Is claiming Social Security early really the smartest move, or could it cost you more in the long run? In this episode, you’ll learn how financial planners actually think about claiming strategies beyond the headlines and viral YouTube advice. We break down the real factors that matter and why there’s no “one-size-fits-all” answer when it comes to turning on your benefits.
Listen in to hear how claiming decisions fit into a bigger financial plan, from protecting a surviving spouse to managing investment risk and building reliable income. We also walk through real scenarios, the pros and cons of claiming at 62 vs. delaying to 70, and how strategy changes depending on your situation. By the end of this conversation, you’ll understand how to make a more informed decision that supports long-term security—not just short-term gains.
Listen to the full episode here:
What you will learn:
- Why Social Security decisions must fit into a full financial plan. (2:00)
- How life expectancy impacts retirement projections. (4:00)
- How wealth and lifestyle can influence longevity. (9:30)
- The risks of relying on generic YouTube advice. (13:30)
- How survivor benefits shape smarter claiming decisions. (19:30)
- Why financial planning is an “imperfect art” with changing variables. (26:30)
- The importance of seeking real, personalized advice. (31:00)
- When you may not want to delay Social Security. (38:00)
Ideas Worth Sharing:
- “Take the math, take the best-known variables, make adjustments as you go, but just acknowledge that we don’t have crystal balls on any of this. So, you’re doing the best you can with probability and adjusting it specifically to what’s important to the client.” – Mason & Associates
- “We want to have good investment performance, but it’s not just to beat an arbitrary index. It’s so that we don’t run out of money before we pass away.” – Mason & Associates
- “We need to be able to absorb shocks. We need to have some resiliency.” – Mason & Associates
Resources from this episode:
- Mason & Associates: LinkedIn
- Tommy Blackburn: LinkedIn
- FEFP: Maximizing Social Security with Elaine Floyd (EP73)
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Read the Transcript Below:
John Mason: Welcome to the Federal Employee Financial Planning Podcast. In this episode, we’re discussing Social Security claiming strategies, specifically our favorite or our go-to claiming strategy. We’re going to talk about some of the YouTube advice that we’re seeing out there. Yes, we know we’re part of that YouTube advice community, but we want to give our take on some of the stuff we’re seeing, and then we want to kind of wrap this all around to a comprehensive financial planning process.
We’re not health experts, but we do want to talk about life expectancy and health, the age that we’re planning for in retirement and how all of that works. As we think about retirement projections and how we claim Social Security benefits. We’re financial planners first; we do this second. We hope you enjoy the episode.
Tommy, welcome to the Federal Employee Financial Planning Podcast.
Tommy Blackburn: John, it’s good to be back together. I’m looking forward to discussing this. As you kind of led in there, I was thinking, because you talked about I think health and wellness, and those are things we really enjoy talking about, from a financial planning perspective. I was thinking, yeah, give me all the variables and I can give you the perfect plan, but we don’t know. There are many variables, life expectancy being one of them, but what’s going to change of what’s important in your life? Goals, different things that have to adjust.
So, it’s this imperfect art, essentially of take the math, take the best-known variables, make adjustments as you go, but just acknowledge that we don’t have crystal balls on any of this. So, you’re doing the best you can with the probability and adjusting it specifically to what’s important to the clients and whose plan it is.
John Mason: Well, I think it’s a good way to start off the podcast in that so much of what we do in the financial planning software and the data that we try to bring in is all those variables that you said, but we have to pick. You know, “Mr. and Mrs. Client, when do you want to die?” Or, if we want to say it nicer, “When do you want to exit the plan,” or–
Tommy Blackburn: Cease consuming assets.
John Mason: “When would you like to go down for your forever rest?” However you want to say it, it’s: “When are you dying?” And nobody knows the answer to that question, but unfortunately, Roth conversions, Social Security claiming strategies, when you can retire, how you can retire, how much you can spend, and how much you can donate, it all kind of hinges on when you exit the plan, right? If you exit the plan at 72, well, then we’re only spending money for seven years, we can have a pretty good time.
Tommy Blackburn: Yeah. We can have a really good time.
John Mason: But I don’t know if that is what you want your financial planner to plan for is a 72-year life expectancy is less than average life expectancy. We have to err on the side of caution, at least initially, as we think about leading into retirement. Federal employees retire between 57 and 62 many times, and we admit, yes, Tommy, it’s conservative that we’re showing financial plans to 85 and 90, 90 and 95. But the last thing we’re going to do is be aggressive on how quickly somebody dies, right?
