There’s so much misinformation about Social Security (and Medicare) out there. Even worse, people are basing their retirement planning on this misinformation.
John Curry and April Schoen clear the air and get to the heart of the best way to take full advantage of this benefit you’ve been paying into your whole life.
Every situation is different. And you shouldn’t make a move until you look at your complete financial situation. But John and April give you the facts so you can make an informed decision.
Tune in to find out if you qualify for benefits you didn’t realize, as well as…
How your Social Security income is taxed
How to decipher your confusing Social Security statement
What will change in Social Security and what never will
Why taking Social Security too early can drastically reduce your benefit
And more
Listen now…
Episode Transcript:
April Schoen: Hi, this is April Schoen, and on this week's episode of The Secure Retirement Podcast, we'd like to share a webinar we recently recorded on the topic of social security. We think you'll find it impactful and hope you enjoy it.
Good afternoon everyone, and welcome. This is April Schoen, and I want to first say thank you for taking time out of your day to join us. I've got John Curry, author of Preparing for a Secure Retirement, here with us today. We're going to be going through social security. Kind of funny that we're doing this today. John has been doing this ... Is it 43 or 44 years?
John Curry: 44 years now.
April Schoen: Okay, he's been doing this 44 years. He turned 66 in December, so get this. Today, he got his first social security check deposited. So it's very funny I think that we're doing a webinar on social security and he just started collecting his benefits. So I'm sure he'll have plenty to tell us about his experience of going through the process of collecting his benefits.
All right. I want to first just start. I'm going to give a couple minutes for a couple other people to join us and while we're doing that, I'll just start and tell you a little bit about what we're going to be talking about today. We're going to talk about how social security works, what you should know, what you maybe don't know about social security and some of the delayed retirement credits. We're going to talk about different payment scenarios and then lastly, we're going to talk about some issues around the program and just some things that you need to be aware of as you're planning for your retirement.
I know John and I, when we meet with clients at our seminars, we find that retirement planning, it's much more complicated than you may think it is. So hopefully today we'll at least tackle some of these complicated issues around social security and give you some insight about the program.
If you have any questions as you're going through, feel free to type them in the chat box and we'll try to get to those as we can. All right, I think we're ready to get started, John.
John Curry: All right. Let's go.
April Schoen: Okay.
John Curry: You made a comment, April, about how social security and retirement planning is complicated. I want to share with the group for a minute what I went through, my experience with social security and Medicare.
As you get close to 65, you're going to be bombarded with one piece of junk mail it looks like after another trying to get you to enroll in some type of Medicare supplement policy. Many of you on this call have already experienced that and you're already on Medicare. Many of you are not.
The issue is becoming more and more complicated because we're concerned about social security and Medicare, and when do you take it? In my case, I did not take Medicare until 66 because I was under a group plan. Well, what's that got to do with social security? Well, Medicare and social security are tied together. So when you're 65, you automatically go on Medicare part A. The part B, you don't have to do it automatically. You can enroll or not. If you don't enroll, there's some penalties if you don't do it properly.
So social security and Medicare, even though we get a lot of questions on it, over the past year with me doing the homework I've been doing has made me have another level of awareness about how complicated it is and also the amount of misinformation that's out there.
Some of what I'm going to cover today is a little different than I might do face-to-face, but not a whole lot different. On the screen you'll see some background information. The average monthly benefit as of this month, January 2019, is $1461. Let that sink in for just a minute. That's the average monthly benefit from social security, and you'll see on the left hand side all these people. You have beneficiaries at the top and workers at the bottom. Well, that visual would make you think that there's an equal number of workers for beneficiaries. That's not the case, as you'll learn as we go through this. There are fewer and fewer workers that are supporting the beneficiaries, beneficiary meaning those of us, and I'm now one of those, who's collecting the benefit.
In the past, I thought, "Eh, people don't need to hear this." But I think you do need to know this because the average benefit is not a big number. There are a lot of people out there that are living on 5 and $600 a month from social security. As you'll see in a few minutes, there are some numbers that reflect the maximum benefits depending upon your age when you retire.
This next visual, how does social security work? I find there's a lot confusion still on this. When you get 40 credits, you are fully covered, you and your spouse, for social security and for Medicare. What is a credit? A credit is $1360 of earnings, so if you earn $1360 that's deemed to be one credit. So basically if you have 10 years of work, you probably have your full 40 credits. It used to be just based on 10 years and not a dollar amount. That was changed a few years back.
And by the way, we all hear the phrase FICA. Just make sure you know what it stands for. That stands for Federal Insurance Contributions Act Tax. So they're taking our money but sometimes we forget what it stands for. I have to remind myself occasionally and just look at it. Federal Insurance Contributions Act. So what does that mean? The name says it all. Social security is a form of insurance, so we're all paying into an insurance program, and the name says it all, April.
