In this episode, you will learn how to maximize your Social Security benefits. Val explains eligibility ages, the income reduction test and how timing could affect your social security payout.
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3.10.23: Audio automatically transcribed by Sonix
3.10.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Val Majewski:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Val Majewski:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. Really appreciate you joining us on the show and being a consistent viewer, I hope. But today's topic is going to discuss something that is good for everybody, not just federal employees, but we're going to be talking about Social Security and how to maximize your benefits. Now, I will preface everything by saying we certainly can't go into all of the details about how to properly maximize Social Security for each individual person. So I want to say that on the beginning that this is going to be very general in nature. Your situation, your circumstances are going to be different than the person that you work next to, different than the person halfway across the country. So it's very important that you get a personalized opinion or a personalized report or personalized guidance when it comes to Social Security and what is right for you, your family, your situation. But just on the surface, we're going to have very high level general conversation about how to maximize Social Security, what the benefits of Social Security are to you as a federal employee. And let's dive into the information and tackle Social Security maximization. So what is Social Security? And just on a general sense, right. It's one of your three. Federal employee retirement income sources. Now that's for FERS employees. Old system CSRs. You did not put into Social Security unless you had a job outside of the government and contributed.
Val Majewski:
But in order to get a Social Security benefit, you have to put in at least 40 quarters. That's ten years of benefits. And if you've worked long enough to retire as a first employee, you should have satisfied this. Now, 6.2% out of every paycheck goes towards Social Security. So it's automatic. You may see it on your paycheck as Social Security. You may see it as something that says, Oh, a SDI, which stands for Old Age Survivors and Disability Insurance. It's a fancy way of saying Social Security, but this is considered and always has been a insurance benefit. So it's not a retirement check that you're getting. It's actually an insurance benefit. It's a claim payment that you're getting from Social Security when you take your benefits. Old age survivors and disability insurance. Now, it's based on the highest 35 years of earning years. So. You know, if you want to maximize your benefits, obviously you can try to make more money and work longer in order to get that. That's one way that we'll talk about. It is subject to an earnings test. We'll talk about that today. And we'll also talk about how timing of when you select your Social Security benefits, how that affects your ultimate payout. Now, again, very general in nature. I don't want to be accused of giving you false hope or improper guidance over the course of this episode.
Val Majewski:
So I do highly recommend if you have questions about how to maximize your personal social security situation, reach out to us, go to federal retirement. Show.com fill out the form and we'd be happy to get in touch with you to talk about social security as well as the rest of your federal employee benefits and retirement information. But for today, it's going to be pretty general in nature. So take from it what you may. Hopefully some of it does apply to you. And if there are some details that we need to go over further or reach out to us personally, we can go over your individual situation. First of all, eligibility. Now, this is just in a traditional sense. When are you first eligible to collect a Social Security benefit? Age 62. Now, a lot of federal employees that I talk to want to take their Social Security as soon as they retire, so they retire prior to age 62. If you retired with full benefits, you would be eligible for and entitled to the first special retirement supplement. I suggest you look at our previous episodes about the first supplement. But Social Security you're eligible for at age 62. It does not mean you have to take Social Security at age 62. That's just when you're first eligible. Now, full retirement age for Social Security is different than your minimum retirement age as a first employee.
Val Majewski:
Minimum retirement age is between age 55 and 57. Full retirement age when it comes to Social Security is between age 65 and 67. This is based upon your birth year. Now, if you have not gotten a Social Security statement in a while because they're no longer sending them like they used to, every year you log in to socialsecurity.gov or tsa.gov, create yourself an account, and you can create an estimated payment or see kind of what your current statement looks like. And I'd highly recommend doing so. So you can predict or have a general idea of what your future Social Security benefits are going to look like. But this is basic eligibility, right? Starting point, age 62. If you want to wait until your full retirement age, you wait between age 65 and 67, depending upon your birth year, it could be age 66 and three months depending on your birth year. Just depends on your individual situation. Again, when you're full, retirement age is going to be. I mentioned there's an income reduction test. So let's talk about a number of things here. I'm going to mention timing when it comes to age of when to take Social Security. But what about income now? How does earned income affect your Social Security benefits? Now, I first want to say, when it comes to this income test, this does not mean if you're collecting a large retirement check, a large fers annuity, it's going to affect your Social Security payout.
