Well, the question always comes up, when should I start Social Security? It might seem simple to you, but there's a lot that goes into this answer and a lot of factors that you have to weigh before deciding to turn on that benefit. Today, we're gonna break it down with Jake and John and tell you how they help their clients come to that decision. Welcome in. Glad to see you guys again with John and Jake of Rosewood Wealth Management.
We're talking a question that comes up all the time. I know you guys probably discuss this every single day with people you work with, especially newer clients. But that question of when should I start Social Security? I think a lot of people just want to turn it on right away.
Some want to wait to get the larger benefit.
Some, I guess, in between. But today we're going to try to sort that out and help people understand kind of what that thought process is and how to best get to that decision, correct? Inevitably, everyone wants to know when to take Social Security. And unfortunately, there's no magic solution.
Well, you know what? I take that back. If you can guarantee me that you're going to live a really long time. And your only goal is to get as much from Social Security as possible, then I do have a magic solution. It is wait until 70 as long as possible.
But of course that assumes you know when you're going to die And I don't know about you, but I haven't found that Magic 8 ball to answer that question yet. And so, what that results in is longevity is a factor. The benefit of Social Security versus other forms of income are a factor. Who's coming behind you, so to speak, such as a surviving spouse or heirs? And is their financial well-being a play here?
Is your goal to only have a maximized income from 70 forward? Or do you want to think about making sure you maximize your Social Security before age 70? All these factors need to come into it. And so I guess the big takeaway is since you don't know when you're going to die, neither do I, there's no magic solution. In reality, you have to base Social Security as one of the core bedrock items of your income plan.
And your income plan should drive a majority of the other planning decisions that you have in your overarching retirement plan.
So generally speaking, you want to start first and foremost with income. What do you want your retirement life cycle to look like? Then you want to follow that up with taxes. How do I mitigate taxes as you create that income? Then you look at investments.
How do I select the right investments to support the income creation that I need? Then you look at medical. What if unexpected expenses through medical and other curveballs of life come my way? How do I accommodate for that along with my regular predictable income? And finally, estate planning and legacy.
If there are extras, how am I taking care of my surviving spouse and children?
So, this framework through which we look at retirement has to be kept in mind when you're thinking about one of the first and pivotal decisions of income planning. John, I take away, you know, when you're thinking about Social Security, you know, other than that one solution, which is, you know, delay as long as possible if you think you're going to live a really long time and you only care about that, what other things or misnomers about Social Security have you heard about?
Well, so. On the same lines of waiting till 70 if you think you're going to live a long time. The other thing I would say is, if you have no other money. If you have nothing saved for retirement, Then it's an easy solution. You need to work as long as you can and start Social Security as late as possible.
The more money you have, the more complicated the question becomes because we're trying to make all of these pieces fit together. And so often, people are thinking about Social Security from the standpoint of: how do I maximize what I get out of the system? Which, you know, of course, the system is set up based on actuarial tables, right?
So the break-even age, no matter when you start it, the break-even age is going to be in your early 80s. If you start it at 62, you're going to get less. You get that for 20 years. Or if you start it at 70 and you got that for 12 years, you're going to get about the same amount of money. That's how the system is set up.
So don't overthink that because, like you said, you don't know how long you live. Again, if you have no money. And then you would lean on the side of, let me put it off as long as I possibly can, because I'm going to need that benefit to be as big as possible to make retirement of any sort work.
Now, what I would tell you is, most people are thinking about this purely from an income standpoint, not from a tax planning standpoint. And so often We make this decision based on somebody's tax plan. Not necessarily the income plan.
So, an example: we've had a number of clients who, let's say, retired at 65. But we did not start their Social Security at 65 because we wanted to spend a few years doing Roth conversions. and we wanted to be able to convert as much money as we possibly could over to Roth. to get their traditional IRA balance down.
Well, if we don't have Social Security. As part of the income equation, That then allows us to have more head room to create income by withdrawing from IRAs and or Converting IRAs to Roth. That's not going to work in every case because, for some folks, you wouldn't want to draw down that heavily on your IRA that early in retirement. But for other people who have quote unquote too much money in retirement relative to what they need for their income, that could be a great solution.
So that's where I'm saying. A lot of times it's driven by the tax question, not the income question. And almost nobody is thinking of it In those terms, when they first come visit, 100%. Most folks have this sort of like these blinders on, so to speak, where they're only looking just like taxes. Is how do I, people think, how do I get out as much, you know, get out of Uncle Sam screwing me over as much as possible?
They think, well, how do I get over on Uncle Sam as much as possible from collecting Social Security and looking at the timing thereof? When in reality, Social Security is one piece of your larger plan, as John mentioned, and tax considerations are a huge part of that. But there's a flip side too, which is the utility of your money.
So think about it in these terms. If Social Security is one of the ways With which you can guarantee yourself income in retirement. Assets cannot do that without buying a Social Security-like product, like a pension or an annuity. And so, to that end, if your assets are able to be this liquid pool of money from which you can withdraw here and there as you see fit, and Social Security is this guaranteed stream of income, then another way to think about it is: why don't you use these accounts, if you will, for what they're good at? Which is to say, Social Security is there for income.
And so maybe I activate it immediately upon retirement and I allow my assets to be deferred and continue to grow and have higher growth and therefore flexibility capacity.
