The Reason Social Security Should Not Be Optimized by Itself

"Hey Mike, how do you optimize Social Security?" Discover how your Social Security benefits could affect your portfolio, income plan, tax plan, estate plan, and more.

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What is How to Retire on Time?

Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.

Mike: 00:05

Welcome to how to retire on time, a show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, how to retire on time, which you

Mike: 00:17

can grab today for free

Mike: 00:18

by going to www.howtoretireontime.com, or you can buy a physical copy on Amazon. My name is Mike Decker. I'm the author of the book, how to retire on time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to money, dollars, cents, finance, investments, all of it, we can cover it all. Now that said, please remember this is just a show. Everything you hear should be considered informational as in not financial advice.

Mike: 00:45

If you want personalized financial advice, you can request a wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Franson. David, thanks for being here.

David: 00:58

Yes. Glad to be here.

Mike: 00:59

David's gonna read your questions, and I am going to do my best to answer them. You can submit your questions in at any time during the week by texting [phone]. Just save that number in your phone when you think about it. [phone], or you can email us at [e-mail]. Let's begin.

Mike: 01:21

Hey, Mike. How do you optimize Social Security? The cliche answer would be figure out when you think you're gonna die and how much do you get out of Social Security.

David: 01:32

Yes. Sounds nice. Right? Yeah.

Mike: 01:36

What most people think is, I've paid into this thing for so long, and it's a Ponzi scheme, and it's a scam, and they get all fired up because they read some social media posts about someone who made an argument about it all, how Social Security should be abolished or whatever.

David: 01:48

Yeah.

Mike: 01:48

Fine. Everyone's allowed to get mad at stuff, and then they will say, I'm gonna take it at 62 years old so I can get the max benefit, and I'm just gonna take everything out and reinvest it or what. If that's you, fine. If you like to get upset about things, fine. Yeah.

Mike: 02:00

I get why you might be upset about it, but the reality is when you file will affect every other part of your plan. It's gonna affect your tax planning. It's gonna affect your income planning. It's gonna affect your legacy planning. It's gonna affect your portfolio.

Mike: 02:13

It's gonna affect your risks. It's gonna affect your health care planning. So to do an isolated optimization report of here's when I could file, and here's the benefits, and here's the break evens, is a gross oversimplification of Social Security benefits. Mhmm. Don't do it.

David: 02:29

Okay. Okay. Just don't do it.

Mike: 02:31

Yeah. What you do is you run your first version of the whole plan, and then you start changing that Social Security earlier. How does that affect the other parts of the plan? I've had many people who if they would have filed earlier on in Social Security, all things being equal, they would have run into issues with required minimum distributions. But by delaying Social Security a few years, in this example, and it's hard to understand over the over the airwaves, but by delaying their Social Security, they were able to drain down their IRA assets a little bit.

Mike: 02:59

They got a higher Social Security benefit, and then they did not have an RMD issue later on based on the simple projections he ran.

David: 03:06

Okay. Yeah. So they sort of bridged that gap from retirement to receiving Social Security Yeah. With their portfolio.

Mike: 03:13

It's a complicated situation. I am a National Social Security Advisor. What does that mean? Yeah. It's a fun educational credential.

Mike: 03:22

It's not associated with the Social Security Office or Administration. Okay. Was an independent group of people issue the certification that FINRA recognizes.

David: 03:30

Okay.

Mike: 03:31

Basically, what it means is I studied a ton to learn about Social Security.

David: 03:35

Okay. Alright.

Mike: 03:36

K? And it is more complicated than people realize. There are more ways that you can file, and that's just within Social Security. Now the fact that I can also file your taxes, that I can recommend insurance products, and that I can recommend investments Mhmm. Including into the alternative space, which a lot of people can't even talk about.

David: 03:54

Mhmm.

Mike: 03:55

And I can do comprehensive planning. I can tell you right now, Social Security specialists, they're specialized to do one thing, but it's not the full picture.

David: 04:05

Mhmm.

Mike: 04:05

Right. So be very careful about that. If you want a Social Security optimization report, look at the whole plan. Don't look at just how to get the most out of Social Security. You could end up jumping over dimes to pick up pennies.

Mike: 04:17

And here's just the expression I made years ago. If you file too early, your income could be hurting, but if you file too late, you could be hurting your estate. There's a ripple effect. Anything you do is gonna affect everything else that you do. There's an article I wrote for Kiplinger called something to the effect of Social Security optimization for those that have $250,000 or more

David: 04:39

Okay.

Mike: 04:39

Safe for retirement. And it was if all things being equal, you retired at 60 years old, and you had the same net income, and you filed for Social Security earlier on, then you're gonna take less from your portfolio. But inflation can get away, and can get out of hand, and then so you have less in your later years of life, because inflation, in a way, you took Social Security at a 30% discount.

David: 05:01

Alright.

Mike: 05:02

And that discount was for life, and so you just had less to pass with the kids later on in life. Preserved the portfolio in the earlier years, didn't do so well in the later years. Now if, again, all things being equal, you delayed till 70, the first ten years, you dwindle your portfolio faster.

David: 05:18

Mhmm.

Mike: 05:18

But then once Social Security kicks in, then your portfolio would have been able to recover because you got Social Security at a higher benefit.

David: 05:25

Right. Right. Right.

Mike: 05:26

There is going to be a break even for every person, depending on your tax planning and tax minimization strategies. That think of the analogy if you've got rocks and sand Uh-huh. And you wanna fill the jar full. Yep. What do you do?

Mike: 05:39

Well, if you put the sand in first, the rocks in second, the rocks will sit on top of the sand. But if you put the rocks in first and the sand in second, then you can optimize and the jar can be actually full because the sand fills in all the cracks and

David: 05:50

crevices. Mhmm.

Mike: 05:51

The idea here is Social Security is a rock. When you file, it's pretty set up, and it is what it is. Your portfolio is the sand. It's supposed to fill in all the gaps, cracks, and

David: 06:02

crevices. Mhmm.

Mike: 06:03

So how does that all work together to get the most out of whatever your lifestyle and legacy goals are? That's the big question here. Right. Also common misconception. Social Security does not guarantee that you're gonna stay up with inflation.

Mike: 06:15

Social Security grows based on the CPI W, not the CPI. Okay. CPI W is workers' compensation or wages look like. Okay. Let me say that again.

Mike: 06:27

CPIW wages, that's easier way to

David: 06:29

Yeah. It's like consumer price index Yep. Wages.

Mike: 06:32

Yep. Okay. Wages have not kept up with inflation. We offer the younger people, we're living in the silent depression, because it is now more difficult to afford your basic things, a house and a

David: 06:44

car. Mhmm.

Mike: 06:45

Because wages have not kept up with inflation. The same could be true with Social Security, because it's not CPI in general, It's CPI based on wages. So inflation is still a risk with Social Security, and you need to address that with other assets. It's a complicated equation, and most people gloss over it out of frustration for what Social Security is based on their political or whatever agendas. That's all the time we've got for the show today.

Mike: 07:14

If you enjoyed the show, consider subscribing to it wherever you get your podcasts.

David: 07:17

Just search for How to Retire On Time. Discover if

Mike: 07:20

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