Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated. A broker dealer, member FINRA, SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s financial focus program.
Nate Kreinbrink:
Good morning and welcome to this week’s Financial Focus brought to you each and every Wednesday morning right here on KROS. Well, this is Nate Kreinbrink bringing you today’s show, last show of the month of March. Hard to believe the month has flown by already. It is going by really fast, and again, we get into April. It’s a shortened week this week for the markets, as Easter holiday is this weekend. A lot of the schools get out Friday, so they have a shortened week as well.
Hopefully Mother Nature cooperates. We’ve seen a little bit of a reversal. February was pretty nice, and then obviously what we’ve had here in March has brought it back to reality as far as weather here in the Midwest, as far as what we are having. So hopefully sooner rather than later, we start to see those temperatures creep back up, sun continue to pop out. And that way all the spring activities that are going on can function without having to have too many cancellations. I know a lot of the area high school activities outside, if you’re across the river in Illinois baseball, softball, track, this side, you have your golf, track, and soccer. All those activities obviously are outdoors and it’s a little brisk out there for some of those evenings. And hopefully they can all have a great season and not to have too many cancellations, as they come into it.
So getting into today’s program, last week was the third Wednesday of the month. We had Andy Ferguson with Nelsoncorp Tax Solutions on just covering some of the key tax topics that he has seen come up throughout this tax season. What he wanted to hit on, obviously the tax deadline is coming up here mid-April. So again, if you have not gotten those in, time is getting down to crunch time I guess you would start to call it. So again, if you have that and you’re bringing it into someone, make sure again, you don’t wait until that very last second and you get that turned into them as it goes in there. So again, that’s coming up.
Wanted to switch gears a little bit today and talk a little bit about, again, an ongoing topic that has a key part in nearly every one of listeners and every one of the individual’s retirement transition, retirement planning, and that is social security benefits. There still seems to be a lot of questions surrounding when to claim your benefits, how to claim your benefits, what benefits are you eligible for, what should you be looking at when you make that decision? So, I wanted to spend today’s show just going over the basics of that again, and then also looking at some different scenarios and when the best time may be to do that.
Again, it’s important just like everything else is, it’s an individual decision. And just because maybe a coworker or a family member or a friend took it at a certain age doesn’t necessarily mean that that’s the right age that you should take it as well. We want to look at other assets, we want to look at other income. We want to look at if you’re still working, health. If you’re married, we want to look at the spouse’s benefit, and take all those answers together and come up with the best possible solution to look at it to do.
Because again, when you look at the central basic of making that decision and people want to know like, “Well, when should I take it?” I mean, essentially what you were doing is you were looking at what your longevity is going to be, how long you are going to live. And again, if you had the right answer to that question, we’d be able to nail that answer as far as when you should take it down pretty close to the day, as far as when you should start taking your benefit. Obviously we don’t know that, and we’re looking at this as, again, I refer to it as longevity insurance to say, “Hey, I know this paycheck is going to be coming for every month for the rest of my life.” So again, “Do I want to take more paychecks of a lesser amount or do I want to take lesser checks but of a larger amount?” And that simply is what it comes down to when you look at when you should take your benefit and how your benefits are going to be paid to you.
So when you look at the amount that you are going to get paid, or again, the amount that your benefit is going to be from your social security, it’s important that you look at, the first thing that they will determine is when, is your full retirement age? Okay? So this is different for everybody and it’s dependent on the year that you were born. Anybody that is born in 1954 or earlier, your full retirement age is 66. Anybody that is born in 1960 and after your full retirement age is 67.
If you’re born in between there, you’re going to have a staggered full retirement age. So if you were born in 1955, your full retirement age is going to be 66 and two months. If you were born in 1956, it’ll be 66 in four months, and so on and so on and so on until you get to 1960. Anybody after that is again, age 67. So, that is the number that they are going to use to determine where your benefit is. If you wait till your full retirement age, exactly, you will get a hundred percent of the benefit that you were entitled to at your full retirement age.
Now, the earliest that you can claim a benefit off your own record is age 62. So if I’m going to take it at 62, I am not going to get the full benefit that I would get at my full retirement age. I’m going to get a reduction of that benefit because I’m taking it earlier. So for instance, let’s say if your benefit was a thousand dollars at your full retirement age of 67, if you take it at 62, you’re only going to get about roughly $700 a month. So again, if you would wait to your full retirement age, you would’ve got a thousand. By you taking it at 62 with your full retirement age being 67, you’re only going to get about $700. Whereas again, if your full retirement age was 66, you take it at 62, you would’ve gotten roughly about $750 or so at age 62.
