How to Retire on Time

“Hey Mike, is it better to take social security late or take it before you need it and then invest it?” 

Discover how longevity, taxes, and guaranteed income can change the math.

Text your questions to 913-363-1234. 

Request Your Wealth Analysis by going to www.retireontime.com 

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:

If you file for Social Security before full retirement age, there's a caveat you need to know before you do this calculation. 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 is all about a discussion about the nitty gritty. Now that said, remember this is just a show and should be considered informational, not financial advice.

MIke:

As always, text your questions to (913) 363-1234, and we will feature them on the show. Let's dive into today's question. David, what do we got?

David:

Hey, Mike. Is it better to take Social Security late or take it before you need it and then invest it?

MIke:

So this is one

MIke:

of those time old questions in that you don't know when you're gonna die. Right? So that's going to be a variable of do you take it early? Do you take it later? How much money are you going to get?

MIke:

But then the additional variable is if you were to invest it, how is that going to play a factor? Because it's really just how much money do you get out of the Social Security system, and then where does it end up? Now there's a couple of trains of thoughts you gotta understand. First off is if you file for Social Security early and you spend it, then in theory, you're spending less from your portfolio. Are you with me so far on

David:

that? Yeah. The income you get from Social Security should take care of your needs, and then you're not touching your portfolio. So

MIke:

let's say you need, I don't know, $60,000 a year. And you could file and get 30,000 from Social Security. So either you're gonna take 60,000 from your portfolio, or you're gonna take 30,000 from your portfolio and 30,000 from Social Security. You see the the trade off there?

David:

I like

MIke:

that. So that's, in my mind, the first line of thinking for Social Security. Now, not everyone thinks that way, I get it. There are some people though that will say, well, shoot, I'm still working. I don't need Social Security for income.

MIke:

Heck, I plan to work past 70 years old, which your ice cream man what was that 60 interview?

David:

Yeah. There's a physician who wrote a book, and he's saying, hey, it's okay to have ice cream. And then he also, I guess, mentions in the book about retirement.

MIke:

Don't retire and do nothing.

David:

Yeah. He's like, you're gonna experience some cognitive decline if you just retire and do nothing.

MIke:

And we're in harmony with that. So there are more and more people that we're talking to at least that when they retire, they're retiring from their stressful crappy job and maybe picking up another job or a responsibility with a foundation, with a charity, with their church, or something to where it brings them joy. So in that line of thinking, if you continue to work and you like your job, even past seven years old, now you have to ask the question, well, when should I file based on this idea I don't need the income? And I won't need the income for a while. And that's a tricky situation.

MIke:

If you file for Social Security before full retirement age, there's a caveat you need to know before you do this calculation. And that is every $2 you earn above a certain threshold, which changes every year, $1 will be deducted from your benefit.

David:

Oh, so can you give us an example of of of that? Like, I guess, easy math example.

MIke:

Yeah. Let's say let's say for easy math, the threshold is $20,000, and you make 20,000 of w two income. You're at the line. No problem. No no issues with Social Security.

MIke:

You could file early if you wanted to and either spend it or whatever. But remember, Social Security is really intended for retirement, not for just this whatever you want investment pension. So if you then earn 30,000 and you've filed for Social Security, That's $10,000 in this example, and that's not the limit. The limit changes every year. You can Google it.

MIke:

Ask your AI. Just make sure you clarify for 2026, and then find the source, and then go to the ssa.gov website because sometimes AI gets wrong. But 10,000 over, in this example, the limit, that means because it's $2 or $1 is deducted for every $2 you made, then $5,000 would be taken off of your Social Security. That's gonna have an easy overview of what this would be. Now there's some nuance with it, with taxes and so on how this all boils down to, but that's the idea.

MIke:

If you file for Social Security before full retirement age and you continue to work, it might not be that efficient. So let's take this concept, Is it better to file earlier or later? And really look at it from full retirement age, which for most people right now, it's like 67 years old. K? And you can look up your birth year and when your full retirement age would be.

MIke:

And then 70 years old, which is the maximum you can get. Okay. There's no reason to wait past 70. There's no problem if you file for Social Security in this aid or during this range because of your work. No issue.

MIke:

K? So if we look at that, now you have to ask yourself, okay. Well, what if you filed at 67 years old, you didn't need the money, so you just took it and invested it into a brokerage account?

