10 Myths about Social Security

The following transcript has been automatically generated and is being provided as a matter of convenience: 

hi i’m john davis i’m a cff i’m a financial planner i focus on retirement and estate planning now my clients are people who are nearing retirement and those who are already retired now one thing i’ve learned over the years is that people need a unified holistic retirement plan what i mean by that is they have to coordinate all their assets it’s not just social security they got to look at social security they got to look at their iras their 401ks or pensions and they got to look at how all of these things are working together let me ask you a question did you know that social security is a million dollar asset well what do i mean by that it’s a million dollar asset because if you’re a married couple that’s what you can expect to receive in benefits over your lifetime and in fact if you’re a single individual you’re looking at about a half a million dollars so this is a really important asset one that you don’t want to you don’t want to get it wrong okay now because social security is so important if you contact me i’ll email you my 2022 social security mythbusters fact sheet you’ll get that and you’ll have all the facts that we’re going to discuss here today right on one piece of paper so let’s look at the top 10 myths about social security myth number one social security is going broke it won’t be there for me well this comes to us from the coffee shop gurus you know they all say get it while they’re getting is good because social security is going broke well here’s what you need to know it’s highly unlikely that social security will go broke in fact in 2009 the government coined the term too big to fail and social security by its very definition is too big to fail i mean think about what would happen if suddenly social security failed we’d probably have a depression because if you think about what happens to social security money you’ll totally understand i mean when you receive your social security check the first thing you do is you spend it right you go golfing you go to restaurants you spend it and when you do that you give employment to people so the one thing that you need to understand is social security and most of the media tell you it’s going broke in fact what they do is they tell you that on in 2033 the program is scheduled to fund and then after 2033 uh suddenly they’re supposed to only be able to pay out 77 cents on every dollar in benefits that are due to recipients well that would be a problem if social security was an entitlement program that had limited funding but that’s not how social security gets funded it gets funded through taxes in fact 7.65 percent of every dollar that we earn in wages goes to social security and to medicare and it doesn’t stop there because it’s like a matching program your employer matches another 7.65 add that together and 15.30 goes to social security and medicare on every dollar that we earn now congress can solve the funding problem overnight in fact all they have to do is increase it from 7.65 up to 147 000 in wages that you earn in 2022 all they have to do is increase that to 10 percent and maybe cap it off at 200 000 in wages so there you have it social security won’t go broke but you can count on changes being made they may change the claiming age right now uh depending on what year you were born you can claim social security at age 66 or 67. they may change that maybe they’ll change it to 68 and 70. so again this is why i say that you have to have a coordinated program one that takes into account your social security and all your other assets all as part of a one l1 plan so i hope that clears up the issue uh let’s take a look at the next myth um myth number two is if i take a job that pays less it will force my benefits to be less okay well this is something that i hear from clients from time to time i’ll get a person that they had a job uh and the job had a secure wage they received the salary but they always had in the back of their mind that they wanted to get into sales but they never wanted to get into sales because well the income could be sporadic so what they’re afraid of is they’re afraid to take that sales job maybe their dream job but they’re afraid to take it because they’re afraid they’ll earn less and now all of a sudden their social security income will go down well first of all to address this myth you have to know how you qualify for benefits and then once you understand how you qualify for benefits then you understand how they’re computed so first without getting too boring here or too analytical you got to qualify to qualify for social security you got to work for 10 years and you earn 40 primary insurance amount credits so basically you or you earn as you work four credits per year and you work for 10 years now the great thing about social security is that those 10 years don’t have to be consecutive and that’s really important to the moms out there because if you took off time to raise a family no sweat it doesn’t have to be consecutive you could take off time ready to raise your family and then you know go right back to work it’s not a problem now to compute your social security benefit the good news is that social security only looks at the top the top 35 years of your earnings so if you take a job on that pays less no worries because they’re only going to look at the top 35 years so this way you know you don’t have to worry take out whatever job you want to take and if it pays less don’t worry about it just do it if you want to volunteer your time it’s great too it’s not going to hurt your earnings so i hope that clears up that myth uh just do what you love doing okay myth number three i can’t stop my benefits after i start in fact that’s a complete myth you can stop not only can you stop you can pause your benefits and you can actually restart your benefits after you pause or you can completely withdraw your benefits and start over i guess the first thing we’d have to address is why would somebody want to stop their benefits after they applied for them so here’s what would happen maybe you start maybe they started their benefits but like i discussed they got a higher paying job one that could actually increase their top 35 years of earnings so maybe they want to stop uh maybe they received an inheritance or maybe they won a lottery i want to be part of that crowd okay well you can actually pause your benefits not stop them but actually pause them for a temporary period of time once you reach your full retirement age which would be 66 or 67 depending on what year you were born you can actually not only pause them but you can actually completely stop them you can