Navigating Social Security benefits can be daunting, especially when you’re on the cusp of retirement. Experienced Retirement Planner Loren Merkle breaks down the complexities to help you maximize Social Security options.
– Explore the difference between taking Social Security early vs. at Full Retirement Age (FRA) and how health and longevity play into this decision.
– Discover the staggering 81 options couples may have for Social Security elections and how to find the one that’s right for you.
– Learn how health care costs in retirement can affect your savings, with estimates exceeding $300,000 for couples.
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TRANSCRIPT
Molly Nelson [00:00:02]:
Social Security is an important part of your retirement. But the big question is when should you elect it? We talk about the options and help you decide. Next on Retiring Today. This is Retiring Today. I’m Molly Nelson here with Loren Merkle. He’s a CERTIFIED FINANCIAL PLANNER™, a Certified Financial Fiduciary®, and a Retirement Income Certified Professional® and Loren, that means that you sit down with families and individuals every day and you help them with this Social Security election because it is such a big deal.
Loren Merkle [00:00:45]:
It’s such a big deal because it can equate to, for a single individual over a 25-year projected retirement, over $500,000. Married couple, seven figure portfolio. So even if you’re well-funded at retirement, let’s say you have $5 million portfolio at retirement, it could equate to 20% of your starting portfolio, but for most people, actually a bigger percentage. So, we have to make sure that we get this decision right going into retirement.
Molly Nelson [00:01:15]:
And you want to get it right. And we also want to say it’s a great benefit, it’s a really good thing to have at your disposal in retirement.
Loren Merkle [00:01:22]:
Some of the happiest retirees have a pension because it’s guaranteed lifetime income. They can spend that money every single month with confidence because they know another check is coming the next month and the next month. Well, Social Security, almost everybody has access to Social Security, which looks a lot like a pension. So, in fact, almost everybody does have some guaranteed lifetime income in the form of Social Security.
Molly Nelson [00:01:46]:
And it’s a decision we want to help you get right. So today we’re going to talk about some of the options and how to make the decision that’s best for you. And let’s go back to the options, because the options, I know you look at them as a good thing, but if you’re sitting down trying to decide when to elect, it can be kind of the overwhelming part of all of this.
Loren Merkle [00:02:01]:
A married couple might have up to 81 different options. So, the very first reaction when most people hear that is, whoa, that’s a lot of options. How am I ever going to sort through that mess of options? We do feel like the more options, the better, because if you can sort through those options in an effective way and apply it to your income, plan, your retirement plan in a meaningful way, then, in fact, that you have a higher probability of getting more out of this benefit than if you only had a few options. There is a misconception with many people about Social Security, because if you log on to SSA.gov and look at your Social Security benefit, they’re going to show you three benefits. They’re going to show you what happens if you take it at 70, what happens if you take it to 62, what happens if you take it a Full Retirement Age. Navigating Social Security benefits can be daunting, especially when you’re on the cusp of retirement.
Molly Nelson [00:02:56]:
Yeah. Cause if I do the math right, 81 minus three is 78. So how do you get to those 78 other options? Where does that come into play?
Loren Merkle [00:03:05]:
There’s a complex analysis that we apply to everybody’s situation to help identify of the up to 81 different options that you have, which is gonna be the best for you. What you need to do when you’re applying this analysis, however, is include everything that you have. So just taking Social Security and all those options alone and not taking into consideration the investable assets, maybe you do have a corporate pension or a government pension. We need to take that into consideration as well. We need to take into consideration what your legacy goals are. We need to take into consideration your tax plan. All of those things need to be considered before or as you are determining what your Social Security options are. Using the siloed decision approach is what can get people into a lot of trouble and then put you in a position where five years down the road, you’re looking back and saying, “I wish I would have made a different decision.”
Molly Nelson [00:04:01]:
And we know knowledge is power. So, let’s go back to those ages just real quick and give the rules for election starting at 62.
Loren Merkle [00:04:08]:
At 62 is when most people are eligible to take their Social Security benefit. A lot of people will think Full Retirement Age, which for most people now is age 67, but for almost everybody, is between 65 and 67. And then age 70 is the latest time that anybody would want to elect their Social Security benefits. So, for most people, your decision spectrum is between age 62 and age 70.
