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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, best-selling 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. Welcome to Finishing Well with certified financial planner Hans Scheil, and today, extra special, you get Tom with us as well. And so today's show is the cost of living increase for Social Security for 2023. We got some new announcements and all sorts of things we get to talk to you about, but I was thinking that, as I heard this this week, it's a quote from John Ortenberg talking about God, that it's pretty cool to say, you know, I can't, he can, so I think I'll let him. And how much, you know, we really consider our cost of living, you know, what are we going to do?
Inflation, blah, blah, blah. You know, we have all these things that are worrying us, and it's simply, we can't, he can, and so, you know, at the point in time we just go, hey, you know, it's like that, and there's a verse in the 119 Psalm I love, because King David obviously understood this completely, and he just cried out in verse 153, consider my affliction, Lord, and deliver me. I forget not your word.
In other words, God, you know all this stuff's going on, and you know I'm your guy. And so it's going to be, it's going to be okay, isn't it, Hans? It's going to be okay.
It is absolutely going to be okay. And I think what you're talking about is, as soon as you say the word social security to, in a group of people, it brings up all what's in the media, and what we do other shows on is that social security is far from secure. It's uncertain, and something bad's going to happen in 2035, and blah, blah, blah, blah, blah, blah, blah, so even something as sweet as this, where we're all getting an increase of our checks by 8.7%, we can figure out a way to spin this negative, and there's reason to spin it negative, because if there's anything that causes me some concern about the long-term stability of social security, it's rising benefit payments for everybody by 8.7%. I mean, that's just that, you know, because you're not going to be able to raise money coming into the system by that much that quick, so it's going to contribute a bit to the problem, but I'm with you.
God's in charge, and he's providing for this, and this is to help the aged or the elderly or the people that were fast coming, and you and me, I'm talking about, not Tom, but for widows and people, you know, just to provide a basic level of support, I think it's wonderful that they're increasing it, and they're not doing it because it's wonderful. This is all about politics as well, and we got an election, and this thing was announced a little early, and of course it was, and you don't hear any of them talking about the instability of the system now in election season because they don't want to be held accountable for it. They'll talk about that in like February and March. But it is, like you say, you know, I've got a dear friend, this widow, very limited income, and she's, oh, the grocery, Robbie, I can't afford, you know, and so this is really, really needed, and you see it as a wonderful thing, but also, I also see it as a wonderful thing that's going to get some of politicians' attention like you had talked about, Tom. Yeah, I mean, I think one of the things, and we did a show on this, I don't know, several months ago about the stability of Social Security, and we made the point that there is a problem out there that if they do nothing, there is a looming problem, and in the last report it was 2035, I think they projected the trust fund running out of money, and what we were just talking before the show is my speculation is that it's going to be a year like this. They have this big cost of living adjustment, which is going to be very helpful to people in Social Security because everything is going up pretty high. I mean, inflation is really high right now, and so giving a nice bump up in Social Security is going to be a huge help to them, but to John's point or Honda's point, this is going to put a strain, more of a strain on the Social Security trust fund, and it's going to be a year like this or maybe a couple years in a row where these numbers don't start looking bad that the politicians are going to wake up and realize they have to do something, and so, you know, time will tell whether that's right or how long it's going to take them to fix it.
We're of the opinion that they will fix it. They'll do something that will most likely affect people my age more so than Hans and Robbie's age. I don't see them changing benefits for people about or at an age where they could file for benefits. I think that would be a very hard pill to swallow, so, but yeah, I mean, I think it's going to be a year like this that's going to wake some people up to really have to do something with the system. Right, and one of the critical things we want to just make a statement early is, boy, don't let this affect taking your Social Security early or something because we're getting the increase now, guys.
You don't have to jump the gun, right? Yeah, I mean, we field this question a lot, and this is normally of people who went in with the plan of delaying Social Security, maybe past their full retirement age or they might be 65 thinking about taking it, and they see this, and I don't know that we stated it specifically, next year the Social Security is increasing by 8.7%, and that's for 2023, and so they see that number and they say, well, man, I'm going to go ahead and file for Social Security now so I can get this 8.7% increase. What they miss in that is everyone's benefit gets that 8.7% increase, even if you were not filed for benefits, so I was talking with, or we feel a lot of people ask this kind of question, is I'm delaying it. I know I get these delayed retirement credits, which what that is, is it increases your check past your full retirement age. If you delay it all the way till 70, every year it gets an 8% increase by delaying it, and so they knew they were getting that. They wanted to receive that, but they were saying, well, 8.7 is higher than 8, let me go ahead and file now and get the 8.7% increase.
