Taking Social Security Benefits While Working
This week Anthony Saffer CFP®, CKA® & Alex Okugawa CFP®, CKA®,CEPA® discuss the future of Social Security and the top three things pre-retiree’s and retirees need to know about their benefits.
Full Transcript:
Anthony: Hello and welcome to One Degree Advisors where we help families cut through the noise to make confident financial decisions. Hey, Alex. Today, we’re going to talk about Social Security and a lot of people are concerned with the viability of Social Security in the future and their question becomes should I take my retirement benefits early in order to take advantage of the program? What do you suggest?
Alex: Yeah, exactly. So, you know, I think we get this question a lot and specifically we’re going to talk about today is those that are still working, right people who are still working they’re a bit older, they’re approaching that retirement age the Social Security age and are wondering should I take it?
So I would say there are really three things. You should consider when thinking about taking Social Security benefits while you’re still working. The first thing is just understanding your full retirement age, right? It sounds basic but a lot of people don’t know their exact full retirement age and it will vary depending upon the person and when you were born, so for example, if you were born in 1960 or later. Currently your full retirement age is 67 if you’re a born earlier than 1960. They typically stagger it by a couple years or so, it goes down in months. So your full retirement age might be, you know, 66 and nine months or 66 and five months, right?
Anthony: So it’s all it’s all generally around that time frame.
Alex: Exactly, but you want to know like you want to get your facts straight before you start thinking about this. So first, understand your full retirement age. The other thing you want to be thinking about is taxation, right? So it’s not just how much you earn its how much you keep and if you’re working while taking Social Security benefits it often puts people in higher tax brackets, right?
So up to 85% of your Social Security benefits can be taxable and that’s something that a lot of people aren’t aware of or they don’t realize they just think that my Social Security statement says I’ll get #3,000 a month. Okay, great! I’ll have a infusion of that. That’s going to impact taxes all along the line not just of the benefits itself, but it could have Ripple effects and Medicare taxes and things like that.
Anthony: So before we talk about the solvency of the program itself tell us why the full retirement age is so important, especially when you’rewhen you’re still working.
Alex: Yeah, so the full retirement age while you’re still working can lead to things called like a reduction of benefits. So for example before your full retirement age, if you take benefits, you will have what’s called a reduction of benefits and the biggest one that a lot of people should be aware of is there’s a reduction of $1 for every $2. You’re over the limit and the limit for 2020 is $18,240. So if you earn money over that over that limit, then your benefits will be reduced a dollar for every $2 you’re over the limit and that’s really important to know right now you do get those benefits back over time. Very very slowly, right? It can take up to 15 years to recoup those benefits. And for a lot of people that makes a big difference.
Anthony: So basically, if you’re earning over that limit you end up giving some of that Social Security income back and it takes a very long time to recoup it.
Alex: So that’s and that’s why again taking Social Security while you’re working is not a black and white answer. I mean most often we will recommend people defer, there might be instances where it makes sense to take it early. But because again. A. the Taxation and B. the reduction of benefits, it’s a hard case to take benefits while you’re still working.
Anthony: Yeah, and once you get past that full retirement age, you can earn as much as you want. Yeah, and you still get the full benefit.
Alex: Exactly.
Anthony: So a lot of people are concerned with and rightfully so about the solvency of the program. I read on the Social Security website that like they would in its current form. They have to start making changes as early as 2035 which is fast approaching how should people be thinking about that?
Alex: Yeah, you know, it’s one of those things where you can’t put it totally out of the question, but if we look historically the U.S. Is notorious for waiting until the last hour to make any decisions, right? They don’t like to you know, make a big adjustment for something that’s way off in the future. They always push it off and that’s you know, the next person’s problem, right or wrong. That’s just how things seem to go in the US.
The second thing is it’s very unlikely that if we do experience any type of like a reduction of benefits or you know, pushing out of Ages in terms of full retirement age that it would hit the generation that’s coming up to take Social Security benefits, right? That would be like sweep, you know, pulling out the rug from underneath someone’s feet. We’re more likely to see any changes occur to those in the next generations coming up so like you know those in their 40s 30s and 20s. To help supplement the current system because honestly, it’s political suicide for any politician to come in and say, you know the program changing whatever for all those that are like a year from taking benefits.
Anthony: Which is unfortunately part of the problem is that the real issue is not aren’t being addressed and no one really wants to come up with the with the solution. So as far as peoples planning any last-minute thoughts on just how people can plan for this and how they can be included in their financial plan?
Alex: So again, I’m going to recap the three things that you need to know full retirement age. Get that nailed down understand what the taxation might be of your benefits. The best way to do that is through like a comprehensive plan looking at your tax return trying to project some of those numbers out again talk with the content advisor about these issues because Social Security is one of the biggest sources of retirement income for most people.
So talk with a competent advisor about this. It’s not something you should take lightly, it’s too big of a decision to take lightly if you don’t have someone we can certainly help you with that. But again, the other thing too is understanding how the system works. So not just from a taxation perspective, but how the system works, right? So what would be my reduction of benefits? How does that play into my plan? If I do have a reduction of benefits how long would it take me to recoup and those are all the things that come out in a financial plan. It’s just not something you should be winging.
Anthony: Yeah good stuff. So yeah, we didn’t even get to talk about it if two spouses are Involved how you might think.
Alex: maybe that’ll be a future video.
Anthony: Yeah, sounds good. So if you’re looking for coordination of your Social Security benefits with your overall financial plan the goals, you’re trying to achieve making your retirement work and sustainable for you. These are things that we help people with all day long. You can go to our website onedegreeadvisors.com, schedule a call with us. We’d love to talk with you. Thank you.
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