Molly Nelson [00:04:32]:
And they say, what, at 62, you’re only getting 70% of the benefit, 67 or whatever your Full Retirement Age is, that’s your full benefit. And then the benefit grows 8% after that. Do I have it right?
Loren Merkle [00:04:41]:
Well, close for some people, and then for other people, it’s a different percentage. So, the percentage of benefit you would receive at age 62 if you elect it is dependent on when your Full Retirement Age is. You were right. If your Full Retirement Age is 67 it’s 70%. If your full retirement age is 66, then it’s actually 75%, that you would receive at age 62. So, this is just part of this mysterious Social Security benefit, because for some people, it is this. For other people, it’s that. Which makes this harder, because when you’re talking to your friends or your coworkers and they’re talking about how they’re eligible for a spousal benefit, and then you talk to somebody like us and we say, well based on your circumstance, you’re not eligible.
Loren Merkle [00:05:25]:
You know, it can get really confusing because some people are eligible for different parts of Social Security than others.
Molly Nelson [00:05:31]:
Yeah, Social Security math, we’ll call it that. It is a little confusing. So, in the vein of Social Security math, let’s talk about this break-even point, because a lot of people want to know when that is.
Loren Merkle [00:05:41]:
When we come to Social Security calculations, a very common method that people evaluate their Social Security decision is – what is the break-even point? So, let’s start with just what does that actually mean? What the breakeven point calculation is intended to do is help you identify if you take your benefit at certain age, let’s say 62 versus another age, let’s say 67, at what point in time are you going to break even or be money ahead with one of those decisions? So if you take it at 62 as opposed to age 67, at what age are you going to be better off from a Social Security standpoint by waiting until 67?
Molly Nelson [00:06:22]:
Okay, you’ve got the answer?
Loren Merkle [00:06:23]:
Let’s go to the board. We’ll show you what this looks like. So, in this example, we’re going to show you two different options. We’re going to show you what if you take your benefit at age 62, and in this scenario, your numbers could be a little bit different. That’s okay. We’re going to say in this scenario, your benefit at 62 is $1,050 a month. If you waited, you didn’t take your benefit at 62, you waited till your full retirement age of 67, you could receive instead of $1,050 a month, $1,500 a month.
Loren Merkle [00:06:58]:
So, the question that you have to answer for yourself is, what should you do? Should you take it at 62? Should you wait till 67, or should you take it at 63, 64, 65, or wait always? All those are options that you have. Let’s just evaluate these two decisions. If you take it at 62 versus taking it at 67, or if you take it at 67 versus 62, you would be not receiving the $1,050 a month over that five-year period of time, which means you would have left a little over $63,000 on the table. The question is, is that a good decision, because by waiting until 67 on a month over month basis, you would receive an extra $450 a month. So, which is right for you? Leave $63,000 on the table between 62 and 67 to receive an extra $450 a month. This is where that calculation comes into play. You divide the $63,000 by the $450 a month.
Loren Merkle [00:08:02]:
That leaves us with about 140 months. With quick math on that tells us your break-even age is 78.7 years. So that means if you live to 79 or beyond, then you would be money ahead by waiting to take your Social Security until full retirement age. In this example, age 67, if you pass away prior to age 78, just from a Social Security standpoint, you would have been money ahead by taking it sooner at age 62, as opposed to waiting until full retirement age. So, this is one simple, basic calculation you can use to determine which decision is right for you. Now, using this example, does that mean it’s right for you? Because, again, what that example didn’t do is take into consideration the investable assets that you have. Maybe if you have a corporate or government pension or any of the other ambitions you have in retirement. That is a siloed calculation on Social Security alone.
Molly Nelson [00:09:03]:
It is interesting to look at it like that, though, to break it down and think of it in that way. And I couldn’t help but thinking it’d be really nice if you knew what day you were going to die. And I’m not. I don’t want to make say that as funny, but really, who has any clue? But does health become a factor? Then how healthy you are become a factor?