April Schoen: Mm-hmm (affirmative). It's funny. I just had a conversation with a client yesterday and they said, "I don't think they do credits anymore." And I said, "No, they actually still do. Most people don't know how those credit things work but they still go by the 40 credits."
John Curry: That's correct. And by the way, while we're doing this today, we're going to be going back and forth so you may hear April jump in occasionally and you may hear me ask her to cover something that might apply based on our activity with clients.
And by the way, April, I need to cover this since we're talking about my social security benefit. People are asking me am I retired. The answer is no. I'm not retired. I'm collecting my social security and also my pension with Guardian, but I'm still working. What I am doing, I'm not working as much. I have some property over in Jefferson County. I was over there with my son and my grandson earlier this week. I'll be doing that more, but I will still be seeing clients for as long as clients want me and as long as I'm healthy and I am healthy and ready to go.
April Schoen: Good.
John Curry: I just want to make sure people know that you're not putting me out to pasture yet.
April Schoen: I'm not putting you out to pasture just yet.
John Curry: Tell the people your attitude about my retirement.
April Schoen: I usually tell him on his birthday he can go enjoy his retirement birthday weekend and I'll see him on Monday morning. That's usually my joke about his retirement.
John Curry: She's a slave driver.
Okay, how is your benefit determined? It's based by averaging your highest 35 years of salary. A lot of misinformation on this. People say, "Well, if I worked for 50 years it's an average of all of it." That's not true. It's the highest of 35 years. What if you don't have 35 years? So for example, you had 25 years of work? Well they will fill in zeroes to fill in the other 10 years. So, it's importing those 35 highest years of salary.
This is something that many people do not know about. Paper statements are no longer mailed. They mailed them, then they quit, and then they started sending them to certain age groups. Now you have to go online if you want a statement, and we would encourage you to do that. Every time when I see clients, we encourage them to go to socialsecurity.gov or you go to ssa.gov, but you really should go in and set up your own personal record.
April Schoen: Yes. I remember we actually heard from someone at social security a couple years ago. They were actually having issues with identity theft. They were having issues with other people going in and trying to set up an account for you so that they could get information about your social security benefits. So, we highly encourage everyone to go on to social security's website and set up your own login.
John Curry: And those where Medicare's an issue, same thing. Medicare no longer puts your social security number on your Medicare card. It's just your account number, and I call it because of the fraud. It's become a big issue. There's some people out there who are pretty bold going after social security and Medicare, so they're not even fearful of dealing with the federal government from taking money.
Okay, let's switch over a little bit to what you should know, if I can get this mouse to work, April. Here we go. The year you were born determines your full retirement age. We still see people who think that once they're 65, they start collecting full retirement age benefits. That's not the case. If you're born between 1943 and 1954, then full retirement age is 66. And then each year thereafter, you add, so for example, 1955 you add 2 months, so it's 66 and 2 months, then 66 and 4 months, 6 months, 8 months, 10 months up to age 67. So if you were born 1960 or later, full retirement age is 67.
Why was this done? It was done as a way to delay people retiring and collecting as much money. It was a way the actuaries came up with to hopefully extend the life of the social security trust fund. I'm of the opinion that they never should've allowed us to take social security at 62 anyway and you'll see that coming up in a couple slides, and they should probably not have done it this way, that's to say either 66 or 67, but what do I know? I'm just out here advising clients every day.
On this next visual, you'll see taking benefits at age 62, 66, and 70. So in this example, we're going to assume that you were born between 1943 and 1954, so that your full retirement age is 66. In a program we use called the living balance sheet, we're able to help you do some projections when you can see what your benefit would be at each of these three ages. So, if that's something you'd like to see, come in and meet with us. We'll walk you through how social security ties into any benefits you have with a pension like the with the state of Florida or the city or county, how it applies to your 401K, and how to coordinate this to get the maximum benefits.
At age 62 if you start your benefits, you're getting 75% of what you could've gotten had you waited 'til age 66. Age 66, you get 100%. If you waited 'til 70, you get 132% of the benefit. In other words, you're getting a delayed benefit by waiting, and we'll get into that in a little bit more detail on the next page. But these are the maximum numbers. At full retirement age, the maximum benefit is $2861. If you wait until age 70, your benefit is 3739, $3739. Pretty big jump.
So there's a big debate. We have people who come in, they insist that they're going to take their benefit at 62, April, "Because the system's going bust. I don't trust those people up in there in Washington. They're going to steal my money, so I'm going to take mine at 62." Then you have others who say, "I'm going to wait all the way to age 70 because I want that additional 32% increase." Then you have people like me who decided to take it at full retirement age. So you want to share with the group what we have been discovering talking back and forth to clients on that?
