Safe Money - 3-15-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Schillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been an insurance agent for over twenty
four years. During that time, I've learned a few insurance strategies,
like using annuities as safe money harbors, or using cash

(00:23):
value life insurance to supplement retirement income. Just a reminder,
you can call our office at five six three three
three two two two zero zero if you'd like to
enroll into one of my virtual Medicare community meetings. I
do those via zoom. I give two every month, or

(00:45):
you can email me at Craig at Craigshillig dot com.
And that's my name, c r Aig at cr AI
G S C H I L l I G dot com.
Today I want to talk to you about social security. Now,

(01:05):
I am not social Security. I know enough to be dangerous,
but understand there's a whole department that handles that. I
know a few little tidbits that I'm happy to share
with clients for no charge to you. But specific question
for social Security, you gotta contact the office or go

(01:28):
to the SSA dot gov website. When clients count on
Social Security, Since retirement social security go hand in hand,
some recipients may be counting on their benefit checks to
provide them with significant income when they retire. Unfortunately, not
everyone qualifies for benefits, and for those who do qualify,

(01:52):
social Security may not provide as much income as they expect.
It is never too early to have a conversation about
Social Security to get a realistic idea of what to
expect from this important source of retirement income. Now, two
things I'm going to tell you about Social Security. One, Yeah,
it can't be your only source of income. I mean,

(02:14):
that's flat out. That's why you have other buckets of money,
retirement accounts, annuities, cash value life insurance like I talked
about on my show. But I will tell you over
a twenty to thirty year period, for most couples, your
Social Security check can be a three quarter of a

(02:36):
million to a million dollar asset over a thirty year
time period. So don't dismiss that that's still a viable benefit.
It doesn't matter what's going on in Washington now, for
those that are on Social Security, it's still going to
be there for those under forty, you're still going to

(02:57):
have Social Security in the future. It just made the
system may change a little bit from what we're accustomed
to now by increasing the age benefit or something to
that effect. But let's talk about qualifying for benefits. Social
Security provides a base retirement income for about ninety five

(03:20):
percent of all workers. Most can count on receiving Social
Security benefits. So who makes up the other five percent?
Typically clients that I run into the makeup that five
percent are going to be they worked for the government, city, state,
and federal. They were city, state or federal employees. They

(03:43):
worked for the railroad or a public school, municipalities, firefighters, police,
if you don't pay into fight, if their employer does
not require them to pay Social Security taxes, and if
they're provided with a pen, they may find their SOI
Security benefits are reduced or even eliminated, or they just

(04:06):
don't have enough credits because you need ten years or
forty quarters. So understand, most people get that ten years
and forty quarters by just doing some part time work
during high school and college. But if you're a full
blown and full bore government employer, a municipality employee, you

(04:30):
may not have those credits, and you may need to
get those credits elsewhere or from some other type of
income in the future. Let's call up talk about the WEP,
the Windfall Elimination Provision. It reduces benefits for retirees who
are entitled to a pension from a job that was
not covered by Social Security and who has also had

(04:54):
Social Security benefits based on fewer than thirty years of
cover earnings. The reduction doesn't apply those with at least
thirty years of covered employment. Although the WEP reduction effects
retirees ineligible dependence, it does not affect survivor benefits. The
Government Pension Offset, known as the WPO, reduces benefits of

(05:19):
a spouse or surviving spouse of most workers who receive
a pension from a government employment that was not covered
by Social Security. Of course, some people work and pay
Sole Security taxes but never reach their fully insured status,
which is ten years or forty quarters. In other words,
they do not earn the required forty credits over that

(05:40):
ten year period of work. Some individuals in this situation
qualify for disability benefits, and others, although not everyone, may
find that they are eligible for benefits on a family
member or x spouse earning record, so be cognizant of that.
Consider the full retirement picture. Ninety percent of people aged

(06:01):
sixty seven older we're receiving social Security benefits as of
December thirty first of twenty twenty three. However, clients who
expect to receive solid security benefits should not count on
social Security to replace the full amount of their previous income,
although these benefits can provide a base for a client's

