How can your employees maximize the benefits of social security and use it to its full advantages?
Last year, the Obama administration made some major cuts to social security. Let me be clear—the social security trust fund has no money in it. It’s a ponzi scheme. Some people pay in, but far more people pay out. Every administration for the last 25 years has tried cutting off various loopholes and raising taxes to shore up the system, but it just hasn’t happened. The Obama administration eliminated some of those loopholes that would’ve allowed you or your spouse to maximize this benefit. And today, those are all gone.
The good news, however, is that they’ve made it easier for you and your employees to calculate your benefits. What do you and your employees need to know?
First of all, you should go to the social security website www.ssa.gov, log in, enter your personal information, create an ID, and generate your social security report.Once you do that, the report is going to tell you what you’re going to get for income at age 62, what you’re going to get at 66, and what you’ll get if you wait until 70, which is the age that guarantees the largest benefit.
When should you take your social security? That depends on a lot of factors, primarily the state of your health, whether or not you like working, and whether or not you have other savings or investments in play.
As an example, I’ll tell you about of a client of mine, Jim, who was facing the same scenario. Jim retired two years ago, and we set up a strategy for him to determine when he should take his social security and how he should spend down his other assets. Jim has money in cash, money in a Roth IRA, and money in his 401(k). Not only that, but his retired wife is receiving a monthly pension and taking her own social security.
Jim is 63 years old now. The first strategy I shared with him was, once he retired, to live on as much money that’s already been taxed so that he could live tax-free. Jim spends down his cash first and paying absolutely nothing in taxes. When he turns 66 and a half, he’s going to start taking his social security. From there until age 70 and a half, he’s going to pay nothing in taxes because he’s living off his cash (which he’s already paid taxes on), his social security payment will be tax free, and he has money in his Roth IRA which he can draw down and not pay any tax on. At age 70 and a half, he’s going to have to start taking money out of his 401(k) and his IRAs, but he’s going to take out his minimum distribution, and by doing that, he’ll pay as little in tax as possible.
Some of you might be saying, “Charlie, I don’t want to wait until I’m 66 and a half or 70 to collect my social security. I had a father who worked his whole life, stop working, died the next month, and then never collect a dime from social security.”
That’s an important consideration. Just bear in mind, if you start taking social security at 62, and you’re still working, you’re going to pay taxes on your social security benefit. Basically, for every dollar you earn, you’re going to pay 30%, 40%, or even 50% of tax money on that money while you’re working.
However, I know there are still a lot of people who want to get their money as soon as possible. What’s the best solution for them? Again, it depends on how much you have in savings, what you have in your 401(k), how much you have in a Roth account, and other factors. Do you have a history of health and longevity in your family? Psychologically, can you wait to take your social security benefit? Every year that you wait, you’re going to earn an 8% return on that benefit. In other words, that monthly income is going to grow by 8%. That’s a guaranteed return.
Now, I know there are also some of you out there saying there’s no money in the social security system and wondering what happens if they take it away. If you’re 55 or older, you can count on social security to be there.If you’re 50 or under, depending on how much money you do have at retirement some day, I think they’re going to means test social security. That means, if you make too much income from your investments, you’re not going to receive any of your social security or a reduced benefit.
Trust me when I say that this is how it’s going to have to happen. As it is now, there are too few people paying into a system and too many taking out of it. There hasn’t been any president yet that has had enough political clout to take on social security, and more specifically, to take on congress.
So, either take it at 62, take it at 66 and a half, or wait until 70 to get the largest benefit.Make sure you have your employees go online and check their social security statement and verify that they’ve received all their credits for their income.
If you’d like to schedule a meeting for your employees where we can help them analyze their social security and their options, we’d be delighted to do so. All you have to do is send me an email and we’d be happy to set up an appointment. Stay tuned for my next video, where I will cover some strategies you can use at no cost to help your employees create that paycheck for life and be even more successful than they are today.