April Schoen: Yeah. I think one of the things I'll say is that every situation is different and every client situation is different. We try to shy away from blanket statements and we do look at everyone's individual situation to see what makes sense. Again, for you John, you're taking it at 66. Makes sense. I had a client right before Christmas. I was talking to her and she's 68 and her plan was to wait 'til 70, and then we looked at the numbers and it didn't make sense and so in her case, it made sense for her to go ahead and start taking her benefit now. And then we do have others who may wait until age 70, and there's a time and a place for that as well.
John Curry: Right, and people ask me why I decided to take it at 66 even though I'm still working. For me, it's the time value of money. I decided I'd rather have the money in my hands now and take that money and do things with my children, my grandchildren, and my great grandchildren now instead of waiting. Plus, I'm healthy, but I did have open heart surgery July 10th, 2008, so I do have some heart disease and none of us are promised tomorrow. So, after looking at all the numbers, I decided to take the benefit now and do other things with the money.
Now, let's talk about when it might make sense to delay. Some people have not done a very good job of having life insurance or saving of their money. If that is the case, the longer they can delay, then they may want to consider that because ultimately when you pass away, your benefit that you're collecting will determine what the spouse will get. The widow or widowers we'll cover later. So for some people, they delay even longer because they want to make sure their benefit is greater for the person they're leaving behind, and we'll touch on that briefly in a few minutes.
At 62, 66, or 70, and a lot of that will come down to the type of planning you've done, your liquidity, how much savings you have, how much you have in stake deferred comp and IRA, 401K, profit sharing plans. All of this has to be looked at together, not just in a vacuum.
This will show you year by year between 66 to 70 what happens, and I'll stick with the age 66 for now. Full retirement, 100%. If you wait until 68, is 116%, 124, and at age 70, 132%, so that's how these numbers are derived. It's an 8% increase for each year you delay. That works out to be .67% per month. It is pro rata so if you delayed one year, if I waited to age 67 for example, it would be up by 8%, that benefit, the 116.
Now, let's talk a little bit about this statement. On this statement, you'll see a lot of numbers and we're not going to try to cover all this, but this will show you what your benefit is at age 67 for this person assuming full retirement age, 70 and 62. So your statement that you would get online and some of you have gotten some of these in the mail before, probably everybody actually on this call, but it gets into what the disability benefit would be, family survivors, and also Medicare.
So, we encourage you if you've not done it yet, go to social security's website, log on, and set up your personal account and start reading and studying some. For those of you that don't want to do that, just come see us every now and then and we'll help you and we'll give you our best thinking and what we have learned along the way. April and I both are studying this constantly. I don't know when yet but at some point this year I'll be attending an intensive two day workshop on social security and Medicare. I love going to those because I'm around other people who do similar type work and we share ideas and we always come back and share that with our clients.
Okay, cost of living adjustments. This is I think a little trivia that you should see. In 2009, the coda was 5.8%, then nothing in 2010 and '11. 2012, 3.6%, then in '13, 1.7, 2014, 1.5, 2015, 1.7%, 2016, 0, and 2017, people were complaining to us and saying, "That was an insult. I only got three tenths of a percent increase." 2018 was pretty good, 2%, and 2019, 2.8.
Let's talk about what this is tied to. You'll see it's tied to the consumer price index for urban wage earners and clerical workers. This is not what you see published by the media when they talk about the consumer price index. This is a specific index, so when you hear somebody, one of the talking heads say, "Inflation is 4%," you cannot just assume that you're going to get a 4% increase in your benefit and that's where people get disappointed, April, is they hear something on CNN or Fox News or Business News or something and they go, "Well, wait a minute. They say inflation's 4% but I didn't get that." It's because it's based on this particular index.
April Schoen: There's a correlation, right, with what happens with Medicare. When you needed a cost of living increase in social security, then you could also see your Medicare premiums go up too, correct?
John Curry: That is correct, and even though we're not talking about Medicare today, we will be ... Is it okay to get into the details of our seminar we're going to be doing?
April Schoen: Sure.
John Curry: On January 31st, we're going to be doing a seminar and we'll be talking about social security and Medicare. So I'm not sure when you'll be hearing this because some people will hear a replay of this later but on January 31st we're doing a seminar and we'll be doing some throughout the year.
April Schoen: Yeah. We'll also do another webinar on Medicare basics as well sometime this year for sure.
John Curry: Very good. We will do them as long as people want them, and we have a lot of people on this call today. In fact, we were surprised because we didn't know how many people would respond this early in the month of January, so we were surprised at the number of people who registered.
Let's talk about taxes. I'm going to do this briefly because I know sometimes April will get bogged down on this and we'll keep it simple. It depends on if you're filing an individual or a joint return. Here's the bottom line. Part of your benefit, up to 50% of it, could be taxed or on the high side as an individual, 85%. And it's based on your income, so if you earn between 25 and 34000, then 50% of your benefit could be taxed of your combined income.