actually do what’s called a withdrawal benefits and in order to do that what social security requires at you is that you file this form 521 it’s called the withdrawal benefits form now social security will allow you to do that one time you have to do it within one year of when you file for benefits and the other requirement is that you have to pay back whatever you receive the benefits so you’re actually able to do two things you could either pause benefits or you can completely stop them but you got to remember that’s form 521 so i hope that addresses that question that myth and uh let’s move on okay the next myth is myth number four social security gets taxed the same as regular inc income this is what a lot of people believe and that’s not true actually social security is taxed on what they call a provisional income formula and you don’t have to be an accountant to figure this out all you do is take your gross income plus any tax-free interest that you earn plus 50 of your social security check so if your gross income from wages is i don’t know 12 000 a year and you get tax-free interest from maybe a municipal bond you have to add that in and split it split half of your social security check add that all together and if you’re single and you’re filing as head of household and that number comes up to be less than 25 000 a year well the good news is that your benefits are completely tax-free if there are more than 34 000 a year then up to 85 of your benefit not the tax 85 percent of your benefit gets taxed as part of your regular income now if you’re a married couple and your uh provisional income is 32 000 well if it’s 32 000 or below then you have no social security taxes due and if it’s more than 44 000 a year then up to 85 percent of your benefit is due again this is why you want to have a program you want to have a plan that incorporates all of your assets and coordinates all of your assets you want a unified plan this helps you plan your income and plan for taxes alright so i hope that clears up that myth let’s look at myth number five again the coffeehouse gurus step in apply at 62 apply as soon as you can but here’s the problem with that that could have a huge impact on the amount of benefits that you actually get you may or you may not want to do that but before we get started you have to write down on a piece of paper what your full retirement age is so that you know if you should do that or not if you should apply or apply early or not so your full retirement benefit age is age 66 if you were born between 1943 and 1954 now when i’m talking about your full retirement age benefit what i’m talking about is that age at which you get a hundred percent of the benefit that you’re due okay so if you were born between 1943 and 54 it would be 66. if you were born 1960 or later your full retirement benefit age is age 67. so why is that important well here’s the thing about social security you can apply as early as age 62 or as late as 8 70. and if you’re whittled you could apply as early as age 60. now what we do is we recommend that you file at your full retirement age or later why well the best thing is to give you an example let’s say your full retirement age is 66 and you’re gonna get a thousand dollars a month if you will apply at 62 anytime between 62 and age 66 you’re going to get a little a lesser benefit in fact if you apply at age 62 instead of age 66 your full retirement age you’re going to get 25 less benefits and that’s a lifetime benefit so that’s really important okay the other side is you can get credits you can actually earn eight percent per year for every year that you delay taking your benefits until age 70. so if you’re age 66 and you wait till 870 you can actually increase your benefits by 32 percent think about that for a moment if you waited till age 70 you’d get 1320 a month versus 750 a month if you applied at age 62. so that’s hugely important so running out and applying at age 62 is not necessarily a good idea it’s something that you want to give serious thought to before you go ahead and do that again you want to coordinate your plan to take into account when you’re going to need your income and what your future income will be so i hope that clears up that myth uh let’s move on to myth number six it doesn’t pay to to delay taking benefits because i won’t live long enough to come out ahead well this is another myth um this really is dependent on your health uh but it’s really a myth for most people i mean if you have ill health and you’ve had a history in your family people dying young well then you know these numbers might not apply to you you may want to take it early but here’s the fact the average man’s age nowadays is 86 women are living are expected to live to age 89. so what we did is we looked at people taking their benefits at age 66 their full retirement age in many cases virg versus age 62. and what we discovered that is that if you live to age 76 you break even every dollar that you earn after age 76 would be a profit to you you’d be ahead if you applied at age 70 versus age 66 your break even would be age 81 so for every year that you lived after 81 you would be coming out ahead apply at age 70 versus age 62 and the break even is age 79. now you could tell that if the average man’s life expectancy is 86 and women’s is 89 most people are gonna it’s going to pay off for them to delay so i hope this clears up this myth it’s important to consider though all the facts uh your health uh and what illnesses you’ve had to deal with up until this point and uh take it all into consideration but know that delaying could be very profitable if you have uh a decent during average life expectancy so i hope that clears up that myth let’s look at myth number seven um i can’t collect social security and still work and so a lot of people want to know well what happens if i’m still working and i want to take my benefits early well here’s uh this is something very important to consider if you’re too young and you claim it early you may be subject to what’s called the social security earnings test so what i’m saying here is that if you’re under your full retirement age age 66 or 67 in 2022 you’ll give up a dollar in benefits for every two dollars that’s earned above 19 560 dollars a year in w-2 earnings and that’s for 2022 again so here’s the thing about this though if you’re self-employed you can actually manipulate this because you can control what you pay yourself and wages but if you’re not and you can’t well then you know that you have an earnings limit of nineteen thousand five hundred and sixty dollars okay now in uh if uh it’s the year of your full retirement age so let’s say that your full retirement age is uh 66 and you’re going to be 66 this year but