Podcast: The Future of Social Security

The Future of Social Security

The following is a transcript of Episode #46 of the Retire Happy podcast with Roger Gainer.

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

Roger: This notion that “Oh, Social Security is gonna run out of money, so I better grab it while I can,” it’s just not true. It’s not gonna run out of money. There is a concern that, down the line, the trust fund may end up with no money, and so there might be a reduction in benefits, which is all the more reason to optimize your benefits now.

Clark: You’re listening to “Retire Happy,” with Roger Gainer, president of Gainer Financial & 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 and I continue our discussion about Social Security. He shares some real-life examples of how he’s helped his clients make the most of their benefit, and he addresses some of the common misconceptions about the future of Social Security. There’s a lot to cover, so let’s dive in. And don’t forget to head on over to gainerfinancial.com for more content like this. Enjoy the show.

Roger Gainer, how are you doing, man?

Roger: Excellent. Excellent, Clark. It’s great to talk to you.

Clark: Absolutely. I know I say this all the time, but I mean it, I always love connecting with you and learning new things. And actually, the topic today is sort of a continuation from one of our recent episodes about Social Security. And I’m excited to say I was able to put your good advice and just insights, right, and your experiences and use that to help a family friend and help them get on Social Security after they were able to look at their options. So it’s always nice to be able to apply the things I’m learning. So maybe we’ll talk about that today, but I know we’ll kind of be continuing the conversation about Social Security and when to do it, what it actually means, what it doesn’t mean, common questions, maybe a couple of stories. As usual, you’ve always got some good stories. So that being said, I’m excited to jump into this.

Roger: Okay. Well, you know, what I’m hoping to accomplish today for our listeners is that we can apply some of the things we talked about in our last podcast to real-world situations. And I’d like to…you know, some friends, maybe a personal story or two, clients, where different claiming strategies help them to optimize their benefits and increase their retirement security and their ability to live the way they wanted to live. Because at the end of the day, what is Social Security? Social Security is a lifetime guaranteed income stream with a cost-of-living adjustment, and those payments will continue for your lifetime. Now, a lot of people used to have what are called pensions, and over the years, there’s been a tremendous migration away from pensions to what are called defined contribution plans, 401(k)s, IRAs, SEP IRAs, and that sort of thing. Previous generations had pensions, which were called defined benefit plans, and those provided a guaranteed lifetime income. Sometimes they have a cost-of-living adjustment, sometimes they don’t. But the big thing is the basis of a happy, secure retirement, regardless of what’s happening around you, is life income that you cannot outlive. Income that guarantees you’ll have a roof over your head, food in the fridge, and the lights will stay on, and you can go see a doctor when you need to and maybe have some fun on the side.

Clark: I mean, that’s a pretty sweet gig. There’s not many guarantees in life.

Roger: There are not many guarantees in life. A gentleman I respect a great deal, a gentleman named Tom Hegna, he wrote a book called “Paychecks and Playchecks.” And your paycheck is that guaranteed lifetime income, that thing that keeps you going, that you don’t stress when you have a day like we had recently where the stock market was down almost 900 Dow points at one point, where people were nervous about, you know, “Is the market gonna drop in half like it did in 2008?” Or, “Are interest rates gonna, you know, stay low and I’ll never get any income off of my investments?” That sort of thing. This relieves that level of stress. And then you can, you know, maybe be a little more aggressive with your playchecks and invest a little more aggressively once you know that, no matter what happens in the world, that roof over your head is secure, that income cannot, you know, run out before you do. After all, none of us are leaving here upright, right?

Clark: Exactly.

Roger: You know, two guaranteed things in life, death and taxes. And really, as we’ve seen over the years with changes the Congress makes, the only guarantee is death.

Clark: Hey.

Roger: Taxes come and go.

Clark: Right. They change. And try to keep track of that stuff. And sometimes it can be overwhelming to keep track of all of the details with Social Security. It can be intimidating. That was been my experience, helping the family friend.

Roger: Social Security has a report that is available about their options. It’s pretty meaty, and it goes through over 2,000 different rules and benefits that are in Social Security. This is why I’ve been offering to our listeners the ability to do a Social Security optimization report. I know that over my lifetime, I’m gonna collect at least half a million dollars in Social Security benefits before I die, between my wife and myself. That’s real money.

