Social Security FAQ with Eddie Holland

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Learn more at chministries.org slash faith buy. You have to be at least 62 to collect social security. Maybe because it takes that long to understand the program. Hi, I'm Rob West. Do you have questions about social security? Of course you do.

Who doesn't? Well, you don't want to miss today's program. Eddie Holland is back to answer more of your questions about social security. And then it's on to your calls at 800-525-7000.

That's 800-525-7000. This is faith and finance, biblical wisdom for your financial decisions. Well, our guest today is Eddie Holland, a senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. He's also a CPA, a certified financial planner, and a certified kingdom advisor. But he's also an expert on social security.

And not many folks can say that. Eddie, great to have you back with us. Thank you, Rob. It's a pleasure. So Eddie, we'll make this something of a social security FAQ or frequently asked questions program.

One we've gotten several times recently goes something like this. Can I claim my social security benefits when I'm 62 and then switch to spousal benefits when my spouse claims their retirement benefits a few years from now? Why don't we start there? Sure. And the short answer is yes, you can, Rob, as long as the spousal benefit is higher than your own. If your own benefit is higher than the spousal benefit, you will not be eligible to claim the spousal because you have to take the higher of the two. But in the case that you just spelled out, if the spousal benefit is higher than your own, then when your spouse starts to claim, you could potentially get an increase in benefit for whatever that spousal amount is. Yeah, okay. That's really helpful.

Now, sometimes it's the opposite, though, Eddie. And the question is, can I claim spousal benefits at 62 and then my own retirement benefits when I reach full retirement age? And as you said in the intro, Rob, this is where things get tricky. So if a person is claiming a spousal benefit, that means that his or her spouse has already started claiming a benefit. So, Rob, the way I like to explain Social Security is think of it as doors. You're only eligible to walk through your spousal door if your spouse has walked through that door first. So in your illustration, there's not really a way to claim only a spousal benefit and delay your own benefit. Social Security Administration forces you to take the higher of the two benefits. So if your own benefit is higher than a spousal, you cannot claim only a spousal.

You have to take your own. On the flip side, if your spousal is higher than your own benefit, but your spouse has not walked through his or her door first, you're not eligible to walk through that door as a spouse. It's only once the spouse walks through that you can walk through and claim a spousal benefit. So the short answer is, can I claim spousal benefits at 62 and then my own benefit when I reach full retirement age? No, you have to take the higher of the two benefits. Okay, now there is a scenario there where you can take one and let the other grow.

So let's be clear, what scenario is that? So really the only scenario where you're letting the benefit grow is regarding a survivor benefit. So a survivor benefit, you can take your own benefit or a survivor benefit off of a deceased spouse's record. If we're talking about your spouse still living and you want to draw your benefit or a spousal benefit, you're not really allowed to pick and choose the higher of the two unless your spouse has not walked through his door. So let's say we've got husband and wife. Husband has started drawing his benefit.

Wife only wants to draw a spousal and let her own grow. Because her husband has walked through his door first, she does not have the ability to pick and choose. She must take the higher of the two, which in this illustration would presumably be the spousal benefit. So she has to take the higher benefit. Okay, yeah, that's really helpful.

Well, Eddie, that clears some things up and again, this is why this gets confusing. We're going to continue to unpack these frequently asked questions after the break, but do you recommend, because this can be so confusing, that folks set an appointment with the Social Security Administration to sit down and review their situation? Or would an advisor be better suited to do that?

What do you recommend there? What I've found, Rob, is the advisor that understands Social Security benefits may be a little more helpful. I've actually attended or visited the Social Security office with several clients. I've found that Social Security agents are a little reluctant to give advice. They're happy to give information, but a lot of times that advice is what people are wanting, so an advisor may be a better option for them.

Okay, yeah, that's really helpful. Well, folks, Eddie Holland is here today. Eddie is the senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. He's also a Social Security expert. When we come back, we'll tackle a few more questions.

What about taxes when you're collecting Social Security and can you change your mind? That and more just around the corner. Stay with us. We are grateful for support from the Eventide Center for Faith and Investing. ECFI is an educational initiative of Eventide Asset Management that seeks to help Christians understand and practice biblically faithful investing. They do this through their podcast and online journal featuring articles from industry thought leaders and their course called Discover God's Story for Investing. More information is available at faithandinvesting.com. That's faithandinvesting.com.

