In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss whether to take Social Security at age 62 or wait until the full retirement age of 67. This is one of the most frequent and challenging questions they encounter from clients. Through a detailed example featuring their colleague Taylor, they explore the considerations that influence this significant choice.

The conversation highlights the significance of having a comprehensive retirement plan that not only addresses financial needs but also considers personal goals and lifestyle choices. This episode is packed with expert advice and practical tips to help you achieve a secure and fulfilling retirement. 

In this episode, find out: 

• How to maximize your Social Security benefits 
• The pros and cons of different types of annuities 
• Strategies for long-term care planning 
• The psychological preparation needed for retirement 
• Tips for staying informed about changes in retirement laws 

Tweetable Quotes: 

• "Retirement is not just a financial journey, but a significant life transition that requires emotional preparedness." – Radon Stancil 
• "Understanding your Social Security benefits can make a huge difference in your retirement income." – Murs Tariq 

Resources: 

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement! 

To access the course, simply visit POMWealth.net/podcast. 

Radon Stancil:

Welcome to Secure Your Retirement Podcast. Today we are excited because we have a guest with us, Taylor Wolverton from our office. Today, we're doing some financial planning scenarios, so Taylor's coming on to kind of navigate the financial plan for us. So I like to say, first of all, thank you Taylor for coming on and chatting with us.

Taylor Wolverton:

Yeah, you're welcome.

Radon Stancil:

All right, here's one. A few years ago, Murs and I did a podcast, and the podcast was entitled Social Security: Should I Take It At 62 or 65? And we did okay at it, I think, back then, but we were honestly kind of new to podcasting, and I don't think we gave it exactly what we needed. So today, we're going to really do it good, but we're going to make it more realistic to the questions that people ask. And the real question is, should I take... So let me paint the picture.

And so this is a very common conversation for us if we've got a person that's actually thinking of going ahead and retiring early, and I say early prior to full retirement age. And so what we really wanted to do today is we wanted to walk you through some of the conversations we have. We want to walk you through exactly what we show. So I want to tell you this. We are going to make this podcast a day where that, if you're listening to it only, we're going to walk you through all the numbers, but if you want to see what Taylor's going to be sharing on the screen, you can then do it in one of two ways.

One of those is to go and listen to the podcast on Spotify, or the other is to go listen to this on YouTube. Both of those, you'll be able to watch this versus just listening. So before we get into it, though, and have Taylor start working through this whole financial plan side of things, I thought it would be nice, Murs, if you could talk us through how that conversation goes when you're talking to somebody, kind of what their thought process is, maybe what they've read about Social Security that could be potentially misleading and potentially confusing.

Murs Tariq:

Yeah, Social Security is a big decision, right. You've worked, you've paid into the system for so long, and then you have to make this decision, and you want to get it right as far as when you take it, how it works, how's the tax? All these things can be rather confusing to people. And the way I will usually start off these conversations is talk about how we approach making this decision because you don't want to make it from just one side. You want to look at it very holistically. So there's a financial planning Social Security decision, and then there's just, "Hey, how does Social Security work, and how can I get the most out of Social Security?"

Unfortunately, a lot of people are going to look at it in that direction of, "How do I get the most out of Social Security?" When you look at it that way, the answer is actually pretty simple. You go to Google, and a lot of the times, the article is going to say, "Hey, wait until 70, that's your max benefit. That's the most you're going to get out of Social Security." What they don't tell you in those types of articles is, well, what's going to happen until you get to 70? Are you truly working until 70, or are you drawing down your own assets to get to 70? And what is the true cost of drawing down your own assets to wait till 70?

And then also, are you going to live long enough to recoup that time, right, and recoup that draw down on your assets? So if you look at it from one facet of just, "How do I get the most out of Social Security," the answer is simple. Wait till 70, live a long time, it's going to work out just fine. Unfortunately, we just don't know all of those futuristic types of answers. So the way we approach it is we want to understand your situation first. We want to understand what you've done to prepare for retirement. What are your goals for retirement? What are your retirement age? Also, what type of assets do you have?

