Social Security Mistakes to Avoid


The following is a transcript of Episode #45 of the Retire Happy podcast with Roger Gainer.

All episodes of the podcast can be found at Apple PodcastsGoogle Podcast, and Spotify.

Roger: I’ve studied Social Security for many, many years because we talk about creating retirement income plans, and the mistakes that I see literally can cost you hundreds of thousands of dollars. And if you make a mistake, you’re gonna live with that mistake for the rest of your life. So do your research ahead of time so that you’re not gonna regret that decision.

Clark: You’re listening to “Retire Happy with Roger Gainer,” president of Gainer Financial and Insurance Services, Inc. Thanks for joining us. I’m your host, Clark Buckner. With so much uncertainty in the world today, it’s more difficult than ever to make decisions that can help you progress toward your financial goals. So in this episode, Roger explains what role Social Security actually plays with Americans today. He talks us through the math to show what’s at stake. For instance, he says the wrong choice can cost hundreds of thousands of dollars over your retirement years. There’s a lot to cover. So let’s dive in. And don’t forget to head on over to for more content like this. Enjoy the show. Roger, it is great to be back with you. How are you doing?

Roger: Doing well, Clark. And yourself?

Clark: I’m doing well. I’ve been looking forward to our session all week long and every month, I always count down, especially this week. It’s been a little while since we chatted and we’ve got some good things to cover. So I think we just dive right in. How’s that sound?

Roger: That sounds great. I think today’s topic, well, it applies to everybody that works in any capacity in this country. And it’s an area where not knowing the rules can really cost you big time.

Clark: You talk about that often, knowing the rules. And if you don’t know the rules, you can’t win.

Roger: You can’t win. And this isn’t necessarily about winning, it’s about not losing.

Clark: Well, hey, that’s a great way to segue into this. You know what I mean? Retire happy is all about making sure you don’t run out of money. And today, you’ve got on the docket here, Social Security, not only Social Security but Social Security mistakes. And I know you’ve been studying this for many, many years. There’s a lot of confusion. It can seem overwhelming. And so our goal today is to hear from you and try to keep it as straightforward as possible and share some of the big things that you’ve learned along the way.

Roger: Okay. I think we can do that.

Clark: Does it work with you to start with the what, and then we’ll talk a little about the why? So what role does this play, in your words and based on the clients that you work with, what role does Social Security actually play? And then we’ll talk a little about what’s at stake and why does this matter?

Roger: Well, I think Social Security is highly misunderstood. A lot of people look at it as a pension plan, which it is not. So you hear all this stuff, well, they should, you know, have people investing in the stock market instead of giving money to the Social Security Trust Fund. And you hear these arguments all the time. We should privatize Social Security. And to me, that’s just throwing a lot more money at Wall Street to abuse, but that’s a different topic for a different day.

Clark: Different topic, right?

Roger: Yeah. Social Security is an insurance program. It’s a disability program. It’s a widows and orphans program. It’s a dependent children program. And I think one of the biggest misconceptions is what is SSI? So we contribute, if you look at your paycheck, you have these FICA, F-I-C-A deductions, and you can look up your SSI benefit. SSI, most people think stands for Social Security income, but it’s really supplemental security income. It’s designed to be a safety net.

Clark: Okay. And so it basically, if someone, you know, reaches that age or they reach that life circumstance, they’re not just kicked to the curb. This is a security net for society. Got it.

Roger: Yeah. It’s the social safety net to make sure that you can, you know, eat some food. We pay into it during our working lives. You have to have at least 40 qualifying quarters, which is about 10 years of work paying into the system to become eligible. Or you need to have an eligible spouse who’s paid into the system and be married because there are spousal benefits that are also very, very important to understand. And those spousal benefits actually are a big part of the consideration of when you should file and how you should file. And we might get to that a little later in the conversation. What I wanna make sure we cover today are some of these basics so that everybody has a good understanding. And then we can in future podcasts and blog posts over the next couple of months, what I’d like to do is build on some of these ideas and give our listeners more tools and a little deeper understanding of some of these considerations.

Clark: Yeah, I think that makes sense. Yeah. Well, I’ve heard you say a stat before about how many Americans are using this. Can we start kind of jumping in from there?

Roger: Well, yeah. All Americans with a Social Security number that work, and like I said have worked for more than 10 years, are part of the Social Security system. Now what’s interesting, and some may consider it sad, half of our population gets at least 50% of their retirement income from their Social Security benefit, and 25% get over 90% of their retirement income from Social Security.

Clark: Wow. That’s a huge dependency.