What they're missing is they get both. If you're delaying Social Security past your full retirement age, you get that delayed retirement credits, which is an 8% increase, and you get the cost of living adjustment, which is 8.7, that's a total of 16.7% increase by waiting to file for benefits. I mean, that's a huge increase to their benefits, and so we want to make that point that you do not have to be receiving Social Security to get this 8.7 cost of living adjustment. Darrell Bock Yeah, and for me, that is completely applicable and huge, and really great news to some extent, especially since, you know, I know God's going to take care of the overall stuff as well, right?
Right, Hans? Hans Schulman Well, he is, and what he's doing right now is he's saying inflation is high, the numbers justify it, we're increasing Social Security 8.7%, and what that means is if you had a check of $1,000 a month this year, next year, you're going to get 1,087, and I guess we could just stop the show now, but we're going to just play commercials or something, but what we really want to do is we want to talk through different groups of people, like what does this really mean to you? I mean, we've talked about the people that are delaying Social Security, we've addressed them, they're not taking it, and we've talked about the people that are already getting it.
What about the people that are like 55? I mean, what's the effect, Tom, on somebody 55 years old that's been looking at their Social Security earnings, they're getting ready to do, they're planning their retirement date, how does this affect them? Tom Hanks Yeah, so this gets built into the formula that Social Security uses to calculate the benefits, and so their future check, they can't qualify yet for benefits, but that future check will increase by this, and so if you run a Social Security statement before the increase and after the increase, you should see that number go up because of this increase. So this is helpful to everybody, increasing everything. We talked about the potential downside to that, which is something they'll need to solve, but especially in times, and they have a formula they follow to determine how much they increased it, and so I think Hans, you're right, I think the timing of it is very, it's not coincidental, they released it earlier this year than maybe most, but I mean it's based off the inflation numbers, which no one can argue that those numbers are very high, and so the other point I want to make out for people who are on Social Security in the past, like last year for example, last year we got a 5.9% increase, which was the highest it's been in years, but Medicare premium went up, and so we'll often get this from clients of, well, they just take it away by the Medicare premium increasing, which mathematically that's not really accurate, but that's what they're feeling is, and this is not a Medicare show, but I do want to point out that next year they're actually decreasing the Medicare premium at the same time that they're increasing the Social Security check. The Medicare premium is not changing by a lot, it's going down by like $5 or something, but it's much better to go that way than the other way, and so people's net checks after the deductions, after everything, it's going to be a nice increase for people who are on Social Security currently.
It absolutely is. Now, let's look at, just down the sheet a little bit, is the maximum earnings that you pay Social Security on this year in 2022 is $147,000 of W-2 income, which doesn't cover a lot of the population. It does cover a fair amount of our clients because we have a lot of people coming into us that it means that at least one of them has had a high income. Now, what that really means is somebody made $200,000 this year, they're only paying Social Security taxes on $147,000, and then they're getting the benefits or the credits or earned at the maximum. I can see in your history, Robbie, that you earned a lot at the maximum years ago when it wasn't, just like me, when it wasn't anywhere near $147,000. So that number for next year is going from $147,000 to $160,200. So people are at the top end of the earning scale, and I'm talking about this person that's 55 years old that's listening to the show. I'm talking to you that you're going to be paying in more on more of your earnings if you have a high income. So that's a little bit of a compensation for the Social Security system.
And they've talked about raising that up to like $400,000 or doing all kinds of things, but just with inflation, it's going from $147,000 to $160,000. Right. And we got to go to a break. But as always, we want to mention the show is brought to you by CardinalGuide.com. And there you can obviously see how to contact both Hans and Tom, as well as get Hans' book, The Complete Cardinal Guide, the planning for and living in retirement. So we'll be right back with Lutz Moore on the cost of living increase for Social Security 2023.
We'll be right back. Hans and I would love to take our show on the road to your church, Sunday School Christian or Civic Group. 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, we're talking about the cost of living increase for 2023 and looking at it specifically for different folks and how this affects them. And so who's coming up next, Hans?
Yeah, so this is Tom here. And so I want to just finish up on the last section we talked about in the first half of the show was on, you know, these people who are higher earners and the limit is going up, the maximum taxable earnings is going up for 2023. And again, that's how much income you make and pay Social Security taxes on. And specifically, I want to talk to people who are self-employed and then more specifically, you know, an S-corp or some pass-through entity.