You've got questions. We've got answers about Social Security today because joining me is my good friend, Eddie Holland. This is Faith in Finance.

Eddie is a senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. Now, Eddie, I want to go back to something we talked about before the break specifically related to spousal and survivor's benefits. Let's start with the survivor's benefits. This is essentially the one scenario where you can take one benefit and let the other continue to grow and delay all the way until age 70 and then switch to the higher amount.

Explain that again for us. That is correct, Rob. So survivor benefits, as you stated, is really the only known exception to the rule that you have to take the higher of the two based on Social Security law. So survivor benefits, you're eligible off of a deceased spouse's record as early as age 60. At any point between 60 and your full retirement age, you may start drawing a survivor benefit. Now, you would not want to delay survivor benefit past your full retirement age because a survivor benefit does not receive what's called a delayed retirement credit. Delayed retirement credit, most of your listeners probably know, is equal to eight percent per year from your full retirement age until age 70. Survivor benefits do not receive that.

So just as an illustration, say we have husband and wife. Husband passes away, has never drawn his Social Security benefit. Wife can start taking a survivor benefit as long as she qualifies. She's age appropriate. Let's say she's 61. She can start drawing a survivor benefit early prior to full retirement age.

She's subject to an early draw reduction. Then she can switch to her own benefit, possibly all the way out to age 70. Keep in mind that her own benefit receives those delayed retirement credits of eight percent per year. So in this illustration, she could take a survivor benefit at 61, draw that until age 70. At age 70, she could switch to her own, which has received those delayed retirement credits, and she would only really do that if her own benefit is more than the survivor benefit. Yes, and the distinction here is that the survivor benefit is the only one that allows that to continue to grow because of that delayed retirement credit because the spousal benefit requires that you take the higher of the two as soon as it's available, correct?

That is correct. So in the previous segment, we talked about doors. So in that illustration, you can only walk through a spousal door if your spouse has walked through that door first. Survivor benefits are different. You can walk through a survivor door without necessarily your spouse having walked through it. So you can pick and choose which door to go through as a survivor.

You do not have that luxury as a spouse. You have to take the higher of the two benefits if you're eligible for that benefit. Okay, very good.

That helps to clear that up. All right, let's talk taxes. Sometimes people think that at a certain age, they won't have to pay taxes anymore.

That would be nice, of course, but it's not true. So how are Social Security benefits taxed, Eddie? And I'll make a disclaimer first, Rob. Okay. We'll talk about federal taxes.

Many states do not tax Social Security benefits. All right. So the next section, we're talking federal taxes only, and it's going to depend on your combined income, which includes 50% of your Social Security benefit, plus your adjusted gross income, plus any tax exempt interest income that you may have.

Okay. So if you are a single taxpayer and your combined income is $25,000 or less, there's no federal tax owed on that Social Security benefit. Now that amount is 32,000 if you're a married filing joint taxpayer.

All right. Now, if you're over $25,000 as a single, but you're under $34,000, so if your combined income is between $25,000 and $34,000 per year, up to 50% of the Social Security benefits are subject to federal income tax. And then, and I'll mention, if you're married filing joint, that amount is $32,000 to $44,000 of combined income. Then if you're a single and your combined income is over $34,000, up to 85% of Social Security benefits are subject to federal tax. And that amount for a married filing joint taxpayer is over $44,000.

So it's a progressive scale, Rob. As your income increases, more of your Social Security benefits are taxed. Now, I will point out that just means they're taxed at your marginal rate. And one of the more growing financial topics over the last several years has been this conversation around Roth conversions. So it's taking money out of your IRA, paying tax on that amount, putting it into a Roth. The benefit of that is that the Roth grows tax-free for your lifetime, potentially a spouse's lifetime, and then for children's lifetimes. Now, the kids have to take it out over 10 years once they inherit it, but it's a pretty creative tax strategy. The reason I'm mentioning this when we're talking about Social Security benefits, if your combined income is in a lower range, but you convert money from an IRA to a Roth, that increases your combined income, it could make more of your Social Security benefits taxable. It essentially acts as if you're in a higher marginal tax rate. Several clients that we serve are in the 12% bracket, but even a $1 Roth conversion potentially exposes more of their Social Security benefits to tax, and it acts as if they're in the 22% marginal bracket. So it's very important to understand that a Roth conversion in conjunction with Social Security could result in a higher marginal bracket. Yeah, that's great advice. So be sure to work with your CPA and or advisor before you do that Roth conversion because there may be bigger implications there.