(06:22):
retirement income. Consider these statistics. For individuals age sixty five
years age or older, social security makes up about thirty
percent of retirement income. For individuals over age sixty five.
Among social security beneficiaries age sixty five and over, thirty
percent of men and forty two percent of women receive

(06:47):
fifty percent or more of their income from social security.
Among people aged sixty seven over receiving social Security benefits,
twelve percent of men and fifteen percent of women rely
on so security for ninety percent or more of their
retirement income. Many people today help supplement solid security benefits

(07:08):
with income drawn from saving and investments, including qualified retirement
plans and iras from a pension if you have one,
from annuities, which can convert a portion of savings into
a guaranteed income stream a retiree can outlive and don't

(07:28):
dismiss cash value life insurance. You can also take savings
from that bucket, also annuities and life insurance. They're good
people don't forget, so let's look to the future. Those
who are accounting on solid security for retirement need a
realistic idea of how much their benefit might be and

(07:49):
how much additional income they will need to help cover
their anticipative retirement expenses. A comprehensive retirement planning discussion is
a good place to begin identifying addressing any apparent gap
between income and expenses. There are many unknowns, of course, inflation,
healthcare expenses, the overall economy, the number of years the

(08:13):
client will spend in retirement, but thoughtful planning can help
put clients in the best position to thrive during retirement
and adapt to changes as necessary. An annuity bucket may
be the right fit for people who need to help
fill that income gap as they plan for future expenses.

(08:37):
Social Security benefits and options available to married clients. While
individuals have important decisions to make regarding social security, married
couples have the most options when it comes to claiming
and coordinating benefits. For the purposes of determining benefits, the
Social Security Administration recognizes all marriages, as well as some

(09:00):
civil unions and domestic partnerships. Depending on their state loss
spousal benefits. A married client is eligible for the hire
of their personal benefit amount or a spousal benefit amount.
The spousal benefit can be very helpful when one spouse
has significant, significantly lower earnings, or doesn't qualify for a

(09:24):
benefit at all. Let's say Pat and Taylor are married.
Pat's earning history provides a good Social Security benefit amount,
but Taylor never earned enough credits to qualify for benefits.
Taylor may receive up to fifty percent of Pat's primary
insurance amount, or known as PIA, the benefit amount available

(09:47):
at full retirement age, which is between ages sixty six
and sixty seven depending on their birth year. For Taylor
to receive the full spousal benefit, Pest file first at
full retirement age or older, and Taylor must be full
retirement age at the time ailing. If Pat files early,

(10:09):
this will reduce both of their benefit amounts. If Taylor
has files for benefits before full retirement age, as early
as age sixty two, it could reduce the spousal benefit
to as little as thirty two and a half percent
of PATS of pats primary insurance amount. With one exception,

(10:38):
filing not reduced the spousal benefit amount if Taylor were
caring for a qualifying child, a child under the age
of sixteen, or receiving SSDI benefits known as Social Security
Disability benefits. Keep in mind if the spousal benefit is
based on one spouse's primary insurance amount. In this example,

(11:01):
even if Pat waited until age seventy to secure a
higher benefit amount, Taylor's spousal benefit would never be higher
than fifty percent of Pat's full benefit amount at full
retirement age. Social Security you WI always pay out the
individuals earned benefit first. In our example, Taylor did not

(11:23):
qualify for a benefit and had to rely on the
spousal benefit. However, if Taylor had qualified for a benefit
of one thousand and Pat qualified for a benefit of
three thousand, Taylor's full spousal benefit would be fifteen hundred.
Social Security would pay Taylor's one thousand, one thousand benefit

(11:44):
and a supplement that with an additional five hundred based
on Pat's earnings. History to reach the total of fifteen
hundred coordination between spouses. In many cases, spouse's earnings histories
are different enough for one spouse to be better off
with us with a spousal benefit. While each client's situation

(12:06):
will be unique, it often makes sense for the spouse
with a higher benefit to delay filing for as long
as possible, up to age seventy to secure a higher benefit.
It may even make sense for the spouse with the
lower benefit to claim early and take a reduced amount
if that makes it feasible for the spouse with a

(12:28):
higher benefit to delay filing. Maximizing the higher benefit will
not only increase income in the later years of retirement,
it will ensure a higher survivor benefit if the higher
enter dies first. This can be important. Surviving spouses can
receive up to one hundred percent at the time of

