Transcription:

Episode 12 – Answering Questions about Social Security

00:13:34

Announcer: This is Blue Money. A finance podcast made for cops by cops, with us you know your money safe. Lieutenant Jim Donnelley of the Bensalem police department and cohost Kevin McGarry of Valley Financial group, come together to help protect and serve your financial needs. This is Blue Money.

Jim Donnelley: I want to welcome everyone back to the Blue Money podcast. This is Jim Donnelley. I’m here with my co-host Kevin McGarry. 

Kevin McGarry: Hey Jim. 

Jim Donnelley: Hey Kevin. Today’s Blue Money episode. We’re going to talk about social security. We get a lot of questions about it. A lot of portfolio reviews, a lot of officers are asking a lot of questions. When should they start taking it? I mean, for anyone that don’t know for social security, you need 40 credits and what that is, its 10 years of work experience, you’re getting four credits a year. I mean, this year was a big increase. It was 5.9% in 2002 really helped out with the inflation cost of living. That was the biggest increase in 1982. So with that Kev, what are we hearing? What’s some of the questions that you were going to ask a lot?

Kevin McGarry: Well, first of all, when people come in and we meet with especially law enforcement or anybody, we ask them what their social security strategy is. And you’re in these meetings, Jim and a lot of people don’t have any, their game plan is to turn on at 62. And you ask them why, and they tell you, well, I think it’s more important because I don’t know how long I’m going to live. 

Jim Donnelley: I think that one thing Kevin people don’t about, they don’t even know a full retirement age. We’ll say what’s full retirement age? And they look at like, what’s that right? How do I get social security at 62? So, it’s important for people to understand out there, you can start turning social security on a 62, at 67 that’s the full retirement age. That’s a big number. And then 70, you start collecting that delayed anything over 70 it’s pointless because it’s not going any higher. So, are really three tiers and you can collect in between at any time there’s tiers. But a lot of people don’t understand it. They hear 62 when they want to grab it.

Kevin McGarry: And what we’re trying to do is help people maximize social security. We’re trying to get them the most for not just them but for them and spouse. And if you turn around 62 or take it on full retirement age, everyone’s situation’s different. If you’re curmudgeon and you don’t think you’re going to live long, we’ll be like, hey, you probably want to turn it on sooner. 

Jim Donnelley: Yeah, absolutely.

Kevin McGarry: But for most of the people that we sit down with, we see huge value at delaying social security. First of all, depending on your age, you’re taking between a 20 and 25% cut and benefit if you turn on early. Secondly, if you do delay, each year you delay to take social security, the benefit’s growing by 8%. 

Jim Donnelley: A big guaranteed.

Kevin McGarry: So, if you wait from 62 to age 70, you get 8% each year in that benefit, that’s a 76% cumulative return on your benefit which is very important when we’re trying to plan for retirement because it hedges longevity. Number two, it hedges unexpected inflation. Like this year we’re 40 year highs of inflation right now you’re going to have a higher benefit. And as you just mentioned, you’re going to have a higher inflation adjustment on that benefit to help you combat inflation. And it really helps protect against bad markets like we’re going through now. That’s down 19%, but social security’s growing by 8%. So, it hedges all those risk in retirement for us. I think the other thing it hedges Jim, and I’ll pass this off to you is if you’re delaying, you’re putting your spouse in position to get more if they’re not protected. As you know a lot of clients of ours, when they pass away that pension gets cut in half. So, social security’s there to protect them as well. 

