Starting Social Security Early

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Share it. But most of all, thank you for listening and for choosing the Truth Podcast Network. Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now, let's get started with Finishing Well. So, welcome to Finishing Well with certified financial planner, Hans Scheil. And today's show, really new, we've never done this particular topic before, but I think you're going to love it, is taking Social Security early.

Like we always talk about delaying Social Security, but in today's show, we're going to give you some examples of when you might want to take your Social Security early before retirement age or full retirement age. You know, the idea is that there's no such thing as a cookie cutter approach, that everybody's situation is different. And so, we're going to give you examples of where this might work for people to take Social Security early. But we also want to talk about, you know, obviously there's a spiritual aspect. Hans and I like to talk about how this might work.

And so, when it comes to your life, like when you get up this morning, you know, some people, what they need to do today is a lot different than what somebody else needs to do today. And interestingly, you have access to somebody that really can help you out, that has an idea of what's going on. And that idea that Jesus gave us in John 15, right, is that idea of I am the vine and you are the branches, the branches, right? As long as you're connected to the vine, then you've got what you need in order to navigate things that you did not see.

I did not see that coming. Well, the good news is God always sees it coming. And He said, apart from Me, you can do nothing, but if you stay connected to Him, you're going to bear much fruit, right? And the idea of all of our lives is that they would be fruitful from a standpoint of, you know, we want to finish well, right?

That's the idea. And if you're not only obviously surviving, in other words, one of the biggest worries that everybody has in retirement is never running out of money, right? But we want to do so much more than not run out of money. We want to be fruitful in that people go, yeah, I see that guy over there is really, he looks delighted. He looks like he's enjoying his life.

You know, how do I get that? Well, that kind of life requires more than what I've got. I've got to stay connected to the vine. Or if you're sitting there trying to figure out how to live into retirement without running out of money, but even yet be fruitful, then, you know, it doesn't hurt to have a financial planner, somebody outside yourself who has seen enough of these things to know, wow, I saw that coming, you know, and because when people get in their 80s and 90s, right, Hans, that's when the rubber meets the road, so to speak, is whether or not your financial plan actually had merit. Well, yeah, when we were getting ready for the show this morning, we're talking about, look, a lot of these people that come to us, they would be fine for several years if they didn't come to us, if they just started making decisions, kind of ad hoc, what they thought was the best at the time, and they just kind of mutter along, and that's true for the two case studies that we're talking about today. Both of these people would be just fine probably all the way through their 70s. So what we're really talking about is the value of the advice that we give people is we're helping them prepare for the 80s and the 90s, whether that's one of them living on up into their 80s and 90s or both of them, either way is the number one thing that we hear from people and look at in studies is number one fear people have is running out of money, and that's what prevents people from using their money, from spending their money, and so it drives people to live this very close lifestyle well below their means, and that's not necessarily bad, but I just see it where people start to get a sense that they're gonna run out of money, and they overthink that, and then they spend nothing.

I mean, they live extremely close. Which isn't a very fruitful life, right? That isn't what God had intended for them was, right, to take advantage of the resources he's given them and to invest them well, right? Especially if they have retirement savings. I mean, anybody that's got money in a 401k or an IRA, they haven't paid taxes on it yet, and they've got a substantial amount of money, at least in their eyes, and that bulk of money, they're to be commended, and then we gotta sit down and we gotta look at what's it for, and with these two case studies today, there's no question for both of these people what's it for.

It's to supplement and to live off of, okay? But we have people who come to us who really don't need their retirement savings, and they just have it there. They know it hasn't been taxed. They don't wanna pay any tax on any piece of it, and so it just builds and builds and builds, and they haven't really defined what's it for. You get to decide what it's for, and if you don't make that decision, and you just let it build and build and build, you're creating a tax bomb. You're gonna be in a situation where you're gonna have accumulated this before tax money. You're gonna pass away, leave it to your kids, leave it to your spouse, but then it's ultimately gonna go to the kids, and then the kids can blow up a lifetime of work just simply trying to get at the money they just inherited, and they're gonna pay 40% of it in taxes. So what we're talking about today is two case studies of people that we recommended that they take their Social Security well short of 70, and that they at least take one of the checks well short of 70.