Not just do you have money, but what type of money do you have and how are you going to fund your retirement and what type of taxation is that going to lead us into? Once we see all of those areas, then we're able to start making good, very strong recommendations on the right time to take Social Security for you. And it may be different for someone else. It's definitely going to be different for another family because every situation is different, every family is different, and so we want to look at it very individualized. At the end of the day, the question that we're answering is not how do I get the most out of Social Security.

It's how does Social Security complement my financial plan the very best? And that's what we're going to walk through here with Taylor when she walks us through a scenario of taking Social Security at full retirement age. How does that impact my assets, right? "If I'm retiring at 62 and I want to take it at 67, I got to get from 62 to 67, so I'm drawing down my assets. What does that truly mean in the long term for my nest egg and for my legacy that I'm leaving behind?" Anything else to add to that, Radon?

Radon Stancil:

Yeah, I just wanted to say this because last time we did this, I got, especially on YouTube, a lot of people saying, "Yeah, well, you're showing a person here who has actually saved a lot of money." And so, I thought it would be nice for me to do this as a little bit of a disclosure. Yes, we are doing this example off of someone who has been a good saver. If you did this scenario, we could make it super simple. If you have not saved money and you're just going to live on Social Security, wait for as long as you possibly can because you need that extra money.

And so that means you're probably going to work a little bit later. That means you need to wait until the last minute possible to take Social Security and so that you have that higher income throughout those years. In this scenario, and I understand that it might be biased, but it's biased on the context we are talking about a person. And then, we're going to do an example of two people that have been good savers and they have accumulated some assets. So we're going right up front and saying that's who this is for.

So if you listen to this and go, "I've not saved any money," this is probably not the right venue for you to determine whether or not you should take Social Security. So that way, I'll try to avoid some of those comments about this. All right, so now what we're going to do is the concept here of what we're about to do is kind of what we would do if we were sitting with a potential client or a client, and we are going to now walk them through the financial plan. And this is where we would kind of turn it over to Taylor.

Taylor is going to, in all essence, share her screen. So remember two things here. We're going to verbalize all this. So if you're listening to this on a place where you've only got audio, we're going to walk you through the numbers. If you want to see this, go to YouTube or go to Spotify. Either one will have the video up for you. But let's turn it over to you. Now, Taylor, if you could share your screen and kind of walk us through what it is that we're looking at.

Taylor Wolverton:

Yes. Okay. So first thing that we are looking at is we have our clients. Their names are Jim and Jane. They're married, and today, they are both age 61. So that's where we're starting at today. They both have a salary today of $150,000 a year for each of them. And we're also going to start out with planning their future income, their Social Security starting at each of their full retirement ages, which is going to be their age 67.

So we have a few years until that starts. And at their... each of their full retirement ages 67, their Social Security benefit is going to be $3,800 a month for each of them. So $3,800 a month for Jim, Social Security starting at his age, 67, $3,800 a month for Jane starting at her age 67 for her Social Security benefit as well.

Radon Stancil:

Taylor Wolverton:

Yeah.

Radon Stancil:

... I want to say two things, and I got a question for you.

Taylor Wolverton:

Uh-huh.

Radon Stancil:

One, I want to make sure it's clear. We're saying this person's been a good saver. They do not have a pension. Social Security is going to be their only fixed income.

Taylor Wolverton:

Correct.

Radon Stancil:

But how did you come up with the 3,800 just so that the audience understands?

Taylor Wolverton:

Yeah. Social Security is going to be based off of what your salary has been for the years that you have been working up to this point. So because Jim and Jane both, they've been working a long time, they have this higher salary, their Social Security benefit's going to be based off of that and how the Social Security Administration calculates your Social Security benefits.

You can go... You can create an account with Social Security Administration online, and you can look up your own benefits, and it will show you the various benefit amounts that are available to you based off of your earnings from your age 62 through your age 70. So everyone has access to that and can look up their own earnings history as well.

