like it. It goes investing then tax planning, estate planning. Business owners, charitable giving, and then insurance. Thanks for joining.

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