David:

Okay. So, yeah, so you get your your check. Right? The money gets ACHed, and you just divert it straight to your Schwab taxable brokerage account.

MIke:

Yep. Schwab, Vanguard, Fidelity, whoever your your investments, wherever they are, you just invest it. It's a brokerage account, so it's you're subject to capital gains and all of that. And what if you just left it there for legacy purposes? You didn't need it.

MIke:

You don't need the money. Maybe you you're setting it aside for medical expenses. That's an interesting idea. Let's take it early, and instead of buying long term care, we put it into a brokerage account, put it in a reasonably diversified portfolio, So it doesn't necessarily mean it's all in the S and P 500 because remember the S and P can go flat for ten years.

David:

Uh-huh. Yes. Inconvenient truth.

MIke:

Yeah. But now that's that's like, oh, well, hold on. Long term care was a concern. I was planning to file at 70. Well, what if I filed at 67 and I don't use long term care till, like, you know, your mid eighties or nineties?

MIke:

That could be, like, a $103,100,000 extra dollars by just taking those funds and putting it in there. Now that depends on how much your benefit is, right, how the market grows, a lot of variables there, but that's it's an interesting thing. Or you could say, well, I don't really need the income, but I wanna set it aside for legacy. That's an interesting one because you could buy whatever you want, stocks, ETFs, whatever, and upon date of death, your kids would get that kind of tax free. When I say kind of tax free, they're not gonna pay the capital gains tax when they sell it and receive it.

David:

Okay.

MIke:

So that just assumes that there's no state estate tax or no federal estate taxes to be worried about.

David:

Okay.

MIke:

But do you see how Social Security Optimization really isn't just how do I get the most income benefit out of it? But you're saying, okay. Well, here is a stream of income that you're going to receive. Based on the financial objectives, whether you're looking to just do a little bit of last minute funding for long term care, or you're looking for legacy planning, or you're looking to just get a little extra money on the side for a couple of large trips at the beginning. I mean, in some sense, you could say that '67, '68, '69, you can take it now, invest it maybe in lower risk assets because then in 70 o one or 70, 71, 72 years old, those are your go go years, your travel years, and you were just stashing away money.

MIke:

So now instead of the limited amount of social security, you have all this extra pile of cash to travel. So this is this is a different conversation.

David:

Yeah. It sounds fun.

MIke:

What would you I'm just curious. And for everyone listening, don't do this. These are our opinions. What's right for you is right for someone or is different than someone else. Not financial advice.

MIke:

But, I mean, what's your take on this?

David:

Yeah. If if I what a great position it would be to be in if like, here's this income stream that I don't need. Like, I already have my income needs taken care of with my portfolio, or maybe I have a pension from my employer. Yeah. And so, oh, here's this income stream.

David:

What should I do with it? I could stash it away for for my kids, or I could stash it away for my favorite charity, or I could stash it away for a bunch of travel when I finally do retire if I'm not retired at 67. Yeah. That sounds like

MIke:

I mean, what would you do? Would you would you try to get the lump sum amounts for intensive travel for the first couple of years? Are you more concerned about long term care needs? I mean, you're a pretty healthy guy, maybe not.

David:

I I think I would travel. I would go, go, go. And so if that was my travel fund, I'd be very happy.

MIke:

Now imagine, let's say you're let's just do some fun math. And we're not gonna complicate this with taxes.

David:

Okay. K? Those change a lot.

MIke:

So let's just say arbitrarily you get $4,000 a month for your benefit

David:

Okay.

MIke:

Times 12. That's $48,000 a year, 67, 68, $69.70. Let's say you do four years' worth. A $192,000.

David:

That's just principal. Right? That's not counting any gains.

MIke:

That doesn't count any gains.

David:

You could see a lot of places.

MIke:

You think? You could

David:

eat a lot of Michelin starred meals.

MIke:

Now, here's something to consider. Where the money goes matters.

David:

Alright.

MIke:

Because if you put it in the S and P 500 because I I say that because everyone talks about that. You put it in the S and P 500 and the markets go down, you know, 192,000, now a 100,000, you're accentuating the loss. You're kind of like, what's the point? But you don't wanna put it into an annuity because this is after tax funds, and those would be taxed as income. I I mean, I guess you could from a MIGA standpoint, but I I you could use buffered ETFs if you want.