it’s not your birthday yet it’s just that you’re going to be 66 this year okay well in 2022 you’ll give up a dollar in benefits for every three dollars that you earn above fifty one thousand nine hundred and sixty dollars in wages okay so you have limits and that’s the earnings test now here’s a really great thing if you’re at your full retirement age what’s cartwatch you can earn as much as you want in wages you could earn a million dollars a year in wages and you won’t give up a dollar in social security benefits so if you want to work and claim on social security you can but you have to be careful of these uh the social security earnings test if you’re under your full retirement age okay so i hope this clears up this myth um the next one i want to address is myth number eight uh i stayed at home and i raised a family i won’t qualify to get social security benefits well that’s not true either now if you married if you’re married you qualify for what’s called the social security spousal benefit at your full retirement age you get the option to take your own benefit or 50 percent of the primary wage earners benefit whichever is higher that’s a mouthful so let me explain what that means let’s say that he’s making three thousand dollars a month in benefits and you’re making a thousand dollars of benefit a month in benefits well you had to happen option you could take either your own thousand dollars a month in benefits or you could take fifty percent of his benefit well fifty percent of three thousand dollars is fifteen hundred dollars so it’s pretty clear that what you’d wanna do is you’d wanna take the fifty percent uh instead the second part of this is that if you never worked if you never worked and you’re married you could still take the spousal benefit so even if you have no benefits coming to you because you didn’t work outside of the house at a regular job that’s no problem you could still get 1500 a month in our example so i hope this clears this up the spousal benefit is a very important benefit for mons and and for a lot of people so uh so know about the spousal benefit i hope that clears that that problem up for you myth number nine if i die before my spouse they’ll get half my benefit this is completely wrong uh the survivor’s benefit does not work this way the way it works is that if you die before your spouse they’re not going to get half your benefit what’s going to happen is that the lower paying benefit is going to be taking them taken away and the highest paying benefit is going to survive so let me explain this in greater detail let’s say that his earnings in social security is 36 000 a year let’s say that hers is 18 000 a year so what happens here if either one of them pass in that relationship the eighteen thousand dollars is going to be taken away and the thirty six thousand dollars is going to survive so you see what’s happening here this is really unfair and it really kind of irritates me because if you think about it uh you paid into social security so so if either one of you die you should be actually you should be entitled to both benefits but social security and their infinite wisdom has this role that’s how it works but it’s important for you to know this because when you plan your retirement and your income you want to make sure that you have a plan that takes into account this possibility and have that income be there in case one person passes on before the other the second part of this problem that no one ever talks about is that if one person passes away the surviving spouse no longer files a joint tax return so now the individual has to file singularly as an individual which means higher taxes and a bigger tax by and again this is why you have to have a plan that’s unified that takes into account and coordinates holistically everything that you have to work with to include your social security so let me just take a break uh for those that are just coming in new i’m john davis i’m a cff financial planner i do retirement and estate planning my clients are people that are nearing retirement and those who are already retired now let’s look at myth number 10. i can’t afford to retire i have to wait until i’m 66 or 67 they have enough social security and other income besides everyone knows that you can’t increase your social security benefits after you start receiving them right well no that’s not exactly right you know some of you might be sick of covert and the grind at work well here’s the good news you can actually retire at 62. um you can actually take social security early and still increase your benefit you can do that by considering a new social security claiming strategy i call it start stop and start start stop and start i’m letting that sink in for a second so how it works is that you start you turn on your income at age 62 and you take your social security income and you take that until age 66 or 67 whichever your full retirement age is now once you reach 66 or 67 you can call the social security office and you can have them put a pause on your benefits now we’re not following the form 521 we’re not withdrawing our benefits again we’re just putting a pause besides that if you file the at 62 and you’re now 66 or 67 you’re past that one year period where you can withdraw your benefits anyhow so again we’re just putting a pause on the benefits so next what you do is you turn on your private pension so you might be saying yourself okay where is this private pension come from well by taking your 401ks and your iras and investing them with me i can set up a private pension plan for you one that’ll pay you a lifetime income for both you and your spouse okay now what you’re gonna do is you’re gonna go back and turn on your private pension at your full retirement age 66 at 67 and when you do that you’re going to actually be giving yourself a raise compared to what you are living on with social security loan at age 62. now because your social security has been paused it’s resting and it’s still growing it’s growing at two-thirds of one percent per month so the cool thing here is that at age 70 you’re going to start your benefits again you’re going to turn your social security back on you’re going to take them off a pause turn them back on and you’re going to give yourself another pay raise because between your 870 social security benefit which is grown and your private pension your income is easily double what you were taking out at age 62. and again this is why you have to have a unified holistic retirement plan that coordinates all of your assets so i hope all of these uh myths uh go away i i hope that you plan your retirement and you enjoy your retirement i mean you really deserve to have that

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