I'll do this briefly because we can get bogged down. How do you get combined income? It's based on your adjusted gross income plus any non-taxable interest. Let's say you had money in muni bonds plus one half of your social security benefit. Add this up and that equals your combined income. So if your combined income is in this range of 25 and 34, then 50% of your benefit would be taxed. The maximum that would be taxed would be 85% of your benefit if you earned over 34000.
If you're filing a joint return, then the 50% kicks in at 32000 to 44 and 85% if you earn over 44000. A lot of people out there who think these numbers are way too low, that the income should be raised so that less of the benefit is taxed. Fat chance of that happening when congress is saying they're worried about how to make this thing work, so I don't think you'll see that happen. Probably should, but it's not likely.
Now, I like this visual because in our seminars we have some fun with this and we actually have a trick question. Don't have time today to play the trick on you so I'll just give you the bottom line. If you are 62 years old and you're going to take your benefit, any income you earn over $17640 in 2019 will cause you a bit of a reduction. What it means is your benefit is reduced $1 for every $2 above this limit. That's why you hear some people say, "Well, I can't earn more than $18000 because I'll lose some social security benefit." That's what they're referring to.
In the year that you attain full retirement age, anything over $46920 earnings results in $1 reduction for every $3 above this limit. But here's the trick question part. Once you are in the month of full retirement, in my case December, then there is no earnings limit. You could literally own a million dollars and not have your benefit reduced. Tax issues but not a reduction of the benefit, and that's another reason why it's important to know what your income looks like from retirement accounts because every dollar you take out of a retirement account is taxable income and it does impact the taxation of your social security benefits and it also impacts your Medicare premium because if you earn a certain income and above that income, 85000 is the number this year, over the 85000, your Medicare premium is not 134, it's 134 plus a surcharge. It could be as high as $420 a month I think it is, but these are some of the things we'll be covering in the future with our combined social security and Medicare.
All right, so let's jump ahead to different payments and areas. The most common one is spouse A. Let's just pretend for a moment that April and I are married. I'm spouse A. This is my benefit, and let's say mine is 1000 a month to make the math easy, and April's benefit is $250. The system would give her enough to where her benefit is half of mine, so I get my 1000 and she'd be collecting $500 per month. Anything you want to add there, April?
April Schoen: No. I'm just confirming that again. I'll say that one more time, is that the way the spousal benefit works is one spouse, you can claim up to 50% of the higher earner's record or your own, whichever is higher. So in this case, we're pretending that me, the wife, has a lower social security benefit than the husband and so their benefit would be up to 50% of the spouse's but it'll be the option of either your spousal benefit or your own benefit, whichever is higher.
John Curry: Very good. Thank you. Pardon me. And let's talk about widow or widowers benefit. You want to cover this?
April Schoen: Sure. So for the widow or widowers benefit, if the surviving spouse's benefit is less than the benefit of the decedent, the surviving spouse will get the higher earning records benefit. So let me give kind of that example again. So let's say that spouse A's social security benefit was $1000 per month and spouse B was getting the spousal at 500. Well, if spouse A passes away, spouse B's benefit now is $1000 per month but they don't get both. They don't get their own plus the second spouse. They only get one of the two. They'll get the higher of the two benefits. That's how the widow and widowers works.
John Curry: Very good. Thank you for covering that. Also you'll see if you remarry, benefits continue if you're remarried when you're 60 or older. The key is age 60 or older.
Let's take a look at a little bit different scenario. I'm not going to take time to cover all of these, but there are different benefits for survivors also. So, widow or widowers would get 100% as April just said. If you are age 60 to full retirement age, it's reduced, where this benefit is assuming full retirement age and there's benefits for disabled widow, even a child. We could get so bogged down here. I don't want to get stuck on this, but just be aware that there's benefits also as far as payout scenarios.
Okay, what about divorces? If the marriage lasted for at least 10 years or longer and the lower record spouse remains unmarried, each spouse is entitled to a benefit, and each spouse is 62 or older. If the higher record spouse remarries, the new spouse's benefit is not affected.
So what does this mean? I'll pick on me again. So I'm spouse A and I'm divorced and I have an ex-wife that I was married to for 10 years or longer and she has not remarried. Then, she'd be entitled to 50% of my benefit as if we were still married. We find so many people who do not know about this. We've found situations where we've had to ask people, "Are you aware that you qualify for his benefit?" They say, "I did not know that." So, this is something that is overlooked.
What if I had three wives and I happened to be married to each one of them for 10 years and one day? Well, all three would qualify. Some people say, "Well, that's a weakness in the system that our social security program would pay out that much money potentially," but that's where the law is. So just be aware of that.