Ultimately, yes, we know that people will pass away before 85 or 90 in some instances, but what about when they don’t? What about when they don’t? Well, we have to be ready for that extended life expectancy. We have to be ready. Like, maybe everybody’s watching the Blue Zones documentary now. Maybe people are taking their health–maybe GLP-1s are going to be the thing that saves the day because everybody’s lost weight and Type 2 diabetes has been vanquished. We don’t know. We don’t know, audience, how life is going to evolve over the next decade or 20 years, or the impact, Tommy, that could have on somebody’s life expectancy. If your plan doesn’t have any buffer zone there, that’s a recipe for disaster.
Tommy Blackburn: And that’s not what folks engage with a financial planner for, typically. It’s not to, “Let’s go as aggressive as possible so that everything has to work out exactly correct and I die with zero cents.” I mean, everybody knows that’s not the case. Most retirees or someone planning for retirement, one their number one goals is typically, “I want to maintain my standard of living, the lifestyle I’m living now, and I don’t want to go back to work.” And then, in addition, “Guys, there are these other goals that I would like to plan for and see if we can do those.”
But usually, going back to work is not at all in the cards of what they’re looking for. So again, we don’t want to run out of money. Optimizing income and thinking about how this all fits together builds a resilient plan. This is a little bit of a sidetrack, and hopefully, I’m not trying to step into any political issues right now, but the theme kind of in the world right now seems to be getting away from “just-in-time” manufacturing. It’s still very much a global world, but it seems like the concept of, “Hey, we need to be able to absorb shocks, we need to have some resiliency,” built into things is kind of having a moment and making a comeback.
It’s the same thing with financial planning, right? Yeah, we don’t want to have a plan where everything has to work exactly like we sketched it out; we want to have a lot of shocks built into this. Now, we led in, John, talking about life expectancy; we’ve hit it a few times and we don’t know when you’re going to pass or exit. If we pass/exit early, then hey, let’s have a ball and go out guns a-blazing. But typically, we work with clients who are relatively, this is, again, how you define success is very personal, but relatively financially successful, right?
Most federal employees who do an entire career are financially successful by some version of that definition. And so, by that case, if you make it to the age where you’re retiring and you have a strong guaranteed income in that federal pension, health benefits, and assets to back it up, chances are–you’re not average, right? They are not speaking to you. The hot takes on YouTube are not speaking to you, we’re speaking to you, which is chances are at least one of you, if you’re married, is going to live a long life.
John Mason: Well, Tommy, thank you. And I would just want to go right back for a second to one of the goals of retirees is to just not to run out of money before they pass away. There was another podcast that I thought did a really good job explaining this in the investment world. They were interviewing the advisor, and the client’s like, “Well, Mr. Advisor, are you going to beat the market?” And the advisor flipped it around and said, “Okay, let me ask you a question, Tommy. If I beat the market every year for the next 30 years. I beat the S&P 500 every year for the next 30 years, but you still run out of money before you die, did we win?”
Tommy Blackburn: No.
John Mason: And the answer is no. We didn’t win by doing that. So yes, we want to have good investment performance, but it’s not just to beat an arbitrary index. It’s so that we don’t run out of money before we pass away. So audience, bear with us. We’re not health experts, but we’re going to talk in general stats. I just Googled life expectancy and it came up to like age 79. There was another stat I read recently that said for the first time in a while, life expectancy has come backwards. That could be for a variety of reasons.
But then if you Google, and we’ve heard this for a long time being in the finance world, if you Google something along the lines of “life expectancy based on net worth,” this is what pops up on my Google, and I’m just going to read it to you: “Higher net worth is strongly associated with increased life expectancy, with the wealthiest Americans living up to 13 to 15 years longer than the poorest. Studies show that individuals with at least $300,000 in wealth have a significantly higher probability of surviving to age 85 compared to those with no assets. Further, at age 65, individuals with no assets have a 51% chance of surviving until 85, while those with at least $300,000 have a 70% chance. Income disparities: the top 1% of earners live roughly 10 to 15 years longer than the bottom 1%.”
Last stat, and again, we haven’t fact-checked all this, but it passes the sniff test, right? I mean, don’t barbecue us, but this passes the sniff test: “Midlife net worth, every $50,000 in accumulated wealth by middle age correlates with a 5% reduction in the risk of death.” Wow. I mean, that’s pretty tremendous stats, Tommy.