We do so many of the shows. If you listen to them, we're profiling people where we're gonna encourage them to delay and to live off the retirement savings, so we thought it'd be good to show a couple of case studies here where we recommended that you take it early, okay? Yeah, yeah, I'm excited because these are things we don't talk about very often. Okay, so we got Harry and Liz, and Harry is 66 and a half or close enough that we're gonna call him that, which is his full retirement age for Social Security, and Liz is 64, and Liz had already started her Social Security back at 62 because she's like, ah, it's so small, I'm not working, it'll be some extra money, and had they run into us a couple of years ago, we would have discouraged that because they really didn't need it then, and we would have let it build up, but we can't fix that, so she's two and a half years in, so we're gonna make that the best it can be, and so the real issue in taking it early is Harry, okay? So for Social Security, but let me tell you about Harry's situation. Harry has $620,000 in his 401k, and he's got $10,000 in savings, so you would look at that and say, well, that's a lot of money, but that $620,000, taxes has never been paid on it, and any dollar you take out of there is gonna require some income taxes, and then when we start drawing that down, we're all of a sudden, it's gonna be gone by the time Harry's 75, 80, depending on how quick we draw it down, and Harry came in to me, he'd listened to a lot of shows, he was ready to delay Social Security to 70, he just, he bought into what I'm teaching people, but for himself, so delay Social Security, and he wanted to find out about Roth conversions, because he knows he's got a tax problem, and we recommended something right down the opposite of what he asked for, and I told him, and the reason we did that is his income need is $7,000 a month, and that's after taxes, so if you take $7,000 a month, or their income need, because they're a couple, they're still making house payments, they're not huge, but they're house payments, you know, he's fact, he needs $7,000 a month, and then if you figure you gotta pay a grand a month in taxes, or somewhere there about, that's $8,000 a month, we start drawing that out of the $620,000, that's about $100,000 a year, their IRA is gonna be pretty well drained if he waits till 70, three and a half years to get Social Security, the lion's share of it's gonna be gone, so with that kind of an income need, we decided really, so that's what we're gonna need to talk about, is we're gonna need to talk to Harry about is if you wanna delay Social Security, we're gonna have to get a much smaller income need, or if you wanna stick with this $7,000 a month, we're gonna have to take Social Security now, okay, and so he's open to anything we can recommend, and so he did just that, so his Social Security's about $3,600 a month at full retirement, so this guy made a six figure income for a lot of years, airplane mechanic, but he's kind of the guy over everybody that's working a lot of overtime, and Liz's Social Security's $1,000 a month, because she took it, she'd been retired for a lot of years, she took it at 62, but you put those two things together, you got $4,600 a month, and were, you know, if they could live off $4,600 a month instead of seven grand, they would pay no taxes, and we could just defer on the 401k, and that's where a lot of people end up, but he doesn't wanna do that, I mean, he's got a house payment, and. Well, and there's, you know, while his health is good and whatever, and, you know, people wanna do stuff, and, you know, obviously that requires income, so that's an interesting, you know, just part of how you balance life, right? Because, you know, I'm kinda at that age myself, and I get it, you know, I don't wanna wait till I'm 80 some odd years old to take all of the harvest of what God's given me, right?

Because by then I won't be able to enjoy it at the level I can enjoy it now. BILL MOYERS Well, what we did for him is we turned this $620,000 that he has pre-tax money into, we showed him a plan and we got him on a path that the income from that is never gonna run out as long as either one of them, Harry or Liz, is alive, okay? And, but right off the bat, we gotta come up with 2,400 bucks a month, okay? And then you could say, well, if you could make the 2,400 bucks a month last forever, or as long as both of them are alive, you would have accomplished that, but we gotta think about a little bit about inflation, and we also gotta pay taxes. I mean, so the seven grand a month, remember, is a net number, so we gotta come up with 2,400 bucks a month worth of tax-free money, and then we gotta come up with enough to pay taxes on the whole thing. Fortunately for them, their tax bill with this plan, in the first few years here, is gonna be 2,000 bucks a year.

