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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 indexes 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 representation, 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. This is Nate, James joining me today again. A little rain in the overnight and this morning, and then the next couple hours of forecast, which we haven’t had any for a little while so I guess we could use a little bit of it.
James Nelson:
Yeah, hard to believe we could use a lot of rain after the spring that we’ve had, but yeah, and I see more in the forecast, maybe later this week, this weekend. But yeah, we could use a little bit, I think.
Nate Kreinbrink:
Warmer temperatures and-
James Nelson:
Yeah.
Nate Kreinbrink:
Bringing in thunderstorms and everything that goes with it to make all those busy schedules that we have with softball, baseball, anything else that’s going on right now a little more difficult to plan around.
James Nelson:
Yeah, I was just going to say, more cancellations and rescheduling and everything that goes along with that, so yeah.
Nate Kreinbrink:
Today’s program, we’ve talked Social Security … it’s kind of been brought up a lot in the past couple of weeks as just part of the puzzle when it comes to financial planning, and seeing how ready you are to make that decision on whether or not to retire. Thought we’d just spend today’s whole program back just focusing on Social Security. It’s such a big part of a person’s decision. A lot of times it’s potentially their largest asset that they’re making decisions on.
Nate Kreinbrink:
So again, we want to make sure that people just have an understanding of what options are available to them, and when they make those decisions how it’s going to impact their benefit that they’re going to get for their lifetime, but potentially a benefit that a surviving spouse may get for their lifetime as well.
Nate Kreinbrink:
So when we look at Social Security benefit, there’s basically … potentially, three separate benefits that you’re making decisions on. Obviously on your own record, your own record benefit amount is based off of your highest 35 years of earnings. They put it into a formula, and they come up with your primary insurance amount figure, that’s your PIA. So that is the amount that you will get at your full retirement age, and then you go from there.
Nate Kreinbrink:
The other type of benefit if you’re married would be a spousal benefit, are you eligible for that, and then does it make sense for you. And then lastly, a widow’s or survivor’s benefit should your spouse pass away, whatever benefit is bigger is going to be the one that’s going to continue on to that surviving spouse.
Nate Kreinbrink:
So when you look at all three of those, there’s a lot of combinations that come into play. You throw a spouse on there and then it just adds to some of the combinations as well, so there’s a lot of different scenarios, and people need to understand when they take their benefit how it’s going to impact them.
James Nelson:
You’re right, and it’s such a big decision, and there’s a lot of information out there, there’s a lot of misinformation out there where people get confused on what they can and cannot do. So if you look at the numbers, the average middle class couple, about 60 to 70% of their retirement income comes from Social Security, if not higher in many cases. So it is a huge decision, you can’t just claim it based on what your friend at work did or what your neighbor did. It’s an individual decision, it’s looking at your situation, potentially a spouse’s situation, and piecing that together.
James Nelson:
So you’re right Nate, I mean, 62 is the minimum age to draw Social Security, so when you hit age 62, depending on when your full retirement age is, 62 is roughly a 25 to 30% reduction in your PIA, that number that Nate just mentioned. And if you wait until your full retirement age, you get your full benefit, that PIA amount, whether that’s age 65, 66, 67. And then if you’re able to delay until age 70, you get an 8% increase between your full retirement age and age 70. So if that’s four years, if that’s three years, whatever the case may be, there’s an 8% increase, and a lot of people could make a strong recommendation or strong argument that that could make good sense in some scenarios, especially if somebody’s planning on working til their full retirement age or beyond, delaying until age 70 could really have a positive impact on your overall Social Security benefit.
Nate Kreinbrink:
Right, and I think that something that goes along with that as far as when people file for their own benefit, if you take your benefit before your full retirement age, and you are still working and have earned income, there’s a caveat called the earnings test. Meaning that if you file for your benefit before your full retirement age, and you make above the earnings limit, which for 2019 is $17,640.00, you are going to have a dollar in your Social Security benefit reduced for every two dollars that you earn over that limit.
Nate Kreinbrink:
So a lot of times, and again I’m not saying that this is the case every single time, but I’m going to say the majority of time, as a rule of thumb, if you are below your full retirement age and still working, it is probably not a good idea to take your Social Security benefit. Because what’s going to happen is you’re going to lock in a lower benefit, and then your benefit is going to be reduced, so you’re not even going to get it anyway. So you’re locking in a lower benefit, and you’re not even going to get it, so it’s like-
James Nelson:
Right.
Nate Kreinbrink:
A double negative. So usually, again, it makes no sense if you’re below your full retirement age, still working, to file for your benefit.
James Nelson:
Well, and we see it, don’t we?
Nate Kreinbrink:
We do.
James Nelson:
I mean, people don’t know about that earnings test until maybe October or November when all the sudden their Social Security check either goes away or is cut in half. I mean, that’s usually when they figure it out, and it’s too late at that point in time, they already drew Social Security, and now we’ve blown through the earnings test and I’m locked into that lower benefit. So that’s a really good point, and something that we always have to bring up to people if they’re retiring before their full retirement age.
James Nelson:
We love to sit down with people prior to them drawing. We’ve got excellent software and people really get a feel for the different scenarios and different options that they have, or a spouse has. And I would encourage anybody to bring that up to us, sit down with us, because it really is worthwhile to sit down and get up on our big screen and see all the different possibilities, all the different scenarios. And then it totals the cumulative benefit between you and a spouse, or maybe it’s just a single person. I think that’s a really worthwhile exercise, and we do it all the time with clients.