Now, you might be thinking out there, especially the engineer types: whoa, whoa, whoa. I know that from 67 to age 70, Social Security grows at a clip of 7% to 8% per year. But keep in mind, that is a return of dollars. It's not a return on dollars. Meaning, that means your dollar per month increases if you deliver.
It from 67 to 70. But that doesn't mean you're getting a rate of return on a lump sum of money. It's not an asset, it's just an income stream that's getting bigger. Exactly right. And so don't conflate those two things.
And remember, back to the utility. This is what I have found: most folks think about: okay, if I can only activate Social Security and then when I die, it's gone. Whereas my assets can survive me. The most common scenario I see people who, particularly if they've saved well, is they actually think about taking Social Security earlier. And delay withdrawing from their assets.
Why? Because they look at it as, well, I'd rather take Social Security now and get a little bit less, get it now during my golden years when I'm young enough to enjoy it, but old enough to have saved to not work, and delay withdrawing from my assets so that those assets can survive me in the event I pass away early and be there as a safety net for my surviving spouse.
Now, there's no extreme answer that's a one-size-fits-all. But as you could tell, it's not just based on the actuarial table of if I live a really, really long time, which one's going to get the most dollars. Yeah, the other side of the coin from what I was talking about earlier with the. Putting it off so that we have headroom for conversions or drawing down IRAs. There are other people who may retire at 65 and they've already made up their mind.
I want to put my social security off until 70 because I want to get that bigger number. And then we look at the amount that we would have to withdraw from their investments to make their lifestyle work in the meantime. And we would just be dropping a hydrogen bomb on their liquid assets, which you don't want to obliterate your liquid assets just for the sole purpose. Of being able to put off Social Security.
So it's just another one of those variables that we have to consider. That's right. It's kind of like that idea of like being house rich and cash poor. You know, if you've got a million-dollar home, but you don't have enough money in the bank to make the mortgage payment, you know, you're cutting off your nose to spite your face. But you also probably shouldn't live in a $100,000 home and have a million dollars in the side and never want to pay off the mortgage because you don't want to tie up your assets.
It's a balancing act with all of these things, whether it be the taxes, the income, the utility of the money, the assets surviving you, whether or not you have a surviving spouse, if your goal with you and your spouse are to burn the house down and bounce the last check to the nursing home, or if you want to leave a bunch to a charity or kids. There's so many more pieces that kind of takes us back to you have to marry the decisions with Social Security. Your overarching retirement plan. You cannot make social security decisions on an island, or you are missing the forest for the trees.
Well, let me ask you then, too. I mean, obviously, you guys have covered a lot of the factors that go into this decision, but I know another one that's really become more prominent in recent years is the solvency of Social Security.
So, how much should you factor that into making this decision? Because I know a lot of people do think about that and say, Maybe I want to go a little bit earlier than maybe I would have otherwise because I'm afraid I'm not going to get these benefits. Yeah, I would not factor that into your decision at all. And we have had a lot of people that have said, yeah, we want to start it at 62. Before, so we at least get some money out of the system before it goes belly up.
This would be a completely separate. discussion that we could have someday about What it actually means when you hear that Social Security is in trouble. Personally, I think the solution is not that hard, and when they have to fix it, they will.
So, I'm just not worried about it specifically for the baby boomer generation. Like, they're just not going to mess with that boating block's benefits. It's just not going to happen.
So don't let those salacious headlines convince you to make a decision that you shouldn't. Otherwise, make. And just to briefly echo that, I totally agree. You know, the Social Security has been on the brink of insolvency before multiple times, and it's been fixed and addressed. A lot of folks don't realize that.
The other thing to keep in mind is that.
So if it is Insolvent, to what end do you plan for that? Entirely going defunct?
Well, the data doesn't support that. The data supports that 80% of the benefits would continue.
So, what target are you aiming for? And when you have an unknown variable to aim at, it becomes a lot more of an emotional decision than it is a logical plan-based decision. And so, Plan for the things that are within your control and hope for the best with the things that aren't in your control, but don't allow that to distract you. All right.
Well, it all comes down to planning, right? There's not one answer for any particular person. There's not one general, hey, this is best to start early, best to start late, whatever it is. It all starts with planning, right?
So you want to sit down and be able to go through your specific factors, your situation, your goals, right? And see the entire full financial picture and see how Social Security fits within your overall plan. That's the whole name of the game. And anything else, guys, to kind of wrap this conversation up? I know you guys have kind of hit on a lot of stuff here, but anything else you want to leave somebody with?
I think it's exactly what he said. Make sure you're making this decision as part of a plan. Not because you read an article or listened to a podcast or watched something on YouTube. No, you need a plan that fits your life and your needs and your desire for income. Let's base the decision on that.
Not the headlines. All right, very good.
Well, all the contact information is down in the show description so get in touch with Jake and John and begin that planning process for yourself if you're close to retirement. Thanks again for watching. Please subscribe if you haven't already. Leave a comment as well your thoughts on when you might claim Social Security. And we'll talk to you again soon.
Carolina Wealth Stewards doing business as Rosewood Wealth Management is a registered investment advisor in the state of North Carolina. The material presented is intended to be general information and should not be construed by any consumer as the rendering of personalized investment advice. Mm.
