\n<\/p>\n
Everything you\u2019ve been hearing about <\/strong>social security<\/strong><\/a>\u00a0is a lie<\/strong>. For years, mainstream media and many financial figureheads have said that social security is on a fast track to\u00a0bankruptcy<\/a>, with no money left over for Americans when they grow old. But what if we told you that wasn\u2019t true? What if you knew that social security would be there for you when you retire, even if you\u2019ve just started working? Today\u2019s guest,\u00a0national social security advisor and expert\u00a0<\/strong>Jeremy Keil<\/strong><\/a>, explains the basics of social security and\u00a0teaches you how to maximize your benefits<\/strong>.<\/p>\n One of the biggest misconceptions about social security is that you have no control over it. The truth is,\u00a0you control your social security more than the government does.<\/strong>\u00a0How long you work, when you file,<\/strong>\u00a0and how you educate yourself\u00a0are all in your control<\/strong>. While these things may seem insignificant, they\u00a0could all affect your social security by thousands<\/strong>. If you play your cards right, social security could be the biggest asset of your life.<\/p>\n Jeremy makes a strong argument that social security is the\u00a0cheapest insurance you might get<\/strong>. In fact, it\u2019s\u00a0too good of a deal<\/strong>. The original purpose of social security was to help impoverished elderly Americans, so people with a lower income get more from social security. But, that doesn\u2019t mean you\u2019ll be stuck with pennies if you have a higher income. Social security is the \u201cdeal of a lifetime\u201d since it\u00a0lasts your lifetime, grows with\u00a0<\/strong>inflation<\/strong><\/a>, and has no commissions.\u00a0<\/strong>Can you think of a better investment than that?<\/p>\n Mindy: Jeremy: Mindy: Jeremy: Mindy: Emily: Jeremy: Mindy: Jeremy: Emily: Mindy: Jeremy: Emily: Jeremy: Mindy: Jeremy: Mindy: Jeremy: Mindy: Jeremy: Emily: Jeremy: Mindy: Jeremy: Emily: Jeremy: Mindy: Jeremy: Emily: Jeremy: Emily: Mindy: Jeremy: Mindy: Jeremy: Emily: Mindy: Jeremy: Emily: Jeremy: Mindy: Jeremy: Emily: Jeremy: Emily: Mindy: Jeremy: Mindy: Jeremy: Mindy: Jeremy: Mindy: Jeremy: Mindy: Jeremy: Emily: Mindy: Emily: Mindy: Jeremy: Mindy: Jeremy: Mindy: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes<\/a>\u00a0by leaving us a rating and review! It takes just 30 seconds.\u00a0Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Check out our\u00a0<\/i>sponsor page<\/a><\/i>!<\/i><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Welcome to the BiggerPockets Money Podcast, where we interview Jeremy Keil and talk about Social Security.<\/p>\n
The more you make, the more you need to rely on yourself and your own savings. Because Social Security is one of the best progressive\u2026 People might like or not like that we\u2019re progressive, but that\u2019s what it is. It\u2019s a progressive system where the people with lower income amount get a higher payout coming to them, and the people with a higher income amount get a lower payout in Social security, which means you are more responsible for your own retirement the more money that you make.<\/p>\n
Hello. Hello, Hello. My name is Mindy Jensen, and joining me today as cohost is Emily Guy Birken, Social Security expert, author of Making Social Security Work for You, and retirement expert in general. Emily and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, or start your own business, we\u2019ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.
Today I\u2019m joined by Emily and Jeremy, and we are going to talk about Social Security. But don\u2019t worry, it\u2019s not boring. I promise you we are going to blow out all of your misconceptions about Social Security because, spoiler alert, it is still going to be around when you retire. Yes, even you millennials, it\u2019s still going to be around when you retire. Jeremy Keil is our guest today. Jeremy is a national Social Security advisor, a retirement-focused financial planner, and the host of Retirement Revealed Podcast. Jeremy, welcome to the BiggerPockets Money Podcast.<\/p>\n
Thanks for having me here, Mindy.<\/p>\n
We haven\u2019t spoken about Social Security on this show before mainly because I\u2019ve never counted on it to be part of my retirement plan. All the rumors online say that it\u2019s underfunded or it\u2019s going to go bankrupt. I used to get statements in the mail that showed what I was going to be receiving, and mine never really amounted to anything. Both of these concepts led me to the decision that it wouldn\u2019t be around for me or it wouldn\u2019t be around it any sort of capacity so that when I reach retirement age, if I want any money, I\u2019m going to have to do it myself. So I did, I\u2019m self-funded with my retirement.
But it turns out that I\u2019m kind of completely wrong, and I\u2019m not the only one who is kind of completely wrong about Social Security and their concepts. At the most recent FinCon, I met Jeremy Keil, who is a Social Security expert, and then I learned Emily Guy Burkin, who I have known forever, is not only a Social Security expert, she\u2019s written a whole book on Social Security that is called Making Social Security Work for You.
