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 all about the nitty gritty. Now that said, remember, this is just a show. It's for educational purposes.

This is not financial advice. If you want financial advice, find a financial adviser like us here at Kedric Wealth. Now that said, let's remember that you can always text your questions to (913) 363-1234, and we will feature them on the show. That's (913) 363-1234. David, what do we got today?

Hey, Mike. I'm confused about when to start Social Security. Should I take it early at 62 or wait until 70?

Let's put together a couple of layers of questioning for this one.

Okay.

It's a great question. The first one is, are you looking to take Social Security as early as possible, but continue to work as long as possible, or are you trying to optimize Social Security when you retire? And the reason I ask is because if you take Social Security before full retirement age and you continue to work, $1 is deducted from your benefit for every $2 you make above a certain threshold. And the threshold changes every year. That's the first question.

Are you retired and looking to optimize your Social Security, or are you looking to figure out how to get the most out of it while you still work? So just keep that in mind.

Okay.

Let's assume that you retire at 60 years old, just for the rest of our conversation, and you're looking to get the most out of Social Security. That's well intended. I get it, but there's some nuance to it. Okay. First off, a Social Security calculator typically is gonna show you based on how much you're expected to receive at full retirement age.

Which is what number is that?

Usually, it's 67. Okay. So if you're born, it could be less. I mean, most people prepare you for retirement. It's 67 years old, full retirement age.

It will show you on your Social Security statement, ssa.gov. Mhmm. K? You're 60 years old. You're gonna need to figure out what is your benefit expected to be at at full retirement age.

Okay.

Then you need to figure out what you expect inflation to be. This will play a factor. If there's high inflation over the next ten, twenty, thirty years, you may want to consider a different benefit path than if there's virtually no inflation for the next ten, fifteen years. And the reason is inflation has a compounding effect. So if your benefit has high inflation and you get started at a higher rate, it might make a lot of sense to delay even though you might be reinvesting or doing other things.

It's a complicated calculation. The numbers are easy to calculate. It's hard for your personal calculus, if that's what we're gonna call it, on what you expect to happen in the future.

Yeah.

So generally, happens is people will say, okay. I expect to live this long. I expect inflation to be at this rate, and my full retirement age benefit is as such.

Okay.

And they say, okay. How do I get the most out of Social Security? And that works great, and it's a wonderful first step in trying to figure out when you should file. Now a couple of nuance bits here. If you're single and you had a deceased spouse, you're gonna wanna flip that on and then do a spousal benefit because the spousal benefit or the survivorship benefit is an independent benefit compared to your benefit.

So you can turn one on and delay the other, and it will grow. The survivorship benefit will grow until about full retirement age, and then you've got your benefit, which will grow until 70 if you delay. So you can look at that optimization sequence. If you have a spouse, you can look at your benefit, your spouse's benefit, and your survivorship benefits, and compare those different options. And if you've been married to your spouse long enough, even if they didn't really work, they could still qualify for the spousal benefits, so don't leave money on the table.

K?

Okay.

So you put all these things into a calculator, and typically, if you have longevity, it's gonna recommend that you wait and file at 70 years old. Even if your spousal benefit does not increase past 67 years old, there's still inflation to factor in. So hear me out on this.

Okay.

Just kind of meandering through all the different nuances. Yeah.

We we might have to do a recap on difference between, like, survivor and spousal benefit.

Survivor benefit, your spouse died. Spousal benefit, spouse is alive. But the difference is the spousal benefit, you're gonna get half of your spouse, what their benefit is, roughly speaking, at full retirement age. You can claim it earlier, but it's at a discount.

Okay.

So some people will say, well, you know, I if my spouse gets 3,000 at 67 years old, I'm gonna get 1,500. Right? Half of it. Real simple. But the spousal benefit may increase if there's an inflationary period.

Your benefit, if you're the one getting that, may increase if there's an inflationary period. And it's not based on the CPI. It's the CPI w, which a lot of people get that confused. And so what if the delayed benefit of the person that has a benefit plus the spousal benefit plus you're accounting for a higher inflationary period, what if that makes more sense to get more money out of it than going to 67 years old and not factoring those things? This is why we have calculators to play with the numbers.

We've got to explore, see what the potential options are. Yeah. Then you can make a better decision.

Yeah. And if you have let's say you're the breadwinner.

Okay.

Your spouse didn't work, but you're going to pass at 75 years old, and she'll pass at 95 years old. That might be a very different situation on the filing strategy than let's say you're gonna live till 95 years old, and your spouse who didn't qualify for a benefit might be expected to pass because of health issues at 75 years old or 80 years old.