We find that a lot of benefits are left on the table and sometimes we have to refer people back to social security office and say, "Look, we think you might be entitled to a benefit. Go talk to them," and they come back and say, "Oh, I got more money than I thought."
April Schoen: And just know, too, that whenever you receive a spousal benefit on your ex-spouse's record, just know it does not affect their record at all. It doesn't affect their benefit at all. As John said, if they got remarried, their current spouse could also claim under their record, so we get that question sometimes about will it affect their benefits or anything along those lines, and it does not affect them at all.
John Curry: Very good. Now this is something we're going to cover next that we find that most people have never heard of and hadn't thought of, and we have fun with this in meetings and also in seminars but we're going to talk a little bit about it today and give you kind of a big picture view. It's a little different.
Now we're going to assume that the lower record spouse starts collecting and they get their 50%, okay, 50% of what the higher record spouse was getting, and they have to be full retirement age to do this now. So let's stick with the 66. So they're both 66 and they decide to do this. The higher record spouse could actually file what we call a delay that could collect on the lower record's income. So let's just say this is $500 per month and this benefit would be 250 per month. Doesn't sound like a lot of money but that's money coming in that would not have been collected.
There at age 70, the higher record spouse says, "Okay, I'm now going to switch to my benefit and collect the full benefit." So this is what is called spousal benefit and delayed retirement credits. So, lower income person takes their benefit, higher income person says, "Okay, I'm going to take my benefit based on my spouse. I'm going to delay mine until I'm 70."
It used to be more attractive but that was taken away in 2015. Some changes were made in the social security laws and it was the first time that congress actually did something very fast with social security.
April Schoen: It was within a matter of weeks.
John Curry: Weeks. That's correct. Okay, let's talk a little bit about issues around the program. We'll have some fun with this because this is something that as I'm sitting here across the table from you, that's going to impact you and your generation big time.
April Schoen: That's right.
John Curry: So, you want to jump in and talk about this one just a little bit?
April Schoen: Sure. One of the major issues for social security is that the number of workers in the fields or the beneficiaries, it's projected to shrink over time. It's projected there's going to be more people collecting social security than actually paying into it, and so you can see why that would be a problem down the line. They're projecting that by 2035, there will be about two workers for each beneficiary.
John Curry: Say that again.
April Schoen: Social Security Administration estimates that by 2035, there's going to be two workers for each beneficiary. So, you're not going to have as many people that are paying their taxes today to benefit the beneficiaries who are actually receiving benefits from social security.
John Curry: And let me give you a little history. In 1945, there were about 40 workers for every beneficiary. When I came in this business in 1975, it was around 16 or 17 per beneficiary. So, as April's pointing out, fewer and fewer workers.
So what does that mean to the system? It has more and more pressure and as we talk about some issues in a few minutes, what is that going to do as far as the wage base, taxation, will we see an increase in the social security tax for both the employer and the employee? There's a lot of issues there, a lot of moving parts that unless you're somewhat of a geek about this like I am, you would probably care about, but I'm to the point in my career where this is a very important topic not only for me but also clients of my age and older, so I keep up on this. I want to know more about it, and also longevity. The longer we live the more of a burden there is, April, on the system on people your age coming behind the baby boomers to fund this thing.
April Schoen: That's right. So you've got less people that are paying into it, we're all living longer, just puts more pressure on the system. Social security, they've been very open about this that by 2034, they project that the trust fund will be exhausted. So, we know that there's going to have to be changes between now and then.
John Curry: Yes, and I would encourage you when you go to the social security website, go to the retirement estimator section and you'll find that they even go further. They say that in 2033, the payroll taxes collected would be enough to pay only about 77 cents for each dollar of scheduled benefits. And it was projected to be longer than that, but the revised numbers from the trustee's report says 2033.
In fact, this is something that is a good time to bring up. Subject to political agendas. And what I want to say there is no duh. I mean, as we're sitting here today, we are in a government shutdown, and it's the 16th day, I think it is, 15th, 16th day. It's tied to consumer price index and there's something called the chained consumer price index and I would encourage you just to go Google that and then form your own opinion on that.
But, what we're seeing more and more with all government programs, whether it be social security, Medicare, Medicaid, they're under pressure. I think we're going to see going forward that congress is going to have no choice but start making changes. What will they do? I don't know. Will they make it a higher age for full retirement? Will it someday be 70? Will they take away being able to take the benefits at 62? I don't know.
I can tell you what I would do. It wouldn't be very popular, but if I had my way about it, no one would've ever been able to collect social security at 62. It was never designed for that. I would've made it be at least 65 or 66 or even 70. Age 70 is what you have to use as mandatory distributions. It's called required minimum distributions for retirement accounts, April, with age 70 now even.