Loren Merkle [00:09:21]:
There’s a lot of factors that go into the decision on when you’d want to take your Social Security. Health is the big one. That also is one of the hardest parts about retirement planning in general, let alone Social Security, is when are you going to die? If we knew that question, a lot of decisions could be a little bit easier. But health status, your cash flow needs, whether you want to work still or not work, and that’s an independent decision. By the way, when you take Social Security, you could still work and take Social Security, or you could retire, delay Social Security, receive income from other sources, and allow your benefit to grow. Sometimes people say, well, I’m gonna retire at 67 and take Social Security. And they just think that’s a unanimous. And it’s not.
Loren Merkle [00:10:03]:
It’s not a unilateral decision. You have different options when it comes to that.
Molly Nelson [00:10:07]:
We’ll keep talking about how to narrow those decisions down from possibly 81 to one coming up.
Voice Over [00:10:21]:
Do you wonder if you have enough saved for retirement? Will your money last as long as you do? Will taxes, health care costs and inflation derail your retirement? Get answers. Schedule a 15 Minute Retirement Check-Up Call today. We can cover a lot in 15 minutes, including strategies you can implement now to start your retirement journey. Schedule a call at MerkleRetire.com the first step to a confident retirement starts with a simple phone call.
Voice Over [00:10:51]:
Do I have enough saved for retirement? When should I take Social Security? Which Medicare option is best? How do I plan for inflation? Sometimes the road to retirement starts with more questions than answers. Were here to help? Join us for an upcoming Journey to Retirement workshop. Get answers and start your retirement journey with confidence. Our online workshop includes information on Secure Act 2.0 and changing retirement rules. Visit RetireWithMerkle.com to register for an upcoming workshop. Your retirement journey starts now.
Voice Over [00:11:22]:
The Merkle Retirement Planning team provides personable and professional expertise unrivaled in this area. They include us in every step of the planning process. The peace of mind provided to us by the Merkle team allows us to fully enjoy this special time of our lives. Instead of feeling snake bit, we feel confident that with the Merkle Retirement Planning team at our sides, we can navigate any challenge that comes our way.
Merkle Retirement Planning. Your retirement starts here.
Molly Nelson [00:11:57]:
Welcome back. Now it’s time for Your Journey Your questions this is when we answer your questions. From our online Journey to Retirement workshop, here’s a question we got recently. How much will health care cost in retirement? I’m here with Loren Merkle. Loren, you help people plan for this every day. How much will health care cost?
Loren Merkle [00:12:17]:
It’s a big question because the average couple will retire prior to age 65, which is Medicare age. And health care is definitely top of mind for a single individual from age 65 and beyond. So this is even once you’re eligible for Medicare. According to a Fidelity study, they’re saying over $157,000. A married couple, $315,000. So you look at that number, and even if you have a starting portfolio at retirement of a million dollars, you’re thinking why, potentially a third of my, of my portfolio is going to go just to health care. And one caveat, by the way, those numbers, $157,000 or $315,000, you already know where I’m going –
Molly Nelson [00:12:59]:
I was gonna say it. No, it doesn’t include long term care.
Loren Merkle [00:12:59]:
It doesn’t include long-term care. And that’s a big concern. And usually people will start to consider or really get concerned about long term care in the slow go or the late go-go years of their retirement but also those numbers are after tax. Most people in retirement have the majority of their retirement savings in accounts that have never been taxed before. You take $157,000 out of your IRA, you have a tax bill you still have to pay. You don’t receive that $157,000. So, your total distribution, your total real cost, is even more than that. Not to put a big damper on this, that’s not exciting information, but it is a reality.
Loren Merkle [00:13:44]:
And so now what do we need to do to plan for it? To make sure you still can have the health care that you deserve, that you need, and the lifestyle that you want as well?
Molly Nelson [00:13:52]:
Yeah. And that’s part of your job, is to give people the reality, to give them the analytics, to help them to lay out the decisions for them, to help them narrow it down, whether it’s Social Security, health care, or all of the other things. So, you look at these numbers, people come into you and they probably get kind of overwhelmed. How do you break this down and help people put this into a plan?