That's it on the federal tax bill, on a very small, well, actually, they're moving to Florida, so there's no state income tax. PAUL So I'm sure as you're listening, you're going, man, I guess I better stay connected to the vine, because there's a lot of math involved in how to make that long-term plan, and so we wanna make sure that you got the resources to do that. This show is brought to you by Cardinal Guide, cardinalguide.com, and at cardinalguide.com, you're gonna find all these resources of what we're talking about. It's got the Seven Worries tab, the Seven Worries of Retirement, where underneath each of those is a heading for all sorts of different things, like there's a YouTube show that they have on the very subject we're talking about today, which is Social Security, and so they did a YouTube on when you take your Social Security early, and that kind of thing, and the show notes are all there on the Seven Worries tab at cardinalguide.com, as well as Hans' book, The Complete Cardinal Guide for Planning for and Living in Retirement, and of course, how to get up with Hans and get connected to that particular vine if you need something outside yourself for these kind of plans. And so we just wanna make sure you know that as we're gonna go to a break, and when we come back, we will talk more on when to take Social Security, maybe earlier than 70, as we're talking about today.

Stay tuned. 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. Welcome back to Finishing Well with Certified Financial Planner, Hans Scheil, and today's show is when to take your Social Security early. In some cases, or you know, just not the cookie cutter approach, the same for everybody. We usually talk about people waiting until they're 70, but when should we take it earlier that's 70? And when is that advantageous?

And it's helpful to have something outside yourself, a resource. And so Hans, here's a couple cases where that didn't seem to make sense. Well, yeah. So this was pretty actually easy once we got over the taking of Social Security early and got them all clear with that. And the way we made up for the 2,400 bucks a month, or let's call it 2,500 a month to pay the taxes about 30 grand a year, is we just put him into a five-year payout structured annuity, which is just going to send him a check every month for about 2,500 bucks a month. And it being annuity, you know, that's forever, right? This is a five-year annuity. So it only costs us about short of 200 grand of the $620,000. You just transfer it to the insurance company. It's still in an IRA. And then they guarantee the payments for five years. So that's going to get them, it's going to get Harry to 71 and a half, and it's going to get Liz to almost 70. And we've only used up 180 grand of the 620.

We're just doing that right up front. It's all guaranteed. The interest rate inside of it's all guaranteed. It's just like their Social Security checks, and they're just getting checks, right? Then we calculated with another type of annuity, how what the income would be in five years or starting in the sixth year, that would produce an inflation adjusted 2,500 a month. So it's probably three grand a month that the other annuity is going to produce. And then once they start that three grand a month, that one will start when the other one runs out. And then once that one starts at three grand a month, it's going to go for the rest of both of their lives, regardless of how much money's in the account.

So if one or both of them lived at like 90, 95, or 100, that's going to be the best thing that they ever did. And it's not doesn't take the whole 400 grand to do this. That's left or the whole 420. It takes took about, I don't know, 200 and some thousand dollars that we put in there now and we just put it aside. And that guarantees for Liz and Harry that a check's going to start five years and one month from now for that, like three grand a month or something.

I'm just making the numbers simple. And then it also guarantees that as long as either one of them is living, that there's going to be a check coming. Right. The beautiful thing about an annuity is like their social security that as long as you are alive, that money is still going. And if right, they were both to pass away there, and they hadn't used all that money, so they passed away in their early 70s, right, there would still be some money left for their stuff. Oh, yeah, there'll be a lot of money left. Or you actually, if they passed away in their early 70s, or they're both gone, the whole principle of that will be paid out to their kids. If they passed away, the second one of them passed away at like 75, or, you know, a good bit of the principle would still be there.

But if the second one of them passes away, in their mid to late 80s, the money, there's not going to be anything for their heirs on that part of the deal. But keep in mind, we still held back just about 200 grand, that they're going to keep invested just like it was in the 401k, at least for now. And so because this guy also likes taking risk, and he likes earning money. And, you know, he was really freaking out because the 620 was really before the, you know, last year happened, it was probably like 800. So but he still wants part of this where he has upside, but my thinking is, by the time we get all this implemented, he may take that and put it in another kind of annuity, just that he just has no uncertainty in his.

So when you go back and you look at the contrast before we get this case study number two, you know, based on his own wisdom, if he leaned on his own understanding of what he was going to do, he's going to wait till he was 70 to start his social security would have drained out so much of that $600,000 in, you know, IRA that he'd saved, that he'd been in no position to have long term income to take him up into later parts of his retirement. But as a result of some really good planning and going to a resource outside of himself, you know, you guys put him on an overall plan that would keep him going and going and really have some exciting investment opportunities clear through to the end. So Well, I mean, we got him to seven grand a month, right after taxes. And we got him here. No uncertainty for the next five years.