Why? It’s because you have access to healthcare. You have resources. You can pay for things. Maybe you have less stress in your life. Maybe you eat healthier. The ripple effects of having more resources, we can’t even begin to fully understand the quality of life you can have. Somebody listening to this podcast with pensions, Social Security, and investment dollars, your ability to live a healthy and clean life compared to someone who has nothing…we cannot be looking at averages. So all that being said, coming back to your point, we cannot be looking at the average life expectancy because federal employees, if you’re listening to this, you’re not average. You’re just not.
Tommy Blackburn: And most, the world changes; models for financial planning change. Access, I think, is improving, but most financial planners work with people with that assets like you just described, right? Because financial planning is a service; therefore, the professionals need to get paid. So to pay for these services, you just tend to have a certain profile, financial profile to meet it. So again, as financial planners working with that, clients tend to already be skewing, even people listening, right? If you’re interested and you’re listening to this, you probably fit or will fit into that profile at some point.
Chances are you’re not the average person. You’re going to live longer than the average. As far as the jobs, the benefits that go with it, there’s probably something about stress. I don’t know. You can be working in an office environment and be very stressed from certain perspectives; I don’t know if that’s good or bad for you, probably bad. But maybe you’re not around all the environmental hazards of other occupations. So again, just certain things seem to lead to a longer lifestyle. John, have we hit longevity and life expectancy planning enough?
John Mason: I think so. Ultimately, audience, when you’re working with a financial planner, you need to assume that they’re probably going to assume an 85 or longer life expectancy for you and your spouse. Obviously, the math also skews if you’re a single person, erring on the shorter life expectancy. I think a lot of the math for a married couple is a 50% chance that one of you lives until X; that’s a lot of the math we hear versus the math on just one of you.
So, we think about our survivor if we have a spouse too, and that 50% chance that one of us is going to live into our nineties or whatever the up-to-date statistics are. So if you feel super passionate that you’re going to live longer or shorter, you need to tell your advisor that. If you have certain health considerations that would result in a shorter life expectancy—we know that is the case; there are people with MS or cancer survivors—we should probably talk about bringing some of that life expectancy down, specifically if we’re talking about things like Roth conversions or Social Security claiming strategies.
I think we’ve done that really well. Audience, do us a favor so we don’t have to read the stats: Google things like “top 1% of income earners,” “top 1% of income for retirees,” or “top 10% earners who are actively working.” You’ll be fascinated to see how you stack up in the top 1, 5, or 10% depending on how you Google search this. But we want to remember this, Tommy, federal employees are really unique and special in that they have pensions…
Tommy Blackburn: Which isn’t captured.
John Mason: So for the audience–yeah, that’s not captured in these stats. For every $30,000 or $40,000 of a FERS pension, that’s like a million dollars, plus a million dollars or more that you have in TSP potentially, plus your net worth in your house. Not sure how they factor in Social Security benefits here, but we have a lot of clients that make $250,000 a year in retirement, which puts them in the top 10% of people who get up and go to work every day. And that’s what we’re talking about, audience, as far as your life expectancy is different than others.
So, I think we’ve covered that. The YouTube advice, Tommy, that we’re hearing, and I love watching other people on YouTube, it gives me ideas on what we can talk about. A lot of the advice has been things like, “John and Tommy are wrong.” Financial planners who have encouraged you to delay Social Security until 70 are “wrong,” and they’re using this magical term “discount rate.” A discount rate is not a magical term; it’s just a term we use to understand how we should spend our money or how we make investments. We have to have a discount rate. At a certain discount rate, these advisors are saying that yes, it actually makes sense to turn on Social Security at 62, and because of the discount rate, it actually adjusts the break-even.
So a lot of times these break-even calculators, Tommy, will say the Social Security break-even for delaying is maybe 79 to 81. What these people are saying on YouTube is that if you factor in the discount rate, it may push out that break-even point to your late eighties, early nineties. Then they quote life expectancy and say, “Well, you’re not going to live that long, so therefore we should just turn on Social Security at 62.” Some channels do it better; some people are a little less biased. We understand the math, and you and I were playing around with some math before we jumped on this call.
Tommy Blackburn: And if I can just come out and say, one of the things I love—there’s been a lot of great things said, John—us advising clients to delay Social Security is not in our financial interest. As you were speaking, it’s like if we wanted to just give advice that was best for the fees we get paid, it would be to take Social Security as early as you can. Let’s get it in. And why is that, Tommy? Well, the reason is because that means we don’t need to take, or we can take less, from the portfolio.