Radon Stancil:

Excellent.

Taylor Wolverton:

Okay. We're also assuming that, right now, they are both maxing out their 401K, so they are saving while they're still working. So right now, that's $30,500 a year if you're over the age of 50, which Jim and Jane are. So they're both contributing to their 401K for now, but we also have them both retiring at their age 62.

So next year, once they both have turned age 62, they're going to retire. They'll stop working. They no longer have the salary that they have coming in, and they're going to start relying on their investment accounts, which we'll look at that next as well. And we're assuming that they're spending right now $8,000 a month.

Radon Stancil:

And I just want to speak on that real quick. So that basically what they... Here are the client scenario. They've got a house. It's paid for, and they basically say, "Look, to pay our bills, to go out to eat, to do the things that we want to do, travel a little bit," they're spending about 8,000. So that's kind of what they've got going out the door. I know we call them expenses, but we're just basically saying that's what they're spending just for clarity.

Taylor Wolverton:

Mm-hmm. Yeah. Okay. And so once they do retire, they're going to start relying on their investment accounts, like we said. So as far as their investments right now what we're looking at is that Jim has an IRA with a balance of $750,000. Jane also has an IRA with the same balance, $750,000 as well. And then the home that we have input here now as well, we have their home value is at $950,000.

Radon Stancil:

And just so you know what's on the screen if you're listening, that means that they've got a net worth when you add all that together of 2,450,000.

Taylor Wolverton:

Yes, thank you.

Radon Stancil:

Taylor Wolverton:

Yes. Okay. So we went through all of our inputs, talked about their income, we talked about their expenses, when they're retiring, what their future income is going to be like. So now we're moving to a screen that shows all of that in a table and is projected into the future for the next many years through the rest of their retirement plan. So do you want me to walk through these inputs here and kind of lay out-

Radon Stancil:

Yeah.

Taylor Wolverton:

... what it's looking like for the next few years? Okay.

Radon Stancil:

Absolutely. Yeah, just walk us through kind of what we've got going on here from now till retirement and then from retirement on.

Taylor Wolverton:

Yes. Okay. So starting with the first column in the table, what we're looking at is their income. So right now, for this year, while they're still working, all their income is their salary combined. So that's $300,000. They each have that $150,000 salary. Next year, they're going to retire halfway through the year, so they'll only have half of each of their salaries, and then they'll turn 62, and they're planning to retire at that point in time.

Beyond that, there are few years, four years, where they don't have any income at all in terms of salary, Social Security, sources of income outside of their investment accounts. And then a little bit further down, now that they're age 67, then that is when they start their Social Security benefits. The first year is going to be a partial year. Once they turn age 67, the next month after that is when they'll start Social Security for both of them.

And so the year that they're 68 is really the first year that they're receiving Social Security from January through December, the first full year. And we're in this analysis going to assume that Social Security does not have a cost of living adjustment. So once they start their Social Security benefits, it's going to remain the exact same amount each month through the end of their retirement plan and not increase at all.

Murs Tariq:

Yeah. And I like to speak on that. We like to build these plans, conservative and stress-tested. So when Taylor says we're not building in a cost of living adjustment, that's purely just to make the plan conservative. If you been... If you are receiving Social Security or you're close to it, highly likely you're going to get cost of living adjustments or raises throughout your lifetime.

But we just figure, hey, there's enough issues with Social Security. What if they took that away, and the number that you receive today is flat for the rest of your life? Does the plan still work? If it does, great. Obviously, if we get raises, that's just icing on top of the cake. Go ahead, Taylor.

Taylor Wolverton:

Okay. Yeah, so that's all of their income sources for right now. Moving towards the right side of the table now, we're looking at their expenses. So again, we have the $8,000 a month is what they're spending to cover all of their living expenses. We are assuming inflation on their living expenses. We're inflating this at 3% each year.

