Social Security Payback

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This is the Truth Network. Welcome to Finishing Wealth, brought to you by cardinalguide.com, with certified financial planner, Hans Schile, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Wealth, we'll examine both biblical and practical knowledge to assist families in finishing wealth, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Wealth. So welcome to Finishing Wealth with certified financial planner today, Tom Griffith, as Hans is a little bit under the weather, but we're so glad to have you with us, Tom. And so today's topic is social security payback.

Whoa, payback doesn't sound like anything fun. So we're hoping that you can get some understanding along these lines today, but I thought I'd give an example of how God gives us understanding sometimes. As I was praying this morning, I was studying the Bible as I love to do, and I was studying the whole idea in Genesis 2 where God is describing Eden to some extent, and there was this mist that comes up from the ground. And I was really diving into the imagery of that mist and trying to understand it, and I couldn't understand it, and so is my practice. I like to ask God, so help me out here. I don't understand. Help me understand. And He says to me with words that I don't think I'll ever forget.

I wrote them down because I think they're this good. He said, Robbie, you really can't understand me. You have to experience me. And I thought, wow, as I have processed that all morning, I thought about this topic that we have today of social security payback is that I've talked about it now with Hans for probably close to three years now, but I've never experienced it. And it's kind of like when you're reading through those instructions on how to put together those shells that you bought that looked so easy to put together, but then you realize you had the piece on upside down after you put it together, and then all of a sudden the click came on.

Oh, now I understand because you've experienced it. Well, so much of this when it comes to social security and when to take it and what the best ideas are, they come from experience. And so how amazing that we have Hans and Tom who have experienced this so many different ways at so many different angles. Not only do they know all the rules, but they've experienced it in the application of it. And so I find this stuff really, really helpful in all sorts of different ways of life. So Tom, let's jump in.

Yeah, no, I think that's a great insight. And the goal I think today is to have the listeners learn from the experiences that we've seen to try to prevent some silly mistakes that can be made around social security. And so I think one of the big things we do in our practice is really giving recommendations of when to take social security.

This is one of the biggest decisions that you're going to make when you're facing retirement. And if you get it wrong, it can be very costly. And so that's what we want to talk about today is like where can there be mistakes made? What are some rules that you haven't heard about? And if you mess up the rules, can you fix it? You know what that kind of looks like.

So let's just jump in and sort of define a couple things. And one of the things that's very important to understand is what your full retirement age is. If you don't know it, it's listed on your social security statement.

You can go pull it up and look it there. I can tell you it's going to be somewhere between, you know, people now, it's going to be somewhere between 66 and 67. If you were born in the 1950s, 55 to 59, it's 66 and so many months.

Anyone born after 1960, it's 67. So if you have questions, call us. You can look at it on your statement. But you need to know what that date is because it's fundamentally, it's important to what we're talking about today. Once you kind of know what that date is, one of the questions that we often get is when should I file social security? And one of the things that we ask, the first question I always ask is are you still working?

I already kind of know their age and are you still working? And why that's important is if you file for social security prior to your full retirement age and you are still working, depending on how much you earn, and we'll get into that in a second, is social security will hold back some of the money. They just won't pay it to you if they know you're earning that. And then if they don't know you're earning that, though, you'll get a nice letter the next year saying you got to pay us back some.

So later in the show, we'll get in some examples and I'll dive into that. But if you're still working and you are under your full retirement age, you have not yet hit that age, they're going to penalize you essentially for taking it early. And so we have lots of people, and Robbie, I'm sure you have friends that, and we get this all the time, it's like, I'm going to take it at 62, which is the earliest you can file, because I just want to get it.

I don't know how long it's going to be there. You know, I want to get the money while I can. And they just say they file for it as soon as they can. And they don't know any of these rules and they're still working. I mean, they have a full-time job, they're earning decent money, and they don't know about this. And so what the rule says is if you're, you know, if you earn, and this is for 2023, if you earn more than $21,240, they will withhold $1 of your Social Security benefit for every $2 you earn above that limit.

So I'll sort of repeat that. If you earn money above that limit, they withhold $1 worth of your Social Security for every $2 above that limit. So if you're earning, say, $50,000, $60,000, $100,000, there's a chance you could literally get no Social Security check. You file for benefits at 62, you've permanently reduced your check for the rest of your life, and you don't even get the check.

And they don't even send it to you. So that would be not a great decision to make. And so if you're still working and you're under your full retirement age, you really need to think hard. There needs to be a very compelling reason for you to take it then.

Most times it does not make sense to you and you want to delay it. One of the things to know, and this is sort of getting some nuance here, the year of your full retirement age, the threshold is much higher. It's like $56,000, and then they withhold $1 for every $3 above that number.

