Essential Social Security Strategies: Key Decisions You Can’t Afford to Ignore for Maximizing Retirement Benefits

Olivia: Hello and welcome to the Control Your Cash podcast. I’m your host, Olivia Kirk.

Tim: And I’m Tim Yurek. And we have a special guest today, Bill Rinaldi, who is the Senior Financial Consultant for Security Mutual Life Insurance Company of New York. And Bill is a specialist in Social Security planning. Bill, welcome to the show.

Bill: Thank you, Tim. This is great to be here. You know, uh, you were a guest on my podcast at Security Mutual a few years ago, and it was one of the best perceived podcasts we’ve ever had, so I’m hoping to do the best I can to, to, to match that today. So, we’ll see.

Tim: <laugh> Awesome. Well, I know we have a lot of great information in store for us today. And, and thank you again, Bill, for, for joining us.

Olivia: So, Bill, um, let’s talk about Social Security because it seems to me that Social Security is probably one of the most misunderstood benefits, misunderstood pillars, if you will, of our retirement planning. So if you could talk to us about what are some of the biggest mistakes that people make as it relates to their Social Security claims or their strategies?

Bill: Well, first of all, Tim, I agree a hundred percent with what you said. Um, I have this economic theory, which is that any time you have a government program, uh, that stays around for a long time and becomes very popular, it’s inevitable that at some point it’s gonna get so complicated that nobody understands it. And unfortunately, that’s what’s happened with Social Security. Now, there are a lot of nooks and crannies, a lot of little special things you gotta know, and it is incredibly complicated, but at the same time, it affects everybody. Everybody has a Social Security benefit pretty much, and everybody wants to get the most outta Social Security. So the simple question people ask is, well, when should I claim my benefit? That’s the one thing that people want to know. Now, if you ask me, I think the biggest mistake people make is that they don’t seek professional help when it comes to figuring out what to do.

This is so tricky and so complicated, and there are so many things. For example, there might be children’s benefits. There’s almost always what’s called a survivor benefit in Social Security. Uh, there could be disability benefits that, that have an impact. There’s so much to know that it’s almost impossible for an ordinary person to know everything they need to know about when to claim. Um, the one biggest thing I think people miss is survivor benefits on Social Security. That’s huge. And when you understand that, you might be inclined to collect a little later than you otherwise would. So…

Tim: Yeah, absolutely. So, Bill, when it comes to Social Security, what, in your opinion, is the most important thing that, that someone needs to consider? Right. So there, there are so many moving parts when it comes to Social Security—you know, the benefits, the age, um, the spousal benefits. What, what needs to be focused on when you’re making that, that big decision?

Bill: Well, the age difference between the two spouses is really important. Uh, one of the other things that’s incredibly important is life expectancy. Um, so many people, for example, are inclined to collect their Social Security as early as possible. And usually it’s because they believe—or I shouldn’t say usually—most of the time, a lot of the time, it’s because they believe that it’s not gonna be there in the future. Uh, so, “I’m gonna get mine while I can” seems to be the general philosophy. Well, that’s fine. If you’ve got a life expectancy and you think, you know, you might not make it past age 70, then maybe you would wanna collect at age 62. However, the majority of people seem to be living longer now than they initially expected. And if you’re gonna live into your 80s or perhaps your 90s, you’re better off waiting as long as possible to start the actual collection process.

So that’s a huge one, Olivia. I would also add to that one thing that people miss, and I just mentioned this a few minutes ago about survivor benefits. Survivor benefits are one of the only simple things about Social Security. Okay? If, if you’re married and both spouses, let’s say, live past age 67, then survivor benefits are fairly, uh, easy to understand. But it’s the one thing that people don’t even consider when they’re trying to collect or trying to figure out when to collect. They collect based upon their own life expectancy, and they don’t consider their spouse. Now, let me give you a quick example of how survivor benefits work. Let’s say my benefit is $2,000 and my wife’s benefit is $1,000. Now, she’s three years younger than me, and she’s also female. You know, women tend to live longer than men by about two or three years.

So you factor all that in. But if I collect, that means that if I collected at my age 67, I would get $2,000 a month. If I waited until age 70, I would get an extra benefit because I would get 24% more money or $2,480 a month by waiting until age 70 to start. Uh, now I might think, “Well, I’m probably gonna live to, I don’t know, 75 or something like that. Why would I do that? That doesn’t make any sense ’cause I’ll never make up that difference.” But with a survivor benefit, my wife would take over my benefit because hers is lower. She would take over my benefit if something happens to me. So I might live to 75; she could live to 95. So when I make that claiming decision to start at age 67, it’s probably not gonna just affect me. It’s also going to affect her, and she’s gonna get stuck with that lower benefit if something happens to me. That’s probably the most basic concept I think people miss, Olivia, that, that they need to understand about Social Security.