(12:49):
death as long as the marriage lasts at least nine
months or the death was accidental. Therefore, even if the
surviving spouse had filed early, meaning their own benefit amount
was permanently reduced, their reduction will have no impact on
the survivor benefit when the survivor is reached full retirement

(13:10):
age at the time of their spouse's death. So this
is where the importance of professional guidance comes in. Spousal
benefits can be complex and decisions surrounding those benefits require
a careful thought and planning. Remember that each situation is unique.
It is important to start the Social Security conversation early,

(13:34):
and clients need the information to make the most of
their benefits and how this would fit into their overall
retirement strategy. For people who have complex questions, they can
go to the SSA dot gov website to look for answers,

(13:55):
or make an appointment and go talk to Social Security
via in person or over the phone. Understand the factors
that influence sold security benefit amounts. Social Security was never
intended to be the sole source of retirement income for
most Americans. Sold security benefits will provide thousands, even hundreds
of thousands of dollars over the course of retirement. Despite

(14:19):
its importance pif, people often plan for retirement without knowing
what to expect from it. There are several factors that
will impact the benefit amount you can expect to receive.
The exact amount will not be available until they actually

(14:39):
file earnings, and the primary insurance amount. An individual benefit
amount is primarily determined by earnings. This may sound straightforward,
but Sole Security Administration administration considers the thirty five highest
earning years, adjusts them for inflation, and applies a complet

(15:00):
formula to arrive at the worker's primary insurance amount. This
is the benefit of person can plan to receive at
full retirement age, which will fall between ages sixty six
and sixty seven depending on your birth year. It cannot
exceed the maximum amount as adjusted annually for inflation. However,

(15:23):
even after claiming benefits, clients can boost their benefit amount
by working when their current earnings are at leased high
enough to replace the lowest earnings number used in the
primary insurance amount calculator. So let's talk about filing ages.
While earnings determine the PIA. This only represents the amount

(15:47):
your client will receive if they claim benefits at their FRA.
Claiming benefits early as early as age sixty two results
in a decreased benefit amount. Delaying passed their FRA will
increase the benefit by eight percent per year update seventy

(16:09):
and for most people that's going to be sixty six
or sixty seven. The benefit amount is permanent, which makes
choosing wind to file one of the most important Sorry
delaying past fra Yeah, the benefit amount is permanent, which
makes choosing wind to file one of the most important

(16:32):
retirement decisions that clients can make. The Solid Security Administration
designed the reduction for early filing to provide essentially the
same total benefit as retirees we have received filing at
their full retirement age, just in a smaller amount over

(16:52):
more years. However, the longer your client lives, the greater
the impact they can enjoy from increases that they would
receive by waiting to file. Health and life inspectancy therefore
needs to be factored into this decision, because please remember,

(17:12):
if you delay Social Security draw let's just say you're
gonna go till age seventy and you die at age
sixty nine, your surviving spouse gets a death benefit of
two fifty five and the greater of your two Social
Security checks. That's it. So please keep that factor in mind.

(17:35):
The benefit of inflation adjustments, the benefit amount once claimed
is permanent. In most cases, there's nothing more a client
can do to increase the benefit at that point. With
a few exceptions, however, all benefits are index for inflation,
and in twenty twenty five, the increase was two and
a half percent, which doesn't really help you guys much

(17:58):
with this year's current economic inflationary period we're in. So
let's talk about the tax on benefits. About forty percent
of sole security recipients pay income tax on a portion
of their benefits. Benefits become taxable based on other sources
of income wages, pension withdrawals from retirement accounts, and investment income,

(18:22):
including tax exempt interest on municipal bonds. To determine whether
benefits are taxable, take the total income from the sources
above and add have the benefit amount. I'll just tell
you this, if joint income is greater than forty four
and you're under sixty six, you'll give eighty five percent

(18:46):
of your benefits backs back in taxation. This applies to
federal taxes state taxes. Also, states also may tax sold
security benefits depending on what say you live in. If
you're in Iowa, Illinois, you guys don't have to worry
about that, so that's kind of cool. Clients should consider