Clark: That is real money. But there’s a strategy you use to calculate that.

Roger: Well, right. I used a strategy that was appropriate for me. So a lot of advisors, and you read this all the time when I look at the comments on certain websites, “Oh, I’m claiming it as soon as I can. They’re gonna run out of money,” “Oh, I’m never gonna live past 70,” you know, and there’s lots and lots of excuses, “Oh, Social Security is gonna run out of money.” That one’s particularly humorous because it’s not gonna run out of money. There is a concern that, down the line, the trust fund may end up with no money, and so there might be a reduction in benefits, which is all the more reason to optimize your benefits now. Because if there’s a reduction, “If I’m getting $3,000 and they cut benefits by 25%, that means I’m gonna lose $750 a month. And I’ll still end up with $2,250. If I claimed and I got $2,000 a month because I claimed earlier, and there’s a 25% reduction, I’m only gonna end up with $1,500 a month.” Now, which would you rather have, $2,250 or $1,500?

Clark: You wanna get $2,250.

Roger: Well, exactly.

Clark: That’s a big change. That’s a huge change.

Roger: And the cost-of-living adjustment. So, you know, this notion that “Oh, Social Security is gonna run out of money, so I better grab it while I can,” it’s just not true. That simple. Unless they eliminate Social Security altogether and end the program, which I think there’d be some disruption. Now, Congress does have a couple of bills working their way through. We’ve talked about this over the last few years. And one of the bills would actually increase benefits and make the Social Security trust fund solvent until 2100. So, you know, stay tuned for those things. But, well, you can’t eat speculation, you know. You can’t live on what we used to call in Chicago, growing up, “if-come.” “Well, if this comes, then I’ll have this.” You know, I’ve had clients over the years say, “Oh, well, I have a lawsuit that’s gonna settle, and I wanna do a financial plan because I’m gonna get this big check.” And I’m like, “You know, let’s wait till you get the check, because you might not get it. There might be an appeal. It might be years before you ever see any money,” or, you know, that sort of thing. “Oh, I’m getting an inheritance.” And the estate gets tied up for years, and years, and years, and by the time you get your money, the attorneys have all the money because there was disagreement. So I like to work with what is and then make adjustments if things change, you know. This goes back to tic-tac-toe, monopoly, understanding the rules of the game. And with Social Security, there’s over 2,000 rules…

Clark: Oh my gosh.

Roger: …that you have to negotiate.

Clark: Of course, there is. And what happen… And we always say this too, like, if you don’t know the rules, you can’t win.

Roger: Yeah, you can’t win.

Clark: Right.

Roger: Exactly.

Clark: I mean, that makes sense, but. So 2,000 rules.

Roger: Yep, 2,000 rules. That’s why, you know, I plug in…

Clark: It’s a lot of rules.

Roger: …some real good information into a program that we have that runs scenarios in real-time so we can say, “Well, what if I retired at this age, or what if I retired at that age?” And in real-time, we can look and see how much more or less you would get under that strategy than against a different strategy. And we talked about this extensively last time, but what I wanna get across to our listeners is a lot of people call me or will sit down, and I say, “Well, everybody thinks you should wait till 70 to get the most you can.” And for many people, that’s true. I mean, I think I mentioned before, right now, my wife and I happen to be born during a little donut hole that is now closed. We were born before 1956, and so I’m collecting half of my wife’s benefit and deferring my benefit to age 70. Because if I die before my wife, she’s gonna get my benefit. So I want the largest death benefit possible for her. So, you know, women tend to outlive men, so odds are she’s gonna outlive me. And I want her to have the biggest amount of guaranteed lifetime income possible when that happens, because there’s no if involved. It’s a win, right?

Clark: Yeah.

Roger: Okay. So a lot of advisors just say, you know, “You get that 8% a year or just wait as long as you can,” but that’s not true for everybody. So what I’d like to do is give a couple of examples…

Clark: Yes, I love that.