So, it is subject to political agendas. There's a lot of debate about, "The system's going to go bust, give me my money now," and April and I believe that a lot of this is fear-based and we try to get our clients just to take a deep breath, let's look at what you have, what have you done as far as your savings, your investments, your retirement plans, let's look at everything and then determine what needs to be done. Don't let some well-meaning friend scare you into taking your benefit at 62 or even someone convince you to wait 'til 70 if you really want the money now. It's your money. If you want it now and can use it now, take it. Take it.
April Schoen: That's right. And social security, it's not going anywhere. It's still going to be around, especially like John, you're starting social security or if someone's near retirement, this is still going to be of benefit for you. I think for someone my generation, I'm 35, I'm going to see a lot of changes over my lifetime around social security. Do I think it'll still be there? I do, but I think it'll be different 30 years from now, but we know that they're going to have to make some changes.
John Curry: Right. I agree with you. I don't think it's going to go away. I think we're going to see changes in it. My plan is to live to be at least 100 years old.
April Schoen: That's right.
John Curry: So, I'm going to be seeing these changes along the way and still advising people. But I think we're to a point in our nation of where longevity, taxation, inflation, savings, rate of return, investments, all of this has to be tied together and anyone who is not looking at all of those when they're doing their retirement planning, they're going to be in for a rude awakening because most people have very short memories, they forget about how high inflation was back in the late '70s and early '80s. I remember an interest rate on a mortgage that I got on a house was 12%.
April Schoen: Jeez.
John Curry: When it dropped down to 10, I refinanced. When it dropped down to 8, I refinanced. It went to 6, I refinanced. People my age know that. But we also forget about what the stock market did, what the real estate market did in 2008. You and I talk about this a lot, April. We're seeing people already making the same mistakes that got them in trouble in 2008. You want to elaborate on some of the things that you've noticed?
April Schoen: Yeah. I think you kind of said it earlier too, that we have short memories. So, we forget the pain of 2008 and 2009. We forget the pain of the recession. I was talking to some friends the other day and back in 2010, I had two friends who were out of work for 12 months to a year because there were no jobs available. We're seeing people today kind of getting back in the same boat where they're not paying attention to how much liquidity do they have. So, can they weather a storm if there's another recession? If we see a drop in the stock market, can they weather that storm? We're seeing people kind of set themselves up for failure in that way.
John Curry: We're also seeing people going out refinancing their homes.
April Schoen: That's right.
John Curry: We're seeing ads on television where people are being encouraged to go out and refinance and get 100% mortgage. A lot of people out there use the home equity like an ATM machine, and it got them in trouble.
You might be sitting there going, "Okay, why in the world is John Curry and April Schoen talking about this regarding social security?" Because it all comes together to create streams of income in retirement. We believe in giving you multiple streams of income, whether it be social security, pension, property insuring plans, 401K, IRAs. How do you create streams of income that you can never outlive and that's not subject to political agendas? Taxation, we can't change that, but we can design programs where you don't really care who's in office. And the funny thing, I don't care if it's Democrats or Republicans as it comes down to my planning because of things I have in place where I know it'll be there no matter what.
Let's talk a little bit about something that, April, on this one, I know in seminars we'll cover it in detail. I'm going to hit this quickly. The key point I want to make is it's not meant to replace all of your income. Social security was never designed in the '30s to replace all of your income. It truthfully was designed to keep people off of poverty rolls.
Low income earners, defined as people making $22000 of pre-retirement income, social security replaces roughly 52% of their income. Max earners is only 25%. Some people say, "Well, wait a minute. If you're a max earner or a high earner, less of your retirement income will come from social security," and you'll hear someone say, "Well, for someone who makes a high income or max earners, social security's kind of like reverse discrimination because those people are being discriminated against because they're paying in more taxes and they're getting less benefit." Well, that is correct. That's not some made up number. I mean, social security shows you yes, if you are a max earner then only 25% in your retirement is coming from social security, and yes you did pay in more because that's what our tax system is, that the more money you make, the more you pay in.
April Schoen: Right, so the more pressure then, if you are a high earner or a max earner, there's more pressure for you to put on your other retirement savings, your assets, to continue with the same income that you have pre-retirement or more. So you have to put more pressure on your assets to create the same amount of income.
John Curry: Yes, and if you've now tied that to high inflation rates, high taxation, and you're living longer, what does that do to your pot of money?
April Schoen: Right.
John Curry: It makes it dwindle faster, and that's not good. It's one of the saddest things that April and I see with clients is somebody will come see us that heard about us from a seminar or a friend referred them, they come in, and they lost a bunch of money in 2008, 2009, moved everything from stock market into money market accounts, and then pulling money out and they're still sitting there getting less than one quarter, 1%, and they're worried about running out of money.