(19:08):
the impact of taxation and decisions regarding continued employment. If
a client files early before their full retirement age and
continues to work their benefit will be temporarily reduced based
on earnings. However, once you reach your full retirement age,
which in a lot of cases today is going to
be sixty six, the SSA will recalculate the benefit amount,

(19:34):
giving credit for any amounts previously reduced or withheld due
to excess earnings. Let's talk about five important social security
issues for women. So married women should plan for the
possibility of their solo years. For couples nearing retirement, it's

(19:58):
common for the husband to have out earned the wife
and likely that they will likely outlive him. If he
claims benefits before full retirement age, he locks in a
lower benefit amount that will not bump up at full
retirement age. This also results in a reduced survivor benefit
if he passes away before her. Women may not realize

(20:21):
how their spouse's decision could impact them in the long run,
potentially resulting in a lower survivor payment than she could
have had if she chose the other way. Married clients
need to talk about the importance of planning for social
security together. Homemakers caregivers can also receive a benefit. Female

(20:45):
clients who don't qualify for their own solid security benefits
need to understand they can receive benefits on their husband
or ex husband's record and the ex husband will not
know your filing. Okay. The next one is single divorce
women Cannon should claim on their ex's work record. When

(21:06):
divorced clients are estimating their retirement income, there can be
a lot of confusion and apprehension around sold security benefits.
If a client gets divorced and doesn't remarry, they should
compare the benefits they'd receive filing on their own versus
the benefits filing on their former spouse. They can claim

(21:29):
a benefit on x spouse's record under certain circumstances, including
their marriage lasts at least ten years, their ax is
eligible for benefits. Even knowing this, some of them may
be hesitant to ask for permission to claim a benefit,
especially if it was a difficult divorce. They think it

(21:53):
will impact their benefit amount. But please know your ex
spouse's record is completely confidential. Divorced clients, their expouses will
not be notified or impacted by claiming sold security benefits
on their excess record. Please remember that widows should be

(22:15):
prepared for a reduced benefit. When a woman's spouse dies,
she will continue to receive the hire of the two
benefit checks and a two point fifty five death benefit. Okay,
please remember that also your part B. Your Part B

(22:40):
will also be taken off your sold security check. Just
make sure you're aware of that. A change of marital status,
such as becoming a widow, could affect income taxes and
Medicare premiums with females um. Yeah, you need to keep
that in mind. Your tax bracket could change because if
you've gone from joint to widow status. Teachers and other

(23:03):
public subject sector workers should investigate benefits with care. The
WEB and the GPO or the Windfall Elimination Provision and
the Government Pension Office can reduce or even eliminate social
Security benefits for public sector workers who receive a pension

(23:23):
in place of social Security. Women affected by this may
still believe they can claim as a spouse or surviving spouse,
which is often not true. Many people that don't know
that public pensions can impact social Security benefits, determining the
actual benefit can be complicated. That's why I encourage you
to reach out to a social security person in order

(23:47):
to check that. When we're talking about divorces, don't let
divorce sway you or persuade you from not filing for
Social Security. You can do it and the divorced person
won't know, so please take that to heart. Let me

(24:08):
see what else is in here. A divorced client with
an earning history similar to their ex spouses will simply
rely on personal earnings when they file for soci Security benefits.
A divorced client who earns significantly less than their ex
spouse will likely have concerns about possibility of more limited

(24:29):
Social Security benefits by filing. You can educate yourself on
Social Security and direct You can go to the SSA
dot gov website or get an appointment with SSA. Don't forget.
I give monthly virtual meetings regarding Medicare for two different
companies every month. In one meeting, I cover Medicare supplements

(24:52):
with a standalone drug plan. The other meeting. That meeting
sponsored by Wellmark. The other meeting sponsored by United Healthcare,
and in that one, I focus on Medicare advantage plans
known as Medicare Parts C and cover benefits for that platform.
You can call my office at five six three three
three two two two zero zero for the zoom meeting

(25:14):
codes and additional dates and times. You're also welcome to
email me at Craig at Craigshillig dot com and that's
my name, c R a I G at c R
a I G S c h I L l I
G dot com and I can send you the virtual
zoom link meeting codes. This is Craig Shillig with safe money.