Val Majewski:
That is not true. So it's it's not going to take into consideration your pension or money coming from your TSP. This is earned wages, earned income and business wages that you are collecting in retirement. So if you take another job or you own another business and this is money that you're currently earning for that year, not including your pension or TSP, this is what is included in this test. Now there are a lot of folks that we talk to, people that retire, that want to go back to work. Well, that will affect or should affect your decision on when to take Social Security. Why is that? Because you could earn too much money and in essence, decrease your Social Security payout if you made the wrong selection, if you chose the wrong timing. Let's take a look here. So once you are prior to your full retirement age, if that's the case, prior to your full retirement age, which again for Social Security is between age 65 and 67, prior to that, you can earn up to $21,240 per year before seeing a reduction of your benefits for every $2 you make over that limit. Your benefits will be reduced by $1. It doesn't mean that it or it never says that it doesn't go down to zero or can't go down to zero.
Val Majewski:
So your benefits can be completely wiped out if you make too much money. This would affect your benefits if this were the case. If you were making too much money. You'd probably want to delay your Social Security benefits and not take them right away. Now in the year in which you do turn your full retirement age, that limit does increase to $56,520 that you can earn prior to seeing your benefits reduced. For every $3 over the limit, your benefits will be reduced by $1. Once you hit your full Social Security retirement age, your benefits will no longer be subject to any kind of income reduction test. No reductions once you hit your full Social Security retirement age. So this would have an impact on when you take benefits, because if you're planning on continuing to work in retirement and you're choosing to elect Social Security right away, well, weigh the pluses and the minuses. How much am I supposed to get from Social Security? How much am I supposed to earn in this job that I'm taking or this employment that I have or this business that I'm running in retirement? Is it beneficial for me to take my Social Security knowing that I've got these other income sources coming in? Now that has to do with income, money that we're earning and how your benefits would be affected, assuming you're already taking them as a result of making too much money.
Val Majewski:
What about age, though? Timing I talked about timing has a huge effect on your Social Security benefits. A lot of federal employees that we talk to and hopefully this is not you, but a lot of federal employees that we talk to feel like they're forced to take Social Security right away upon retirement because this is something that they're counting on as one of their three main income sources. Now, Social Security in its original design was not supposed to be relied upon as a primary retirement income source, but that's how it's treated today. We look at it as a primary retirement income source, and we depend on this. So you may not have the luxury of waiting to maximize your Social Security because you feel like you need to take it right away because that's an income that you need. Well, what if you plan properly? What if you saved enough for retirement in other ways that Social Security is a bonus to you? It's an extra benefit that you can delay, delay, delay or wait until the appropriate time to maximize your benefits. What if you didn't rely on that as a primary income source and it can be a secondary or a bonus income source? That's something that we can help you plan for now. Depending on the timing that you have, the amount of years left until you retire.
Val Majewski:
We may or may not be able to do exactly that, but we can certainly give it our best effort in order to give you some flexibility when it comes to your Social Security benefits. Because this is a lifetime payment for you. This is something that is going to be set locked in from the time in which you take it. So how does timing get affected or how does timing affect your Social Security payout? Well, let's start with your Social Security, full retirement age for every year prior to your full retirement age that you elect to take Social Security benefits, your benefit, your payout will be reduced by about 6.25%. So let's just say your full Social Security age was 66 and you decided to take it right away at age 62. That'd be about a 25% permanent reduction in your benefits. You'd only collect about 75%. Of your full amount because you took it four years early. This is a permanent reduction. It doesn't bump back up once you hit your full Social Security retirement age. So timing has a huge effect. Now in order to collect the benefits at age 66. Well, you've got to wait that long before you start collecting it. And if you're wanting to retire at age 62 from the government and you have no other choices as far as additional retirement income, you might be forced to take your Social Security benefits.