So Emily is here to help me ask intelligent questions, and Jeremy is here to help us learn about this program and how we can best utilize it and help our older relatives best utilize it. Emily, thank you for helping. Jeremy, welcome to the show. I want to get into the history of Social Security, I think that\u2019s really important. I think it\u2019s important to know why this is even a thing. But even before that I think that, I feel obligated to clear up the literal biggest misconception of the program, and that is that it\u2019s going to run out of money, it\u2019s going to go bankrupt, it\u2019s going to be perpetually underfunded. I feel like people are going to hear the title of the show and be like, \u201cOh, Social Security\u2019s not even going to be around for me, so I\u2019m not even going to listen.\u201d Please tell me what\u2019s going on with Social Security.<\/p>\n
So Jeremy, one of the things that is consistently talked about in the news, the pundits, the talking heads is that Social Security is on its way to going bankrupt, and it\u2019s going to be bankrupt in 2034. Can you explain what that means and why that doesn\u2019t mean that the sky\u2019s falling and there\u2019s no Social Security if you\u2019re younger than 60?<\/p>\n
People hear the word bankrupt, and they feel like bankrupt means zero, because it normally does, right? If you\u2019re bankrupt, you have nothing. And so, people think Social Security going bankrupt means there is zero. And so when they make their plans, they\u2019re just assuming there will be zero. The reality is that Social Security will still keep taxing people, and they\u2019ll still keep paying things out. It\u2019s just that they project that they will only have roughly 75% available from the taxes to pay out the promises. So right now, bankrupt for Social Security means that if they promised you a hundred bucks, expect about 75 down the road, which is way better than zero. It\u2019s not good. Who wants a 25% pay cut, especially when it\u2019s not their own fault? But 75% is way better than zero. And if you\u2019re thinking of your Social Security plans way down the road, think of that number, don\u2019t think of bankrupt equals zero.<\/p>\n
Okay, that\u2019s a much better way to think about this. I don\u2019t think people realize that. When you hear bankrupt, you think zero. That has factored into the way that I treat Social Security, it\u2019s just it\u2019s not going to be there for me at all in any capacity. $75 out of 100 is a whole lot better than $0 out of 100, especially if you haven\u2019t planned for your retirement yourself, if you haven\u2019t funded your retirement. Yeah, that\u2019s going to stink, the 25% pay cut like you mentioned, but it\u2019s still better than nothing. Let\u2019s get back to a bit of the history of Social Security. Why does this even exist in the first place?<\/p>\n
I\u2019d say it exists because Americans generally are not good savers. And so, 90 years ago, the government realized that, said, \u201cOh my goodness, people are getting older. They don\u2019t have things that are saved up.\u201d Or even back to, if you look at Social Security, it\u2019s called old-age survivors and disability insurance. 90 years ago, there\u2019s widows who perhaps didn\u2019t have a job before. Next thing they know, their husband dies in a farming or manufacturing accident. They\u2019ve got no ability in 1935 to go out and get some money on their own. It\u2019s a helpful insurance thing that helps people whether you\u2019re a saver or not. Back in the day, if you were looking at just the retirement side of it, they created 65 as a retirement age because most people didn\u2019t actually make it to 65. It was literally insurance. They didn\u2019t look at it like an investment. It\u2019s their, \u201cWhat if you\u2019re old? What if you\u2019re a widow? What if you\u2019re on disability? Here\u2019s some insurance from the government paid through by taxes to help people out.\u201d And of course now, most everyone\u2019s getting the 65, and people are looking at more like an investment as in, \u201cI put the money in, I need to get the money out.\u201d And that\u2019s meaning that the government doesn\u2019t have as much as they thought they would to pay out. That\u2019s the whole 75 cents on the dollar that\u2019s coming up.<\/p>\n
Just to piggyback on that, when Social Security was first implemented was in part in response to the Great Depression where over 50% of elderly Americans lived in abject poverty. And so, seeing these older Americans who could not go back to work and there was no work to be had even if they could living in this horrible state is part of the reason why Roosevelt and Francis Perkins, who was the labor secretary who spearheaded this program, is why they put it in place.
That is something that I know having done research for the book that was really helpful to me. I write about all kinds of money issues. I\u2019ve written about taxes before. When I look into the tax code, you don\u2019t necessarily see good faith efforts to help people behind any one particular piece of the tax code. When it comes to Social Security, as big and overwhelming and even bloated, you might want to call it just because it has so much to it, it is so complex, if you dig down to the rule as it was written, you can always see the good faith attempt to help people from that. The problem is when you\u2019ve got something that affects every single American, someone is going to get the short end of the stick. It can\u2019t be completely fair to everyone. So coming at it from the historical perspective of more than 50% of elderly Americans living in poverty during the Great Depression and then also the sense that this is always attempting to be as fair as possible to the most number of people possible in a way that is going to be helpful to the most number of people possible, it lets you unclench a little bit, because so many people are very clenched when they think about Social Security.<\/p>\n
How did it morph into an end-all be-all retirement plan? It seems like the beginnings were just, \u201cHey, we want to give you a little bit of help,\u201d and now it is what people depend on 100%.<\/p>\n
It just goes back to people that aren\u2019t saving for retirement, so it\u2019s unfortunate. Emily may know the numbers better, I\u2019m going to guess she knows the numbers better than I do, where there are so many people that do rely on Social Security specifically. And even if you don\u2019t rely on Social Security alone for your income, it\u2019s a big dollar amount. So something you said, Mindy, is it\u2019s like, \u201cI don\u2019t expect to be there. I\u2019m not really counting on it,\u201d and when somebody has that attitude towards Social Security, they just throw away their decision. They don\u2019t realize that their personal choice, their decision of when they check a box and how they go about filing for Social Security can make or break them hundreds of thousands of dollars. And so, this is a huge asset to a lot of people. It might be the biggest asset of their life, is how much Social Security they\u2019re going to be bringing in.
