Erin: Jordan, good to see you. Let’s talk through claiming Social Security at 62, what you’re really giving up. Claiming your benefits early sounds appealing, but the trade-offs can be a lot bigger than people expect, especially for high earners. So a lot of people say, well, hey, I’m going to claim early and then I’m going to invest those checks. Why doesn’t that strategy work?
Jordan: In theory, it sounds great, right? Let me get money from Social Security. Let me invest that, maybe put in the stock market, double digit returns.
But the reality of life is, most people that get that Social Security check, what happens when it goes in their account? They don’t invest it. They spend the money.
And statistically, a lot of people spend that more than they invest it. Also, what if people are still working? Some people have to still be working at 62. And that becomes a problem because as we know, Social Security can claw back some of those earnings that you’re getting from Social Security.
Erin: I’m glad you brought that up because that was my next question. So, this is known as the earnings test. This is for people who are working and claiming, which the government doesn’t want you to do. Explain this $1 for every $2 rule.
Jordan: It’s crazy. So like if you take social security early and you’re still working, first I’ll say for most people, that’s not a wise choice. But if you do this, because you weren’t maybe educated or someone didn’t tell you about this, if you’re making over $24,480 for every dollar you make, for every $2 earned over that limit, they take a dollar back in Social Security benefits.
So basically, that money you made, they’re just taking right back. So, it’s not usually financially advantageous to take Social Security early while you’re still working, because one, you probably don’t need to take the Social Security because you’re still working. Two, they take some of that money back. I’ll say 3, you’re paying more in taxes on that Social Security too, because your ordinary income from working affects your taxable Social Security.
Erin: So, let’s talk here again the real cost of claiming at 62 versus full retirement age versus 70.
Jordan: Yeah, at 62 you get a 30% reduction in some people like, oh, but they’re going bankrupt. Well, I don’t believe social security will go out for this generation, especially those that are baby boomers and near retirement. But if you wait to 70, you get 124% of your benefit, which sounds great.
But you had to wait all those years to get to 70. And what if you only lived till 75? You didn’t get the biggest pile of money from Social Security. So, from a 30% discount or kind of a penalty versus a 24% on gain of weighting, that’s a 54% variance that we have to have a plan around and strategically look at. And for our clients, we overlay the mathematics, we overlay the tax strategy, and then we overlay their financial plan to give them that financial leadership when it takes Social Security.
Erin: Right, and as complicated as that sounds, Jordan, with all the layers, it’s even more complicated if you’re married. So, explain why having an optimized claiming strategy is even more important if you are married.
Jordan: Yeah, every spouse wants to protect the other spouse and maybe one spouse took care of the children and raised the family, and their career earnings aren’t as high, and the other spouse had a career. What if that person with a career comes home one day and says, you know, honey, I’m fried, I’m turning on Social Security at 62 and taking a 30% reduction. Well, if they do that, they get a reduced amount and say, God forbid something happens to that spouse.
You don’t get both Social Security benefits forever. You get the higher the two. So that 30% deduction in benefits is not going to be stuck with the surviving spouse for the next 20, 30 years. So obviously those decisions don’t just affect one person. It affects both married couples or both spouses. And we need to make sure we protect both spouses on that.
Erin: Absolutely. I love how you’re always thinking about the whole family. Well, Jordan, a lot to talk through here. Again, I think it’s like 30% right who claim at 60
It’s known as panicked claiming. That’s certainly a reason why people are concerned about this. So if somebody would like to learn more about this and what’s best for them, what’s the best way to reach you?
Jordan: Yeah, we can create a plan, an income plan that involves Social Security to get the biggest pile of Social Security for your life. And one thing we do in that is learn about your health, learn about your tax situation, learn about your financial situation. And the first step is really to sit down and have a conversation.
Call our number, 847-499-3454.
Love to see how we can help you get the most out of Social Security and pay the least amount of taxes.
Erin: I’m glad you said that. Certainly a conversation, not a calculation that you’ll just find online.So if you would like to sit down with Jordan, please stand by for the QR code at the end as well. Jordan, thank you.
Jordan: Thanks, Erin.