Roger: …of how we’ve helped clients get a lot more money in their pocket. The first one, we’ll call him Bill. Bill’s been a client for many, many years. And when we first sat down, and I was just working with Bill and really didn’t know a lot about his family, we talked briefly about Social Security. Bill was more interested in investing. He was younger. And he said, “No, no, my plan is to wait until I’m 70. I wanna get the most I can from Social Security.” Great. And then we went on and set up some investments, and portfolios, and tax strategies, and different things. So Bill is now 68 years old, and when he got into his mid-60s, we started focusing a little more on his Social Security. And because Bill is in a second marriage and has kids with his second wife, he had minor children. So when he became eligible at 66, because that was his full retirement age, we figured out that it would make much more sense for him to claim then. Because he had minor children that were under the age of 19 and in school, he would collect half of his benefit for each child, up to the family maximum. So he was able to collect several thousand dollars more per month, and between when he started and when they will no longer be eligible for that benefit, he’s gonna put about another hundred thousand dollars in their pocket.

Clark: Wow.

Roger: And when you figure in a lost opportunity cost-and-all of that kinda stuff, it made perfect sense for him to file as soon as possible. Now, he’s still working. His wife is still working. His wife’s a bit younger than he is. And they intend to continue working. But this benefit allowed them, in this instance, to save this money to help pay for college and other expenses. Anybody that’s had kids knows how expensive kids can be, especially as they get older in high school, they want to drive, different things are more important, lessons, tutoring, all the different things that come up, and then, of course, college comes along, and that takes up some money as well. So this made sense for this guy. Now, since he was working, if he had taken that benefit earlier, and if he’d done it before full retirement age, he would not have gotten the same benefit for his dependents, and he would have had that penalty of, for every $2 that he earned, they would have taken a dollar of benefit back. So this was his way to optimize. I understand that you mentioned it in the opening, that you recently helped a family friend make a decision. Can you just give me some basic information?

Clark: Yep.

Roger: How old were they?

Clark: He’s 67. Sixty-seven.

Roger: Still working?

Clark: Still working. He’s one of those folks. A, he does find fulfillment in his work. It’s the routine. He likes it, you know. He likes getting up early, having his coffee, or going to the good cafe, seeing his friends before going to work. What’s interesting though is he says…I think he says if he stops working, he thinks he’ll rust and then he’ll turn to dust, something like that.

Roger: Well, I know a lot of people that feel that way, and I’m kinda one of them.

Clark: I mean, you know, I still have a long way to go, but you know, I think I might be like that too one day. But he wanted to wait until his full retirement age, which he just, you know, a couple of months ago, he got. He’s been meaning to do it. I think he was just a little overwhelmed. So I helped him. We did it together and just about able to do it in one sitting. We had to get some of his income statements later on from his work. But 67 years old, he went ahead and did it. And I don’t know if he’s received his first check yet, but yeah, he’s excited. And his wife, she’s 62, and I think they want to hold off for a little while. She has a pension, I think. She was a teacher.

Roger: Oh, she’s a teacher. So a lot of teachers…I don’t know what state. Is she in the Midwest?

Clark: Tennessee.

Roger: Tennessee. So here in California, teachers’ pensions, because there was a time many decades ago when a lot of public employee retirement systems were created, these pension plans, there was a little loophole that the people covered by that pension could vote to opt out of Social Security. So this is a little…I don’t know if it’s a gotcha, but there’s this something called a Social Security offset for people who have public employee retirement. And the way to tell if you’re gonna be subject to this is you look at your paystub, and if she’s not having a deduction for FICA, that’s her Social Security payment on her check stub, it means she’s not paying into Social Security. So for her, there’s a whole different pension maximization. That’s very interesting because I didn’t know this when we had talked earlier. And pension maximization is also… You know, again, if we wanna optimize Social Security, doesn’t it make sense to optimize a pension that’s a guaranteed lifetime stream of income. And she’s gonna be confronted with some choices that once she makes them, they will be set in stone and you cannot change your mind. We’ll talk in a minute about how you can change your mind with Social Security. So it’s very important that she does research on pension maximization so that she can optimize the amount of money she receives over her lifetime. There’s a very good chance, and we’re not gonna get into pension max, that’s what we call it, strategies in this session. We’re really focused on Social Security. But I see people give away huge sums of money over the rest of their lifetime because they made the default decision to take a joint survivor, if they’re married. And again, we can talk about that in another podcast, if our listeners would be interested.