Roger: That’s a huge dependency. And for most people, the decision is a critical part of establishing any form of financial security in retirement. You can claim your Social Security benefit anytime after you turn 62, but there’s a very high cost to this impatience. And I think people are starting to realize this because according to U.S. News & World Report, in 2005, 54% of women and 50% of men claimed their Social Security benefit at 62.

Clark: And what does that really…that just means they’re taking it really early. Is that…half.

Roger: They’re taking it really early.

Clark: Okay.

Roger: And now that’s down now. In 2018, it’s 31% of women and 27% of men. So I’m very excited that people are waking up to the importance of waiting to claim their Social Security at least until their full retirement age. And we’ll talk a little bit about that in a minute, but what I would like to get through and help you understand is how expensive that decision is. Okay. So, for people born after 1959, your full retirement age is 67. And for every year after 62 that you delay claiming, your benefit goes up by 8%.

Clark: And once you take it, you’re locked in at that. Is that right?

Roger: Once you take it, you’re locked in. You do get cost of living increases, which for our listeners, by the way, this year, it looks like it’s going to be 5% or more.

Clark: Now, that’s different from inflation.

Roger: Well, you know, it’s based on inflation.

Clark: Based on that.

Roger: So your Social Security benefit is indexed for a measurement of inflation. I don’t want to get too sidetracked…

Clark: Got it. Got it. Got it. It’s baked in.

Roger: …as to whether or not the measuring stick underreports inflation, many experts think it does, but that’s an argument or a discussion for a different day in a different forum. This is really about the nuts and bolts of what does that 8% really break down to in money? So say your retirement benefit at age 67, at your full retirement age, was gonna be $2,000 a month, which is a very typical benefit. I think the national average at full retirement age is somewhere around $1,700 a month at full retirement age. So, if you were gonna claim at full retirement age and get $2,000, but you chose to claim at age 62, that benefit goes down to about $1,400, okay? That’s $600 a month. So if you add up, most people who reach age 67, their life expectancy is about 20 years at 67. And we’ve talked about this in other podcasts. So that’s $600 a month, it’s sad, $600 a month, right? Well, that adds up without cost of living adjustments to be over $144,000.

Clark: Spread across that, is that right? That’s the difference.

Roger: That’s the difference. So that’s $600 a month to $7,200 a year times 20, that’s a little over $144,000. That is real money.

Clark: Okay. So it’s almost that you’re saying, what’s the first year you could take this, you said 62?

Roger: Sixty-two. And it’s very tempting. Oh my God, I’ve worked 30 years, I’m tired.

Clark: I’m ready to kick back. Wow.

Roger: I paid in, I don’t think Social Security is gonna last. We’re not gonna spend much if any time on that topic. I believe Social Security is gonna last. You know, we hear all those, oh, it’s gonna run out of money and all of that stuff.

Clark: Take it while you can.

Roger: The ramifications of shutting down Social Security are almost unimaginable in our society because you’d be turning millions of elderly folks out on the street.

Clark: Nobody wants that.

Roger: I don’t think there’s anybody that wants to see that. And there’s even fewer people that want to experience it, right?

Clark: And if you just look at the cost, I’m sure that would end up costing the government a lot more money than just keeping it going.

Roger: Right.

Clark: Okay. So 62 years old is when you can start, but if you wait just 5 years, you’re saying there’s a difference of $140,000 if you live 20 years.

Roger: A hundred and forty thousand-plus over the balance of your life expectancy.

Clark: Twenty or more years.

Roger: And if you live healthy, according to the Department of Health and Human Services, for everybody that reaches the age of 65, 25% are going to live into their 90s.

Clark: Now, can you wait…let’s say you’re 67. Can it keep cooking if you don’t take it then?

Roger: Absolutely. In fact, that’s what I’m doing.

Clark: You’re letting it cook.

Roger: I’m letting it cook. So the difference, if you were eligible to get your full benefit at age 67, you’re gonna get 24% more money at age 70, plus whatever cost of living adjustments. So not looking at the cost of living adjustment, but all right, that difference…all right, this is another way to look at it. If you’re going to get $2,000 at your full retirement age and you wait those 3 years, that’s $640 a month more guaranteed lifetime inflation index income that you’ll receive just by waiting 3 years. So if I need to make up that $640 to my lifestyle, in those 3 years I’d have to save $96,000 and buy a single life guaranteed annuity that would pay me $640, okay?

Clark: So yeah, a range 60 to…Oh, go ahead.

Roger: To 70. Now, there’s no reason to wait past 70 because there’s no more increase in [crosstalk 00:12:26].

Clark: It’s fully baked. Take it out of the oven.