Olivia: Yeah, that’s, that’s huge, and it’s a huge difference for so long. So I imagine that even comes into effect if, say, you know, you were to die before you started claiming. She would still be able to claim that higher spousal benefit going forward, right?

Bill: Uh, in most cases, yeah. If I were, let’s say I died at age 68 and I wasn’t collecting yet, I would be frozen at age 68. My benefit would be frozen at that point. That’s still gonna be higher than her $1,000. But, uh, you know, so, so yes, but, uh, it’s not gonna be the full age 70 benefit because I didn’t make it to that age.

Olivia: Okay. Yeah. And that’s still gonna be higher than, let’s say, if you started collecting at age 66 or 67, you know? Um, so that makes a, a huge difference. And I imagine that’s one of the biggest mistakes that people make when they’re, they’re processing these claims, um, and starting their Social Security benefits.

Bill: Oh, absolutely. And there are, there are plenty more, but that is, that is the one I see most commonly. So, yeah.

Tim: Bill, does it ever make sense? You know, so, you know, it seems that the, a prudent strategy might be to consider your life expectancy as well as the life expectancy of your spouse when making your claim. With that in mind, does it ever make sense in your opinion, uh, to claim, let’s say, at at age 62? Is there, is there an argument that one spouse or the other should claim at age 62?

Bill: Sure. Well, first of all, if you’re a single person, then you don’t have to deal with the other spouse, right? So under those circumstances, it’s strictly a, a play on your life expectancy. If you’re in bad health and you turn 62 and you’re not working—I’ll talk about that in a minute—but, and if you’re not working, uh, then yeah, you would probably want to collect as early as possible. Uh, now there is another situation for a married couple. Let’s say the, um, the unmarried, the, the, the, uh, the younger spouse is age 62, and, and that spouse has a much lower benefit than the older spouse who’s going to wait until age 70 because that becomes the survivor benefit. You follow? In, in those circumstances, if that older spouse is willing to wait and can afford to wait till age 70, then it doesn’t make that much of a difference when the younger spouse collects.

And if the younger spouse wants to collect at age 62 under those circumstances, that’s fine. The only thing you gotta watch out for is what’s called the earnings test. And the earnings test basically says that if you’re gonna collect your Social Security early, uh, you better not be working, earning a wage and making a lot of money because the, it’s gonna disqualify you from collecting any Social Security benefit. Uh, the earnings test amount in 2024 is, uh, $22,000 in change. And basically what happens is, if you make more, if you as an individual make more than that amount in wages—not interest income, not withdrawals from an IRA or anything like that—but if your wage income is more than $22,000 in change, your Social Security benefit, should you try to collect it, will be reduced $1 for every $2 over that limit. So let’s say you’re still working and you’re making $70,000 a year or something like that, um, you really don’t have a choice. You either have to give up your job or you can’t collect Social Security. Realistically speaking, those are your two choices if you wanna continue working and make that kind of money. So, other than that, yeah, there are, there are definitely some circumstances where it makes sense to collect at 62.

Tim: Now, Bill, let’s say you’re earning $40,000 and the threshold is $22,000. So in that scenario, you’re giving back $1 of benefit for every $2 over the threshold. So roughly it’s $9,000 that you would be giving up. And that’s in that example.

Bill: That’s, that’s correct. And if you have a small personal benefit, remember at that circumstance you’re starting at age 62. So remember I said you get more when you wait till age 70, you get less at 62. Right? So it’s quite possible that that $9,000 could significantly reduce and in some cases even eliminate that Social Security benefit entirely. So yeah, I mean, sometimes if you’re making $40,000, it’s just not worth applying for, uh, that Social Security benefit. And some, some people will, Tim, they’ll, they’ll work part-time or whatever just to get up to that $22,000 threshold and then not go above that threshold. So that happens as well.

Tim: Yeah, I, I’ve seen that quite a bit, but that is probably one of, in my estimation, Bill, just dealing with people on a daily basis and talking about their retirement planning, that is probably one of the most misunderstood aspects of Social Security. The fact that, hey, yeah, you know, I’m still working and I’m gonna, I’m gonna collect at 62 because I don’t think Social Security’s gonna be there and I wanna make sure I’m getting mine. And I understand that philosophy. But then when you explain to them that, hey, you’re not gonna be able to earn more than $22,000, well gee, I make $50,000. Well, now you have this giveback that you have to consider. And people don’t under—you know, they, they, up until that point, they were completely unfamiliar with it. And you know, I, I would explain it to them and then I would suggest that they call the Social Security Administration and just get verification on that. And sure enough, they do and they come back and say, “Okay, now what do I do?”