You don't need to know all the real specifics of that. Just know the year of your full retirement age, you can earn more than previously. But really, if you're still working, you probably do not want to take your check prior to your full retirement age. One thing that's important to know is after that age, you can earn as much as you want. Once you reach your, say at 67, you turn 67, and now you're still working, but you just want to check.

They're not going to penalize you in that scenario. And I had a client who watched the video that we had on this YouTube and asked sort of an insightful question, and I wanted to clarify here, is once you hit your full retirement age, so let's say you're from my birthday's in June. Obviously, I'm many years away from filing for Social Security, but the year that I hit my full retirement age, which at least as of right now is 67, I turn 67 in June.

Every month after that, I can earn as much as I want. It doesn't matter at that point, but any time before that, we got to worry about that. So that's just something to know about is if you are still working, you really probably don't want to file for benefits prior to that full retirement age. Yeah.

Just to review what you just said, which was absolute mouthful as I've thought about it and watched the video that you guys have there on your YouTube channel and cardinalguide.com, that kind of thing. So if you're making $50,000, right? And so essentially they're going to take $25,000 of your Social Security that year back, that's $25,000 that you're going to give back and you've permanently reduced, right? So say that if you waited until you were 67, you'd get a check at 3,100, which it seems about average somewhere around there. And at 62, your check is like two grand, then you're stuck with the two grand for the rest of your life. And oh, by the way, those years that you were working, you were essentially giving back most of the, if not all the check that you're getting, because if it was 25,000 and you were getting a check for 2,000, right, you end up with zero.

Are those numbers seem close? Yeah, that's exactly right. And so let's say in this example, like you said, you're earning, we're going to make these numbers simple and sort of round it off, but you're earning $50,000 and every $2 above that threshold is about 25,000 and your check is $2,000 a month. So $2,000 a month of Social Security is $24,000 a year. Well, based off that formula, they're withholding $25,000 so they're going to withhold your whole check. So you've permanently reduced it down and that number stays reduced for the rest of your life and you don't even get the check. So if you're not benefiting from the money now and you've reduced it forever, it really does not make sense to do that.

And to make matters worse, a lot of people don't realize this. They file for things, they go through and are getting the check and then the IRS or the Social Security doesn't know that you're earning money. And when you go file your taxes in April of the following year, you send it all in, they show that your wages, they show that you're 63 by now, but you've been getting Social Security for the whole previous year, you'll get a nice letter saying, hey, according to our records, we paid you too much last year. We need you to pay us back that $24,000 we paid. Most people don't have, they haven't saved that money. I mean, they took Social Security for a reason.

They might have been spending it, maybe not all of it, but most of it. And now they have to come up with $24,000 to pay back Social Security that they should, that they shouldn't have been paid in the first place. And so it gets real ugly. And in the second half of the show, we'll get into more examples, but it gets real ugly when people go through and don't know this rule. They don't know how it works. They have done something that they don't even know is a problem until you get a letter.

And now you're scrambling to try to figure out what to do. Right. And so many times they made the decision based on the thought that Social Security is going to run out of money.

By the time I get to 67, it's not going to be there. And that's just not realistic. I mean, you're basing your whole decision on a false assumption when you look, as Hans does those shows, and I've had a chance to share with him many times, talking about how much money is in the Social Security system that we're not looking at three to four years before we run out of money. Right.

Yeah. I mean, I think a lot of times people, they talk to their friends, they've heard something in the past. I mean, wherever they got their information, they're just convinced that they need to take it while they can. We have other radio shows and YouTube shows where we go into the trustee report every year Social Security comes out with a report really talking about how much money is in the trust fund, how much revenue they brought in, how much they send out in benefits, and they project that forward. So we're not saying there isn't a problem long term, that there are some fixes that they need to make to Social Security. But to think that the Social Security is just going to be gone in the next several years is just, I think, is false. They're going to have to do something. Too many people totally rely on Social Security for their income.

Right, right. Well, we want to remind you all again that this show is brought to you by Cardinal Guide, cardinalguide.com. And there at Cardinal Guide, you're going to find the seven worries tabs, which one of those seven worries is Social Security. And so if you click on that tab, you're going to find this show, as well as the YouTube video, which is outstanding, it's got a board that goes through all these things and makes it really, really clear and the show notes to make it even clearer. So all that information, those resources, again, are at cardinalguide.com under the seven worries tabs. And then of course, you know, there's always these contact information, how to contact Tom, how to contact Hans, those kinds of things absolutely make it simple, like I always say, just dial 1-800-TOM. Or, you know, if you want Hans's book, which is just absolutely outstanding on all these topics, The Complete Cardinal Guide to Planning for and Living in Retirement, it's all there again at cardinalguide.com. So we'll be right back with a whole lot more on Social Security payback.

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, Tom Griffith today. And, you know, how fun.