Loren Merkle [00:14:11]:
The way that we can make this look the best and best is not a good word. The way that we can make this planning the simplest, is to create a comprehensive, written plan where you can see how all six pillars of the plan work together. Because if we just take a siloed approach, kind of like what we’re talking with Social Security and just silo out health care. Yes, it’s interesting. It could cost you a lot of money, six figures or more, to cover your health care. But now where. Where does that get you? So, having a plan and saying, if you need $2,000 a month for health care, here’s precisely where it’s going to come from. If you need $6,000 a month to have the lifestyle that you want to enjoy, here is precisely where that’s going to come from.
Loren Merkle [00:14:55]:
Here’s also how you’re going to pay the tax bill. Here’s also how you’re going to invest your portfolio to make sure it can still grow. You can still pay for your lifestyle, you can still pay for health care, you can still beat inflation and taxation, all of that stuff. Working together in a written plan, as we walk our families and individuals that we serve, through that, the whole thing becomes a lot more clear and people become a lot more confident about these decisions of how are you going to pay for health care when you need what, if you need long term care, and how are you going to pay this expensive tax bill? All of that becomes easier.
Molly Nelson [00:15:28]:
Yeah, that’s got to be nice, because then that number doesn’t feel so, so big when you look at it and kind of chop it up into these different pillars, so to speak. So, for some people, this idea of all these things working together is kind of new. So, the online Journey to Retirement workshop is a good place to see how this all works together.
Loren Merkle [00:15:44]:
It does. And we use a hypothetical couple, John and Sue, and we show you. So, we were talking about Social Security. John and Sue, based on the different decisions that they had available to them, were able to squeeze over $80,000 out of their Social Security. They also, like everybody else retiring, expected to pay. They’re married over $300,000 of health care. Well, an extra $80,000 out of Social Security can go a long ways to help them pay for health care. Now, John and Sue, at retirement, they have about $1 million.
Loren Merkle [00:16:15]:
Okay? So not unlike a lot of people out there, but from their Social Security decision over the course of a 25-year projected retirement, it would equate to over $1 milion. Also going a long way to help pay for health care, lifestyle costs. And then we talk about their tax return, how they’re going to save on their retirement tax bill as well.
Molly Nelson [00:16:34]:
What would you do with an extra $80,000? Maybe pay for health care. Maybe take a vacation or two of your dreams so you can see how John and Sue do it. Also see all of the other decisions that John and Sue have to make as they head to and through retirement in our online Journey to Retirement workshop. Go to RetireWithMerkle.com right now and you can choose a time and a date that works for you and start learning about how to put together a comprehensive retirement plan. We’ve still got more to talk about when it comes to Social Security, next.
Voice Over [00:17:09]:
Do I have enough saved for retirement? When should I take Social Security? Which Medicare option is best? How do I plan for inflation? Sometimes the road to retirement starts with more questions than answers. Were here to help? Join us for our upcoming Journey to Retirement workshop. Get answers and start your retirement journey with confidence. Our online workshop includes information on Secure Act 2.0 and changing retirement rules. Visit RetireWithMerkle.com to register for an upcoming workshop. Your retirement journey starts now.
Voice Over [00:17:41]:
Anytime I have even the smallest question about my accounts or what effect the latest tax law might have on my situation. The Merkle Retirement Planning team is always there and quick to help. I’m so glad they treat you like, well, like family. I’m so happy to have such an excellent team working for my future and ensuring I do the best to achieve my financial goals.
Molly Nelson [00:18:05]:
Merkle Retirement Planning. Your retirement starts here.
Voice Over [00:18:11]:
You dream of a happy retirement, but there are some big questions to answer. First, do I have enough saved? When should I take Social Security? How will I pay for health care and keep up with inflation? Go to MerkleRetire.com to schedule a 15 Minute Retirement Check-Up Call to talk directly with a Retirement Planner and get answers to your important retirement questions. The first step to your retirement starts with a 15 Minute Retirement Check-Up Call.
Molly Nelson [00:18:54]:
Welcome back to Retiring Today. I’m Molly Nelson here with Loren Merkle. And now is the time you’ve been waiting for. We’re narrowing it down right here from 81.
Loren Merkle [00:19:02]:
It’s crunch time.