Now, Andy, another question we've gotten lately is about changing your mind. Can I stop my benefits? That person may have gotten a well-paying job suddenly and doesn't need the money.

How would that work? So if the person is younger than full retirement age and they are within the first 12 months of having submitted or drawn a benefit, they can withdraw that application. That's only available for somebody under full retirement age and within the first 12 months of drawing. Now, they'll need to keep in mind, Rob, that any application that they've withdrawn, any benefits that they've received up to that point, they will have to pay back.

So that will be something that they'll have to pay back at a future date. They can withdraw but only within the first 12 months younger than full retirement age. If they are past full retirement age, they can quote unquote pause a benefit. They can stop that benefit.

The reason they would do that is they would receive delayed retirement credits from that date that it was paused until they resume again all the way up to age 70. Very good. Eddie, just about a minute left. Let's finish with scammers. This is a big problem in this season of life. Someone asks, what should I do if I get a call that there's something wrong with my social security number? Kudos to you for addressing this, Rob.

This is a growing trend. Scammers may call, email, text, write, or even message on social media. They may pretend to be from an agency or an organization that you know or they're really trying to gain your trust. They're going to create urgency, make there appear to be a problem, and they're going to pressure you to act immediately, a lot of times with a very specific way to resolve the issue. What the listeners need to understand is if there is genuinely a problem with your social security benefit or your social security number, social security will mail a letter. Social security is not going to call or email.

They're going to mail, and then if you have additional questions, you can always set up an appointment with your local social security office. That's really helpful, Eddie. We covered a lot of ground today. We always appreciate your time, my friend. Thanks for stopping by. My pleasure, Rob. Thanks for having me. That was Eddie Holland, a senior private wealth advisor and partner of Blue Trust in Greenville, South Carolina. Your calls are next, 800-525-7000.

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That's chministries.org. Thanks for joining us today on Faith and Finance. You can call right now with lines open, any financial question in play today, 800-525-7000.

Lines are open right now, 800-525-7000. All right, let's round out the program today. We've got some great questions coming up.

We'll head out to Ohio and welcome Aaron to the broadcast. Go ahead, sir. Thanks for taking my call. So I have an LLC, Sole Proprietor LLC, and I was wanting to set up another LLC and you go online and there's so many people that want to tell you how to set it up. You should have a holding company. You should have a trust, a bug holding company.

There's so many different options out there. I didn't know what you would recommend, how I should go about structuring something like that. Yeah, what I would do is visit with a godly attorney who can just look at your situation. I'm not trying to put the question off, but I do think you need to understand what are your objectives in terms of protecting yourself from a liability standpoint, as well as the tax structure of the corporation to make sure that you have the structure that's right for you. I like the idea of an LLC. It's basically going to protect the assets of its owner from lawsuits and creditors concerned with the company's business debt. So it's kind of combining the characteristics of a corporation with those of a partnership or sole proprietorship. So while the limited liability feature is similar to that of a corporation, the availability of the pass through taxation to the members of the LLC is a feature of a partnership or a sole proprietorship rather than the LLC. So you've got kind of this dual function going on here or this combination of characteristics. I think that offers you some tax benefits because you could pay yourself a salary out of it, you could take distributions, everything passes through to you personally, but you've got this protection that's typically afforded through a corporation.

So the big idea of it makes a lot of sense. I think the question is getting the right structure, getting that formed legally, and then making sure you maintain that in terms of the annual requirements and filings so you're up to date and then having a good set of books that's separate from your personal finances so you can document business expenses and be in good standing before the IRS. All of that is really key and I think getting some professional counsel to help you with that is the best way to go. If you don't have anybody, Aaron, you could reach out to a Certified Kingdom Advisor there in Ohio and ask for referrals to either CPAs or attorneys that could help you put all this in place.

But hopefully that at least gives you a few things to think about. Yeah, you don't really have anybody that you could recommend me to. Would I just have this kind of figure that out myself? Yeah, what I would do is reach out to a Certified Kingdom Advisor there in Ohio. So anybody who has the designation on our website at faithfi.com could be able to refer you to a godly CPA and or attorney. And so that would be the place that I would go.