And so this is directed to them. But those people in that situation, they have a choice of how they pull money out of the business. They can pay it as a wage, which is then subject to their Social Security taxes up to that earnings, or they can pay it as a distribution from the company, which is not subject to those Social Security taxes. And so we've seen it a lot where CPAs, and they often get this advice from their CPAs, pay yourself as a distribution, not as a wage, to save on the Social Security taxes. And so when people see this limit increase, they might be enticed to not pay themselves the higher wage because they don't want to pay that extra tax. But that's pretty short-sighted because at the end of the day, what that tax, what that earning limit does is a part of the formula of how they calculate your future Social Security benefit. And so if you don't pay enough into the system, your Social Security check will be very low, which will then hurt you in retirement. And so one of the things for these people is I would encourage you, you know, Social Security tax is about the only one out there that I can think of. They actually get a return on your money. I mean, you put money in and they pay you, obviously in the future, but you get paid back from what you put into the system. Now there's no other tax that works that way.
And so, you know, I would, yeah, well, I was going to just say, Tom, I have a, sorry to interrupt. I have a relative actually very close relative who did that very thing. Right. And she chose to take all those distributions all those years rather than show any, you know, taxable income and thought she was being really smart, but unfortunately she didn't also save that money. And so now she's got this little bitty Social Security coming in as a result because she never paid any in. And unfortunately, especially if they're out there spending the money, you know, it is really short-sighted and leave you in a real lurch, right? When, when it comes to Social Security. Absolutely. I mean, I think one of the people will make the argument about Social Security.
Oh, I could do it better. I could save and invest it better and have more money, which mathematically might be true. But to your point, Robbie, that's not how people act. Most people don't act that way is if they have the money, a lot of times they spend it, they don't save it and invest it. And so the Social Security is nice. It's a backdrop. It provides a base level of income for people who maybe aren't inclined to save the difference there.
And so I'm not saying that everyone needs to follow this advice, but if you're in the situation where you have a choice there, at least think through that choice, at least know the consequences of the decision you're making and how that could affect your future self. That's awesome. Yeah.
Yeah. So the next point, the next change that they've made is we're going to talk about people that have taken their Social Security check before full retirement age, which is now fast approaching 67. So people have taken it at 62 or 63, 64, they're getting a check and then they've been allowed to make $19,560 from work income and still collect their full Social Security. So Social Security is going to let you make a little money from a job, but not a lot of money from a job and take your Social Security early. And if you exceed that threshold or that number, you're going to have to give some of your Social Security back. So now you've taken it early for a reduced amount for life.
And then because you make too much in other income, you're actually given that back some of that you took early. So that's not a good thing. And the number is $19,560 in 2022. That's increasing to $21,240 next year.
So that's good. You've got another couple thousand bucks that you can make on the side, but for you early takers of Social Security. Right. And then there's a, I was just going to say, and you've got to highlight it that from a monthly standpoint, you know, it was that if you're making over $1,630 a month, that's when you start into the having to give it back. But now that's going up to $1,770 a month, right?
Right. Which is kind of like a part time job, maybe approaching full time if it's at a low wage. But it, there's a lot of people in that situation, they got a sidekick, you know, maybe they retired, they needed to take their Social Security early, just to make the whole retirement thing work, but they don't have a lot of savings. So they get a job where they make, you know, 15, 18,000 a year. And they kind of balance that in the Social Security and they're, they're good, make too much. Now you're giving the Social Security back. It's not a, it's not a good thing.
I would say, you know, be careful if you're still working and you're under your full retirement age and you're thinking of filing Social Security, give us a call before you do that. I can't tell you how many times I've seen people, they don't even know about it. They do it. And it's really ends up, they end up not getting hardly any of their check. And the real bad situations is they don't know they've done anything wrong. Social Security doesn't know they've done anything wrong until the next year when they file their taxes. And then you get a letter from Social Security saying, Hey, we overpaid you benefits, you need to pay it back. Sometimes that can be quite a lot that they're asking for back. So that can be, you know, to our earlier point, they might have spent that they don't have the money.
It's a problem. So be careful if you're filing Social Security early and you're still working. And by early that doesn't mean earlier than 62. It means, it means earlier than your full retirement age, which is Hans talked about as fast at quote, you know, going to be 67 years old, right?
That's correct. I mean, I'm 1958 and I'm 66 and eight months. My wife's the year after that she's 66 and 10 months and 1960 and after is going to be 67. And so if you're taking your Social Security before that age, you fall under these earnings caps. And this is not earnings from investments.
This is earnings from a job or a small business. So, and I was going to add a little caveat to that the year you're reaching full retirement age, then which for me would be like next year and you can work against a higher threshold. So you're allowed 4,330 a month for every month leading up to your actual month that you reach full retirement age, or that's a total of 51,000 a year. That's going to 56,000 a year or 4,710.