And if they\u2019ve got an ability to increase the value of that asset just by knowing how to check a box and when to check a box, they ought do that. It\u2019s so important for so many people, and that\u2019s why I want, one, people to look at and realize it\u2019s going to be around. It might be some changes, and you have more control over the value of Social Security to you and your family than the government does. You\u2019ve got a big ability to decide when you\u2019re going to file, how you\u2019re going to file, and that can mean tens or hundreds of thousands of dollars to you over your entire lifetime.<\/p>\n
Based on that, I think it\u2019s really helpful for people to understand how Social Security is calculated. People have this sense of like, \u201cWell, I paid taxes in, I get something out,\u201d but they don\u2019t really know how the numbers work. In particular, since Mindy\u2019s audience are probably going to be people who may not have a traditional career, they may be retiring early, how does the Social Security administration determine what someone\u2019s benefits are?<\/p>\n
It\u2019s the top 35 years of earnings you\u2019ve ever had in your lifetime. People might look at it like a pension, and you might think, \u201cOh, it\u2019s the last three years or top five years.\u201d It\u2019s maybe related more to a pension they\u2019ve heard of. Now, what\u2019s the top 35 years? It\u2019s virtually your entire working career where they calculate it out. Now, some people hear that and they say, \u201cWell, I only earned a few thousand bucks in 1980.\u201d or \u201cI only earned $30,000 in the year 2000, that doesn\u2019t affect me too much.\u201d They actually take those numbers and inflate it with inflation. They equalize it out. They index it, they call it. So it\u2019s not like the money you earned 20 years ago and 30 years ago is worth nothing. They index it up to try to compare that with today. Then they pack in all 35 of those years, they add them up, they average it out by the 35, and then there you go, there\u2019s your monthly average.
And then they apply some percentages. Basically comes down to, if you earn about 12,000 a year on average for those whole 35 years, they\u2019re going to give you back about 90% of it. And then from roughly 12,000 up to about 72,000, they\u2019re going to give you back about 32% of it. And then for a section above that, they\u2019re only giving you 15% back. And then when you make more than roughly 150 grand for that average, they\u2019re giving you nothing back on there at all. So two things that are important there is that you have a lot of control around your years of working. If you\u2019re somebody that has 20 years of working, you have 15 years of zeros in there. So when you\u2019re deciding, \u201cWhen do I retire?\u201d one extra year of working gives you one extra year in there. That\u2019s 5% more you can expect from Social Security because you made the choice to work that extra year and take out a zero and make sure that you have 21 years that\u2019s counting instead of 20. That\u2019s a big help there.
Another piece of it is that the more you make, the more you need to rely on yourself and your own savings, because Social Security is one of the best progressive\u2026 People might like or not like that word progressive, but that\u2019s what it is. It\u2019s a progressive system where the people with a lower income amount get a higher payout coming to them, and the people with a higher income amount get a lower payout from Social Security, which means you are more responsible for your own retirement the more money that you make.<\/p>\n
I want to clarify the numbers and percentages that you just gave. Is that a\u2026 Let\u2019s see, how do I ask this? Is that a incremental scale just like taxes, so everybody gets 90% of the first 12,000 they made and everybody gets 32% of the next from 12,000 to 70,000 and everybody gets 15% of 70 to 150, assuming that they qualify in those tax brackets? It isn\u2019t if you made 150,000 on average, you just get nothing at all?<\/p>\n
Right, it\u2019s incremental.<\/p>\n
Okay.<\/p>\n
It\u2019s just like the marginal tax brackets.<\/p>\n
Okay, so you do still get something. That is very interesting, the amount of money that you\u2019re getting, 90% and then the next bracket is 32%. What a giant jump.<\/p>\n
It\u2019s just really like Emily said, it\u2019s here to help people that are having in their older age being in poverty. Clearly, if you have a lower income to begin with, it\u2019s a bigger help that you need. And so, they\u2019re helping people out at that bigger amount at the lower levels. They\u2019re still giving it to you. If you\u2019re making a billion dollars a year, they\u2019ll still give you 90% of that first 12 grand. They\u2019ll still give it to you. But the more that you make, the more you have the capability and the more you need to rely on your own savings and investments for Social Security. And yet, you have control over how long you work. You have control over when you file based on age. You have control if you\u2019re in a couple to decide how you coordinate between the two of you to get the most for you and the most for the widow.<\/p>\n
Actually, can I have you expand on that? Let\u2019s start with you have control over when you file. What difference does that make in terms of your monthly benefits, the time when you file?<\/p>\n
When you file has a huge difference to your monthly benefit. You might have seen already the statement that says, \u201cHere\u2019s the dollar amount that you\u2019re expecting from Social Security.\u201d That dollar amount is an estimate, and it\u2019s an estimate based on your full retirement age. Let\u2019s just assume right now it\u2019s age 67. So if your promise is $2,000 at age 67 and you file early at 62, they\u2019re going to give you a 30% pay cut. You\u2019ll get only $1,400 coming out of that promise because you\u2019d made the choice to file early. You could also make the choice to file later. If you\u2019re promised $2,000 at the age of 67, you could file all the way up to the age of 70. That would give you a 24% pay raise. You\u2019d get $2,480. So most people don\u2019t go into their boss\u2019s office and ask for a pay cut. And yet, most people go into Social Security and say, \u201cI would like a pay cut for the rest of my life, and it\u2019s going to affect my widow down the road.\u201d That\u2019s what you\u2019re doing when you make a choice with Social Security.
And of course, I went through the extremes, the full retirement age amount, the beginning at age 62, the max at age 70. It\u2019s actually on a per month basis on there, so every month you wait, you do get a little bit more from Social Security mainly because your pay cut is a little bit less.<\/p>\n
So why would someone take Social Security early if you\u2019re getting such a drastic pay cut?<\/p>\n
People take Social Security early, I think the number one reason is they just don\u2019t understand the system. They\u2019ve got that thought, \u201cIt\u2019s not going to be around for me. It\u2019s not going to amount to much. It should be all relatively equal.\u201d It maybe was relatively equal back in 1983, the last time they made big changes to it, but things have changed. Interest rates are different. People are living longer. The way that you get paid out from Social Security for waiting really is not fair to the government. It is overly fair to you. You are getting a better deal than you should by waiting on Social Security because people are living longer and interest rates are lower compared to 30, 40 years ago now that they made these choices on there.
