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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 can not be invested into directly. Registered representative. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., 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, James joining me today. Another wonderful fall morning out there today, as we come in here today. Midway through October. I know talking with Gary here, transitioning to the end of football season. A couple more weeks I think for the high school teams, before we transitioned into that great time of the year, which is basketball season. Which I’m sure your dad’s getting all hyped up for that kickoff.
James Nelson:
Yeah, exactly. That’s not too far away. I think volleyball’s going to wrapping up here before long for the girls. So yeah, there’ll be open gyms, and basketball practice here before we know it.
Nate Kreinbrink:
I know you watch on TV and if you’re a fan of sports and everything, you got baseball playoffs, which are always fun. You have the NFL, college football coming on.
James Nelson:
Yep.
Nate Kreinbrink:
And then NBA college basketball going to be starting up again. So lot to watch if you’re into them type of sports, and as they all transitioned together and all kinds of overlap during this time period.
James Nelson:
Yeah, exactly. Great time for sports if you’re a sports fan.
Nate Kreinbrink:
So today’s program, I know James and I talking on the way up here, as far as what we wanted to get into, kind of decided on going with the social security, Medicare route. And talking a little bit more as far as the in-depth decisions that people need to look at. On the heels of us having a workshop down at Saint Ambrose, tomorrow, over the lunch hour. Well, we’re going to discuss just those topics. The social security, the claiming strategies, how your benefits figure, things along those lines. And then as well as Medicare. Trying to understand the different parts of Medicare, the different plans of Medicare, the copays, the non-copay, pay up front versus pay as you go.
Nate Kreinbrink:
All those types of things in the decision making that comes into play, as far as giving people just a basic knowledge, so they feel like they’re making an educated decision. Social security is always a big topic, James. And I know when we sit down with people, when they get closer to that retirement date, having those discussion with them, and just talking big picture with them. I think it really opens their eyes as far as all the decisions that are out there. And it’s not as simple as, “Hey, I’m going to retire. I’m going to turn my social security benefit on.”
Nate Kreinbrink:
There’s a lot more that goes into it and a lot more that they need to understand, and have it tie into every other decision that they’re making.
James Nelson:
Yeah, exactly. And I think maybe some people get sick of us talking about it, but it’s true. You don’t retire and just draw social security without considering a lot of different variables. I had a client in the other day that is not retired, and started drawing social security. And we just cringe when we hear scenarios like that, because of the earnings test. You can only make so much money before that starts affecting your social security benefit. The spouse is also still working, so that makes it even worse.
James Nelson:
So there are a lot of things to consider. It’s not just, “I retire, or I’m getting close to retirement, I’m going to pull the trigger here.” We’ve got to look at a spouse. We’re making this decision for, if it’s a couple, for two people. The largest benefits going to hang around for, whether that’s your benefit, or your spouse’s benefit. And we try to do our best to protect that benefit. So there are a lot of things to consider.
James Nelson:
The earnings test is one that I feel that gets overlooked a lot. A lot of people don’t even know what that is. And again, that’s prior to your full retirement age, if you’re drawing social security, you can only make a certain dollar amount. And Nate, I think you know that figure off hand.
Nate Kreinbrink:
17,640.
James Nelson:
640. So there’s the number right there. And if you exceed that, it really starts hurting your overall benefits. So anyway, we could drill down on several of these topics, but big picture, please sit down with us. Consider all the variables, work, spouse, ages, if there’s a difference in age or if you’re close in age. All of these things play into both a couples social security decision. And it needs to be weighed out.
Nate Kreinbrink:
Right. And like we always say, when you retire, and when you file for your benefit, needs to be two separate decisions. They need to be looked at with separate pros and cons. And then make your decision going on from there. That earnings test, James, that you mentioned is just crucial. And like you said, when people say that they’re going to take it while they’re still working, it’s even more than a cringe. Because what they’re doing is it’s basically a double negative to them.
Nate Kreinbrink:
They’re going to a lock in a lower benefit, because they’re taking it early. And if they make above that $17,640 mark, their benefit is going to get reduced. So they’re locking in a lower rate, and they’re not even going to get the benefit. So it’s definitely something that people need to stay away from. If they’re claiming their benefit below their full retirement age while still working, they need to really, really strongly reconsider it. Because it’s probably not a very good idea.
Nate Kreinbrink:
I think another thing too is just having people understand how their benefit’s calculated. And any benefit that you get, it’s basically off of your primary insurance amount number. That’s your PIA. That’s the amount that you’re going to get at your full retirement age. So individuals need to know when their full retirement age was. If you’re born before 1954, your full retirement age is 66. If you’re born after 1960, your full retirement age is 67. If you’re born anywhere in-between that range, it’s 66 and two months, 66 and four months, six months, eight months, 10 months, whatever year it is that you’re born.
Nate Kreinbrink:
So understanding when your full benefit is going to happen is the first step. And then knowing that your benefit is going to be calculated by your top 35 years of earnings. So if you don’t have 35 years of earnings that you paid into social security, if you only have 32 years, you’re going to have three years where there’s a zero put in for those three years. That’s going to be used to calculate your PIA amount. Okay, if you have over 35 years, then they’re going to kick out whatever lower amount of years are. So if you have 37 years that you paid in, they’re going to kick out the two lowest years of earnings that you have, and use your highest 35.