Typically, when we’re advising clients and we say, “Let’s delay Social Security,” and I’m saying “a” Social Security because typically with a married couple, the advice is usually not to delay both, but let’s say delay one of them. It goes something along the lines of, “Hey, Mr. and Mrs. Client, the age we decide to take Social Security for you does not impact your standard of living.” Your lifestyle and your financial plan does not change depending upon when we take Social Security. Yes, I am assuming that we have a client with assets and we have a portfolio we can draw from, but that’s exactly what’s happening. We are drawing from the portfolio. We are hitting it more aggressively while we’re delaying Social Security.
That’s not in our own interest, right? Because we’re getting paid by the assets we manage. So if we’re bringing that down, our compensation is going down as well. And we give that advice all the time because it’s about the bigger picture and the relationship; we’re giving the advice that we think is correct. I’m not saying that makes it correct, I’m just saying we are giving advice that’s contrary to our interest. And if we really thought that taking Social Security early was the correct answer and it was in our interest, we’d probably be giving that advice out more often.
John Mason: Well said. So, a lot of media planners, and there’s like all these videos get like a million views. Am I a little jealous of all their views, yes I am. Maybe this will get a million views—a lot of the advice is to claim early, claim at 62, the break-even points are being pushed out. Our favorite strategy is typically one person claiming at 62 and the other person claiming at 70.
We like that strategy because it’s kind of the best of both worlds. One, you’re getting some immediate income, which reduces some pressure on the portfolio. But then two, we’re delaying one benefit until 70. We’re getting no reduction on our benefit, we’re getting those delayed credits at 8%, and we have guaranteed lifetime income. I’m not gonna argue whether or not it’s guaranteed or not guaranteed. We can talk about national debt and stuff later, but it’s a wonderful benefit. It’s tax-free in most states. Some of it is tax-free at the federal level.
Tangent, audience: this is not a political statement, but I’ve heard it countless times now. President Trump has said that he has made Social Security benefits tax-free. I don’t know why that keeps finding its way into speeches; I don’t know why that keeps happening. But there is no scenario right now where anybody in Washington, D.C., has made Social Security tax-free. No new law has changed that at the moment. Social Security was always, or at least in my lifetime since I’ve been doing financial planning, if Social Security was your only income, it was always tax free. Social Security becomes taxable when you start layering in federal pensions, TSPs, and IRA distributions. You start layering in “bad money,” that’s when Social Security all of a sudden becomes taxable, right?
So I just want to go on a tangent: Social Security is still taxable. There’s still the provisional income formula, Tommy, that people need to be aware of. We like the 62 and 70, and one of the reasons we really like that strategy is the survivor component.
Tommy Blackburn: Yes. Yeah. So, I guess a little bit on that tangent about Social Security being tax-free. We do have the new enhanced senior deduction, which I know we’ve talked about, but I just want to say, to your point, that new enhanced senior deduction only applies if we’re 65 or older. So we can start Social Security at 62, so it’s not linked there, and it has an income test to it or a phase-out. Once we get above a certain level of income, it begins reducing down and actually does some interesting things in tax projections that we like to nerd out on as we’re thinking about how to advise clients. But yeah, Social Security is still taxable and, for most of our clients based on that profile we were building earlier in the episode, still taxable. Maybe we get some enhanced senior deduction, maybe we don’t.
But spousal protection, so coming back to that: with Social Security, assuming we have two benefits coming in, married, both alive, we have two benefits coming in, which is great. When one of us passes, the higher benefit is the one that remains and the lower benefit goes away. So from a planning perspective to protect the survivor, which is a big part of what we do as we’re weighing variables and thinking about it is what leaves the survivor in the best position from both an asset and an income situation, and hat are we getting the most bang for our buck here?
As we think about the two Social Security benefits, as we’re planning, the lower one, we pretty much know the passing of one of these clients is going to make it go away. So yes, we can grow it and get those delayed credits, which is great while we’re alive, but it’s going to go away when that spouse passes and we’re let down to one. So we don’t get as much bang for our buck, whereas with that higher one, not only are we growing it, but we know it’s going to be around for the duration of the plan. It’s going to be the one that survives. It’s going to be the one that helps that survivor not feel as much of an income shock.
So that’s one of the reasons why when we look at it, we really like delaying one of the benefits, and maybe not even to age 70. So here’s the practicality of Mason, our firm, works with our client, and just like educational, like, yes, we also see the math that says you should delay that benefit to 70, and we like to lay that out to clients. Ideally, if we can make it to 70 delaying this, that’s fine. I also know behaviorally, particularly as a federal employee, you tend to retire either at MRA at 57 or maybe 62. So where I’m getting at is we have a long retirement, and waiting until age 70 to activate Social is not easy.