We are talking about Social Security payback. Now that may not seem like fun, but it's kind of, it is to me to understand, really get some understanding on, you know, what to do, what not to do with these really complicated issues. And so we got a few more rules before we get to the stories, but, which I'm excited for, but that there is, there is a bailout plan, right, Tom? Yeah, certainly. And so, you know, I've just worried all of you guys on the first half of the show of like, oh man, have I made a mistake?

And so let's talk about ways to fix this. And so if you've already filed for Social Security, you're still working, and you're under your full retirement age, or you just decided you want to make some other decision, you want to delay it further, is within the first 12 months of filing for benefits, is you can pay that money back, and it would be like you never filed in the first place, essentially an undo. You can undo your decision, pay the money back, and sort of reset everything. So if you're in this scenario that I laid out, you're still working, you've taken Social Security, you're under your full retirement age, and you did that six months ago. We can go back to Social Security, there's a form you have to fill out, there's sort of a process you have to follow. You fill out this form, you send it into Social Security, essentially undoing that decision, you pay them all the money back, so you got to have the money to do so, you pay it back, and then it sort of resets, you go on to the future, and you can file later in the future, and they will give you all those delayed retirement credits, essentially the higher checks by waiting. So within that first 12 months, there's a way to undo it. If you're past 12 months, you can't pay it back, and at that point there's really not a lot that you can do sort of in the meantime.

They're going to go through, they're going to penalize you. If you're still working, it's maybe, unless you're in other, if you're in a situation you could retire, I guess that would be one six, is just stop working, but generally that's not the situation we see, and so if you're past that point, I'm sorry you're there, wish we'd have caught you sooner, but that's just kind of how it's going to go. Right, and I think, you know, the simple solution for me would be if I was in that scenario, the next thing I would do was dial 1-800-HANDS. That's a good point, yeah. That's a good point, yeah.

And, you know, because this isn't something I would want to try at home, right, I would want some professional advice on how to get this out, what I might do in order to leverage some resources to pay that money back, and again, don't put your head in the sand on this one. I mean, the quicker you do something about it, you know, the better it's going to be for everybody, right? Absolutely, and I think that's a very good point, is if you find yourself in the situation, call us, call someone who's familiar with this, because we do this all the time. I'm dealing with this daily. You make a social security decision once in your life, right?

You don't deal with this all the time, so call someone who has experience with this. Robby, to your point earlier in the show is, you know, you need to experience this, right? I can explain all these rules. You're going to go, you know, tomorrow you're going to forget half of it, but what I want you to take away is if you have questions and you want to just ask some general advice, call us up. We'll give you the advice. We're not going to charge you money just to answer a quick question. Now, we do financial plans or we charge fees, so we don't need to worry about that today, but I think we want you to make the right decision here and not feel like you're doing this on your own.

Absolutely. So what I want to do is, what I want to do kind of next here is on that same sort of front is go through and talk about some experiences, really walk you through some scenarios where we've seen this cause problems for clients. And I mean, I could spend, we could have spent the whole show doing this, but I just want to give you a little bit of a taste of how people can get into this situation.

And so one of the ones that comes to mind immediately is we have a client who actually interestingly is on YouTube as well. We won't name him here, but he goes, he was going through, he very much was in the camp of take social security at 62, get it while you can, you need it, you know, go ahead and file. And so that's what he did. He had already retired, so he wasn't still working at that point and was, you know, happy with getting money. He was living off of it, enjoying retirement. Well, you know, he didn't expect this, but the YouTube channel that he had started taking off. He started getting more subscribers, more people watching. All of a sudden YouTube is starting to pay him money now. So now they're paying him money, more views, more money is coming in and he sits there and look at this. And we sort of brought this to his attention is you have a problem is you, the amount of your money you're making from social, from YouTube exceeds those thresholds based off his age and everything. And he's going to get a letter, you know, next year that he owes some money back.

And so that would, you know, and it doesn't have to be YouTube. If you ever, if you have any inclination that you might go back to work, say you've retired, but you might go back to work. We see this a lot of times with maybe teachers who they're, they're sort of done, they retire, then they miss it and they go back. Maybe they're a substitute teacher or something like that.

Nurses, I've run into a lot of nurses who maybe retired during COVID and cause it was just very stressful, you know, understandably. And now they're wanting to go back to work, but they filed for benefits is you need to watch these thresholds because you could really cause a problem that you didn't even know was an issue because you filed for social security. Now you're going back working.

It raises those thresholds. You got to pay that money back. And so just, just consider that if you've retired, but you're thinking of going back to work. Now, like I said earlier in the show, if you're past your full retirement age, you can go back to work.

Doesn't matter. Right. And that's where you need to know what that number is. And I would recommend everybody just go download their social security statement. You can get it on the website, ssa.gov and just look at that.

Cause that will give you some, there's a lot of good information on that form and it will tell you right on there what your full retirement age is. Yeah. And I would point out too, for anybody, you know, you know, after, if you're still working like I am still working and getting your social security, like I am, then there is some tax implications.