Roger: You’re fully baked. All you’re doing is leaving money on the table if you wait after 70. But we have tools that can help you understand that if you still want to retire at, say, 67, at your full retirement age, how delaying the Social Security claiming decision to 70 can actually make your portfolio last longer, reduce taxes in the future, reduce exposure to taxes. And we’ve just been talking about in our last few podcasts. So people say, “Well, you know, I wanna let my money defer.” I was reading an article just yesterday that was suggesting that that is a big reason why you might want to retire and take your benefit earlier because you’ll let your investments grow for some additional years. But the math is actually contrary to that. If you were withdrawing money, especially if all your money’s in a tax-deferred IRA or 401(k), if you pull that money out, an equivalent amount to what you would have claimed from Social Security, we can actually show you that your assets would last longer. You’d leave more in a legacy. You’d have a greater cushion to create financial security for the rest of your life because you’d be putting so much less pressure on your portfolio.

Clark: I got a follow-up question here for you. So what about, let’s say somebody, they’re in that age range, you know, 65, okay, they’ve not enrolled yet. They’re still working. They still like to work. Do you have to stop working to start taking Social Security? How does that factor in?

Roger: Well, that is a great question.

Clark: Because you’re always talking about income. It’s all about how much your income is.

Roger: Sure. If you’re still working, there are…If you claim Social Security early, there are limits to how much you can earn without paying a penalty. That’s a big deal. So if you claim early, they put a cap on the income you can earn, and by early, before your full retirement age. So if your full retirement age is 67, you can earn an unlimited amount and not have any reduction. There is a threshold and I believe…

Clark: I won’t hold you to it, but yeah, if you have an estimate.

Roger: I believe it’s $16,800 this year. That number does change. And so if I claim at 62 and I’m still working, if I earn more than that number, for every $2 I earn above that, Social Security takes back a dollar of my benefit.

Clark: Geez. That can be frustrating because I’m sure someone might think, “Well, I’ve been putting money into this. I should be getting it out.”

Roger: Well, that’s it.

Clark: This’s just the way it is.

Roger: But, you know, if you’re getting it out at the optimum, you wanna win. Here it is. Okay. So the earnings limit in 2021 is $18,960, excuse me. So for every dollar you earn above $18,960, they withhold $1 of your benefits. Now, you can claim those back later. And in the year you reach full retirement age, that limit goes up to $50,520.

Clark: So you can claim it later. Interesting.

Roger: So it becomes a tremendous disincentive to continue working.

Clark: That’s interesting. But some Americans, it’s just kind of a cultural thing. I don’t know. I’m still pretty young, so I’m still learning a lot, clearly. But, you know, some people, they wanna…I’ve heard the phrase, “If I rust, I’d turn to dust.”

Roger: Well, you know, again, retirement lifestyle conversation that anytime you wanna have it, I’m happy to. There’s been tons of studies about activity and longevity. You know, I just saw it with the Olympics hoopla. There was a 96-year-old woman who set a record for the 100-yard dash. And she started running in her mid-80s.

Clark: Really?

Roger: Yeah. Yeah. It was, you know, in all the hoopla around the Olympics this past summer. And there’s all kinds of studies. A few years ago, I heard about a gentleman in Berkeley, right across the bay from us who was 104 years old at the time.

Clark: No way.

Roger: He had studied with Carl Jung, if you know who that is, one of the grandfathers of psychiatry, or the godfathers, I guess. He had actually been in class with this guy. And he was still seeing patients at 104. He was still doing office hours.

Clark: Oh, man. That’s incredible.

Roger: You look at musicians. I’m a big music fan, and a lot of those old rock and rollers that didn’t get caught up in the lifestyle, you know, they’re still rocking in their 80s now. And it’s the energy they get from being active, and doing things, and having focus, and meaning, and purpose. Again, this is a great conversation for another day, but you’re absolutely right about rusting.

Clark: Well, that’s something that we often talk about. That’s part of the reasoning behind this show, and it’s a big part of your why and your purpose and helping someone find that path of retiring happy. Now, every episode we do like to plug the Thought Organizer, this might be a good spot to do that. So, yeah. Tell me about the Thought Organizer if this is someone’s first time listening.

Roger: Sure. The Thought Organizer is designed to help you create context for your decision-making. So, for example, I have a client, he’s 69 now, but he has minor children. And when it came for him to hit full retirement age, which for him was 66 and 2 months, because he had minor children, he was entitled to an SSI family benefit to help support the kids. And he was able to collect thousands of dollars extra while his kids are in high school because he was claimed at his full retirement age instead of waiting until 70. Now his wife who also works will wait until age 70 to optimize one of their benefits, but we just couldn’t pass up collecting 4 years of about $3,000 a month extra. So significant money and this is why it’s not just a knee-jerk, oh, wait as long as you can.