And so it\u2019s just really more of a misconception. I think the best way to look at it is, number one, Social Security is expected to be around, it\u2019s not going bankrupt down to zero. Yes, there may be a pay cut, but it\u2019s not going down to zero. Think of Social Security in its original terms, old age survivor and disability insurance. This is insurance to help you out in your old age, to help out your survivor. And when you\u2019re making choices, make the choice that gives you the most in your old age. Make the choice that gives the most to your survivor. That\u2019s the best way to look at it. And when you do, you often make choices that end up pushing you towards the waiting point. Now, how long you wait is up to you, and you should do some math behind it. My philosophy with Social Security is, number one, learn the math, we\u2019ve talked a little bit about that. Number two, do the math. Now, that take some calculations and perhaps work with an advisor like myself. And number three, follow the math, right? The math doesn\u2019t lie. When you\u2019ve done all that, you end up realizing that this is a good choice that gives you some great probabilities. And if we can talk about probabilities, I\u2019d be happy to talk about that.<\/p>\n
Actually, I was wondering if you could go into a little bit more detail about how survivors\u2019 benefits work for widows and widowers. That\u2019s something that also there seem to be quite a few misconceptions about what a widow or widower gets after their spouse passes away.<\/p>\n
I\u2019m going to go with maybe the typical gender traditional because it\u2019s easier to conceptualize with that. People generally think the survivor benefit is, \u201cI\u2019ll get whatever he was getting.\u201d In reality, her promise is exactly what he was promised or was getting. So if he took it early, her promise of what she could get as a survivor is actually lower. If he took it later, her promise of what she could get as a survivor goes up. And then she has a choice too. She can take it all the way early as age 60, which would be a 30% pay cut roughly, or she could take it at her full retirement age, roughly age 67. And so, there\u2019s a lot of choice that oftentimes he gets to make on when he files. There\u2019s a lot of choice that oftentimes she gets to make on when she files for that survivor. And so it\u2019s kind of a double-leveraged sword that could be harmful to the widow, could actually be helpful.
And what\u2019s so interesting and why I care so much about Social Security is that we meet a lot of 92-year-old widows that are living on the Social Security decision of their dead husband and he made it 30 years ago. It\u2019s too late. You ought to know how survivorship works. And really, you\u2019ve got this ability to get money from Social Security that could be 76% higher. The survivor benefit could be 76% higher because the person who is older and has the higher benefit made the choice to wait all the way to 70. And often, the person right now that\u2019s older and has a higher benefit is the husband. The choices that a lot of times the guys are making that affect the widow down the road, and we want to make sure they\u2019re doing all right.<\/p>\n
Let\u2019s get that out there right now. How do you do it right to get this 76% higher benefits?<\/p>\n
The way to do it right, and now we\u2019re talking about couples\u2026 What\u2019s so problematic with Social Security is people are making decisions based on what they think longevity is. All the studies show that you usually underestimate your life expectancy by about five years. So right now, if you\u2019re thinking how long you might live, just add five, that\u2019s the easy number. In a reality, you need to go get your own personalized longevity estimate. There\u2019s a great place for it, longevityillustrator.org. It\u2019s free, it\u2019s from the Society of Actuaries. We use that with people. It just shows you how long you might live, how long your spouse might live. But more importantly, it\u2019s going to tell you something called the joint life expectancy. It\u2019s harder for two people to die than one person to die, which means on average, the couple is actually going to live longer than the individual life expectancies.
So he might live to 85, she might live to 88. Number one, that\u2019s later than they probably expected, but that\u2019s the real math. Number two, the joint life expectancy, the chance of the second person being gone, the survivor being gone, is probably around age 92. The joint life expectancy, how long that survivor will be living as a widow, is longer than what you expect. So if you\u2019re going into the math, you ought to learn that part first. Learn the longevity part of it first. Get your own personalized longevity estimate through a place like Longevity Illustrator.
The second part that people don\u2019t quite realize is that the first person dies, no matter who it is, the lower one goes away. It\u2019s the bigger one that last longer. So think of it like a cash box. You\u2019ve got the length of time you get money from Social Security, you have the amount you get from Social Security. There\u2019s two benefits in a couple. The smaller one will be less. Think of a box, you have less amount of time, a lower amount of money, it\u2019s a small box. The bigger one is a longer amount of time with more money, it\u2019s a bigger box. If you have the choice between making your bigger box of cash bigger or your smaller box of cash bigger, you\u2019d rather make the bigger box a cash bigger. Which means you\u2019re oftentimes the best way to get the survivor to get a better benefit is to look at who is older, who has the higher benefit, and do what you can to wait on that benefit as long as you can.
