Social Security Do-Over

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This is the Truth Network. Welcome to Finishing Well, brought to you by cardinalguide.com, with certified financial planner, Hans Scheil, bestselling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in Finishing Well, including discussions on managing Social Security, Medicare, IRAs, long-term care, life insurance, investments, and taxes.

Now let's get started with Finishing Well. Finishing Well is a general discussion and education of the issues facing retirees. cardinalguide.com, Cardinal Advisors, and Hans Scheil CFP, sell insurance.

This show does not offer investment products or investment advice. Welcome to Finishing Well, with certified financial planner, Hans Scheil, and today's show is Social Security Do-Over, and it's kind of neat because as you hear this episode today, in fact it's really neat, you're going to hear it's sort of the story of a couple and how they lined up with Social Security, what happened in their situation, and it brought to mind, in my mind, you know, Acts 1 to 8, it says you're going to receive power when the Holy Spirit has come upon you, and you shall be my witnesses in both Jerusalem and in Judea and Samaria and as far as the remotest parts of the earth, and the point is that it's the power of story, right? Especially if that story is how God, how Jesus came into your life. When you share what he did in your life, you know, that's the most powerful thing we have, because you're going to receive power from the Holy Spirit. It says right here, when you are a witness to what God did for you, and I see this all the time as I have an opportunity to preach, a lot of times people never remember what I was teaching on, but they'll almost always remember my stories, especially if the story was where Jesus was the hero, and so we're hoping as you listen to this story about Social Security today, that'll impact you with being a good stewardship position to finish well, so Hans? Well, yeah, and this is a good story.

I mean, these people are just neat people. He's from South Carolina, and that's about all I'm going to tell you about him, but she's from Florida. They met in Florida, so he took off to Florida, or maybe he lived down there when he was 18 years old. She's working at this construction company at 22 years old. She's like the office manager or the lady inside, and he applies for a job there, and maybe he was 17, but I think he was 18, because the whole time I met these people is just he's four years younger than her, and I met her first.

It took me a good while to meet him, and so just in learning and meeting these people, I finally just asked them, okay, so how did you two get together? He applied at the construction company, and he lied about his age, which he had to, because they didn't hire people his age, and then he ended up falling in love with the lady that interviewed him or whatever, and some point thereafter they got married. She never really worked much. That's why her Social Security check starting at turning 65 was $336.50 a month, and she figured like let's just go ahead and start the check anyhow, because it's so small. I mean what do I got to lose, and it'll pay my part B expenses, and she was she was born like in 19.

We met her, and I wasn't really the one that met her. One of my people here was, and you know they're just kind of marching along, but somewhere she pops up this 401k that has $940,000 in it, okay, and one of my people brings a statement says, hey you want to talk to these people. They've got this 401k, and they got a lot of questions, and blah, blah, blah, blah, blah, so I get on the phone with her, and the first question that I've got after I talked to her for a while, how in the world do you have $940,000 in a 401k, because he is a, I guess he's not a construction worker, he's a landscaper, and now he was driving a lumber truck around at 61 or whatever, and so I'm just kind of get the story backwards, and as it turned out, some guy down in Florida, he was doing the landscaping work, or met this guy that has this huge estate, must be a billionaire kind of a guy, or multi-millionaire. He's got a big estate in Florida, and he ends up hiring Theo to be his landscaper, and then he had a crew, and all that kind of, he brought him as an employee, he started a 401k for him, and then he moved him up to New York to take care of his New York estate, and all the landscaping, and so he kind of went back and forth, and they started this 401k, and that's how he got the money in there, and then what she did is about five years ago, she started investing it real aggressively, absolutely not knowing what she's doing, and the two of them have just been scared to death, knowing and watching it go up and down, but they're just, it's almost like they're playing the lottery or something, and her timing couldn't have been any better, so I'll let you respond a little bit to this point, so it's not just me giving a model. So one of the neat things is that Cardinal has these videos at Cardinal Advisors on their YouTube page, and in the video, Hans, I think it was critical that she was born in 1956, am I right, and he was born in 1960?

Correct. And so she was literally, you know, just turning 65 here at that point in time, but he yet wasn't at the point where he could get into Social Security, right? Correct, and still working, making about $30,000 a year. They're kind of living off of that because they don't have any debt.