I mean, it's not like it's a freebie. Okay. Cause obviously all this income changes a picture for you and tax brackets and things like that. So it still requires from my standpoint, even after your full retirement age, you know, some considerations, some talk with Hans or Tom at whatever point, because there are different ramifications at every age when you decide to make that kind of difference in your, what you're getting in every month, right?

Absolutely. Um, and so we don't want to spend all day talking about how the social security is taxed, but depending on your other income, some of that check could be taxable income. And if you're not withholding any taxes from that, you could get another surprise when you file your taxes, you're not getting a letter from the IRS, but you're also getting you, you'll get a something from your accountant or if you use TurboTax, it will tell you, you owe so much money cause you didn't pay enough throughout the year. And so you want to make all of these decisions, you know, related to each other, you know, how much taxes to withhold. You can tell social security to withhold taxes from your check.

And so if you're still working or if you have other income, maybe big IRA distributions, or you have a pension or whatever that might look like, you probably want to have some taxes withheld from your social security check. So you don't have to worry about, you know, the tax ramifications of doing so. Um, I think another, another example that we've run into just recently, I was on the call yesterday with this client who was planning on retiring and went through and filed for social security cause he was going to retire and it was going to all work out. But then things happened, the job, you know, his employer came back and said, you know, we want you to keep working for a while.

They made him an offer he couldn't refuse. And he said, okay. So he kept working, started getting a social security check and had sort of forgotten all these things we talked about. And we were doing something else with him. And we started asking these questions. It's like, wait a minute, we have a problem here. You're, you're, you just turned 65.

You're still working and getting social security. We need to kind of undo this. So fortunately it'd only been a couple of months.

It was pretty easy. But what we did is we helped him fill out the form. We sent the money back to social security. So we had to give it back, but it prevented him from having a problem down the road cause now he gets to get a higher check when he does eventually retire, maybe a year from now. He gets a higher check.

He doesn't get penalized for taking it early. And it's a sort of, it's a wash your hand of that and be fine. And so there are some fixes. Um, the earlier you catch it, the better. So if you're in that situation, you know, look into it.

But there are definitely ways that you can, um, kind of fix it within that first 12 months. One of the, one of the questions we oftentimes get is people maybe have saved very well. They have money in IRAs. They have money in savings accounts. They have plenty of money, but the way they view it is just, that's my pot of money.

I don't spend that. I need a check when I retire or I need another check now because I'm heading into retirement. And they start social security.

What we oftentimes are having people consider is why don't we live off of some of the IRA funds, live off of some of the savings. Again, it needs to be in context of an overall plan, but allow you to further delay social security. That there's real benefits of waiting to take social security. I mean, you get a higher check, a higher check lasts for the rest of your life. That check is adjusted for inflation. Social security is the best source of income that you can have in retirement, even better than a lot of pensions. And so, you know, I think oftentimes we're having people delayed even further past their full retirement age to get those benefits.

And that requires them to live off their IRA, live off their savings, again, in a controlled manner. But I would really encourage listeners to think of doing something like that. Again, maybe don't do this on your own. Work with someone like us to help you sort of plan this out. But it can be a very helpful for the long term in your retirement to get that higher check for the rest of both you and your spouse life.

Agreed. Let me go through one more example here of a client that ran into this. And this was one where we really couldn't help him, unfortunately. But he, again, it was a lot of this kind of was going on during COVID because there was just a lot of, you know, uncertainty. People were getting laid off.

They needed money. So he started social security. He was a psychiatrist. And, you know, was sort of closed his practice, was living off social security was just fine. COVID kind of ended and he started working again because he missed it, right? He just missed going back to work. And he didn't really think through all this. And by the time we caught him, he was getting that letter. He was getting the letter from the IRS saying, you know, you might come from social security, but he was getting the letter saying you we paid you too much, you need to pay us some back.

And, you know, he really didn't have the money to pay him back. Unfortunately, we've run out of time before we ran out of show as always. But we want to remind you that all this information is at cardinalguide.com, cardinalguide.com. And there you're going to find again, from my standpoint, the most important information is how to contact Tom, who is my personal guy that I talk to all the time, and how to contact Hans.

And of course, all the seven worries tabs, which include today's show, which is certainly Social Security, and all sorts of content on that information on all sorts of things that you may want to consider, the show notes, the video of what we talked about today, it's all there under the Social Security tab at cardinalguide.com, as well as Hans's book, The Complete Cardinal Guide to Planning for and Living in Retirement. And, you know, we again, we're praying that you all will make good decisions and take advantage of other people's understanding that have actually gone through this and know the real thing that's going on. So thank you, Tom. Thank you. God bless. Thank you.

Thank you, Tom. 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's 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's 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.