Mhmm.

So you have to look at the individual paths and how they combine together, and the only way to do that, in my opinion, because there's too many calculations, is to get on the calculator that simplifies these sorts of things, and then you can kind of move some toggles around and run what if this, what if that scenarios, and so on. Right. But that's not the full picture. That's the oversimplified picture. That wasn't simple enough.

Okay? Alright. So you don't wanna put the cart before the horse. Maybe you wanna file at 70 years old, but you don't have as much in your portfolio. If you retire at 60 years old, your optimization suggests that you should wait till 70 years old, then you've got ten years.

You're draining your assets if you have even income until you can file for Social Security. Do you have sufficient amount of money to do that? Is there a tax benefit of that? Or what if one of the spouse's benefits is filed earlier so that there's less risk to the portfolio because you're taking less income from the portfolio, so it lowers the withdrawal rate. Yeah.

And the portfolio has incredible growth. I mean, this is the big question. Are you really looking to get the most out of Social Security in spite of the fact that you're forced into this government sponsored pension because that's really what it is? Mhmm. Are you looking to nurture your estate, your money that's gonna go to your kids or a charity?

Mhmm. So you want to understand the nuance of your filing strategy independent. So individually, Social Security, this is what you can expect. And then take those scenarios and run it into a broader plan that accounts for the growth and the distributions and everything else in your Social Security, in your income, in your tax planning? Is it getting in the way of your IRA to Roth conversions?

Is it not? It is taking income mostly from your IRA and delaying Social Security, lowering your IRA assets enough that RMDs aren't an issue later on. Oh. See, there's more at play here than just how do I get the most out of Social Security.

Yeah. Seems like there's a lot to work through, a lot of scenarios to play around with.

Yeah. So generally speaking, if you got a pension, and it's the pension and Social Security, great. Get the most out of Social Security. But if you've got tax planning, IRA Roth conversions to consider, if you're concerned about RMDs, if you're concerned about health care, I mean, there there's what? Over 60 risks to consider overall in retirement.

Mhmm. Many of those risks would factor into when should you file for Social Security. Mhmm.

So should I take it early at 62 or wait until 70?

Yeah. So now that you have all of that, here's the basic gist. If you wanna preserve portfolio, you don't need a lot of IRA to Roth conversions, and or you have lower life expectancy, you might file earlier.

Okay.

But there's a drop off, a significant drop off at 62 and 63 years old. So maybe you start at 64 years old. Let's say you're more focused on tax minimization. You're focused on at least one of the spouses having a higher benefit for survivability reasons, or there's just other reasons to delay, then you'd file later. It depends on which one's right for you.

Some people, they retire early. Their income comes from a pension, or they bought annuity to simulate like a pension like situation, whatever it is, and they might file earlier because not they need the money, but they're just gonna take it and reinvest it. That's another strategy. Mhmm. You just don't wanna work and take Social Security because that's the the worker deduction situation.

Social Security is intended for your retirement. It's not really a pension from the government. It's a social insurance policy that's government sponsored. Few things to think about.

Yeah. Lots to think about. And people, can they ask an AI these questions?

I would say AI does a pretty okay job Mhmm. In giving some general guidance. And I would say it's more of just understanding how it works and some rules of thumb. I wouldn't go to AI for planning necessarily just to understand how it works, because they can go in and look up Social Security code, basically. I would recommend that people go to calculators first to play with the numbers.

And then when you're ready to make a more holistic decision, that's when you talk to a professional. When I say a professional, I'm not talking about the one that says, well, this is how we do business. You ready to bring your assets over in the second meeting?

Yeah.

I'm talking about someone that you can either pay by the hour or someone that you can pay for a one time plan. Maybe it eventually evolves into an ongoing relationship, but it doesn't have to. And that's the key. And you can go to retireontime.com, by the way, for a calculator if you wanna play with Social Security or kedrick.com, either one. Yeah.

Retireontime.com is easier to spell, so people typically go there first. But but play with the calculator first, get an idea of kind of what you might want, and then look to hire someone like an adviser with Kedric Wealth to say, okay. This is kind of what we're thinking. Great. How does it affect your taxes?

How does it affect your income? How does it affect your longevity, your portfolio, your legacy intentions? Yeah. Just get the full picture.

Right.

I think that you're gonna do yourself a lot of justice because there are multiple six figure swings in how much you're gonna take out of Social Security, so you don't wanna wing this one. No. You wanna be an informed filer. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts.

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. 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.