Nate Kreinbrink:
So then that will help you determine your amount that you’re going to get at your full retirement age. And any reduction, or any increase to your benefit, is going to be off of that amount. For instance, say an individual that 67 is their full retirement age, decides to take it at age 62, they’re going to take a 30% haircut off of their amount that they would get at their full retirement age. 30% haircut right off the bat, and that number is going to be guaranteed for life.
Nate Kreinbrink:
That’s a big amount that’s going to be cut off. Now granted you’re going to get smaller checks for a longer period of time, but it’s not going to have that staying power. On the flip side, an individual whose full retirement age is 67 that waits until all the way to age 70 to take it, is going to get 124% of their full retirement age amount., So they’re going to get that 8% increase every year after their full retirement age up until age 70. Now again, am I saying everyone needs to wait until age 70? Absolutely not.
Nate Kreinbrink:
If you’re married, there’s some coordination that we want to look at, to make sure we try to maximize some of these benefits. But when people just sit down and start looking at the percentage that they’re going to get cut off the top by taking it early. And what that means to them, not just this year, not next year, five years, 10 years. But there could be them filing for their social security benefits for 25, 30 years. What that discount does over the course of time, it’s staggering to see the numbers that they’re giving up. And oh, by the way, any cost of living adjustment is now off of a smaller amount, versus the bigger amount that comes in.
Nate Kreinbrink:
So you need to make sure that you understand what you’re doing when you’re making these decisions, and understanding all of the options that are out there.
James Nelson:
Yeah, and that’s a big thing. You mentioned it, the coordination. We’re not saying that everybody needs to hold off until their full retirement age, or age 70. But if we can protect that larger benefit, generally we want to do that. We want to protect that larger benefit as long as we can. If somebody can wait until full retirement age or longer, that’s generally, generally a good idea. And then maybe the lower income earner with a smaller benefit, maybe we can have a little flexibility there, where you retire at 63 or 64. And yeah, maybe it does make sense to turn your benefit on right away. But again, the coordination is the key. It’s making a decision not only for you, but for a surviving spouse in that scenario.
James Nelson:
Nate mentioned the increases on waiting until age 70, that’s huge. Nobody wants to do that. I think the numbers are less than 10% actually wait until age 70 to draw their benefit. Less than that, I know it’s less than 10%. And it doesn’t sound too appealing, but when you get that increase, that 8% per year increase between your full retirement age and age 70, that’s a lot of money. And if you have-
Nate Kreinbrink:
I’ll take an 8% raise.
James Nelson:
Yeah, exactly. A guaranteed 8% raise. Yeah, exactly. So if you look at that over a 10, 20, 30 year time period, that crossover between drawing at 62, or drawn at your full retirement age, versus age 70, is probably a lot sooner than most people think. They think, “Oh, I’m giving up that money for an extra five years, or seven years”, or whatever the number is. Yes, that’s true. But that gap closes in a hurry when you have a much larger benefit at age 70.
Nate Kreinbrink:
It does. And I think once people started looking at the numbers and seeing… Because again the argument that we always get with people is, “Well I’ve got a claim as early as I can because I have to get my money back.”
James Nelson:
Yeah.
Nate Kreinbrink:
But when I get the people to bring in their social security statement that they get, or that they go online and print it off from their own social security account that they have online. When they bring in that statement, and we flip to the inside third page of that, where it shows where the amount that the employee paid in, the amount that the employer paid in total over their working career. And now we take their benefit, and let’s just say we average it out for 20 years, that they’re going to be taken a benefit. And when they see that the amount that they’re going to get paid back to them, it’s usually two or three times the amount that was paid in total on their behalf. And of that that was paid in, only half of it was out of their pocket. The other half was from their employer.
Nate Kreinbrink:
So when they actually see that, that they’re going to get roughly three times the amount back. I think that that old adage, and the people’s argument to say, “I need to take it early to get my money back”, definitely they see that it doesn’t hold true, and that they’re going to be fine.
James Nelson:
Yeah.
Nate Kreinbrink:
So now we just got to make the educated decision, the best overall decision, not only for us, but as James mentioned too, a couple of times, is for a surviving spouse. When you’re married, and one of you unfortunately pass away, one of your social security benefits is done. The lower social security benefit is going to be gone. And whatever benefit between the husband and wife had, that’s the larger benefit that’s going to continue on to the surviving spouse.
Nate Kreinbrink:
So again, for instance, if it’s a husband and wife, husband worked, has a little larger benefit than what the wife does, husband passes away, the wife’s benefit goes away. The husband’s benefit who had passed away now switches over to the wife and that’s the benefit that she continues on for the rest of her life.
James Nelson:
Right.
Nate Kreinbrink:
So again, when we look at these decisions, we want have some protection for any surviving spouse should they ever it when they come in. So again, all important decisions, things that need to be made and done, right. You can’t really go back and redo these decisions with social security once you make them. So we want to make sure that we get them right from the get go, and understand all the options that are out there.
James Nelson:
Yeah. So if there’s any questions, please feel free to give us a call, come down, we got great software that illustrates this. It’s a pretty short appointment, pretty straight forward and I think it’s worth everybody’s time.
Nate Kreinbrink:
It does. And like I said, we do have a workshop down at Saint Ambrose tomorrow. We are going to be having one in our office coming up in November. If you would like more information, and possibly wanting to attend that, please call our office. And we can get you some more information about when that is, and then get you there just to start getting that information. So did want to mention real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of October will be donated to the special Olympics of Eastern Iowa. Again, this is Nate and James with NelsonCorp Wealth Management, bringing you 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 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 representatives. Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., 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.
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