Most of the calculations are going to tell you to wait all the way to 70. Do not hear that and say, \u201cNo, no way, forget about it. I\u2019m not going to wait till 70.\u201d We\u2019re talking about one benefit, not both of them. And just any level of waiting on that higher benefit is going to be a huge help to you as a couple and especially to that widow.<\/p>\n
If I can put some numbers to that just because it can be hard to conceptualize, so let\u2019s say my husband, his benefit will be $2,000 at his full retirement age of 67, and mine will be $1,000 at my full retirement age at 67. If Heaven forfend, he were to pass away after having gotten that benefit\u2026 So while we\u2019re both drawing benefits, we get $3,000. If he were to pass away, I would not continue getting $3,000. I would not continue getting $1,000, I would get $2,000, which is basically his full benefit. And so, that\u2019s why it would be in our best interest and my best interest for him to wait until age 70 when he\u2019d get $2,400. Is that correct? No, $2,600.<\/p>\n
2,480.<\/p>\n
2,480. 2,480. Thank you. I can do math. So it would be got it in our best interest for us to wait until age 70 because then he\u2019ll get 2,480, and whether or not I wait with my $1,000, I will get 2,480 if I outlive him. So just want to make sure that\u2019s clear. Okay, I don\u2019t know about Mindy, but I need to have real-world examples to clinging on to and to understand.<\/p>\n
Well, no, that\u2019s really helpful. Let\u2019s go with your real-world example. What if Jamie passes before age 70, does she still get his benefits at the age that he passes?<\/p>\n
Yes, you will. That\u2019s exactly it. And so many people are making a decision of, \u201cOh, I better file for my benefits now just so that my spouse can get it.\u201d That\u2019s a bad excuse because it\u2019s incorrect, that\u2019s not how it works. If you happen to not have filed for Social Security and you happen to have died before age 70, whatever that age is, 63, 65, 68, whatever it is, that\u2019s the age that the widow, the spouse\u2019s benefits are going to be based on. I like how you\u2019re talking to Emily about what if you both file at age 67, because a lot of times people have a conception of, \u201cI\u2019m going to file at this exact amount. We\u2019re going to file at 65, we\u2019re going to file at 67, whatever it is. Oftentimes it\u2019s the same age on there. I\u2019m just going to ask you to think through a little concept here.
Let\u2019s go back and pretend you actually make the same dollar amount. Let\u2019s make it both at 67 you both get $2,000. Now, if somebody files three years early, they\u2019re going to get about a 24% pay cut. The next person files three years later they\u2019re going to get about a 24% pay raise. When you\u2019re both filing and when you\u2019re both turned 70, those equal out. You\u2019re both alive. You\u2019re both getting that amount from Social Security. Someone got a pay cut, somebody got a pay raise, it averaged out. Somebody took it early, somebody took it later. It averages out to the same dollar amount at the same exact time. So, as a couple, it did nothing to you. You\u2019re aged 70, you\u2019re making four grand a month. That\u2019s great. It made no difference if you filed at 67 both of you or one person three years early, one person three years later. But it is a huge difference to that surviving spouse because that lower amount went away, that higher amount stayed on, and that higher amount\u2019s now at the 2,480.
So the first concept I want people to think of is if there\u2019s two of you and you\u2019ve already got an idea in your head of when you want to file, whoever\u2019s got the lower benefit, just consider filing theirs maybe two or three years early. Consider filing the higher benefit two or three years later. Everything averages out to exactly the same. You don\u2019t need to call me and say that you lost out of money. But do call me when you\u2019re a widow because, oh my goodness, you just gave the widow 24% higher just because of how Social Security works out.<\/p>\n
I think we need to pull that and make that a social media quote because that is so interesting and that is going to save you or get you higher benefits, however you want to say that. What about if there\u2019s grossly different benefits? Is there any benefit to the lower receiving spouse taking their benefits as soon as they can at what is at age 62?<\/p>\n
Yeah, so that\u2019s why you want to personalize your estimates. That\u2019s why you want to think about the probabilities. I\u2019ll tell you right now that any calculator, because calculators and computers are heartless, any calculator is going to tell you that both people should wait. But what you want to think about is how does this impact you. Because 8%\u2019s roughly the growth every year of waiting on Social Security. 8% on a higher number is a higher number. And so, when we look at it and say, \u201cOh, yes, you came out ahead by waiting on the lower benefit.\u201d Well, for you personally it might be like $17, who cares? But the computer\u2019s going to tell you to wait. So you need to go and get a personalized estimate of what your Social Security looks like.
When the Social Security Administration tells you their estimate, it\u2019s not personalized. They assume whatever you made last year you\u2019re going to make for the rest of time. So if you weren\u2019t working last year for whatever reason, you\u2019re taking care of your kids or taking care of your parents, there\u2019s a zero on last year, and the government just assumes you made that zero for the rest of the time. They make the same assumption of you\u2019re going to make that dollar amount all the way to your full retirement age, let\u2019s go with age 67. So if you are 51 years old and you retire today and last year you made 100 grand, 200 grand, whatever the number is, the government thinks you\u2019re making 100 grand for the next 16 years, and they\u2019re giving you an estimate that\u2019s completely wrong. So you want to go to ssa.gov, go in there and make your own estimate to say, \u201cThis is the dollar amount that I expect to make for however long I expect to make it.\u201d
Get a personalized estimate of your Social Security and definitely go get that personalized estimate of your life expectancy. Pay attention, when there\u2019s two of you, what are the probabilities? A lot of people walk into our office and they say, \u201cI\u2019ve figured this out, and I\u2019ve done this break-even calculation on my own. I figure I\u2019ll break even by the age of 75 or 78,\u201d whatever their number is. And then they\u2019ll throw their hands up in the air and say, \u201cWell, what are the odds I even make it that far?\u201d Well, let\u2019s find out what are the odds. I can tell you in two minutes, \u201cThese are the odds.\u201d You would be quite surprised how high the odds are. The odds are usually in your favor that you\u2019ll make it out to 75 or 70 or however much it is.
I\u2019ll talk to the guys right now. The odds are almost irrelevant how long you\u2019re around, if you\u2019re the older spouse, if you had the higher income\u2026 For some reason us guys turn 62 and we think we\u2019re dying next week, and we want to get all we can out of Social Security. I don\u2019t care how long you\u2019re living, I care how long your surviving spouse might live. So you need to take a look at that joint life expectancy, and when there\u2019s two of you and you say, \u201cThere\u2019s a break even age of whatever it is,\u201d and you run the numbers, a lot of times the odds you\u2019ll actually get there are 90% or higher.