That's a sad situation and what do you do? Sometimes people say, "Well, I want to get back in the market now." Are you kidding me? As volatile as it is today, you want to put all of your money back in the market? We can't do that. We've got to be diligent with the money. It can't all be high risk.
Let's recap. Let's talk a little bit about what we've covered so far, and then April, before we end up today, I want us to talk a little bit about making sure people on this webinar understand our relationship, what to expect if they come sit with us, and you're taking over more and more. You've developed a clientele yourself, so I want us to talk about that some.
April Schoen: Okay.
John Curry: Okay, so let's just do a recap. Social security is funded by taxation. Why is that important to know? Well, if we have fewer and fewer workers that are paying social security taxes, that tells me that the fewer we have, there has to be some conversation about increasing the rate of the tax or if I don't increase the tax rate, I increase the amount of money on which that tax is applied. That's why you see the annual income limit go up. It's roughly 120000. So, up to 120000 is taxed. Over that is not. Now, Medicare, however, there is no cap. If you earn $10 million, then you're going to pay Medicare tax on that.
We talked about it averages your highest 35 years of wages. We talked about once you have 40 credits, you and your spouse qualify for a benefit, and we see read your statement. Read your statement, and if you need help with it, give us a call. We've had people that would email it to us and we'd have a telephone appointment. We've had people come in face-to-face. We'd be happy to help you with that if we can.
April Schoen: We can run different scenarios too, especially if there's a married couple and we have a copy of your social security statements, we can run some different scenarios. Okay, what if this one takes it early? What if this one delays? We kind of look at some different scenarios there.
John Curry: Correct, and it's important for us to say this, so just as a disclaimer here, disclosure, we don't represent Social Security Administration. We don't claim to have all the answers, but what we can do is help you begin to see what the possibilities are. On a regular basis, we refer people back over to social security. We say call them and get in there and let them explain how this works, but some of it we can help you with, at least help you determine the right questions to be asking.
Okay, let's continue with the summary. Full retirement age depends on what year you were born. We talked about that, if you take your benefits at 62, full retirement age, or wait until 70. Cost of living adjustment, we've talked about that. There's been three, four years I think with zero and then this year's 2.8. I was surprised it was increased that much. We had to say the word may, but it's not may. Taxes will reduce your benefits some. Working may reduce it. We talked about that $17620 income limit, at age 62. So keep that in mind if you're thinking about retiring early and still doing some work. Just be aware that it could impact your benefit. We talked about the spousal benefit and widowers benefit. So, all of these we covered.
Today was designed to give you kind of a big picture and hopefully to get you thinking more about your own planning to where you want to explore and learn more. Whether you do that by seeing us or reading, studying on your own, is up to you. We tell people that when we do the planning with you, there are only four things you can do with the information that we give you. You can ignore it, do nothing. You can take the information and do it all by yourself. You can take it to someone else who does financial planning, retirement planning, tax planning, let them do it for you, or work with us and let Team Curry, the four of us here that there's April, Jay, Bonnie, and me, that help our clients.
We'll wrap up on this last visual here, April, so we can take a minute to talk about what we see with clients. We talked about the funding issues for the future. What's going to happen? Will benefits be reduced, taxes increased? Will benefit age be changed? I don't know. It's going to be exciting to see where that goes in the future.
It's part of the political agendas. Both sides are going to be arguing and debating it, and it's not meant to replace all of your income. You have to take personal responsibility, save, invest, and protect what you've got.
That's a good place to start to talk a little bit about what ... We got a few minutes left here ... Let's talk a little bit about what we do for clients when somebody comes in here. So let's suppose somebody's on this call. They don't know us. They've never been in here. Just give them kind of an overview of what to expect.
April Schoen: Sure. So sitting down with someone for the first time, I'd say especially if we're having this conversation on retirement planning. One of the things that we like to do is take them through what we call a retirement rehearsal.
So what does that mean? One of the first things we do during a retirement rehearsal is we look at everything in your financial world, and I usually say we cover all the bases from A to Z. So, we want to look at something as mundane as your car insurance and homeowner's insurance, and we want to look at do you have legal documents, are they updated. You want to look through what you have as far as your assets, your liabilities, and kind of take you through our planning process and really just kind of cover everything from A to Z.
Part of that too, especially when we're doing a retirement rehearsal, is to go through and look at your social security benefits. Do you have a pension? If you have pension options, what pension options do you choose or what may be the best pension option for you and your family? And we walk through all the different retirement income sources that you have and we project you forward. So what does retirement look like today and what does it look like 10 years from now, 20 years from now?
John Curry: Very good. I think it's important for people to know also, April, that we don't charge for an initial meeting. We sit down and we visit. If there's a fit, we'll know it at the end of 45 minutes to an hour, and then if we move forward we'll charge a planning fee. I go back to what I said earlier about once the plan is developed for you, there are only four things you can do. You can ignore it, do everything yourself, take it to someone else, or have us help you.