Clark: I remember, Roger, actually, I went back and I listened to episode we did on previous conversation on Social Security, and that was a really good resource. I’m not just saying that either. Really, I wanted to go into my meeting with him kinda having that primer. So, very helpful.

Roger: Okay. Well, I’m glad it was helpful. Now, if this friend of the family had plugged his information into our calculator and gotten the report, there’s other considerations. For example, he’s still working. Well, Social Security, there’s a threshold, and it’s a pretty low threshold. I think married couple filing jointly, the countable income determines what percentage of your Social Security benefit will be taxed. Okay. So Social Security is free if your entire income as a couple is pretty dug on low. Most of our listeners aren’t going to be in that situation. And then it goes up to 50% as tax and then 85% as tax. And again, when you wait, 85% of $3,000 is a lot more. You know, that 15% tax-free is a lot more dollars in your pocket than $2,000 and getting that 15% tax-free. Makes sense?

Clark: Yep.

Roger: Okay. So, and then there’s the stealth tax that he might bump into as well. If the Social Security income, and his earned income, and his wife’s earned income are in excess of a threshold, then what they pay for Medicare Part B, that premium that’s deducted from your Social Security check, or you write a check if you haven’t claimed yet, that can as much as triple. So you can go from paying 150 bucks, approximately, to paying almost $500 a recipient. That’s a huge difference. And I know because I fell into that one year by accident. We had a little windfall that we weren’t anticipating and, for a year, I had to pay a lot more Medicare premium. So, and I hear people call me, “What the heck happened? You know, all of a sudden, between my wife and myself, I’m paying, you know, $10,000 more for my Medicare.” And that’s a tax as far as I’m concerned. So being strategic around this stuff is really, really important. Plus, you know, I don’t know his situation. I don’t know what this person’s health is like, you know. But if they expect to live a full long time, if they’re gonna live past about their mid-70s, which isn’t very far for this person if they’re 67 now, and working, and healthy, the difference is going to be tens, if not hundreds, of thousands of dollars, potentially, by optimizing.

Now, the good news is this person has an option. Because you just helped them, you get to change their mind. We used to be able to do what’s called a do-over. And you could claim at 62, collect from 62 to 70, and then say, “You know what, I change my mind. I’m gonna pay you back everything I collected from 62 to 70, and then I’m gonna claim as if I waited till I’m 70.” And the difference is double the benefit, back in those days. Well, they took that away. But the do-over now is, after you claim, in your first 11 months, you can change your mind, and you can say, “You know what, I see what’s happening to my taxes. I see what’s happening, and I don’t really need this money. I’m not really using this money for anything. And I sure like, when I retire, to have the most guaranteed lifetime income possible, because that’s gonna relieve stress in my retirement. I get it.” So they can either pay it back and get credit for that time or they can just put it on pause, and then, every month it goes by, that benefit will increase, and they can reclaim later. Okay. It’s called suspend.

Clark: Gotcha.

Roger: They can suspend their benefit, and you know, that’s something you may wanna mention to this friend of the family, because, you know, in the big picture, I don’t know how much money they have in IRAs. You know, this makes a difference to what kind of tax you’ll pay. As I mentioned, it’s not just income tax. It’s your Medicare Part B premium and those kinds of considerations. One of the things that this report that we have available for our listeners will show you is how much longer your savings will last if you delay. Now, for some people, it just won’t happen. But for, frankly, the majority of people that we run through this report, we find out that they end up with more money if they wait even just a few years, and they can still retire when they want to, and we pull money out of their retirement account, like a 401(k), to pay them what that Social Security benefit would have been.

Clark: Gotcha.