Jim Donnelley: That’s the key thing, Kevin, I think we’re thinking long term, knowing that your social security is going to be growing, but your pension is going to get cut in half when you pass away. It’s a lot. We see that a lot. People don’t realize it. If some of these pensions might be 6,000, 8,000 a month, but then when it’s cut down to 3,500 or 4,000, it’s really the people’s lifestyle has to change and have to adjust to that. So, the longer you wait to collect social security, it’s well worth it. And look at it like this. What’s my spouse entitled to? So let’s look at it, say your spouse works but she didn’t have enough for the 40 credits and didn’t qualify. She’s entitled to half at your full retirement age. So, say the husband can collect $3,000 at full retirement age at 67, she can start collecting 1500. She gets half of that. Now what happens if the husband dies, she’ll get the bigger number. She’ll start collecting 3000. So, it’s longer and it’s better waiting longer because that’s going to grow. I’ll say if he were to wait to delay and it went to 3500, she’s going to getting that extra 500 and knowing a pension got cut in half it’s going to help. It don’t make it wash, but it’s helping out a lot. So with that, Kevin, with the taxes, hell taxes. A lot of people always come in here and they’re surprised when you start talking about with the tax plan for social security, they don’t realize they’re going to get tax social security. So, hit upon that a little because… 

Kevin McGarry: They definitely are shocked. And when you they’re told social security can be taxed, first of all, the first 15% of your benefits, they’re not taxed. You can be taxed up to 85% of the benefit. So, how’s that works. If you file, the federal tax return is an individual, combine income. If you’re making between 25,000 and 34,000 a year, you can pay up to 50% of the benefit can be taxed. If you make of over 34,000, 85% of that benefit can be taxed at your ordinary income levels. If you file joint, spouse file jointly. If you make between 32,000 and 44,000, 50% of your social security benefit can be taxed. And if you make over 44,000, 85% of the benefit can be taxed. So yes, Jimmy, you can be taxed on social security.

Jim Donnelley: Yeah. It’s very important to realize that when you’re doing your financial plan. Another category I like to talk about is some officers ain’t entitled. They don’t pay you ever into social security, like look at Philadelphia police officers. I was a Philadelphia police officer for three years. I didn’t realize it that I wasn’t really putting into social security. I remember someone just told me, ah, you have a pension, don’t worry about social security. And I’m like, okay, when I was young twenties, it made sense to me. Now it does not make sense to me. So, when I still have a lot of friends in Philadelphia police department and we’re talking, they’re like, ah, I’m established. Maybe I got a little rank. I’m like, God, you ain’t thinking long term. You can still jump to a township and work for 25 years max out that pension. And you’re putting in social security. You’re not getting social security in Philly. That’s one thing that we don’t realize. So, if you’re a young officer and you’re listening to this, or if you’re a dad and your son wants to get in law enforcement, key thing, make sure they’re getting a pension, make sure they’re paying social security because down the line. That’s going to be huge.

Kevin McGarry: And Jim, that’s really important because if you look at those pie charts of where’s income coming from retirement approximately around 33, 34% of retirement income comes from social security. And if you don’t have that part of the pie, you have to find a way to bridge that gap.

Jim Donnelley: So, let’s for this example, Kev, we have a township officer came in, these numbers are legit. This guy he’s around 47 years old. He retires, gets early social security. He’s going to be collecting around 2300. Now, if he waits this township officer to collect at 67, he’s going to get 3,400. If he waits delayed collecting to start collecting 70, he’s going to get around 4,200. What’s the Philadelphia police officer going to get? Zero. He’s going to get zero. So, this guy, if he waited, this township officer until he was 70 and gets 4,200 a month, that’s an extra $4,000 a month that this Philadelphia police officer is not going to be entitled to. So, it’s so used to get the word out there that people really know they start realizing that that’s a month it’s long term, a month, $48,000, almost $50,000 extra a year. If you look at it. So it’s crazy. It’s really important for that Kev. What’s your thoughts to that?

Kevin McGarry: Yeah, I think at the end of the day, when you’re selecting a job and you’re out there protected and serving. You want to be rewarded financially as well. You deserve to be that and looking at your options and looking at the different districts and counties that provide pensions and social security. I mean Philadelphia is a great place. We both grew up there. You served there to just don’t provide that social security benefit.

