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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
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 can grab today on Amazon, or by going to www.how to retire on time.com. 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 financial topics, we can pretty much cover it all.
Mike:Now that said, please remember this is just a show. Everything we hear should be considered informational, as in not financial advice. If you want personalized financial advice, then request your wealth analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Fransen. David, thank you for being here.
David:Yes. Glad to be here.
Mike:David's gonna be reading your questions, and I'm gonna do my best to answer them. You can send your questions in right now to 913-363-1234. Once again, that's 913-363-1234. Or email them to hey mike@howtorettime.com. Let's begin.
David:Hey, Mike. Do pensions affect when I file for Social Security?
Mike:Depends. This is actually a pretty good question because it's a more technical tax question.
David:Okay.
Mike:Yeah. So if you don't know Social Security, if you file for Social Security before full retirement age for most people right now, that's around 67 years old. That above, I think it's $21,400 Somewhere around there. Any w 2 or 10.99 income that is above that 21,000 threshold, every $2 above deducts $1 from your Social Security benefit. Now, you know, it's not, let's say, David, you're still working and your bride is has retired.
Mike:Okay. It's on an individual basis, not a household basis. So if you retired, you could take your Social Security. It just it depends on your Social Security and your income. That makes sense?
David:Yeah.
Mike:So there are multiple ways that a pension can come. For many people, it comes in the form of a 1099 r. R means retirement. R basically tells the IRS, hey. It's okay.
Mike:He's retired.
David:Oh, alright.
Mike:Alright. But when you dive into the alternative space, when you dive into, you're like a partner, let's say, you're a part owner of a firm of a business or something like that and it's structured differently. You might not get the 1099 r with your pension. You might get a k one. Oh.
Mike:And a k one typically in the form of a pension k one is going to be counted as active income as if you were still working. And so for those to have higher pensions under the k one structure, yeah, you might get dinged with your Social Security. So I would bet my, I bet my not bet my bottom dollar, but I'd be willing to bet something. I don't know. Maybe the a can of this beverage I'm enjoying during the show that most people listening right now had no idea that was a situation.
Mike:Yeah. That according to the tax code, depending on how you receive your pension may affect your Social Security. It's not as black and white as people would suggest. And so if you were to retire, let's say at 60 years old and let's say you've got a k one coming in and you wanted to take social security at 62. You might wonder why isn't it not coming in?
Mike:Maybe your k one pension is just too high. And that could create a tax issue, by the way, and all sorts of other issues. So, and this is kind of the tip of the iceberg too when it comes to social security planning. You've got to understand, 1, your tax situation. So that's the 10:40 here.
Mike:We're diving into what are you being taxed? What are the investments? How are they done there? Do you have LLCs? Do you have limited partnerships?
Mike:Do you have things that could disrupt your social security or not? And then do you understand your benefits? Are you married? Are you single? Are you a survivor, a widow, or a widower?
Mike:Are we gonna optimize those benefits? So you're gonna take your, let's say, widow or widower benefit first, the survivor benefit, and then let your benefit grow? Are you going to if you're married, are you gonna have, your benefit at 67 years old and your spouse at their forward time and age? Are you gonna wait till 70? Do you understand that if you delayed 70, your spousal benefit can't start until you file for Social Security?
Mike:I mean, there's all sorts of nuance here that needs to be explored if you want to be efficient with your money. If you wanna get more out of your hard earned money. Because social security is complicated. And I'm saying that as a national social security advisor, which by the way is an educational credential. I don't actually represent the social security administration.
Mike:It's I just had to basically pass a very difficult exam that proved that I knew what I was talking about with Social Security. Anyway, here's the gist. If I were to wrap up this Social Security conversation. Yes. 1st, understand your tax situation, then optimize your benefit.
Mike:Because it's not about getting the most out of social security. It's about how do you utilize social security to elevate your overall plan. When you file This is an expression I come up years ago. But when you file too early your income could be hurting. But if you file too late, you could be hurting your estate.
Mike:So all things being equal if you file it sick let's say you retire at 60 years old and you file at 62. Okay. Well, that's an earlier benefit. So you're taking less income from your portfolio because you've got Social Security income. But if you retired at, let's say, 60 years old and you delayed your benefit until 70, that's 10 years.
Mike:You've got to kind of bridge that gap. So that means what? You're taking more from your your estate, your your portfolio, which means if you were to pass sooner than expected, you might have less to pass.
David:Right.
Mike:So there's always a trade. There's always a benefit and detriment. Which one are you okay with? How do you blend the available strategies? What's more important?
Mike:Do you maximizing your income with the expectation you might live a longer life? Is it preservation? And then also you have to understand too, it's not as black and white as well I want this so it just obviously is is gonna be x y z. Now how are you invested in your portfolio? Because it might be that you are willing to be more aggressive in your portfolio than your average retiree.
Mike:And so it might make sense to file social security earlier on so your portfolio has more growth potential. But there's risk associated with that. I mean, do you see all just the the situations one after the next after the next after the next can happen? Right. It's a complex situation.
Mike:There's a ripple effect. When you file will have a ripple effect on your taxes and your tax planning, on your portfolio, on your growth, on your legacy. It just everything's connected to everything. So, yeah, Social Security is not as simple as people think. Alright.
Mike:That's just a fun rant kind of on what it looks like. But here's how you solve it. You don't go online and just get an isolated Social Security report that says based on how long I think I'm gonna live. This is how I can get the most money out of Social Security. That's the wrong way to go about it.
Mike:The right way, in my opinion, is to run a an actual comprehensive review of everything and say, okay. If I were to file for Social Security at 62, how does it affect everything else? What's the big picture? If I were to file at 67 or 70, how does it affect everything else? If time is our most precious commodity and money is intended to serve us, then how do we get the most out of it?
Mike:That's the right question. And the only way to do that in my opinion is to run a holistic and comprehensive plan. Review the options. See what happens with this ripple effect and then make a decision based on your lifestyle and legacy objectives. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.