Roger: So if it was 2,000 a month at full retirement age, at 67, if they took…and that’s 24,000 a year, they pull 24,000 a year for the next 3 years out of their 401(k), two things happen. Their RMDs, their required minimum distributions, go down, so they’re not forced into paying income taxes later that they don’t want to. They spend down that taxable asset, because you’re forced to spend it down, right? Uncle Sam lets you defer taxes on your contribution. Its pre-tax contribution, grows tax-deferred. And when you take it out, it’s taxable. So by taking that money out, first, especially with today’s low tax rates, again, it can easily make that portfolio last much, much longer by delaying the Social Security claiming to a later age. Really, it’s amazing. When I was first introduced to that concept many years ago, I said, “This is crazy. How can that be? If I’m spending my own money and letting this defer, what has to do with that tremendous 8% growth in your benefit for every…?”

Clark: It really grows. That really adds up.

Roger: Well, it really does. You know, if this friend of the family waits three more years, their benefit is gonna be 24% higher, plus the cost-of-living adjustment, it’ll be about a third higher than it is today.

Clark: Whoa.

Roger: So that’s the difference between that $2,000 and almost $3,000 a month that they’ll get. And since there’s a cost-of-living adjustment, you know, we’re all pretty excited, we haven’t had much cost-of-living adjustment on our Social Security benefits for the last four or five years. Inflation’s been low. Because of the pandemic and things like that, inflation came out a little bit higher. So we’re all gonna get a nice big bump. And they haven’t announced the number yet, but it’s probably gonna be somewhere around 5%. Well, if I’m collecting $3,000 because I waited, that 5% of $3,000 is what? It’s 150 bucks.

Clark: Okay.

Roger: Right?

Clark: Right.

Roger: And 5% of $2,000 is 100 bucks.

Clark: Yeah.

Roger: So, which do I want, 150 or 100? And that really adds up over time as we get future cost-of-living adjustments. So, you know, it’s not just looking at, “Now, I wanna get this money. I want it in my pocket and fix that. And I’ve been waiting all these years, I wanna claim. I wanna claim.” It’s, what do you really want? What do you want your retirement to look like? Are you gonna keep working? Are you gonna work less? Do you wanna start traveling? Do you have grandkids that you wanna go visit? Do you have bucket list items to check off that you just, you know, “I wanna do it?” I remember some years ago, on his 80th birthday, George Bush, the elder, jumped out of an airplane. It was a bucket list item for him, right? He went skydiving.

Clark: Yeah, I’ll do that one day. Have you ever skydived?

Roger: I’ve hang glided.

Clark: That’s perhaps cooler.

Roger: It was, but you know, my hang gliding career ended when I couldn’t jump off hills anymore, and they said, “Oh, you gotta jump off this cliff.” And I looked down, and I said, “I’m not jumping off this cliff. I know that this wing above me works, but I also know that if something goes wrong, I’m not just gonna get injured like I did on the hills, a few scrapes and maybe a broken bone. I’m gonna die.” So I took the wing off, and I said, “Okay, I had my thrills. I’m done with this.” It’s very cool. It’s like a bird. It’s just the most amazing feeling, and I’m sure skydiving is similar. I know…

Clark: There’s risks though, yeah.

Roger: Sailing in a sailboat has that same kind of free feeling, because you’re not listening to an engine. It’s just you and the wind and all that stuff, you know. I get the same kinda jolts of sailing, especially here in San Francisco Bay, as the wind blows pretty consistently. So I would encourage you to go back and expand that conversation with your family friend and to see, you know, “Are you healthy? How much is that benefit? You know, how much more would it be at 70? How much do you have saved? And what do you want your lifestyle to look like?” You know.

Clark: Right.

Roger: The other thing about having more guaranteed lifetime income, we like to say, there’s three basic phases to retirement. The first phase, we call those the go-go years. That’s where you travel. That’s where you work on the bucket list.

Clark: All right.

Roger: You run and yoga, all of that stuff. You’re going, going, going, because now, I got all this time on my hands.

Clark: What are you gonna do with it, right?

Roger: Right. Now, I checked everything off my bucket list. It’s getting a little harder to travel. These, we call the no-go years. I wanna stick around. I have the grandkids come visit me. I wanna, you know, be with my friends, maybe play, you know, the bridge club or go play tennis locally. And maybe I travel a little bit, but you know, mostly, I’ve sowed my wild oat, so now I’m in what we call the slow-go years. So I’m still going, but I’m not going as much, and my expenses have a tendency to go down when that happens. And then, what do you think the third part of retirement in this revival? Go-go, the slow-go, and then we have…

Clark: No-go?