So they've got some nuances to these rules and we're pretty familiar with them. So we can help you out if you're in a Social Security retirement decision. Now, next stop is we're just going to talk the average Social Security check in 2022. The average worker that's retired is $1,681 and that check with the 8.7% increase is going to go to $1,827. So about $140 a month for the average person. And we have people that get twice this in Social Security. And this is substantial.
And it's going to be welcomed by a lot of people. Now, that's bittersweet because inflation is what they've got to deal with every day. So kind of the last point that we wanted to talk about, we want to put this increase a little bit in a historical perspective. And when we do the YouTube video, we're going to put in a chart that shows the Social Security increase from 1975 right up until the current date, how much the COLA was every single year. And just looking at this chart, the first thing that jumps off the page is we have to go back to 1981 to find a larger increase than 8.7%. In 1981, it was 11.2%. And in 1980, just the year before it was 14.3%. And the year before that is 1979, it was 9.9%. That was the era of really high inflation like we're coming into now.
And that's why the Federal Reserve is really trying to nip it in the bud. But we have to go a long way back to see an 8.7% increase. Then if we just look back one year, in 2021, it was 5.9% and then last year, and now it's going to 8.7%. I'm going to let Tom put some numbers around that.
Yeah. And so one thing that we want to point out is that increase is compounded over time. So if you look over the last two years, you can't look at the 5.9%, add it to the 8.7%.
It doesn't quite work that way. I mean, it compounds over time. So over the past two years, if we do the compounding math there, it's really a 15.11%, just over a 15% increase over the last two years.
And then Hans was making the point, if we go back, if we look before 2021 and look back for the last, I don't know. It's 12 years. What was the math on that? It was 2009 to 2020. We averaged about 1.3% a year. I mean, we had a few years in there with zero.
So that's what we're coming off of. Just another example is, let's say somebody is 80 years old now. So they've been on Social Security for quite a while and for 12 of those early years, they've averaged 1.3% a year.
And then all of a sudden in their 79th year and their 80th year, they do 5.9 and 8.7. So this is fairly drastic and it's welcome to the Social Security recipients. It could cause some difficulties for the Social Security system in addition to the ones they already have, but I'm with Tom, I think it's going to facilitate them going down the path of fixing it. Right.
And if you're the one out there trying to pay gas expenses and milk, like it almost $5, I bought a gallon of milk the other day because my wife usually buys her groceries. I was like, what? And so you realize that it's desperately needed for those people who are on that fixed income, but also it's desperately needed for the, obviously the government to realize, whoop, whoop, whoop, we got a real situation that somebody's going to have to address on all the angles of it. But we know God's in control of it. Right, Tom?
Yeah. I mean, I think that that is an important piece to remember in all of the planning we do, right? Is that we can do, I mean, our job is planning, we do this for a living. There's only so much we can control, right? At the end of the day, we leave it up to God and we know that he's in control of all this. And I think that can remove some of the fear that we see a lot in our clients of just, they're just worried, which rightfully so.
But at the end of the day, we just need to trust that he's going to take care of us. And planning is clearly what we're hoping through the show that you'll see through this information to finish well. It's really helpful to have many counselors and we hope that you'll take this information and go, gee, you know, it'd be cool to actually take my situation and talk to Hans and Tom about it. And that's why this show is brought to you by Cardinal Guide, where you can just go to cardinalguide.com and see how to get in contact with Tom and Hans, get his book, The Complete Cardinal Guide to Planning for and Living in Retirement.
And again, there's nothing like sitting down and having a conversation with these guys really care about you, really, really understand the systems that we're talking about, Medicare, Social Security and those things we talk about on the show, you know, every week. Great show, guys. Appreciate so much. Thank you. Thank you.
And God bless. The opinions expressed by Hans Scheil and guests on this show are their own and do not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.
Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated or not guaranteed. Past performance cannot be used as an indicator to determine future result. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation.
Finishing well is designed to provide accurate and authoritative information with regard to the subject covered. Investment advisory services offered through Brookstone Capital Management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal Advisors are independent of each other. Insurance products and services are not offered through BCM, but are offered and sold through individually licensed and appointed agents. Cardinal Advisors is not affiliated with or endorsed by the Social Security Administration or any other government agency.
We hope you enjoyed finishing well. Brought to you by CardinalGuide.com. Visit CardinalGuide.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' bestselling 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' book, go to CardinalGuide.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 CardinalGuide.com. CardinalGuide.com. This is the Truth Network.
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