Jim Donnelley: Yeah, that’s it. I mean with this Kev I know one thing that we, I don’t really stand behind it, but I just want to hit upon it because people, we hear a lot. What, 62, I’m going to turn my money on and I’m just going to start investing it. And if you wait till 70 that’s eight years, I’m collecting my money. That’s a lot of money and maybe I can make more than 8%. You keep pushing this 8% every year. I don’t stay behind that. Obviously, if someone’s going to get, say if 2300 a month of 62, they turn that on. It’s decent. It’s not going to be life changing money, but you’re getting money. But just think about it 8% every year that I don’t turn it on, guaranteed. I just need to wake up no risk. So to me, that’s not worth it. And if you get to 2300, you’re going to spend it. You’re not going to roll out 2300 every month in it something most likely it’s not going to happen. Always sounds like a good plan, but it don’t happen. 

Kevin McGarry: When you’re planning Jim and you’re planning in for longevity, if you live past your life expectancy, you’re going to wish you plan to have more. Because over time as we’re seeing this year, the price of goods don’t go down, they go up and inflation is real and social security does have cola and has some inflation protection air. So, delaying and planning that you’re going to live long is extremely important. But just to say, to break, even if you start taking it age 66 full retirement age to break even versus taking it, 62 is age 75. So, if you plan to live or want to live longer than 75, delaying a lot of makes a cases a lot of sense.

Jim Donnelley: And the spouse benefits going to go up. That’s huge, huge out there. So Kevin, one thing that we need to look at a lot of people don’t think about it is timing or healthcare when it comes to Medicare and collect and social security. So, just hit upon it real quick. So, what’s the plan we usually do at Valley. How to look at it. 

Kevin McGarry: It’s pretty simple. A lot of people don’t know these couple things. Number one, if you apply for social security early, you automatically go into Medicare. You’re already in that in the system. If you’re delaying social security and you’re going to wait to full retirement age, you have to go on and apply for Medicare three months prior to turn age 65, you don’t want to miss that. It could be costly. The third thing that a lot of people are not aware how Medicare premiums are paid. They’re taking that out of your social security check. And right now it’s approximately around $170 per check coming up per month. So, be aware if you turn it on early, you’re in. Number two, if you’re delaying, you got to make sure you apply for Medicare three months prior to 65, and they’re taking the money out of your social security check to pay for the Medicare premiums.

Jim Donnelley: All that’s great. Kev, what about some things, three things or a couple things you want me to take away from this podcast if I’m listening.

Kevin McGarry: Yeah. I think number one, Jimmy is know your benefit. Go online, register on ssa.gov and see what your benefit amounts projections are. That’s the first thing. Number two, I have a financial plan because once you have that financial plan you can determine how you’re going to attack social security and what works best for you. And the last thing I will say is share what your spouse, know what your spouse benefit is and know what your benefit is. So, you’re making the correct decisions at all times.

Jim Donnelley: And guys remember 8% increase every year. If you ain’t put in social security and you’re Philadelphia police officer and you still have a lot years to go, don’t be afraid to jump to a township or somewhere else. It’s going to be beneficial towards you towards the end and the longer you work guys, man, it’s going to be helped the spouses out.

Kevin McGarry: Yeah, Jim, and if you have any questions, social security reach out to us. There’s a lot more, don’t want to keep you listening too long,

Jim Donnelley: That’s it. So, we just wrap up the Blue Money podcast. If anyone has any questions today or any questions in general, please don’t hesitate to reach out to me and Kev or contact information in the show notes. Thank you for listening and be safe.

Kevin McGarry: Be safe.

Announcer: Thanks for listening to blue money to learn more about Jim and Kevin or for a free financial assessment, visit valleyfinancial.com or click on the link in the podcast description or show notes until next time safe investing.

This material is intended to be educational in nature and not as a recommendation for any particular strategy approach, product or concept for any particular advisor or client. These materials are not intended for any form of substitute or individualized investment advice. This discussion is general in nature and therefore not intended to recommend or endorse any asset class security or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment clients as well as all other readers are encouraged to consult with their own professional advisors, including investment advisors and tax advisors. Valley financial can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.