We certainly get it behaviorally; we may only make it to 67 for that higher benefit, Full Retirement Age. But we’ll try to delay that higher one. And flip side, if we can take the lower benefit early, it kind of allows us to hedge: “Hey, we got one foot in the door in Social Security, let’s get some income going.” Behaviorally, it feels good. And the math, when we, again, this is all got assumptions built into it, so you can pick it apart how you want to, but the math of the calculators and the planning when we do it is taking one at 62 and one at 70 comes pretty close, typically, to us delaying both of them to age 70, and again, it’s because of that survivor.
That one benefit is gonna be around so long. So we don’t even go for the, “Hey, let’s delay both to 70.” We like that option of let’s take one early, let’s try to delay the other. It gets us pretty close to that optimal answer.
John Mason: Yeah, the survivor to me is key, and obviously to you and culturally at our firm. So, putting some math to it: If John and Tommy are married and Tommy turns on his benefit at 62 and it’s $2,000, and I delay mine until 70, it could be $5,000 or almost $6,000. Now, delaying that all the way to 70, so let’s just say $8,000 of Social Security for easy math, and John dies. Well, Tommy’s going to get $6,000 a month of guaranteed lifetime income for the rest of his life, even if I die at 70 and a day.
That’s what he’s going to receive. If we both turned it on at 62 and I pass away, Tommy’s going to receive $2,000 a month from Social Security. So, the idea of both people turning on Social Security early, it mathematically can work. If you look at the discount rate and the break-evens, sure. Tommy, you can run some scenarios in RightCapital or MoneyGuidePro that show you starting it earlier.
But then what about at 71 when your spouse just died and maybe you have $1 million, $2 million, however many dollars, and you declined survivor benefits on your military pension? You lost your VA disability. You didn’t take SBP on your FERS. Your spouse’s Social Security went away. And now you have $2,000 a month of guaranteed lifetime income and you’re freaking out.
Right? What calculator calculates that? What calculator calculates the “freak-out moment”? And oh, by the way, and this goes both ways, this can cut both ways, is I have a client right now where we’re delaying Social Security. Started one at 62, delaying the other until 67. I’ve had the conversation every year that says, if the market lays an egg, we may have to abandon this strategy and just turn it on, Social Security. Your portfolio can only sustain so much. But go back to the 70, 71 scenario. Let’s pretend it’s 2008. John dies. All of Tommy’s guaranteed lifetime income goes away, and to replicate his lifestyle, we’re at a 5% to 7% or 8% distribution rate at the worst possible time. That is also possible, but you don’t have any flexibility because you turned Social Security on at 62.
And then I’ve got a lot of stuff on my mind. YouTube, we love you. Other financial planners on YouTube, we think you’re doing good too, but like, what about a long-term care event? There are as many people receiving long-term care services under the age of 65 as post-65 last time I looked at that stat.
Well, you know what’s not accessible for a long-term care bill? A survivor Social Security income stream, Tommy, because it doesn’t exist until you die. But guess what they can do? You gotta pay that bill while you’re alive, don’t you? So that beautiful TSP, that beautiful IRA, that beautiful cash value life insurance policy, whamo. Nobody’s talking about that.
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Tommy Blackburn: Well, that’s what we talk about, the variabilities we have to plan for. So I love that we’re in, because yeah, nobody’s…they’re not talking to you. Again, we enjoy everybody else’s material out there. We would say you’re somewhat cherry-picking your scenarios here, and sequence of returns risk is real.
So many times sequence of return risk to me is fear-mongered, because usually the market goes up more than it goes down. So we usually try to pivot back to, “Hey, it’s optimistic out here in the markets,” and we shouldn’t get overly concerned about every catastrophe scenario. But you are correct. The folks who are advocating to take Social Security early and often, we’re not acknowledging that markets go down. We’re not acknowledging that there is volatility. But this Social Security benefit doesn’t have the volatility in it, and that’s for many reasons it’s beneficial to at least delay one of those when we have a married couple, from our perspective.
I’m really glad you hit those. I was thinking, I don’t know if it strengthens what we’re trying to say right now, but going back to the numbers, because I thought that was just very helpful for people to follow. So it was two and six, and let’s just say we delayed mine. So now we both locked it in at six at age 70. So we’ve got $12,000 of income, which is awesome, right? That’s awesome guaranteed income coming in at 70, and then one of us passes. Well, then we go down to six. And so I thought it was just good as to why don’t we delay both of them? That’s hopefully a good example for folks to see as well. We know we’ve locked in the one and the other’s going away, whether we took it early or late, so we get a big bang for the one benefit.