Now, what you get by paying a fee for the planning, there's no pressure for you to have to buy a financial product. There's no pressure for us to have to sell a financial product. You'll get our time, our best thinking, our knowledge, and hopefully some expertise in there and hopefully a little bit of wisdom mixed in. But more importantly, you get someone who would challenge your thinking. We have people come in and say, "I want to buy X, Y, Z mutual fund," or, "I want to buy this particular insurance product," and we start having conversations with them, "Those products are not appropriate." We're not stupid. If you come in and you want to buy something, we're in business to make money, but we're not going to do it at your expense. One of the nice things about being in my position of semi-retired, if you will, we don't have to do any business.
April Schoen: That's right.
John Curry: We don't have to. There's zero pressure. If you walk in the door, I don't care if you're an existing client or somebody new, we're going to have a conversation and if you're not a fit, I'm going to tell you. I'm going to say, "I don't think we're a good fit," because I don't want you to be unhappy.
This week I experienced on three occasions where people told me they would do something regarding doing some work on my property, on my house there, and all three let me down. They disappointed me, just because they didn't do what they said they would do. So we don't want to be guilty of that.
April Schoen: That's right. We don't.
John Curry: All right. April, talk a little bit about if somebody's on this call and they said, "Wow, I'd like to know more, but I don't really want to come in for an appointment," walk them through what we do regarding our telephone appointment procedure.
April Schoen: Sure. I usually say that the first step is just to schedule a phone appointment. It'll take 25, 30 minutes. You can have a phone appointment with John, have a phone appointment with myself, and we'll just kind of start the conversation and talk a little bit about what your goals are and your plans and we can tell you some more about our planning process and see if it makes sense to move forward.
On that note, one thing too to say is I'm here in Tallahassee today with John. John's based out of Tallahassee and I'm over in Jacksonville. So any of you guys on the call in Jacksonville, I do live and work out of our Jacksonville office, but then I do come to Tallahassee for meetings a couple times a month.
John Curry: Tell them how we work together long distance with clients.
April Schoen: Sure. Long distance is we do a lot of remote meetings, kind of similar to this, where we'll share our screen, phone calls, web calls, so we do a lot of remote meetings as well with clients.
John Curry: We had one yesterday with some clients who've been clients of mine for about 40 years.
April Schoen: That's right.
John Curry: They were sitting in Charlotte, North Carolina. April was over in Jacksonville and I was sitting at the little island in my kitchen or my property over in the woods, as my grandson calls it. It's pretty cool.
April Schoen: That is cool. Technology.
John Curry: That's right.
April Schoen: It works.
John Curry: That's right.
April Schoen: Allowed us all to be on this call today.
John Curry: Correct. All right. April, let's do this. Let's wrap up by sharing with the folks on the call what we're going to be doing later this month for the seminar.
April Schoen: Sure. So, we are going to have a seminar here in Tallahassee on social security and Medicare. It's going to be on January 31st. That's a Thursday. It'll be from 6 to 7:30. So we're going to go into some more details about social security. We're also going to go through Medicare as well, so that'll be a good event to attend and we'll go through some of the items that we have. We can share with you our living balance sheet, which is our planning software as well.
John Curry: So you'll be getting emails on that and also a postcard, so keep your eye open for that. We hope you'll join us, and if you have anything that is pressing that you want to discuss with us, give us a call, 562-3000, 562-3000, and schedule a telephone appointment and we'll go from there. April, anything else?
April Schoen: I realized on our slide, I forgot to put my Jacksonville office phone number, but it's 904-296-1944 and I'm at extension 1029 or you can just email me. I get that in both places.
John Curry: Thanks. Okay, anything else that we want to cover before we wrap up, April?
April Schoen: Nope, I think that takes care of us going through social security. Perfect. Great. Thanks so much again for joining us today. We really appreciate you taking the time and we hope to speak with you soon.
If you would like to know more about John Curry's services, you can request a complimentary information package by visiting johnhcurry.com/podcast. Again that is johnhcurry.com/podcast. Or you can call his office at 850-562-3000 again, that is 850-562-3000. John H. Curry, chartered life underwriter, chartered financial consultant, accredited estate planner, Masters in science and financial services, certified in long-term care. Registered representative and financial advisor of Park Avenue Securities LLC.
Securities products and services and advisory services are offered through Park Avenue Securities, a registered broker-dealer and investment advisor. Financial representative of the Guardian Life Insurance Company of America New York New York. Park Avenue Securities is an indirect wholly-owned subsidiary of Guardian. North Florida Financial Corporation is not an affiliate or subsidiary of Park Avenue Securities. Park Avenue Securities is a member of FINRA and SIPC. This material is intended for general public use.
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