Now, again, every year that you wait, essentially every month that you wait to get closer to that full retirement age, your benefit is going to go up a little bit until you get that full amount. So again, understanding where that reduction is going to come if you take it before your full retirement age. Now, if you wait till after your full retirement age to take it, you can delay it all the way up to age 70. There’s really not an instance where you would delay it a day past age 70 as any increases that you would get, they stop at age 70. And then anything after that would just be your normal cost of living adjustment that you would get any year, depending on when you take it. So every year past your full retirement age, up until age 70, your benefit goes up by about 8% a year.
So again, something to definitely consider if you’re able to, is delay that benefit to get 8%. 8% is a pretty nice return on a monthly income stream where again, if I can just delay it, there may be some other tax advantages to doing that, some other tax planning, some other financial planning that would be done in there in order to delay that a little bit. So again, looking at it from those different things, but again, understanding where your full retirement ages. And that’s the number that any reduction or any increase is going to go off of, if you take it earlier or again, if you delay it even later. So, understanding that one.
The next one is understanding how they determine that benefit. So your benefit is determined off of your 35 highest years of earnings. So again, if you have 35 years, they’re going to put all 35 years of those incomes into this equation and come up with your PIA. It’s your primary insurance amount. That is the amount that you would get at your full retirement age. So again, if you’ve only worked 30 years, you’re five years short of that 35 years that they used to calculate it, they’re going to put a zero in for each of those five years as a factor into that.
If you work more than 40 years, they are going to kick out the years and only take your 35 highest years. So again, if you delay your benefit and you continue to work, for one, you’re going to get a bigger benefit because you’re delaying it. And two, if you’re making a higher earnings during those years than what you did maybe early on when you first started working, you’re kicking out a lower income year. You’re adding in a higher year in order to factor that in. So, it could be a double benefit for you as far as increasing your benefit. So again, understanding those two things.
And then lastly, if you are below your full retirement age, that is below age 66. If you were born in 1954, earlier or below age 67, if you were born in 1960 and after, and then anywhere in between there. If you are younger than your full retirement age and you are looking to take your benefit, it’s important that you understand that there is an earnings test out there.
So the earnings test is essentially saying that if you claim your benefit prior to your full retirement age, there may possibly be a reduction of your benefit if you make above a certain limit for your income during that time period. For 2024, that income limit is roughly about 21,000, give or take a little bit, but it comes right around in that amount there. So again, if you are under your full retirement age and you are making more than 21,000, again, it’s probably an idea where we don’t look to take that benefit simply because your benefit is going to be reduced or you may not even get any of it.
So to determine if you’re going to get any of it, you need to look at how your income is. So for round numbers, let’s just say that 21,000 is the earnings limit. Let’s say you make 40,000, okay? So if I make $41,000, I am $20,000 over what the earnings limit is. So what they’re going to do is they’re going to, for every $2 that you make above that limit, they’re going to reduce your benefit by a dollar. So if I’m $20,000 over it, they’re going to withhold $10,000 in benefits before they will even send me a penny, as far as from the Social Security office. Okay? So that may be an instance where we file early, we lock our benefit in at a smaller amount. But because of us making a decent amount prior to our full retirement age, we don’t even get the benefit. We lock in a lower amount and we don’t even get it.
So again, there’s a lot of things that go into play. It’s not as cut and dry as that. But again, pretty close to that as a general rule of thumb, that if you are below your full retirement age and you are making above that $21,000, which is the limit for 2024, probably a general rule of thumb, we may want to hold off on that benefit. And we definitely want to look at all of our options and talk with somebody before making that decision. Because again, a lot of times when we make that decision, it is locked in. It is irrevocable. Now, there are some things, again, if you are within a year of filing for your benefit, you technically can go back and pay every single cent of benefit that you received back like it never happened. But again, very unlikely that that would be the case.
So again, it’s an important decision. It’s a major asset that everybody is making decisions on. It’s a big part of our planning when we coordinate these benefits and how they fit into the big picture. So again, just don’t wing it. Don’t take it at 62 just because you’re retiring. When you retire and when you file for your Social security benefits, needs to be two separate decisions.
So again, let us know. We’d be happy to help you kind of go over the different options with you. I am out of time here, but I did want to mention real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of March will be donated to the Kiwanis Club here in Clinton. Again, this is Nate Kreinbrink with this week’s Financial Focus. Thanks for tuning in and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in the show are for general information only and are not intended to provide specific advice or recommendations for any individual. Any indices mentioned are unmanaged and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer, member FINRA, SIPC. Investment advisor representative Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncorp.com.