I\u2019d love to go to a casino with 90% odds. You can\u2019t do it. But you can walk into Social Security Administration with 90% odds and say, \u201cThis higher benefit, I\u2019m going to wait and I\u2019m going to push out, increase my big cash box from Social Security by waiting on that higher Social Security amount.\u201d If you happen to have a lower Social Security amount for that other spouse and you happen to want to take it early, who cares? Go for it. It doesn\u2019t matter. It\u2019s the biggest amount that matters. Start there and then maybe work backwards to other decisions.<\/p>\n
Just on the break-even calculation, one thing I like to point out to people who are thinking that way, like, \u201cWhat are the odds I live to 78,\u201d is, well, you do realize the only way to win is to die early. Is that really winning? Is that really how you want to put your\u2026 It\u2019s like I\u2019ll put all on red on the idea that you\u2019re going to die before age 78 when you would break even. That is also another way if you\u2019ve got this sense, \u201cI want to get the most possible out of this, I want to maximize my Social Security benefits.\u201d I can understand wanting to do that because you\u2019ve been paying into it your whole life, but by maximizing the benefits if you take early because you know have this break-even calculation, you\u2019re not maximizing your life. That seems like just a very cynical way of looking at the world, so much better to assume you\u2019re going to live to be 100 and you\u2019re going to get to see your great grandchildren.<\/p>\n
Let\u2019s talk about this break-even point. This is something that came up a couple of times. I posted in our Facebook group, \u201cDoes anybody have any questions about Social Security?\u201d and there were a lot of questions about Social Security, and one of them was the break-even point.<\/p>\n
I\u2019ve seen a lot of people with their break-even calculators, and I applaud you for going through and trying to create your break-even calculator and trying to do the right thing. People with the break even, they\u2019re trying to do the right thing and say what\u2019s the best way to go about it. There\u2019s a bit of misinformation. It\u2019s just so complicated. A lot of people will create this break-even calculator and they will assume, \u201cWell, if I get the money now, I can earn an investment rate on it.\u201d Well, usually you\u2019re not actually investing your Social Security, you\u2019re spending your Social Security, so perhaps don\u2019t apply an investment rate to something you\u2019re not going to have to invest.
But even if you did invest it, usually people apply some level of investment rates to their break-even calculation, and they completely forget that there\u2019s a cost of living adjustment to Social Security. Social Security goes up every year with inflation. The best thing about Social Security is it goes up every year with inflation for as long as you\u2019re around. You have no idea what inflation will be. You have no idea how long you are around. And when you\u2019ve got a backstop that helps you out with that, that allows your investments to do better. You get to rely less on your investments because you\u2019re relying more on Social Security. When you have less pressure put on your investments, you can do different things and you can likely get a better return because you don\u2019t have the pressure on there. So people are just mistaking one piece of it or forgetting the other piece. They\u2019re forgetting that Social Security goes up with a cost of living. They\u2019re forgetting that you earn money on your investments, you pay taxes on it. They\u2019re forgetting that Social Security in a lot of states it\u2019s tax free for their income. I\u2019m in Wisconsin, it\u2019s tax free for state income taxes in Wisconsin.
Even if you are in a state that tax is Social Security, which is most of them, don\u2019t ask me which ones because it\u2019s a lot of them, look it up and figure that out on your own for what state you\u2019re in, but even if you are in a state that you get taxed for Social Security for state income, at least 15% of Social Security is tax free. So every extra dollar you get out of Social Security because you waited, some of that\u2019s going to be tax free. So many people create this break-even calculator. Good for you for working on that. I\u2019ve seen so many of them and everyone\u2019s forgetting about the cost of living for Social Security. They\u2019re ignoring the Social Security piece. They\u2019re looking at it individually and completely ignoring the survivorship part of it and how the higher benefit will be around longer for the survivor. And then they say, \u201cWell, what are the odds I\u2019ll make it to 75, 78?\u201d whenever they figure out they\u2019re at break-even. Go figure out those odds, and don\u2019t look at your own odds, look at that survivorship odds, the joint life expectancy. I\u2019ll tell you, most people are looking at 90 percentage points or more of, \u201cHere are the odds that waiting actually made sense.\u201d<\/p>\n
One other thing I see and I think in the Facebook group where people were asking us someone suggested take it as early as you can and invest it because it feels like free money that you\u2019re investing. But the difference between age 62 and 70, it\u2019s about 8% per year. Are there investments that can guarantee that?<\/p>\n
You can\u2019t get a guaranteed 7%, 8%. I\u2019ve done the compounding in terms of return, it\u2019s 7.2% compounding every year from 62 to 70. That\u2019s guaranteed. And it\u2019s so easy for people to look at next month and next year and say, \u201cWell, if I had 30 grand from Social Security come in over the next year, I can invest and make this dollar amount.\u201d What they have trouble seeing, and I can\u2019t blame you for having trouble seeing that, is, well, what about eight years from now when you\u2019re getting $1,000 more a month from Social Security? It\u2019s really easy to project out the growth on the money you would get from Social Security today, and everyone seems to forget about, when you get more money from Social Security because you waited on Social Security 10 years from now, that\u2019s a value as well too. And you say, \u201cOh my goodness, I\u2019d have to take out 30 grand for my investments this year if I didn\u2019t get Social Security.\u201d And eight years from now, you get to take out 15 grand less from your investments. If you\u2019re looking at it and doing the math, you\u2019ve got to take both sides of it. It\u2019s easy to forget the second site. It\u2019s easy to remember how much money you get next month. So it\u2019s a tough decision because there\u2019s just so much going into it.<\/p>\n
Well, and the take it and invest it comment is really easy to say. How long has the stock market been on the tear? It\u2019s been going up and to the right since what? 2012, \u201913, \u201914 with little bitty dips, but for the most part, up to the right, I don\u2019t know if anybody remembers 2008, \u201909, \u201910 where it was decidedly not up into the right, it was down and to the right very much. So take it and invest it might be great advice for the last 10 years, but perhaps we are entering a period of high volatility in the stock market. I say perhaps in air quotes because I really do believe that\u2019s where we\u2019re going right now. That doesn\u2019t mean I\u2019m not going to be investing in the stock market, but if you\u2019re investing because you don\u2019t need your Social Security money right now, \u201cOh, I\u2019ll invest it for the future,\u201d you\u2019re investing at age 62 for the future three years from now, for five years from now when you will need it.