They move back to the farm, and he's just miserable in his job, and even when I was talking to him the first time, he's down there in South Carolina in the woods somewhere, and then he's coming in and out of his cell phone and had to pull over. But anyhow, so they're just marching along, and so all I know about these folks is they got a $336.50 a month Social Security check, and her net check was about 180 bucks because they were taking out her Part B for $170 a month, and then they got his $30,000 income, and then they got $940,000 in an IRA, and they're just panicking about the market because it had been as high as like $950,000, $960,000. It had gone down to like $910,000, and then it was back at $940,000, and he's just had it with his stuff because she's the one doing the investing, and she really didn't know much about what she was doing, but her timing could not have been more perfect. And so the first thing I did for these folks is once I talked about a plan, I just went over that briefly, and I said, let's get the money out of the 401k, and let's get it rolled over to a plan that I can manage. Let's get it over to TD Ameritrade, and let's do the exit because he hadn't worked for those people for a long time. So we get all that started because they did have the option of going in and just turning it all to cash inside of the 401k. I mean, if they really wanted to fix it and still wait a while to decide what they're going to do, they could have done that, but anyhow, so we got the money rolled over all in cash. We got it over at TD Ameritrade, and they had a big sigh of relief.

And then, you know, we went to work and we constructed this plan, and I'll get into the plan in a little bit. You know, when I was looking at Social Security, I said he was about a year and two or three months away from Social Security because he was 60 and eight months, so he wouldn't be 62 until October of 2022, which is coming right up right now. She had already been on Social Security just for a few months because she was on Medicare.

He was paying for Obamacare. I mean, these weren't very happy people, and he would just as soon retire tomorrow if he could, and he kind of threw that out there as a joke. And they also threw some of their theories. They were just thinking about cashing the whole thing in, paying the taxes. They knew they'd only have about 600 grand left, and they thought, well, we'll just stick that 600 grand in the bank, and we'll start living off of that.

I thought, well, that's not a very good idea, and they agreed. So what the video is really about today and the show is about is we're trying to get them the best possible Social Security check between the couple. And so as it worked out, she did herself harm by collecting her 336.50 early because at 64 and a half, because if she would wait until 66 and six months, which she will be in October of this year, she will be entitled to half, as a spouse, half of his Social Security and half of his amount at full retirement. Even though he's going to take it at 62, her 50% is calculated based upon what his Social Security would be when he's actually 67. So it's a little bit complicated, but the long and the short of it is I just told him, I said, look, by the time I get done with the financial plan, you can go ahead and retire right now.

You can go in and tell him this afternoon, if you'd like, that you've given your two-week notice because you've got enough money that we're going to just make withdrawals from now till Social Security, which at the time was about a year and two or three months. And then when we get to Social Security, we're going to have between the two of you about $3,000 a month, or $3,100, $3,200 a month, and they only need $5,000 a month to live and live well. And I said, then we're going to do withdrawals of $1,800 a month somehow out of the $940,000.

I mean, if all my cases were this easy, you know, I guess I wouldn't have high blood pressure. So what we ended up doing, where we did nothing other than the Social Security, we had to do a do-over because she was within her first year. So we had to pay the $336.50 times like six months.

We had to pay that back, file an application and ask them if we can do that, pay it back. They had plenty of savings to do that. And so we got that paid back. And then, you know, we lived off of the money, and that's all going fine.

And then next month, I'm going to send them in to him to apply, and then her to apply for the spousal's outfit. And then we're going to lower their deductions from their account, significantly lower them, because they don't need that much to make up the difference to $5,000 a month. And then the kicker is they're going to pay almost no income taxes because the Social Security isn't taxed in and of itself, $3,200 a month, $3,100 a month, that's tax-free unless you have a high other income, and their other income are just going to be the withdrawals from the IRA. So they're going to check all the boxes. They're going to pay almost no taxes. Darrell Bock Yeah, and so it's kind of critical during that first year, if you've selected Social Security, the whole redo idea, and we're going to get a lot into that in just a minute.

But we got to go to a break. Before that, I want to remind you that all this information is at cardinalguide.com, as well as sans' book, The Complete Cardinal Guide to Planning for and Living in Retirement. And again, the video on the same study is at Cardinal Advisors on their YouTube page, a very popular YouTube page.