Clark: Right. You gotta choose the right path for you based on your circumstances.

Roger: And that’s where the Thought Organizer comes in. What kind of other assets do you have? Do we have another way of creating income? Are you gonna keep working? You know, where is your money? Is it in a taxable tax-deferred account that will be taxed when it comes out? Because we have to, you know, make sure that we control taxes not just now, but into the future. So, there’s a number of things that would go into that consideration. And that’s why we have a couple of software programs, we can help people…and I’ll be happy to make this offer. If you are interested, we can plug you in to Social Security calculators that will show you your claiming options and, you know, what’s choice number one, two, three, to optimizing that benefit and not leaving hundreds of thousands of dollars on the table. So, you know, you can go to our website, when you download the Thought Organizer, or even if you don’t, you can contact us through the contact us button and say that you would like to get that calculation, get that report that shows what your optimum Social Security strategies are. And we’ll be happy to do that at no charge for any of our listeners. Just mention that you heard about it on this podcast.

Clark: That’s great. I mean, if you can do that on your own, A, someone probably can’t access that kind of tool or, B, it’s expensive, or both.

Roger: Well, there are some tools, some basic tools on websites like Fidelity, but they’re really rudimentary and they don’t really adjust for other stuff.

Clark: And having someone on the other side to walk you through the customization of this because that’s what this comes down to is taking all the data.

Roger: And the pluses and minuses of claiming now versus claiming later. Now, like I said earlier, you gotta live with this decision for the rest of your life. There is one exception, and I wanna make sure our listeners understand this.

Clark: What is it?

Roger: Okay. So we used to have more than one opportunity to change our mind, but Congress changed that about seven or eight years ago. So now, if you claim, say somebody that’s listening, 62-and-a-half, and they said, “Oh, I’m taking my money at 62. It’s my money. I want it.” And they claimed at 62 and now they look into, “Oh, man, I think I made a mistake.” As long as you’re in the first 11 months, you haven’t received that 12th-month check, that first year hasn’t completed, you can pay the money back.

Clark: Okay.

Roger: Okay? And reset the clock and get credit for that amount of time. Or you can just stop the benefit and continue to earn your 8% plus the cost of living adjustment, it’s gonna be about a 13% increase next year, and then turn it back on after you hit full retirement age, or even if you want to wait until 70 and you’ll get that increase for all the time that you’ve deferred collecting the benefit. A few years ago, I had a client who wanted to refinance his house. Well, he had been told that his job was being eliminated, so he retired a little bit sooner than planned. And he wanted to refinance to take advantage of really, really low-interest rates and, you know, reduce his payment and all that good stuff. Well, the bank looked at his assets and said, “Yeah, you really don’t qualify because you don’t have this regular income coming in.”

So we ended up filing for his Social Security benefit so that he could collect his check, show the bank that he had income coming from the Social Security administration because they wanted to see his regular monthly income to see if they were going to grant him the loan. They did grant him the loan because he had adequate income at that point. And then after the loan closed, he put his benefit on pause and let grow again. So we really only missed out on a pro-rata of about five months of having that 8% growth.

Clark: Interesting. All right. Quick question. So I know it starts at 62. Now, is it steadily going up until 67 or is it at 62, or you start at 67? Does that make sense? Let’s say you’re 65.

Roger: From 62 to 70, your benefit increases by 8% a year.

Clark: Okay. Year after year. Got it. So any year you’re ready to take.

Roger: [crosstalk 00:24:17] the law. Yeah. And, you know, those provisions may change in the future, but, you know, I think it’s kind of a waste of time to speculate. If we’re going to make a plan if you’re, you know, in your late 50s or early 60s, we can’t worry about if come, what might happen in the future, we have to worry about what’s your schedule, when do you want to retire, what do you want the rest of your life to look like? And make the decision based on your life and aspirations, not on some academic mathematical study. I mean, yeah, logically you can say, wow, if you waited from 62 to 70, you’re gonna get almost twice as much money. I mean, to me, that’s a big deal.

Clark: Especially if you’re still working.

Roger: Especially if you’re still working, or if you have other assets.

Clark: Other levers you’re pulling kind of bouncing it out. You sell your house.

Roger: Right. Because today’s low interest…what are you getting in the bank? One percent if you’re lucky. What are you getting in no-risk assets? Not very much at all. So if somebody says, I’m gonna guarantee you 8%-plus each year, it’s a pretty good deal. I don’t know where else you can get that kind of growth.

Clark: Yeah.