You will need it and maybe it\u2019s a lost value because the stock market is in a squidgy place. Or maybe you\u2019ve invested it and it has gone flat. Or maybe you\u2019ve invested it and\u2026 I had another point to make. I\u2019m lost now. But it\u2019s not guaranteed, whereas, if you, like Emily said, if you leave it in there because\u2026 I mean, if you need it, that\u2019s a different story. I\u2019m talking about people who don\u2019t need it. Leave it in there and get the guaranteed 8%<\/p>\n
People are looking for a good deal. What\u2019s the best deal? Who doesn\u2019t want a good deal? I\u2019d like to find something that will last your entire lifetime and goes with inflation and has zero commissions. You get more money from Social Security, you\u2019re not paying an annuity agent any commissions, you\u2019re not paying your investment manager anything. Social Security is just about the best deal around because it will last as long as you do, it\u2019ll help out your survivor, it grows with inflation. You\u2019re not paying anybody to manage that investment for you.<\/p>\n
I do want to just talk a little bit about the guarantee, because I know that there are people who side eye anything that says a guarantee from the government, how much is that worth? And so, I\u2019d love to talk about why do you feel confident saying this is guaranteed and this will be there. You\u2019re going to get the 8%. You\u2019re going to get the [inaudible 00:40:22]. Can you talk a little bit about what that guarantee comes from, what we\u2019re basing it on?<\/p>\n
It\u2019s not that the government says, \u201cHey, guess what, we\u2019ll give you 8% interest. Why don\u2019t you come invest with us?\u201d It\u2019s a matter of they came up with a program, with a promise at age 67 now, the full retirement age, and they\u2019re going to give you a pay cut if you take it early, and they\u2019re going to give you a pay raise if you wait till later on. It happens to match up with roughly 8% that this income grows every single year by waiting.
Now, when it comes to Social Security, yes, it\u2019s backed by the government. Imagine if the government stopped paying Social Security. Now think about what\u2019s going on with your US stocks. Somehow people look at the Social Security, they look at government debt and say, \u201cOh, that\u2019s going to go away. The US government won\u2019t pay that. And somehow, all the US companies on the US stock market are going to be phenomenal investments.\u201d Just imagine how bad your real estates and how bad your stocks are looking if the US government isn\u2019t paying back their money. And so, it\u2019s guaranteed by the US government. Find me a better guarantee out there and let\u2019s go for it.<\/p>\n
Actually, I like to tell people that if Social Security goes away, if you can\u2019t count on it, if you can\u2019t count on whatever promises, we\u2019ve got bigger problems than Social Security. It\u2019s because the aliens have invaded, the zombies have emerged from the earth and oceans have risen, the dollar has fallen. Social Security is going to be the least of your concerns at that point. So probably a little less hyperbolic, but still, you make a very good point, if the government fails to pay its promised debts, then the stock market is not going to be doing well either, so that\u2019s a very good point.<\/p>\n
I want to say a few years ago, some political candidate floated the idea of an opt-out program. I don\u2019t remember the specifics, but somebody in our Facebook group asked, \u201cWhat progress is being made for an opt-out program?\u201d I haven\u2019t heard anything about this for a really long time, so I\u2019m guessing not much. What is your opinion on the opt-out program?<\/p>\n
I\u2019m going to say there\u2019s zero progress being made on an opt-out program, and I\u2019m wondering if people actually do want to opt out. This is the cheapest insurance you\u2019ll get for how long you might live and going up with inflation. That\u2019s the reason why Social Security is running out of money. It\u2019s too good of a deal. And usually, when you find too good of a deal, you want to get more of it. And so, if you are thinking of opting out, which you can\u2019t even do anyways, really think hard on that, of where can you get something that lasts your lifetime, grows with inflation, and has no commissions in any way to anyone. So that\u2019s something that maybe they ought to consider not doing even if the opt out is available.