So we're going to be right back with more on Social Security do-over. Hans and I would love to take our show on the road to your church, Sunday school, Christian, or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions, veterans aid and attendance, IRAs, Social Security, Medicare, and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian, or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. Welcome back to Finishing Well with certified financial planner Hans Scheil and today's show, Social Security Redo. And when we left our heroes, we were in the middle of that redo, Hans. We have the husband who's four years younger and he's a higher earner filing at 62 and taking a lesser benefit so that Sue, who is at full retirement because she's four years older, actually four and a half years older, so she's paying back, or $336.50, to Social Security and you've got to file an application before you just send them the money. And she's now going to get about a $1200 check, which is half of his full retirement benefit, and then his age 62 benefit is like $1800 and something. So just a little bit of Social Security planning, and this is going to be at least half of their income.

Actually, about 60% of their income, and these people were fortunate that they had a $940,000 401k. So what I did for them is I divided the 940 grant into three buckets. So bucket number one is we stuck $300,000 in an account which was invested, similar to the way it was in the 401k, that you can lose money, you can gain money, you know, we think they're going to gain money, and it's from that account that they're living out of that we're making the monthly deductions this year of five grand a month, and have been for about a year. Then the second bucket, we put $300,000 in a growth annuity. So it's not designed for income, it's designed for growth, and so we put $300,000 in safety. So you can't lose any money in that second bucket.

And whenever you get credited with gains, which they've already been credited with gains once, and you can't even lose the gains. So that's once a year, you get an index credit, and then that thing just grows and grows and grows, or it stays even in a bad year. And then that money sits there, just available to them for a number of purposes, but it's real safe. And then the third bucket is the future income bucket. And so what that is, we put $340,000 in an annuity that's designed to start an income in the future. And without getting into too much detail, this annuity after six years, they can just live off of the income from the third bucket, plus their Social Security is going to meet their income needs. And both Social Security and the annuity payment are guaranteed to last as long as they live. So it's really that third bucket that provided their security with income that they can never run out of money.

Okay? And so when we turn the income off, turn the income on in that third bucket, that's when we'll turn the income off from bucket number one. So we'll stop making withdrawals from that first bucket. And they've lost a little money on that first bucket because of what the market's done this year.

But they haven't lost as much as they would have lost, because we have it very conservative, but it still had losses. And they'll earn that back over time, and they're not in the least bit worried about it, because they know they got these other two buckets. Darrell Bock Yeah, that annuity, that last annuity, is kind of like Social Security itself, right?

That it just keeps paying and paying and paying. David Morgan Yeah, I mean, it's guaranteed, like in the example that we had for them, it's like 20-some thousand, like $26,000 a year. It's guaranteed, that amount, after six years, we already made it through one of them. So five years from now, they will have the option of saying, flip the switch, start sending me a check for like $2,200 a month, or something like that. Once they flip the switch, those checks are going to keep coming, as long as just one of them's alive. So he could pass away in his 70s, she could live into her 90s, until she lives there last month, she's going to get that check every month. So it is like Social Security. Where it's different than Social Security is it doesn't have inflation on it. So that is a concern. And over time, they're going to be adjusting Social Security up, but that's not going to adjust up. And that's why we have the other two buckets.

Darrell Bock Right, right. And the interesting thing to me in this study is, you usually don't suggest people take their Social Security early, right? And so it just shows how individual situations are so radically different. David Morgan The key to the income strategy, for the 940,000 is the more money you take out early, like right now, if we had to keep taking out five grand a month, for life, if we didn't have Social Security, we would bankrupt this 940 grand. I mean, at some point, and then if we had market losses, and I mean, that's not a good strategy is to start pulling money out of your IRA, hoping for the best. So we needed the Social Security payment, and we needed a significant payment to reduce the withdrawals from the investment account.

Okay. And a year of those is no big deal. But 10 years or 12 years would be lethal to that thing. So that's the reason we took his early years, because we needed that 1800 bucks a month on him to reduce our withdrawals. And then the real reason we have him applying at 62, because he's four years younger, is she can't get the spousal benefit until he applies. And then her spousal benefit is inflated because she's a full retirement. So it's a little bit complicated, but we needed that. Once that started, that's what enabled me to tell him, go in and retire.

You're done driving that truck. He was just, he lay both of them. They were just thrilled. They're planning vacations and all kind of stuff.

Yeah. And the neat thing when I, you know, when you sit there and think about it, what a wonderful place to be, you know, based on the way God blessed them, when he was a good landscaper for this man. And he set him up on a brilliant strategy to be investing this money into, you know, their 401k.