I really don't have a national resource for you. And you do want somebody locally anyway. So that would be my next step. We appreciate your call though, sir. God bless you and your business endeavors. Thanks for being on the program.

Let's go out to Virginia. Hi, Brian. Go ahead, sir. Thank you for your ministry. By the way, it's been very helpful to me. So I really appreciate that.

Well, thank you for saying that. So my question is this. I've recently sold a vehicle and bought another one and had a little bit of proceeds from that. And also had some money that I had saved up.

Well, here's my situation. So it's about $25,000. And I've got my emergency fund covered and everything else like that. I have bought another vehicle have a loan on that at four and three quarters percent for five years. And I also took money out of my thrift savings plan, my retirement account to purchase a home two years ago.

And the balance on that is roughly around 25,000. I got that in a very low interest rate, which I know I'm paying back to myself, but it's also not generating income because it's not in my retirement account currently. So my question is, what's your advice would be to where to put this extra money that I have currently? Okay. So beyond your emergency fund, you've been able to put some money aside, is that right? Correct.

Okay. What do you have roughly in that fund? The emergency fund I have, well, total including this money is about $45,000. Okay, so what portion of you kind of designated as emergency and then what's available to pay down debt? 15,000 is what I've got for my emergency fund and then the rest available to pay down debt. Okay, so about 30,000. And did you say you have two car loans or just one?

Just one. Okay, that's the 25,000 at four and three quarters? Yes. Okay. And then the other option is the 25,000 that you borrowed from the TSP, getting that back in there and letting it grow for the future. Correct. Or if I should invest it in the open market currently, just trying to figure that out. Yeah.

No, that makes sense. And how far off is retirement, Brian, just based on what you know today? At least five years. Okay.

At least five years. So how is that TSP invested? Do you know which funds you're in?

Currently, I'm partially in a life cycle fund and then the rest of it is in the large cap and then the small cap stock market. Okay. All right. Very good.

The one that follows the S&P 500 and then the one that follows smaller stocks. Yeah. Do you have kind of a, I mean, obviously both of these make sense. I love the idea of you being out of debt, paying off the car and now you could take that monthly payment and, you know, begin investing that or doing something with it. I also like the idea that we'd get that thrift savings money back in the thrift savings because now we've got more money working for you in a tax deferred environment, which it's not doing right now, you know, while it's out on a loan. I don't like the option of you, the third option of you investing in a taxable environment. If we're going to do anything, we want to get that money back in the thrift savings and get it working for us.

Do you have, you know, a conviction one way or the other? I mean, are you really kind of itching to be completely debt-free or could you go either way on this? I could go either way and I think that's why I'm so torn about it because, you know, I feel very blessed that I have this money and I don't think it's an accident that it's the amount that could pay off either loan.

So I would agree with you. I mean, I'm more inclined just because of the importance of these years of compounding for you and given that that interest rate is four and three quarters and not seven or eight or nine on the car, I'm more inclined for you to pay off the thrift savings, get that money back in your retirement plan and let that grow. And then just keep paying on the car and your scheduled payoff. And, you know, I know it's five years, but if you could throw an extra, you know, a hundred or two dollars, a hundred dollars at it, you know, when possible do it. But that would be my, probably my first preference.

But again, neither of these is a bad decision if you have a strong feeling one way or the other, but I think all things being equal, this is a pretty important time for you to continue to build wealth inside that tax deferred environment. That makes sense. Thanks. Sounds great. Okay, Brian, God bless you, bud. Thanks for calling today. Folks, we're so glad to have you along with us today. We covered a lot of ground, but always look forward to being invited into your stories and taking you back to God's word and helping you consider your financial decisions in light of sound biblical wisdom. I hope you have a great week. Let me say thanks to my team today. Certainly couldn't do this without them.

Jim Henry, Devin Patrick and Robert Youngblood handling our phones today. Here on Faith and Finance, we want to bring you God's wisdom for managing your financial decisions. You can learn more and listen to our broadcast archives when you head to faithfi.com. In the meantime, may the Lord bless you and we'll see you next time. Bye-bye. Faith and Finance is provided by Faith Buy and listeners like you.