So although their income or Social Security in terms of Social Security is not increasing, we do have inflation on the expenses to keep up with the purchasing power that they have on $8,000 today. So you'll see that going up each year. That's shown in the table. And then we also have an asset.

Radon Stancil:

And just to verbalize that...

Taylor Wolverton:

Yeah, go ahead.

Radon Stancil:

Just to verbalize that a little bit, that means that today, if they're making 96... or spending 96,000 by the time they're 67, if you're looking at this table, they would be earn... they would be spending $114,629. That's at 3% inflation rate. Just to kind of... so everybody can verbalize... or understand and visualize what we're talking about.

Taylor Wolverton:

Yes. We also have an estimate for their taxes. So this is going to represent the federal and state tax that they're paying on the sources of income that they are or that are available to them to cover their expenses. And then, like we said, while they are working, they are maxing out their 401Ks. So there's a column here in the table labeled as Planned Saving, and that's going to be their 401K contributions listed there.

So we sum up all of their income in one column in the table when it's the years that they're working, they have the salary. Further down, when it's their Social Security, that's what's available to them for the total income. And then we're also summing up the total outflows, which is the total of their expenses, the $8,000 a month being inflated each year, their taxes, and then the amounts that are going into their 401K for the years that they are working.

So the last column in the table is going to tell us if they have income available after they have paid for their expenses, they've paid their taxes, they've contributed to the 401K. The first year, this year that they are working the entire year, they do have income remaining after that. So they have a surplus. And then, after that, when they're retired, you'll see a negative number represented in this column, which means they're needing to take distributions from their investment accounts to pay for their expenses because they don't have the income available.

They no longer have a salary. For four years after they retire, they don't have Social Security benefits. So they're taking distributions. What's in the table right now, we have over a $100,000 the first year that they're fully retired, and it increases each year beyond that because of the inflation that we have on their expenses. So they're taking over $100,000 a year in distributions from their IRAs because that's available to them to pay for their expenses the way we have it now.

Murs Tariq:

Yeah, a key thing that I think we need to point out there and understand as well is that, and this is true of a lot of our clients and a lot of people that are approaching retirement, is a lot of our assets are in pre-tax buckets in 401Ks, right. So if this family needs $8,000 a month starting in retirement, well, they're actually going to have to take out a little bit more than that every single month to generate net after tax 8,000 in the door because those 401Ks, they have not been taxed yet.

So what you're seeing on the very far right, if you're looking at the screen, the withdrawal amount is much higher than their spending need because they have to take out more to include an account for taxes. So I think that's something that's often forgotten, and it's quite a bit... can be a surprise to someone as they start to retire and say, "Whoa, all of this money I haven't paid any taxes on." So this is something that we do factor in all the time.

Radon Stancil:

Yeah. And I just want to point out too that just to give you some numbers that it's just to draw it out. If you look at the year prior to them actually turning 67, their total net outflows or what they have, but look at what they're spending plus their taxes, is 130,000. You look down a couple of years whenever they now are taking Social Security, they only need $31,000 of their own assets. So what we're really trying to do in this analysis is we're saying, "Hey, we've got this gap here for a few years that we're going to take out big-time withdrawals out of their savings, waiting to get the higher number of Social Security." All right, so that's kind of the analysis. So, at this point, Taylor, if you could, let's flip us over to now our assets. So now remember what this scenario is.

This scenario is saying we've got good savers. They have got a good amount of money that they've put away. They've got a couple of years left or a year left before they start taking Social Security. And what we're really trying to look at is the impact of either taking Social Security at 62 or waiting till 67. And that's really the analysis. So if you look at the far right column of where we are now, where we say, "Ending balance," what you'll see is in the moment when they retire, because of that couple years there that they've saved a little bit more money, they've actually got about 1,000,008 combined, 1,000,008. So now all I care about when we're talking to a client is how much do you have left. And we pick age 90 just to give us a benchmark. So this plan, how much do you have at age 90? If you take Social Security at age 67?