MIke:

You structure it out that way. It's got growth potential, maybe blended up in that way. So the markets go down, you can still tap into these funds, and you only have two or three or four years before you're gonna spend it. So the gains shouldn't be astronomical. You've got a reasonable amount of the basis.

MIke:

Uh-huh. What I'm getting at is you've held it for over a year. Now it's long term capital gains.

David:

Ah. And those start at 15%. Is that right?

MIke:

Well, 0%, then 15%, then 20%.

David:

That's right.

MIke:

Yes. So depending on your income needs, you might get a 192,000 over a couple of years tax free, or you're paying 15% on the gains. So let's just let's just have some fun. Let's say it grows by a total of 25% over those couple of years. Okay.

MIke:

So you have roughly 50,000 in gains Alright. Total. Okay. 50,000 total.

David:

Yeah. So 50,000 gets added to that 192,000?

MIke:

Yeah. Yeah. So whenever you sell, only a portion of that is taxed as 15%.

David:

Okay. Yeah.

MIke:

So it's like take your dollar amount, then take out 75% of it, twenty five percent's left, and then 15% of that's taxed. Like, that's not that bad of a deal. Your taxes are pretty low, all things considered, if you go down that that route. And if you're doing long term care, you might blend it for more long term investments with some short term needs just in case something happens. If you're looking for legacy purposes, you might just buy some stocks.

MIke:

Pick your favorite stocks. Make it more purposeful. I think a lot of I've seen a lot of Phillips sixty six and Chevron as legacy stocks that people have held. You know, their their parents held it. Now they're holding it, they plan to pass it to their kids.

MIke:

So social security optimization is not an isolated thing. It's really an expansive conversation of you have this resource. How do you plan to use it based on the rules that are there? And a quick recap, if you file before full retirement age, make sure you don't earn too much as w two or ten ninety nine income. At full retirement age to 70 years old, do do you plan to work?

MIke:

Do you not plan to work? And if you plan to work, compare if you were to file early and invest it versus waiting and getting the 8%, 8%, 8% increase.

David:

Mhmm.

MIke:

It's not compounded. It's just it's additional, the 8% increases. Maybe you want the higher benefit for your surviving spouse. Maybe you don't. You would rather have the cash for the surviving spouse.

David:

Mhmm.

MIke:

It's a very nuanced conversation, and I think people oversimplify it by getting a little calculator and saying, well, when should I file to get the most money out of it?

David:

Oh, right.

MIke:

And they just forget about all of these other strategies.

David:

Right. It may not be as simple as, oh, I just want to get the most. I want my monthly benefit to be as high as possible

MIke:

Yeah.

David:

Just for the sake of saying you got the highest benefit?

MIke:

It's a simple strategy. We're simple creatures. We like simplicity. So a lot of people will say, well, Social Security, when do I get the most out of it? My lifetime, great, 70 years old.

MIke:

I guess I'll work till 70 because I don't know how to bridge gaps and coordinate different efforts. So you don't wanna think about it as just income. You're being paid back on something you paid into. Yeah. So this is why and then we'll put it in the comments in or in the description of this episode.

MIke:

But this is why when we created our Social Security Optimizer app, we included a comparison of the investment and filing strategy. So now we can get that. It's free. We we it's publicly available. We don't charge for it.

MIke:

You can go to I think one of the domains that will get you there is freesscalculator.com. Freesscalculator.com. Check it out. Have some fun with it. Explore your options.

MIke:

And just remember, it's one part of a very complex equation when you're looking for lifestyle and legacy goals, when you're looking at how to get more out of your money or your resources. Social Security is a resource. And then you then figure out your investments and products and so on. But goals, plan, strategy, products. That's you wanna make sure you're you're looking at the whole picture, not just how to get the most out of Social Security.

MIke:

So and if you enjoyed that bit, if you enjoyed what the conversation, make sure you like, subscribe, and follow the channel here, whether you're on YouTube or on podcast. As the channel gets bigger, the resources increase. We wanna help you be able to retire on time and stay retired and really get the education you need to either manage it yourself or if you wanna, wanna work with an adviser, you know, we're happy to help too. Go to retireontime.com for more resources, grab a copy of our book, and to work with one of our advisers. Appreciate you watching the show.

MIke:

Thanks.