Right? Okay, because he's getting his income from two sources. And then after the five years, there's no uncertainty of what that other fund is going to do, because that's, that's all guaranteed right up front. And the only uncertainty he's got is with that smallish amount relative to the 600. You know, it's, it's around a couple $100,000 of, of just cash or investments that we're going to manage for him in a, in a managed account. And as I said, we're going to do some Roth conversions with that. I mean, but Tom has plotted out the taxes, the whole thing.

So this is just got him what he wanted. And we got that by taking social security early. So let's jump on to the next case, which is Andy and Ruth.

Okay. Andy and Ruth. It's a case study now, is they are 65 and 62. And they both retired about a year ago. And, you know, between the two of them, they had 1.1 million in their IRAs or their 401ks. And then that would get brought over into an IRA. And neither one of them were taken social security.

So what we put out in the initial plan, right after they left their job, having 1.1 million is we're just going to delay social security. They had a lower income need. I mean, their income need is 4,700 a month.

So that's all they need. And they really are paying almost no taxes because you take 4,700 a month for a married couple, all taken out of an IRA. And it's short of 60 grand. It's like 55 grand. And then you take the standard deduction of almost 30 grand. You know, you got like 26,000 of taxable income and just go plug that into the tax rates.

It's just a very small amount of income taxes. And we were prepared to do that and delay social security. So in the study here, Andy turned 65, goes on Medicare because we also, they needed, you know, an Affordable Care Act plans to leave their group insurance because they retired under 65. But now Andy's able to get on Medicare.

And so, you know, we're doing all that. And we get him on Medicare. And we just kind of looked at how things had gone for a year on the 4,700 a month withdrawals. And we sat down and we started thinking, well, what would happen if Andy started his social security check now at 65 is give them almost half at 2,200 bucks a month of the 4,700 that they're needing to withdraw would just come from his social security check now. And so his is the smaller earnings record is she actually, Ruth had made more than Andy did consistently over a whole lifetime.

And Ruth is younger. So our thinking was since Andy's the smaller social security check and his is gonna go away at the first death of either one of them and the survivor's gonna live on with the larger check, which would be hers, we decided to take his early and at 65 at 2,200 a month. And then she's just now turning 62. So it's gonna be eight years before she's at the 70 year old check. And we're gonna make these withdrawals to make up the difference for their lifestyle. They're gonna pay very little in taxes. Their federal taxes are showing that Tom projected here of 643 bucks, starting the social security and then just pulling out the difference to make it up to 4,700 a month. So the biggest problem that they're gonna have is how are they gonna spend their money? And we've obviously gotten a lot of this money into something with guarantees out into the future. But once they get social security, they're gonna have more than enough to live. So we're gonna work over the next eight years a lot on Roth conversions of getting that 1.1 million, a good bit of it converted, little bits year by year by year, which will run up their tax bill, but it'll prepare them for a tax-free existence with two social security checks, 70 and beyond. So because, again, it's easy to lose me, the reason to start his early, because obviously they weren't worried in any way, shape, or form about running out of money, but advantageously, because his is a smaller check, right, that, for him to get that 2,200 a month is better than draining that 2,200 a month out of the RA?

Well, it is. And then secondly, his 2,200 a month, which would be more if we waited, has a limited time span to it, because whenever the first one of them dies, okay, his check is gonna go away, the 2,200 will go away, and the survivor will live off of her check, and her check is much larger. So if we're gonna start with people in this situation where we're thinking about starting social security, we start the smaller check. We leave the larger check to accumulate all the way up to 70. Because it eventually is the one that would pay out the most. But then the other obvious situation for them is that, were they to leave that money in a traditional IRA, right, that especially- Oh yeah, then they're gonna have a tax problem. So this strategy without the Roth conversions is probably not real smart long-term.

So as always, we've ran out of time before we ran out of show. So we wanna remind you that these resources are at cardinalguide.com, the Seven Worries tab again today, being social security, all sorts of information on that, show notes, et cetera. And of course, Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement.

But I think most importantly, just call him, right? Go to the website, you're gonna see how to get up with Hans there, cardinalguide.com. Thanks, Hans.

Thank you. 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 results. 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 Whale 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 Whale 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' 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' book, go to cardinalguide.com. If you have a question, comment, or suggestion for future shows, click on the Finishing Whale radio show on the website and send us a word. Once again, that's cardinalguide.com. Cardinalguide.com. This is the Truth Network.