S1 E4: Understanding the importance of Social Security in Retirement Income Planning

There are literally more than a thousand different ways in which a married couple can claim social security income. You have paid into the system for than 35 years - it is up to you to understand your choices on how to maximize your social security payouts. Wrong choices can leave a lot of money on the table. Learn more from this informative episode with the host, Arvind Ven, and the invited expert guest speaker. 

Episode Transcript

Intro (00:03):
Hello, and welcome to the 15 minutes to financial freedom
educational podcast serieshosted by Arvind Ven.
These 15 minutes or so.
Podcasts are meant to educateand empower listeners about key
financial topics towards theroad to financial independence
and plain English.
And without financial jargon.
Our invent is independentfinancial advisor, founder and

(00:25):
CEO of capital V group inCupertino, California.
He is regularly featured inleading national financial
publications, such as Forbes andmany others.
And now for our host Arvin, Ben,

Arvind Ven (00:38):
Welcome back.
This is Arvind Ven CEO ofCapital V Group.
Good to have you back.
Today's topic is social securityand on everybody's mind.
So let's talk a little bit moreabout that.
I'm getting a lot of questions,whether it's going to be there,
what's going to happen.
There's so much changeshappening.
There's a lot of wrangling goingon in Washington.

(00:59):
And so today I also have aspecial guest we'll start off
with social security, but let'ssee what's going on in social
security.
The baby boomers are actuallyretiring at a very high rate.
The U S is undergoing thelargest greying of its workforce
more than 10,000 baby boomersretiring every day for the next
15 years.

(01:20):
Baby boomers are those bornbetween the years, 1946 and
1964.
And t here w ere 1 5 million ofthem a t, or n earing retirement
and w ill join approximatelyabout 54 million people who are
already receiving socialsecurity benefits.
So the government has manyoptions to keep social security,
fully functional.

(01:41):
However, when is it going tohappen?
We used to build there.
Those are the, I would say thetrillion dollar question.
So before we dive in, let's seewhat social security does mean
as well as social security then,and now it's how did this begin
and where is it now and how isit funded?
Social security can be tracedback to the great depression and
established in 1935.
The Program's main purpose wasto provide a minimum floor of

(02:05):
income support for all eligibleworkers.
At that time, the average lifeexpectancy of the working male
was approximately 62 years.
So full retirement age c ame i na t 65.
W ell, that's not going to flywell now because the life
expectancy has changed for thebetter, a lot over the last 70
to 80 years.
Now, the life expectancy of aworking male is 84.

(02:27):
That's good news, but the not sogood news is that at current
rates, Social security hasenough money to pay out in full
to every recipient until aroundthe year 2033.
And after that, it looks likefrom current funding, they'll
only be able to pay out 75% from2033 until 2078 or so, but

(02:50):
that's a s izeable haircut.
That's 25%, unless somethinggets f ixed in the government.
So that's where we are rightnow, but why is there a
shortfall?
B ut that's because the systemis funded by employee payroll d
eductions.
So one portion of the relevanttax a nd s he's o n an equal
amount of employee income paidby the employee and employer.

(03:10):
Self-employed people,freelancers, contractors, Uber
drivers, and others.
They b ought the employee andemployer p ortion.
These benefits are calculatedaccording to the 35, highest
earning years in the workforce.
And addition for inflation.
So does it mean that they gotincreased?
The cap right now is about$145,000 of income, which social

(03:33):
security is taxed.
So there are options to fix thisshortfall, but the question is,
how is it going to happen?
Right?
I'm going to ask AndrewBeltowsky.
Andrew is the regional vicepresident of Allianz, one of the
world's largest insurers.
He knows all about socialsecurity and he was actually one
of our webinars as an expertguest speakers earlier this

(03:54):
year, for those of you attendedthe webinar.
So I asked Andrew where we are.
So, Andrew, welcome to thepodcast.
Great to have you today.

Guest (04:03):
Thanks for having me.