Bill: Well, yeah, you do have the option to withdraw within 12 months too. And I’ve seen people do that. Um, the problem with withdrawing is that you gotta give ’em back whatever you have already collected. So, but so, it, it, it’s really kind of a hassle to deal with with, uh, with all that. I’ve also seen situations, Tim, where people have, uh, just, you know, you fill out when you, when you apply for Social Security and let’s say you’re age 62, you fill out a form online and you tell ’em you’re not gonna make any money, and you know that’s not true, but you just figure out they’re gonna tell ’em that and that get, and, uh, they’ll never figure it out. Well, guess what, uh, they do talk to the IRS and they do find out what money you’re making. So, uh, that can get into an ugly situation where they’re gonna demand money back from you, uh, with what’s called a demand letter. So you don’t wanna deal with that. You wanna be honest with them and tell them the truth and make an honest decision about whether you should be collecting at 62 or not, or 63 or 64 or 65, you know?

Tim: Right. And, and you know, Bill, that makes sense. I mean, for us to be honest with the government, ’cause they’re always honest with us.

Bill: <laugh> Uhhuh. <affirmative> Sure. Well, understand, Tim, just to follow up on that, I just wanna make—just follow up on what I just said earlier too. The, this is the Social Security Administration. Okay. It is not the IRS. Okay. The Social Security Administration can’t garnish your wages. They can’t send an auditor to your house or anything like that. They don’t have those powers. However, it’s not like they don’t talk to each other, okay. And they don’t find out whatever they need to find out from each other. So just keep that in mind. I think the SSA is actually a little bit more efficiently run than a lot of other government agencies. So.

Tim: Yes, for sure. Um, so, Bill, talk to us about, um, the, you know, we talk about life expectancy planning when we’re making our decisions. Talk to us about where life insurance fits into the equation when making your Social Security claiming strategies.

Bill: Well, sure, there are probably about a, a dozen different situations that I can think of where life insurance can help with the decision. But I’ll give you just one example, uh, of where life insurance can make a huge difference. Go back to that example I gave you before where I’m collecting $2,000 and my wife is collecting $1,000 a month, let’s say. Um, we do the right thing. We, and I don’t collect early, so I’m getting that $2,000 for life. Uh, if something happens to me, the good news for my wife is that she gets a, a bump in her benefit, right? She was collecting $1,000, but now if something happens to me, she goes from $1,000 to $2,000 a month, right? That’s the good news. But there’s bad news too, isn’t there? The bad news is that collectively, the two of us were collecting $3,000 a month as a married couple in our household.

Now, something happens to me, it goes down to $2,000 a month. Uh, you know, what’s gonna happen with the household expenses? I mean, I mean, in my case, there’d be a lot less food in the house, all right? But <laugh>, but we might make it up because <laugh>, we might make it up because, uh, she’s gonna have to pay someone for maintenance on the house, the stuff that, you know, maybe I do around the house. What’s gonna happen with the real estate taxes? Are they gonna go down because I’m not there anymore? No, they’re gonna stay the same, right? Mortgage is gonna stay the same, right? None of that is gonna change, but there’s less income coming in to pay those expenses. And my experience with older people has always been that once you get past a certain age and you’ve been in your house for a while, you wanna stay there for as long as possible.

You’re not in any great hurry to go and, uh, move into assisted living or anything like that. So how do you solve this problem? You have less income and the same expenses. Well, a life insurance policy could create that pool of money. So you could write a, a, a life insurance policy on me, you know, and it wouldn’t have to be that much in terms of with the way life insurance is normally valued, you know, $300 or $400,000 and I would buy that at a younger age. But what if something happens to me? You have that extra money there and that can help, uh, offset those extra expenses, um, after I’m gone. That’s one basic idea.

Olivia: Yeah. And, and so not only to offset those expenses, but to replace the lost Social Security benefit.

Bill: Exactly. Yeah. Yeah. That, that, that’s exactly right. ‘Cause you have a pool of money now that you can draw from as needed. Uh, so, and uh, and it would just, it would just, uh, set my wife’s at ease knowing that, that that’s there, that she’s not gonna have to move out of the house because something happens to me.