What I have seen is Dr. Larry Kotlikoff, he\u2019s just a smart economist to begin with, he was on my podcast, and he talked about where he thinks that Social Security just needs a refresh. There\u2019s been a lot of promises made, so let\u2019s keep all those promises, but let\u2019s go forward to where there\u2019s a new system. He\u2019s talking more about a system of basically a forced savings. I haven\u2019t seen much evidence in my lifetime that the government likes to give up control, and so I can\u2019t imagine that the government would want to say, \u201cLet\u2019s give you more choices and let\u2019s let the people run their retirement more.\u201d If there\u2019s a change to Social Security where there is personal savings accounts and things like that, I imagine it\u2019ll be more government mandated, more government control. So I wonder if someone\u2019s thinking of the opt-out program, if and when it exists, if the option to opt out is even better than what they are imagining Social Security is today.<\/p>\n
I don\u2019t want a program that has more government control. I remember when I was 15 and I got my first paycheck, I\u2019m like, \u201cWhat is FICA, and why did it take half of my paycheck?\u201d Seemingly half of my paycheck. I worked five hours at 5,35 or 3,35 an hour, that\u2019s going to be $15. You\u2019re like, \u201cWhy is my paycheck $9?\u201d I was so excited to get my first paycheck. Then I would\u2019ve gladly opted out. But yeah, I think that the opt-out program will continue to experience the same level of success and progress that you just quoted at. What was that? 0%?<\/p>\n
Yes.<\/p>\n
I think it will continue the 0%. Because the very program is I\u2019m paying in so that current beneficiaries can pull out. So if I\u2019m not paying in, they can\u2019t pull out.<\/p>\n
That\u2019s it. And people call that a pyramid scheme. They call it a Ponzi scheme. Well, guess what? It\u2019s legal, and it\u2019s been working so far.<\/p>\n
It didn\u2019t just start yesterday, it\u2019s been around for a while. It does need some improvements. I think that it is slightly more complicated than just, \u201cHey, we should fix this.\u201d If it was easy to fix, it would\u2019ve been fixed. I think this is a hot button issue for both sides of the political aisle. Of course, they want to fix it because when you fix it, then people like you. When you\u2019re going to give them money in retirement, they\u2019re going to like you. They\u2019re going to vote for you. That\u2019s why politicians do things so they can get reelected. We\u2019re not talking politics. I\u2019m making a general statement. This is true on both sides of the aisle. They want to get reelected, so they\u2019re going to do things that make you happy, that reelect them. So if they could fix this easily, I think they would.<\/p>\n
Well, they made changes before. They made changes 40 years ago in 1983. When they made those changes, they changed some of the benefits. They made it an older age when you got the promises. They didn\u2019t change anything for people that were 40 and over. They said, \u201cHere\u2019s a change.\u201d Because this is a long-term projection. They look at 75-year projections. So when they make changes, of course the closer we get to the problems that are arising down the road, the more changes they\u2019ll have to make. But in the past they\u2019ve made changes. They\u2019ve given people plenty of time and room on there. I would just focus on the things you can control. That\u2019s my general suggestion to people with investing and different things. It\u2019s focus on what you can control. You can control how long you work. You can control when you take your Social Security. You can control educating yourself about Social Security and how it affects the surviving spouse, and educate yourself on what your true life expectancy is and how that actually applies and what are the odds that your decision works out. There\u2019s so much more that you can control with Social Security than what the politicians can even do to you with it.<\/p>\n
That sounds like a lot like what I tell my kids all the time, \u201cFocus on what you can control, not what you can\u2019t control.\u201d You can\u2019t control the fact that you have to contribute, so focus on what you can. I love it. Okay, Jeremy, is there anything else that we should know about Social Security?<\/p>\n
Let\u2019s see here. What does it take to know about Social Security? I would just reiterate the old fuddy-duddy name of old age survivor and disability insurance, because it is there to help you out when you\u2019re in your old age, it is there to help you out when you are a surviving spouse, and it\u2019s there as insurance. It\u2019s not an investment. It\u2019s not, \u201cHere\u2019s my internal rate of return.\u201d It is saying, \u201cIn case bad things happen, in case I live longer than I expected or my spouse lives longer than expected, in case inflation goes haywire, it is there to help you out with it.\u201d We want you to learn the math on Social Security. It\u2019s not going bankrupt to zero. There might be a pay cut. Learn the math on longevity. Chances are you\u2019re living longer than you expect. Chances are your spouse or surviving spouse is living longer than you expect. So now you\u2019ve learned some of the math, go out and do the math, see how it applies to you, and make those choices that give you the best amount coming from Social Security, not next month, but over your entire lifetime. This is a lifetime decision you get to make once, get it right the first time by learning the math, doing the math, and following the math.<\/p>\n
If I could just-<\/p>\n
Awesome.<\/p>\n
\u2026 jump on that. I\u2019d also like to let people know that you can find out more about your specific Social security benefits if you go to ssa.gov and then they have my Social Security tab on there. They no longer send out paper benefits\u2026 paper statements rather. And so, you can go there and play around with the numbers. The other thing that I want to let people know is, that coming shortfall that Jeremy mentioned about the 75% promised, that\u2019s anticipated to occur around 2034. The thing is, there are things that our government can do to avert that shortfall. So learning about some of those things that can be done and calling your senator and Congress people and letting them know, \u201cHey, I\u2019d really like you to do something to avert this shortfall, and here are some options.\u201d There\u2019s changes to the payroll tax is one option. There\u2019s changing the cost of living adjustment is another possibility, although that I think is going to be something we don\u2019t want to see happen. But there are several different ways that Congress can act if we make it clear that we as the beneficiaries of Social Security expect them to act and fulfill their current promises or adjust the promises so that people can know what to count on. I think that the powers in our hands, and it\u2019s really helpful to do that.<\/p>\n
Absolutely. Awesome. I really appreciate you both today. Jeremy, tell people where they can find more about you.<\/p>\n
Great. I\u2019m a retirement-focused financial advisor. I\u2019ve got a website, keilfp, K-E-I-L fp.com. But we love talking to people on our podcasts. It\u2019s the Retirement Revealed Podcast, so just go look us up there.<\/p>\n
We will include links to all of these in our show notes, which can be found at biggerpockets.com\/moneyshow344. Jeremy, thank you so much for your time today, and we\u2019ll talk to you soon.<\/p>\n
Thanks, Mindy. It\u2019s been a blast.<\/p>\n
That was Emily Guy Burkin and Jeremy Keil from Keil Financial Planning. Thank you so much for listening to this episode. I hope you learned as much as I did, which was pretty much everything I knew about Social Security was a great big fat lie. I am actually really excited that I was wrong about Social Security. I don\u2019t really like to be wrong, but I\u2019m glad I was wrong about this. It sounds like there will be funds available. I\u2019m actually a bit excited about the prospect of perhaps someday Congress actually doing something to alter Social Security and make it a little bit more robust for those who are counting on it. But it sounds like there will always be something around for us if we need it. From episode 344 of the BiggerPockets Money Podcast, thank you for listening. My name is Mindy Jensen signing off.<\/p>\n