Remember, Social Security before was about $98,000 because we waited to full retirement, and now it's only 60... Is it $63,840? So the first glance of that is somebody would say, "Well, wait a minute, it would be way better for me to wait." And I think what Murs said in the beginning is really important. Yes, if I were just looking at how much do I get from Social Security, but what I want to know is how much money am I going to have left at age 90? All things being equal, right? We're still spending the same amount of money. It's just that we're not going to have that five years that we have to take our own assets. So now we're going to go to our overall column to say how much do we have left at age 90. And we're going to scroll down, and how much do we have? 3,101,129. And Murs, what did we have if we took it at 67?

Murs Tariq:

It was shy of 3 million, so about 2.9.

Radon Stancil:

All right. So I just basically look at this scenario, and I go, "Okay. Now you took Social Security at 62, and you've got 3.1 million left, whereas you had 2.9 million left taking it at 67." Now, most people at this point say, "Why would I wait to 67 then?" And I would tell you, numerically speaking, with this being our example, and we have made this one super simple. Same age, retiring together, good savers. In this scenario, I would lean more in the direction of if it were me, I'd probably go with the 62.

Why would I want to take my assets... And by the way, the reason why you, if we're doing everything equal, that is living to age 90, if I take Social Security at age 70 and I live to 72, obviously I should not have waited, right. So we're trying to do this long-term to say, "I need to give Social Security a chance to give me the money." So I'm trying to say, let's say I live the life expectancy. Anything on that Murs that I missed?

Murs Tariq:

No, I think that's great.

Radon Stancil:

Yeah. All right, so now we're going to do the big test, and we're going to have Taylor go back because this one comes up from time to time. "Well, what if I want to wait till I'm 70?" Because, sometimes, people have read an article, and they automatically go, "I should wait till I'm 70." So how are we going to do this? We're going to go back. Now, I do want to go to cash flows real quick because I want everybody to hear this.

Now, Social Security, they would be getting 113,000 together. So again, the first glance would be, "Oh my goodness, I should wait." But what is it we've got in assets? Let's go look at our assets column. So now we're just going to go back, and we're going to say, "How much do we have left at age 90?" She's going to scroll down. And how much do we have? $2,796,611 at age 70. So recap the numbers for us, Murs.

Murs Tariq:

Yeah, so in this case, the 70, even though it gives you the most, numerically, it's actually the worst of the three scenarios that we just ran. So this one, age 70, 2.7 million is what's left behind. At age 67, shy of 3 million is left behind. At age 62, the winner of this scenario, 3.1 million, is left behind. So again, this is a very simplistic type of scenario to help someone understand how we attack this really difficult question.

And there's a lot that goes into this type of planning, and the whole idea is that you want a team that's helped behind you, helping you think through all the different facets of it. And all these other different scenarios come up that we would help advise with as well. So if you have a specific goal on Roth conversions, that could change this answer. If you have a specific goal on survivorship for a spouse, that could change this answer. But if we're just looking at what Radon said, simplistic. 60... They want to retire at 62. They've got the same assets, and this works out really nicely.

Radon Stancil:

All right, so I want to close with this. I want to close with what we're not saying. We are not saying everybody should take their Social Security at 62. We're not saying everybody should take their Social Security at 67 or they should wait until 70. What we are saying is get an analysis. Get a financial plan so that you can look at it. We do this all the time for our clients where we're basically looking at this.

We never are going to tell somebody when they should take Social Security without looking at all the numbers. So if you're listening to this and you go, "Man, I'd love to know what my numbers are," it's very easy. You can hop on our website if you'd like. Go to the top right-hand corner, click on Schedule Call. We'll walk you through what we need in order to be able to do this analysis.

Then, Taylor is going to put together a financial plan, and we'll walk you through your very specific numbers so that you can see which one's better. Because I know, again, we've put up this fictitious client, we would love for it to be your real name. That way, we can walk you through it. So, Taylor, thank you very much for doing this plan for us and walking us through it. We appreciate it.