Tim: Yeah, and that’s a good point, right? Because most people are under the mistaken idea that I won’t need life insurance after age 65. And the, the fact that there will be an income reduction at the first death because of the loss, Social Security, uh, benefits at the first death. Now, funding for that eventual loss is probably a prudent thing. And therefore keeping your life insurance benefits in effect post age 65 probably makes some sense.

Bill: You know, I, yeah, Tim, it’s interesting ’cause I, I’ve dealt—and I’m sure you’ve found this similar to in your situation—I’ve dealt with hundreds of people who have life insurance and get past a certain age. And I don’t remember ever any one person when they get to that point saying, yeah, I don’t want this life insurance anymore. Uh, ’cause first of all, they probably got it when it was a lot cheaper at a younger age than it is now. And, uh, for some reason, there’s always a use for that life insurance, even once you get past retirement age. So that’s been my experience anyway.

Tim: Yeah, that’s, that’s a great point because people in their 50s and 60s are not looking to get rid of life insurance. They are actually looking to purchase more because they see now—they see the value and the need is probably more pressing, let’s say, you know, their, their runway is much shorter than it was when they were in their 30s and 40s.

Olivia: Yeah, absolutely. And I, I think about like the term policies on, on young couples, um, being put in place, you know, for the benefit of the kids, right? So if one of the, one of the parents dies, they’re gonna need money to raise the kids. Um, and really it’s, it’s true. You do need money to raise the kids, but there’s also the, the longer term planning that also often isn’t considered. Um, and I feel like a lot of times, you know, we have that class of people who, who don’t want to get rid of the life insurance at, at a certain age right after they get older. But then there’s the other ones who are, are looking at their investments being paid for by the life insurance. And I feel like they, they don’t necessarily see the benefit that is life insurance, right? Being able to pay pennies to get those dollars tax free when they die is, is a huge benefit, um, that often is overlooked in this industry, unfortunately, you know, by other advisors.

Bill: Yeah. You know, it’s funny, I, I think of my friend Marty Smith who always likes to say to people, uh, “Well, you know, if you have enough life insurance, then you don’t have to worry about spending down their inheritance and you want to go on a trip around the world. Go ahead.” <laugh> So it certainly has its advantages.

Tim: So, Bill, let’s talk about the, uh, let, let’s call it the, you know, the eight-hundred-pound gorilla in the room, which is, will Social Security be around? What, what’s your take on that? What’s your opinion? Because that’s, you know, everybody’s, everybody talks about that.

Bill: Yeah. How many hours do you have, Tim, to talk about it?

Tim: <laugh> Uh, listen, I, I I, I, I’ve, uh, I’ve looked at this in a good deal of detail and, uh, I just don’t believe that it’s ever—first of all, if you look at the projection, people say it’s gonna disappear or it’s gonna go bankrupt. That’s not quite true. What they say is, if nothing changes between now and the year 2035, benefits will be reduced by about 20%. That’s what they say. It’s never, it is never gonna go to zero because people are always gonna be working and they’re gonna always be collecting Social Security withholding from people’s paychecks. Um, so the, the real question is what’s going to happen between now and 2035? And I, I don’t know, but I I would absolutely be stunned if there’s ever gonna be any reduction in people’s Social Security benefits. I mean, I, I just think there would be rioting in the streets if that ever happened.

Um, so they’re gonna have to fix it somehow. And if you look at what, uh, the two main, uh, the main nominees are to how, on how to fix it, it’s either A, raise full retirement age, or B, increase the withholding taxes in some way. That might mean increasing the percentage or increasing the number of people who actually pay it, increasing the income limit or something like that. Um, so I, I, as I said, I’d be shocked if something, if, if they didn’t come up with a solution like that, one of those two things. Now it’s not gonna happen tomorrow. Okay. And I don’t think anything’s gonna happen for the next three or four years because people forget this, this happened once before, back in the early 80s, in 1983, the Social Security Trust Fund got down almost to zero, and they were within a year of, of bankrupting that trust fund. Uh, and what they did was a combination of things, you know, they raised full retirement age and they increased the withholding tax. Now that was supposed to last 75 years. And, uh, <laugh> it looks like we’re gonna be a little short on that, so they’re gonna have to do something. But, uh, I would be, I would be, uh, really surprised if, if they didn’t do anything to fix this at, at some point.

Tim: Well, I, I think that’s a great point, Bill, and thanks for addressing that. ‘Cause a lot of people don’t want to touch that question. Uh, so I, I appreciate you going out on the limb and answering that question, but I, I think another thing that they’ll probably do is they’ll just print more money to pay for the benefits and, you know, further kicking the can down the road, so to speak.