Arvind Ven (04:06):
Here's the trillion dollar question for you.
What's happening with socialsecurity?
And do you think that it's goingto stay?
That's why I keep getting askedall the time and what's going to
happen after year 2033, whenthere's only enough money to pay
only 75% percent of benefits.

Guest (04:23):
That's a very good question.
And one that has been coming upquite frequently and I don't
necessarily see it going away,but I could see a reduction of
benefits moving forward and I'llelaborate on why I don't think
it can go away this year.
Roughly 65 million Americanswill receive social security

(04:44):
benefits totaling over$1trillion, more than 65 million
Americans depend on socialsecurity for some or even all of
their income with pensionsbecoming less and less prevalent
in Americans needing to fundtheir own retirement.
Social security is a pillar thatis necessary for millions of

(05:04):
Americans to have a successfulretirement.
And the problem with socialsecurity fund moving forward is
mathematical in nature.
The number of workers for eachsocial security beneficiary has
been decreasing dramaticallyover the past few decades.
Currently there are 2.8 workersfor each social security
beneficiary and their ratio isexpected to be down to 2.3 to

(05:28):
one in the year 2035.
But while I don't see socialsecurity going away entirely, I
wouldn't plan for a reduction ofbenefits moving forward and look
for ways to cover more of myretirement income and personally
funded pensions have become morepopular.

Arvind Ven (05:46):
Wow.
So that's not great news, but Ithink we continue hoping that
there are other avenues.
For example, the government hascontinued increasing the social
security cap every year, all theway from 119,000.
I think that it is$148,000, nowthat can be one aspect i f t hat
flies, but again, the thing iswhat's going to happen.

(06:07):
So I think w e'll have to watchand see, as I said, p ersonally,
a h undred pensions definitelybecome more popular in that era.
W hat's the difference betweenMedicaid and Medi-Cal a lot of
them j ust like to hear thedifference.
I h ave explained that, but I'dlove to have you explain to us w
hat's the difference.
If at all,

Guest (06:23):
There's actually little difference between the two
medical is merely California'sMedicaid program, which has paid
for federal and state revenues.
And Medi-Cal provides coveragefor low income individuals and
families

Arvind Ven (06:37):
Right now, coming back to benefits and tax that I
spoke about that the governmentcollects is popular because it
provides social security,provides four types of benefits.
Retirement benefits are forthose who have worked in COVID
employment for many years andthey are those eligible people
are eligible to receiveretirement benefits beginning at

(06:59):
age 62.
And we've talked a bit moreabout whether it makes sense to
hold off or start right away.
Then the second minute isMedicare health benefits for the
spouse and minor children of anyretired or disabled worker who
qualifies the benefits.
The third benefit is survivorsof the disease work are covered
by social security or entitledto income benefits.

(07:19):
That's arriving.
Spouse is eligible to receivebenefits until the youngest
child turns 18.
That's something good to knowbecause many don't know that
that benefit was also offered bysocial security and disability
benefits are for workers whowill make a real contribution,
but are disabled mentally,physically before reaching
retirement age.
So just because you can collectsocial security, I started

(07:42):
collecting in the 62 doesn'tmean that you can or should
start getting the check rightaway, because for every year
that you wait after age 62, theycollect social security.
You approximately get a nice 8%bump up annually until age 70.
Where else can you find such anannual risk-free race on your
income?
And that doesn't the governmentno less.
So it pays to wait, if you canwrite that there are some other

(08:06):
caveats too, right?
So if it's going to bediminished, if you go back to
work after age 62 and until thefull retirement age, but yeah,
we run all this analysis for ourclients and those who would like
to have an analysis, we happy todo that.
So that gives you an idea as towhat you've said.
Are you choosing between 62 fullretirement age and age 70?