And then, you know, interestingly, the Lord sent them to you right about the time the market would have just, you know, they'd made all that money in the market, but then all of a sudden, you know, things were looking tough. And now we got it in these three buckets of money. And as you think about it, they not only have the future income and then they have the money coming out of bucket number one, but then you never said a word about what happens to bucket number two. And that's an annuity that just keeps growing and growing and growing. And that's even more security, right?

Yeah. And we can pull out 10% of that one any year we want. And after 10 years, there's no more surrender penalties on that. You can just pull out any amount you want anytime. Now, granted, you're going to have to pay taxes on that.

So I don't, you know, I don't like big withdrawals just out of nowhere. And so with that being said, we have kind of a secondary plan, where we're going to look at taxes each year. And we're going to be taking some money out of bucket number one and bucket number two, in addition to our other withdrawals and doing a Roth conversion, so that they get a pot of money. But I didn't get into all that on the video, because, and I didn't even explain that in real depth to them, because it's just too, these people are just, they're just happy, and they're not worried anymore.

And they're just riding around on his motorcycle. And so, you know, to go back to the, to the idea of social security redo, like that, that's something that really is why it would be really good for people to contact you before they decide to take their social security, right? Absolutely. I mean, with the Social Security redo, we've done a number of these, because we get a lot of people coming into us turning 65. For obvious reasons, we're big in the Medicare business. And some of them have started their social security, and sometimes on the spouse. Just because for the same reason she did, oh, it's not much anyhow, might as well just take it. And then people do that kind of stuff when they don't know what they're doing. And then they come in and they say, quiet, I wish I'd have met you a year ago. Well, hopefully it was less than a year ago that you wish you did your social security, because we can do a do over.

Right. But then you just got to have the money to pay it all back, whatever it is you took, you know, and then you have to hook, you know, obviously, is part of that equation. But again, I, you know, the, the cookie cutter approach is when it comes to picking out when you're going to do your social security just isn't the plan, right?

No, I mean, it's just, you know, it kind of goes into the thing, don't try this at home, you know, contact a professional. And it's just, you know, this checks a lot of boxes this show today. I mean, we're talking about Social Security, we're talking about investments, we're talking about IRAs, we're talking about taxes, we could get even into estate planning, because they have some concern of some of this money's going to be left when the second one dies, and they want that to go to their kids. So this, this thing checks a lot of boxes, and they're real happy that they found me. And, you know, how would you like to be me in this situation?

It's just wonderful. I mean, these people think that I'm a genius. And it's really this was one of the simpler cases that I had. Yeah, but actually, as you talk about them, I was thinking, you know, that's where the third bucket of money is kind of ends up being, you know, their estate for their kids. And so making that Roth conversion that you're talking about really will end up being another part of why they were blessed to come see you from my standpoint, even the kids are going to feel that way. Yeah, and I don't think they're even going to spend the five grand a month. I mean, we're just getting them going on that.

And we're going to see how things go for a few years. But yeah, and it's not going to drive much more taxes to take a certain amount and just pay the taxes and do a Roth conversion. And we have so much flexibility in bucket number one and bucket number two, to do the conversion.

That's great. Yeah, there's a whole idea of buckets of money. It, you know, I love that, that whole concept. We've got some other videos and other podcast shows that we've done along those lines.

But as always, we've run out of time before we ran out of show. So when I remind you that this show is brought to you by Cardinal guide, cardinal guide.com, where you're going to find a website that has all these worries that people might have is going into retirement. And of course, all those are connected to Hans's book, the complete cardinal guide to planning for and living in retirement, which again, is easy to access it all sorts of different ways, but these use ways, just contact Hans at his website, cardinal guide.com. And again, their YouTube channel is cardinal advisors.com. So again, when it comes to these things, you know, wow, it's just so much easier from my standpoint, you know, pick up the phone and give them a call and, and, and you'll feel a whole lot better about where you're headed. So thanks, Hans.

Yeah. Thank you. Finishing well is a general discussion and education of the issues facing retirees, cardinal guide.com, cardinal advisors, and Han Shile, CFP, sell insurance. This show does not offer investment products or investment advice. We hope you enjoyed finishing well brought to you by cardinal guide.com. Visit cardinal guide.com for free downloads of this show or previous shows on topics such as social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes, as well as Hans best-selling book, the complete cardinal guide to planning for and living in retirement and the workbook. Once again, for dozens of free resources, past shows, or to get Hans's book, go to cardinal guide.com. If you have a question, comment, or suggestion for future shows, click on the finishing well radio show on the website and send us a word. Once again, that's cardinal guide.com, cardinal guide.com. This is the truth network.