Molly Nelson [00:19:03]:
It’s crunch time. We’re not really going to narrow it down from 81 to one because we know that your Social Security election is unique to you. But I think it’s good to talk about some of the factors and some of the things that you look at as you help couples narrow it down from 81 to one and individuals narrow down this decision.
Loren Merkle [00:19:19]:
There are many factors that we need to consider, and your factors might be a little bit different than this, but categorically, you need to look at these types of factors, such as what is your lifestyle cost, meaning in retirement, what exactly do you want that retirement to look like from an activity standpoint, that’s going to help us determine how much your retirement lifestyle is going to cost. So, then what other cash flow options do you have? Do you have a pension? What kind of investable assets do you have that’s going to come into consideration? Molly, you referenced before your health considerations, right. What is your expected life longevity look like? What do you plan to work? Are you married? Is your spouse still working while you’re retired? What kind of cash flow comes from your spouse still working? Do you still plan to work? And we can go on for a while. There’s a lot of factors to consider, but as we narrow down from 81 to one, all of that needs to be a part of the conversation because there’s going to be repercussions based on the answers to those questions, which will lead us in any of those, those directions. And everybody’s one is a little bit different, but everybody has a one.
Molly Nelson [00:20:03]:
Everybody has a one, and they want to get that one that squeezes the extra $80,000 out, maybe if they need that extra $80,000 to live their lifestyle. But let’s go back. Let’s backtrack. You listed off a lot of things. I want to kind of drill into some of these things and decide how you help people do this. So, let’s talk about working and not Full Retirement Age. You kind of alluded to it.
Molly Nelson [00:20:49]:
If I would, if I retire, I don’t necessarily take Social Security at the same exact time. Let’s talk about that.
Loren Merkle [00:20:55]:
If you’re working and you take Social Security, then there’s an earned income limit. And this year, if you’re taking Social Security, then you can make somewhere a little bit in excess of $22,000 and not be penalized, not have your Social Security benefits penalized. If you make over that, then you don’t receive your full Social Security benefit. You are penalized, and eventually a full retirement age. That amount you were penalized; you will get that back. Also, part of the complexity of Social Security, some people just think it’s gone forever. It’s not. But if you’re working that $22,000 limit this year that is adjusted for inflation, is something that you need to consider in your Social Security decision.
Loren Merkle [00:21:32]:
Now, the year that you obtain Full Retirement Age, again, for a lot of people, it’s age 67. So, let’s say that you turn 67 June of this year, which means at the beginning of this year now, your restriction is in $22,000. It’s actually over $50,000 that you can make and not be penalized if you take Social Security and work at the same time. Okay, so there’s a lot that goes into are you going to work and take Social Security? But you need to know the nuances of those decisions to help you really identify. Does that make sense for you?
Molly Nelson [00:22:08]:
Let’s talk about if you’re married. Cause that’s when you have the most options. It’s good to look at what your spouse’s benefit will be right before you make your election in that scenario.
Loren Merkle [00:22:07]:
That’s a part of that cash flow requirement, right? You need $6,000 a month to live on. Your spouse is going to receive $2,000 a month from Social Security. What happens if you take Social Security as well? You may be eligible for a spousal benefit. In 2016, there was some landmark Social Security legislation changes that changed who is eligible for a spousal benefit. And this leads to confusion because some people are, some people are not. And some people, maybe on the peripheral, heard about the legislation change. It says it went away forever for everybody, and it didn’t. But that goes into answering that question, too.
Loren Merkle [00:22:58]:
What’s your spouse’s benefit? What’s your benefit if you turn it on at these different ages, are you eligible for a spousal benefit or not? Does your spousal benefit get impacted by one of you taking it sooner than later? All that goes into that conversation.
Molly Nelson [00:23:12]:
Do you find with married couples, generally, the advice would be they’re not going to be electing at the exact same time. There is some, you know, room in between there.