Nate Kreinbrink:
Yeah, and I think when we sit down with people and we’re able to help them maybe find some additional money that they didn’t think they were even eligible for. One such example is what they call the restricted application for spousal benefits. Most people lump this in with the file and suspend, which if you file Social Security at all, you know that the file and suspend strategy got eliminated a few years ago. But the restricted application for spousal benefits is still eligible to be used for those individuals that were born before January 1st of 1954. And if you were born before that date, you definitely need to look at this strategy and see how it can make you work for you and your spouse.
Nate Kreinbrink:
Basically what it allows you to do then, if you were born before that date, when you turn your full retirement age, you can take half of your spouse’s benefit, assuming that they’ve filed, and then still allow your own personal benefit on your own record of 35 years, or whatever it was, of earnings to get that 8% increase up until age 70. So you’re taking your spousal benefit, and your benefit is still continuing to grow. But for those that were born after that, they can no longer do that. So whenever they file for Social Security benefit, they’re getting any benefit that’s due to them, whether it’s off a spouse’s record or if it’s off of their own record.
Nate Kreinbrink:
So again, I encourage you, if you were born before that date and you haven’t already started filing, we definitely need to sit down and look at that, because again, I think there’s going to be some ways that we may be able to get a little extra income coming in, based off of your strategy.
James Nelson:
That’s a really good point. I sat down with a couple last night that are implementing that strategy early next year, and yeah, it’s worthwhile. And again, the birth dates have to match up right.
Nate Kreinbrink:
Right.
James Nelson:
They’ve got to … not everybody’s going to be able to take advantage of that, but for those that can, really nice benefit.
James Nelson:
Nate, could you touch on just briefly a divorced couple, divorced, ex-spouse benefits, what kind of plays into those rules, and what’s available for a former spouse?
Nate Kreinbrink:
Yeah, so that goes into most people think well, once the divorce happens that I no longer can file on an ex-spouse’s record, which is definitely not the case. As long as that marriage lasted for longer than 10 years, and you’re not currently remarried, you’re able to take basically an ex-spousal benefit just like you would be if you were married. Where you could take half of their record, half of their benefit if it’s bigger than what your benefit would be. And a lot of the misconceptions that go along with that is that they have to call up that ex-spouse and they have to get their approval for it, or whatever. Or it’s going to reduce that, and none of that is true. You don’t have to get it. As long as you go to … when you file for that benefit, if it works for you, when you have your meeting, your call, however you do it, you just let them know that you were married, they’re going to ask for a marriage certificate, a divorce certificate to make sure that it was 10 years. And then they’ll be able to look up what benefit you may be entitled to off their record. And if it’s bigger for you, that’s the benefit you’ll get.
Nate Kreinbrink:
So make sure that, again, if we do have that, we want to look at that to see if, again, there’s any benefits that we could potentially get from that.
James Nelson:
Well and it’s really important, because that is in play all the time. I mean, there’s a lot of people that find themselves in that situation, and just as you mentioned, “Oh, we’re no longer married, so I’m not entitled to that benefit.” Well, if you were married for 10 years you may have something there. So again, great scenarios to look at.
Nate Kreinbrink:
Lastly I did want to mention too, the unfortunate situation where you’d be eligible for a widow’s or a survivor’s benefit, however you want to call that. There’s a few different rules that do come into that play, whereas with a widow’s or a survivor’s benefit you are technically eligible to … the earliest you can claim that is age 60, so that’s a little different than filing on your own benefit, which is 62.
Nate Kreinbrink:
But again, there’s some coordination that goes along with those situations that’s different from your own benefits. As far as being able to claim your benefit and not having it impact the survivor’s benefit, or taking the survivor’s benefit now, leaving your benefit to grow all the way to age 70.
Nate Kreinbrink:
So there’s a couple different rules. But again, under those unfortunate circumstances when those would become available to you, we want to make sure that we understand that, and then maximize those two benefits as well. So again, there’s a lot that goes into this, a lot of different questions, a lot of misinformation as far as the Social Security system, is it going to be there? Yes, it’s not going away. It may have to be modified obviously in some shape or form, but it’s not going away.
James Nelson:
Right.
Nate Kreinbrink:
But when you look at your Social Security … your statement that you get in the mail from the Social Security Administration, you flip over to page three, halfway down, right in the middle, you’ll see the totals that were paid in from your record, and then what your employer paid in on your behalf. You add those up, and then you look cumulatively over your lifetime, and if you’re married, a spouse’s lifetime as well, the amount that you’re going to get back versus the amount that was paid in-
James Nelson:
Right.
Nate Kreinbrink:
It’s astronomical the benefit. So that old perception that I need to file now because I need to get my money back. You’re going to get your money back-
James Nelson:
Yeah.
Nate Kreinbrink:
And then some.
James Nelson:
Yeah.
Nate Kreinbrink:
Which is part of the reason why the Social Security is in the shape that it is now.
James Nelson:
Exactly.
Nate Kreinbrink:
Anyways, but again that’s a whole different show. But again, understanding these rules and how they fit you is extremely important.
James Nelson:
Yeah, very good point.
Nate Kreinbrink:
So I did want to mention, we are out of time, but every Friday NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of June will be donated to mobile meals. James, appreciate you joining me today.
James Nelson:
Absolutely.
Nate Kreinbrink:
Again, 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 indexes 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.
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