Bill: Well, yeah, I mean, technically, Tim, in order to do that right now, they, they legally can’t do it, which means they just have to change the law and then they could do it. So, you know, <laugh> eventually, eventually they, they, they certainly could do that. A, another possibility, and I was thinking about this too—you remember about, I don’t know how long ago, it was maybe 15, 20 years ago—they got in a situation, the government did, where they decided there were too many military bases in this country, and they had to close some of these bases, and they tried to—Congress tried to work it out themselves, and that became impossible because every congressman who had a base in their district would not allow a closure. So what they ended up doing was appointing this blue ribbon commission to do the dirty work, and that commission decided which bases were going to close, uh, without offending the members of Congress. You know, something like that could conceivably happen in the future, I think, with Social Security as well. So, we’ll see. I don’t know. It, it, it’s just a guess, but something, something’s gotta happen. I think so.

Tim: Yeah, for sure. Bill, is there any other questions you think we should be asking?

Bill: Uh, no, I, I think we, we’ve got a good idea. I mean, the only other thing I would say is understand, uh, one of the reasons that you need professional help when you decide when to collect Social Security is that Social Security’s not gonna tell you about certain things. For example, you might have a child under the age of 18. Social Security is not gonna tell you that, hey, you can collect a, a benefit for this child. Or you have an adult child who’s disabled—hey, you can collect a benefit for this child. So there are so many other extra benefits that you might not be aware of that you really do need to get, get a pro, uh, to help you with this, this sort of thing. So it’s not as easy as it first seems.

Olivia: Yeah, it’s funny. I have some friends who work in the Social Security field, like at, at the offices and they’re in the call center, and when they go through the training, they just learn how to search for the questions on the website and then read the webpage to the people. So if you don’t know the right questions to ask, you’re not going to get the right answers, because half the time they don’t even know the follow-up questions that you should be asking, and they’re not going to give out that information because they’re just going and searching and reading you what they have off the page these days.

Bill: Oh, yeah. And in fact, the, uh, their manual, their, their training manual, Social Security Administration’s training manual is online. It’s thousands of pages long, and it, it’s very difficult. I, I don’t lie, I have to look at it sometimes. I don’t like using it because it, it, it, it ends up confusing a lot of situations. But, uh, uh, yeah, that, that’s exactly right. It, you, you do need to know to have someone who knows the ins and outs of the system either way.

Tim: Now, Bill, I know in the past you have helped me and hundreds of other agents with helping their clients make the best decisions for them, and I think it’s important to understand, like, what special software or programs do you have to help our clients make the best decisions possible for them?

Bill: Well, we use a program called SS Analyzer, uh, and, uh, I, I’ve, I know you’ve seen that, Tim, and you know what it, what it looks like. It, um, it addresses all the issues or, uh, every issue that, that pretty much anybody would, would come across when it comes to Social Security, like the children, like I talked before, um, there’s another issue for state and local government employees where their Social Security benefit might get reduced if they’re getting a pension from that state or, or government agency or a local government agency. Uh, it also addresses that. Uh, but as I said at the beginning, the, the basic question everybody wants to get an answer to is, when should I collect? And that seems to, uh, and this, this program does a great job of, uh, addressing when you should collect, when you should start, and, uh, uh, I’m happy to share that with you, Tim, and other people. So.

Tim: Yeah, absolutely. And, um, it is important to have financial professionals because as so many things in this financial world go, you don’t know what you need to know until, until it’s too late in a lot of cases. So taking those steps, um, preemptively, um, consulting with a professional who, you know, has more knowledge and also has more resources of knowledge, right? Because not everyone knows all the answers, but they should know where to get the answers and be able to communicate that to you in, in a clear and concise way.

Bill: Yeah, and Olivia, I would add something to that, which is, if you make a mistake, it’s gonna cost you money every month for the rest of your life, so you gotta get it right.

Olivia: Yeah, absolutely.

Tim: Yeah. And you definitely don’t wanna leave any money on the table, and that, I think, is ultimately what everybody is trying to accomplish, not wanting to leave any more, any money on the table from our government benefit.

Bill: Well, especially when you look at how much money you put in in the first place, right?

Olivia: Yeah, exactly. That’s a great point, Bill. Well, Bill, it’s only a matter of time before this podcast goes viral and, and certainly this episode. And, uh, I want to thank you for joining us today. We really enjoyed your company, and hopefully you had a good time as well.

Bill: Well, I always enjoyed talking to both of you, as you know. So this has, this has been great. And, uh, I hope people get some benefit out of what we’re talking about today. That’s the main thing.

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