Loren Merkle [00:23:21]:
It does happen, where spouses will elect at the same time. But one of the common strategies that we will employ with the families that we serve is what we call a combination strategy, where one of the, one of the spouses will take their benefit early and another spouse will wait till later. They’ll defer their benefit. Maybe it’s full retirement age, maybe it’s just before, just after, or maybe even all up to age 70. But we get that combination of let’s get some Social Security income right away and let’s defer one of these for not only a higher income while both are alive, but also for a higher survivorship benefit. And the way that this can work really effectively is the one who takes it sooner traditionally would have the lower benefit. And the reason that this is because as soon as one of the couple passes, that lower benefit is gone.
Loren Merkle [00:24:11]:
If both of them are taking their benefit and one of them passes away, that lower benefit is gone. And now the survivor is on the higher benefit. So, one of the benefits of that type of strategy is let’s get whatever we can out of the lower benefit while we can while both are alive, and then let’s grow the other one for a higher income while both are alive, and then also a higher survivorship benefit.
Molly Nelson [00:24:33]:
When you’re helping people make this election, do you talk about the future of Social Security and the solvency of it?
Loren Merkle [00:24:40]:
It’s hard not to because it’s in the news all the time. There’s a study that’s done every single year, and a lot of times that study will say, well, by the year 2034 or 2032, depending upon which year the study’s done, then if we don’t make any changes, Social Security benefits will be reduced by 25%. Some people don’t even believe that Social Security will be around in the next 20 years, and that influences decisions as well. So, we do take all of that into consideration. We take the recent studies and the recent legislation, projected legislation and projected changes that Congress could make all into that consideration to determine what is going to be the best for you.
Molly Nelson [00:25:19]:
We’ve been focusing on Social Security a lot today, and it’s important. But, Loren, there is a lot more that goes into this retirement decision. I think the online Journey to Retirement workshop is a great place to see all that’s happening when it comes to retirement.
Loren Merkle [00:25:31]:
We talk about Social Security in the online Journey to Retirement workshop. But more importantly, we weave that Social Security conversation into what John and Sue are trying to accomplish because they have some very specific retirement goals. Social Security is just a piece of it. How do they save on the retirement tax bill? And in the online journey, we show you how they can save seven figures over the course of their retirement. I’m sorry, six figures. Seven would have been even better. Some people could save seven.
Molly Nelson [00:26:01]:
I was just like, wow!
Loren Merkle [00:26:03]:
Over six figures on their retirement tax bill, which is still extremely impressive. And we also weave that into what they’re giving while their living strategies are meaning that they have some money that they, as they get into the slow-go years of retirement, they’re going to feel confident they have everything they need to live. And now they’re looking at their two kids and saying, how can we help them? How can we help the grandkids out with some college savings and that kind of stuff? So, we talk about all six pillars and give specific strategies you can take out of there to help you on your way to retiring.
Molly Nelson [00:26:36]:
Six figures on your tax bill. It’s a pretty eye-opening online Journey to Retirement workshop. You can go to RetireWithMerkle.com right now and sign up for a time and a day that works for you. This is Retiring Today, and we thank you for watching.
Voice Over [00:26:57]:
Do I have enough saved for retirement? When should I take Social Security? Which Medicare option is best? How do I plan for inflation? Sometimes the road to retirement starts with more questions than answers. Were here to help? Join us for our upcoming Journey to Retirement workshop. Get answers and start your retirement journey with confidence. Our online workshop includes information on Secure Act 2.0 and changing retirement rules. Visit RetireWithMerkle.com to register for an upcoming workshop. Your retirement journey starts now.
Voice Over [00:27:28]:
You dream of a happy retirement, but there are some big questions to answer first. Do I have enough saved? When should I take Social Security? How will I pay for health care and keep up with inflation? Go to MerkleRetire.com to schedule a 15 Minute Retirement Check-Up Call to talk directly with a Retirement Planner and get answers to your important retirement questions. The first step to your retirement starts with a 15 Minute Retirement Check-Up Call.
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We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives. The content and examples shared are for informational purposes only and should not be construed as investment advice or serve as the sole basis for making financial decisions. Individuals are encouraged to consult with a qualified professional before making any decisions about their personal financial situation. Our firm is not permitted to offer legal advice. Investment Advisory Services offered through Elite Retirement Planning, LLC. Insurance Services offered through MRP Insurance, LLC.