Roger: Okay? But again, it’s not 100% of the time that you wait as long as you can. You know, that’s what the math tells you, but that’s not what life necessarily says.

Clark: It’s like finding that balance between the math and the life situation.

Roger: Exactly.

Clark: Hey, another quick question. So you were saying, if you earn more than $18,960 at 62, does that number change at all, or is it just right now, at the moment, that’s the law, whether it’s 62 or higher.

Roger: It does change, it is indexed. So that number is published every year by the Social Security Administration.

Clark: Got it.

Roger: That’s under your full retirement age, that full retirement age is very important. A couple of things before we go, I want to encourage everybody, everybody that’s listening to go to regardless of how old you are.

Clark: I’m looking at it right now, I just pulled it up.

Roger: And set up your personal account. There are some wonderful calculators in there. Lots of great information. I go on there all the time to research options. But some years ago, they realized that…we used to get these reports sent out every year. What my wife used to call your life and Social Security. And, you know, you look at it, it says, if you retire at 62, you get X. If you retire at your full retirement age of…you get Y. If you’re disabled, you get this. Your maximum family benefit is that. Your benefit at age 70. Here are the assumptions that you’re gonna work until here and that. But they don’t send that out anymore because someday they woke up and figured out that it was costing about $700 million a year just to print and mail that thing out.

Clark: Oh my gosh. Yeah.

Roger: So you’ll get one about every three years now because everybody said, “Oh, well, I can’t go online when they…” They said, “We’re gonna put all this online.” But you wanna look at your online account from time to time to make sure, A, you got enough credit for the taxes you pay. So that’ll be online in your account. And then you can say, well, what if I stopped working here? You know, the FIRE retire early movement is gaining strength in folks of your generation, Clark, you know, that wanna retire by 40 or 50. And, of course, you’re not gonna be paying into Social Security anymore after that. Well, what is that gonna do to my benefit? So, again, you can plug those numbers in at as you’re planning whether I can make that early retirement decision and unplug.

Clark: Gotcha.

Roger: You know, this isn’t just for people who are in their 60s, this is something for you to monitor. And if they make a mistake, there is a statute of limitations. You have to let them know within three years, I believe.

Clark: Oh, you can’t go back and say, “Hey, you owe me money.”

Roger: You can’t go back and say, “I made more than that 15 years ago, I want more credit.” No. And those credits make a difference as to how they calculate your benefit and different things of that nature. And as we drill down in this in the future, a couple of things that we’ll talk about now in our next episode will be things like widow and widower or surviving spousal benefits, divorce benefits. I have a client who retired this year at age 65. So she was not at her full retirement age, and her husband passed about 15 years ago. So she retired on her husband’s benefit. Her benefit will grow until 70, and then she’ll switch from that benefit to her own benefit and get a big raise then. And we’re filling in that gap with money from her retirement accounts. And she’s gonna end up with a lot more money in the long run as a result of that. More money to leave behind, more cushion for emergencies in retirement, and frankly, more security and less to worry about.

So we’ll drill down into some of those strategies. We’ll talk more specifically about drawing down those accounts and why you’d want to do that. There are penalty taxes, for example, and there are stealth penalty taxes. We haven’t talked about those, but this is all part of that planning process so that when you get to retirement, you know, you don’t get the surprise tax bill.

Clark: That sounds like the worst thing ever, a surprise tax bill. That’s what we don’t want.

Roger: Yeah. People call me all the time and go, “I had no idea this was gonna happen because I did that.” So strategically, it is very important to understand how this game works because those decisions, you know, we just showed how a simple decision on a pretty average benefit can cost over $140,000. You start adding in some of these other mistakes that people are making, and now you can see it can add up to hundreds and hundreds of thousands of dollars over your lifetime.

Clark: Well, like, so someone another reason to reach out to you and the team. Roger, this has been great. If you think of…is there anything else, anything else we’ve not covered that you wanted to mention?

Roger: There are so many iterations and nuance to all of this. I think we put a lot out there right now.

Clark: Digest it.

Roger: If anybody’s got questions they’d like us to cover in our next episode, you can go to the website at and submit those questions, and we’ll include those topics in our next podcast. So until then, folks, thanks for listening, and looking forward to our next episode.

Clark: Roger L. Gainer, RICP, ChFC, California Insurance License number 0754849 is licensed to sell insurance and annuity products in California, Illinois, Arizona, and Nevada. Roger L. Gainer is an investment advisor representative providing advisory services through HFIS, Inc., a registered investment advisor. Gainer Financial and Insurance Services, Inc. is not owned by or affiliated with HFIS, Inc., and operates independently.