Roger: …the no-go.

Clark: Okay, I got it. No-go, please. Yeah.

Roger: The no-go years. And those no-go years, you know, yes, our expenses in the area of health care go up, but our lifestyle expenses tend to go down. And that’s where that guaranteed lifetime income comes in to handle those, you know, maybe you need somebody to come in a couple of days a week and help you out in the house, that sort of thing. So by delaying Social Security, it can actually let you spend more in that initial part of retirement. This is why people work with advisors, really, because we’re gonna take what you’ve got and match that with what you want it to do for you. Okay. Money, in and of itself, doesn’t matter if it’s real estate, stocks, cash, bonds, it doesn’t do anything. They’re inanimate. They don’t care who you are, what you are, but we need to use them for our benefit. Otherwise, what’s the point in gaining them, right?

Clark: Right.

Roger: You know, we have an old saying, too many people in our society spend their health to gain wealth.

Clark: Right.

Roger: And then they wanna spend their wealth to get their health back. And that’s always a losing deal. So it’s creating that balance. Anyways, there’s one other strategy that I just touched on, and I wanna make sure we get it in before we get much further. And that’s the temporary Social Security benefit. We touched on it because you can change your mind in the first 11 months.

I had a client that was in the process, a few years back, of refinancing his house. And he got a call from the CEO of the company he’d worked for for 29 years, he planned on working for 3 more years and then retiring, and they told him, “You know what, we don’t need you anymore. We’re reorganizing the company. You’ve been wonderful. You’ve helped us for all these years. You’ve helped us grow. You helped us make a lot of money. So we’re gonna pay you a full year’s income severance.” And this guy made a nice six-figure income. He said, “But don’t show up at work on Monday.” They called him literally at home on a weekend. So he was in the middle of refinancing, and we needed to show guaranteed income to the bank. So if you collect two months of that benefit, the bank’s gonna count that as income. So he was originally intending to wait till 70. He got laid off at 66.5. We signed him off for Social Security. He collected it for about five months, got his loan, reduced his payment, got a little cash out to do some repairs on the house, and then he didn’t need that income because we had other income, it’s just the bank wouldn’t count that income. And we put his benefit back on pause so it could continue to grow.

Clark: Smart.

Roger: We’ve had some other situations where we’ve done this.

Clark: And someone could leave all that money on the table. If they didn’t know they can do that, that’s just a missed opportunity, potentially, right?

Roger: Right. There’s a lot of flexibility. This is why we have over 2,000 rules.

Clark: Jeez, right.

Roger: And there’s just a lot of stuff in there. So, you know, we’ve been going here for about half an hour, and I know, if we go much longer, I’m gonna put everybody to sleep.

Clark: Well, no, this is good. So the final call-to-action here is go to the website. This is where you have what’s called the thought organizer. And the whole point of that is, as you said, there’s 2,000 rules, there’s a lot of ways to customize this, and that’s where you come in. So gainerfinancial.com is where someone can get that.

Roger: Right. And that’s the context, to help you make that decision. When you’re at the website, if you want, you can go to the contact us button and contact us. And we can create this report for you. Of course, we need some of your personal information to do that. And I don’t care if you’re a client, or just a friend, or just an interested listener. Go ahead and contact us through that button. We’re looking at potentially adding a widget to our home page where you can get a rough idea on some of these options and then decide, “Okay, if I wanna see these optimizations and see how these different strategies would affect the big picture, we can then get you that report.” And again, if you mention that you heard this podcast, there’s no charge for that planning.

Clark: That’s great.

Roger: Normally, we would have a charge as part of the planning process, because we wanna make an optimization determination for every single client.

Clark: Well, Roger, as always, thank you for taking the time. Always really enjoy this. Always learn a lot. And I’m looking forward to our next conversation.

Roger: Excellent. Well, you have a great day. And take good care.

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 & Insurance Services, Inc. is not owned by or affiliated with HFIS, Inc. and operates independently.