Val Majewski:
That's a scenario that I just talked about earlier where people feel like they're forced. They have to take it right away. What if you were in a position where you can delay? What kind of luxury would that be for you if you had those options? Now, this is a permanent reduction. I know it says it on the slide, but it's permanent. So it has a long lasting effect. Your you're certainly collecting benefits earlier, but over the long run, you're going to be collecting less. Now the opposite is true. The longer you wait with Social Security, meaning the longer you wait to collect those benefits, your benefits will increase every year. So if you waited beyond your full Social Security retirement age, you will see an increase in your benefits of approximately 8% per year, capping out at age 70. So the longest you can wait to take Social Security the longest you can wait to maximize the benefits is age 70. Now there's kind of a sticky situation we got here, right? So you can certainly cap out your benefits by waiting until age 70. And obviously, if you're working that long, working until age 70, well, you've benefited greatly from this. But the question is, if you retired earlier than age 70 and you wanted to wait to maximize it, at what point are you going to see that your benefits are going to catch up to each other? Let's talk about that here in just a second.
Val Majewski:
But first the concept, right? So if I'm looking at total income collected from Social Security, whether I started at age 62, I waited in this example until 66, my full retirement age, or I waited till age 70, the maximum. Which one is going to be right for me? Which one is right for you? Now, there's no way to know exactly which strategy is going to be the best for you and your family. The only way for us to know exactly which strategy is going to work out best is if we knew when or at what age you were going to die. Now, unfortunately, none of us have that crystal ball to know exactly when that's going to happen. So we need to make the best educated guess that we can at the time of retirement or the time that we want to collect benefits. If you have longevity in your family, maybe it's better to wait. If you do not have longevity in your family or you feel like you absolutely need the money, well, maybe it's time to take it as soon as you're eligible or as soon as you're retired. But let's say in a perfect world, you had the luxury of waiting and you wanted to see how long it would take until all those lines crossed.
Val Majewski:
Generally speaking, your break even age is age 78.5. So if you're thinking, all right, total benefits collected. At what time will those lines cross between from age 62 to 66, for example? It's about age 78.5. So if you're willing to wait every year beyond age 78.5, you would have collected a lot more benefits from Social Security and maximized what they were giving you. Now, again, this isn't an exact science because we don't know how long you have or when that year is and what you're going to die. But if you have the ability to wait, you will collect more benefits over time. So this impacts your decision, the timing, not only how much you're going to collect at age 62 versus full retirement age versus 70. Those decisions weigh into it how much you're going to earn in retirement. Those decisions weigh into it. But also, again, the. The timing. Have you planned properly? Have you developed a good enough retirement strategy? Not just from your pension or DSP, but have you saved in addition to these things, in order to prepare yourself to have flexibility when it comes to your Social Security distributions, your Social Security payouts? And this is a lifetime payout. It is a forever payout. You wouldn't want to take a 25% hit if you thought you're going to have longevity and ultimately collect a lot less benefits over your lifetime because you needed to take it at 62 rather than waiting until your full retirement age.
Val Majewski:
So here's my conclusion. Here's my recommendation to you. Go to federal retirement. Show.com fill out our form and we can make sure that we're going over your social security situation. Taking a look at when you plan on retiring and trying to develop the best maximization strategy for you, your family, your situation. I said earlier, everybody's situation is different. Everybody's situation is unique. So there is no one size fits all when it comes to Social Security. We need to look at it individually, but hopefully you found the information in here pretty valuable when it came to what's going to affect. Your ultimate payout when it comes to Social Security. So again, my recommendation for you, if you're interested in finding out what way is the best for you, your family, your situation reform request. Some information will not only cover all of your other benefits and retirement information, but we will go over your Social Security situation and see what maximization strategy could be right for you when that time comes for you to take your Social Security benefits. So thank you for joining me for this episode and learning more about Social Security and how to maximize it. Look forward to hearing from all of you who fill out that form and really look forward to seeing you on a future episode.
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