(08:27):
So this is definitely somethingto keep in mind.
Andrew is a way people need toregister for Medicare could be
talking about the four benefitsof social security.
Medicare is one, but why dopeople need to register for
Medicare at age 65?
Even if they have healthbenefits coming from the
government, there's a penalty tonot enrolling.

(08:48):
Can I talk about that?

Guest (08:49):
It can be a good idea to register for Medicare at age 65.
Even if you still have coveragefrom your employer, Medicare
part, a typically doesn't costanything, and it can serve as
your secondary insurancepotentially picking up the tab
for anything your primaryinsurance doesn't cover.
Additionally, this can also helpavoid the 10% annual surcharge

(09:12):
on Medicare part B premiums.
If you fail to sign up on time.

Arvind Ven (09:16):
Okay, that's good to know what's important because
the balance is going to staypretty much for the rest of
their lives.
So that's a small thing to do,but it has a fairly sizable
price, significant price to pay.
So I always remind my clientswould they get to post 65, that
it is time to register and keepthat ready.
So these employer pensions seemto be going in the way of

(09:40):
dinosaurs that fixed income in atime that is any park and aspect
of retirement income planning.
So what are the other optionsfor fixed income?
Social security right now is theonly fixed income component that
employer pensions are prettymuch gone.
I think I saw a statistic that Ithink think less than a 12% of
companies or buyers offerpensions at the end of the day,

(10:04):
every person's requirementsituation is different, but as
important to understand thatsocial security has so many
different ways of collecting forAmerican couples that are
literally over a thousanddifferent ways in which you can
choose.
It's very important to calculateand understand how it works so
that you don't leave money thatyou deserve and you work for,

(10:24):
they don't leave it on thetable.
So again, just because you canstart receiving income at 62
doesn't mean that you have tocollect right away, do the math,
understand how it works andrealize that either you're
getting an 8% bump up every yearuntil age 70.
And so it doesn't really embarkwith just social security
benefits.
It's not a simple matter thatare under surveys to accept the

(10:44):
benefits and the choices willhave significant impact over the
course of the retirement yearsto millions of people rely on
the system that I used to thinkthat it's very complicated to
change than simply pulling aplug.
Just like what our guests alsomentioned to me.
They just have to agency.
And in the meantime, just got tostay educated and see how the

(11:04):
best we can to leverage socialsecurity benefit.
So before I sign off today, Igot to point out one important
news.
You probably saw that alreadythat the cost of living
increase, the Cola increase forsocial security was 5.9% that
came out recently, and that isthe highest increase in over 40

(11:26):
years.
Now that is, That is huge.
We never seen this kind ofincrease in such a long time.
And what that means in additionto good news is that inflation
is starting to run high andthat's been taken note of.
The trillion dollar question iswhether this is transitory,
whether this inflation istemporary or is the beginning of

(11:47):
high inflation ahead.
So that remains to be seen.
And we'll be talking more aboutthat in upcoming podcasts.
We'll have some expert guestsgiving their opinions about that
too.
So stay tuned, join us soon forthe next podcast and that's it
for today.
And for this podcast, let me endthat with another disclaimer
that Andrew Beltowsky, Allianz,Capital V Group and LPL

(12:11):
financial are not affiliated.
So we look forward to seeing yousoon and you tuning in at the
next podcast.
You can also read more about usat www.capitalVgroup.com or call
us at(408) 725-7122.
Or you can like us or read moreabout us on Twitter and on
Facebook

Disclaimer (12:34):
Arvind Ven is a registered representative with
advisory services and securitiesoffered through LPL financial, a
registered investment advisormember FINRA.
And SIPC the opinions voiced inthis material are for general
information only and are notintended to provide specific
advice or recommendations forany individual.

(12:55):
All performance reference ishistorical and is no guarantee
of future results.
The information is not intendedto be a substitute for specific
individualized tax advice.
We suggest that you discuss yourspecific tax issues with a
qualified tax advisor.
Financial planning offeredthrough capital V group, a
registered investment advisorand a separate entity from LPL

(13:17):
financial.