John Mason: Yeah. We like to have a big delta between the highest and the lowest benefit. You’re kind of playing both sides of the cards here and starting one early. I think the other thing on YouTube, Tommy, that we—audience, we’ve said this, you’re very special. They’re not talking to you. We are talking to you.
So one of the other things on YouTube is, “You need to start your Social Security early so you can live your best life today without having to take a 7%, 8%, or 9% distribution rate from your portfolio.” And to a certain extent, I can understand the emotional side of needing some guaranteed income when I retire so that I have the freedom to enjoy the fruits of my labor. I get that.
But guess what? All these videos that have 1.something billion views, whatever, you know, maybe all that applies to the people who don’t have pensions. Maybe you’re a married couple listening to this podcast that has military pensions, federal pensions, two Social Security checks, a military, a VA, throw it all in there and it’s like, well, for you, this whole concept of you needing more emotional stability at 62 when you already had all that other stability through your other pensions? It’s not the same.
Tommy and I retiring without a federal or military pension or a VA disability check, yeah, I could see wanting to have $40,000, $50,000 of Social Security immediately so I don’t have to raid my portfolio. Federal employees, many of you are dual federal employees. You’re activating those pensions at 57 or 62. It’s not the same for you. So just think about that too when they kind of push this out, Tommy, that you need this extra stability or it’s an emotional win, maybe for some people, but not the ones with pensions. Maybe it’s not the same.
Tommy Blackburn: Well, we get the emotional side of it and it is a conversation to be had. Ultimately, it’s a client’s plan, and they get to decide, within reason, what type of ride they want to have. “I suspect I’ll be delaying Social Security without even having these pensions.” And part of that is the assumption that there will be a healthy portfolio there to draw from, and that all being planned.
But the reason I want to delay it is the reasons that we’ve already talked about. It’s got tax preferences to it. It’s cost-of-living adjusted. It’s probably one of the best annuities I can buy or increase by delaying it. It’s going to give me more peace of mind, more power, take the pressure off my portfolio later as I go through the plan, or my spouse goes through the plan. So that would be me—I’m at least planning to eat. I would eat my own cooking, except I can’t until I get to that age. But I completely, convicted believe in the strategy that we’re advocating for clients, and I think that’s part of it too.
So, 40% of Americans, I think, that are retirees live on just Social Security. You can imagine if that is your situation, you don’t have a choice, and that is completely understandable. That makes sense. That’s the way you have to plan. But for those that do have a choice, that have assets, have potentially other income streams, the math is, I would say, or the formula is going to be different for you.
John Mason: It’s fascinating. So I just wrote down, and this is a Mike Mason-ism, that’s my dad, audience—we don’t tell you bedtime stories at Mason & Associates. We tell you what you need to hear, not what you want to hear. I just wonder how many of these people on YouTube are telling you what you want to hear because they want to have 1.5 billion views
Tommy Blackburn: Clicks
John Mason: So that they can earn money through monetization and ads and subscriptions or what have you. I don’t know. Is it really advice? Yeah, and we want the views too. Like, I get it. We want to be popular, we want all the likes. It makes us feel good. But you just, you do have to wonder, is it what you want to hear? And that’s why you click on it and you’re looking for that confirmation bias? Or do you want to hear an alternative message that maybe ruffles your feathers a bit, that maybe makes you feel a little uncomfortable, that makes you think a little bit more?
Sure, I go to YouTube all the time for things. It’s like, “Yeah, John, you’re really good at that. You know you did it exactly right.” And I watched a YouTube video yesterday, Tommy, on the order that you should save for your retirement accounts. And it was like: 401(k) match, this is a tangent, audience, 401(k) match number one, HSA number two. And I was like, oh, that’s good. I always forget HSA because most of our clients don’t have one. But then a few lines down, I’m waiting for Roth IRA, and this dude put brokerage account in front of Roth IRA. I’m like, really? How did we get there?
Tommy Blackburn: That’s interesting.
John Mason: So I was expecting to watch that video just for confirmation that we were doing the same thing as other people. But then I think maybe sometimes we’re doing a little bit different, and that’s okay too.
Tommy Blackburn: That is. And you almost, I know it’s not the point of this podcast, but you kind of want to dive into like, well, how did you get to the Roth IRA being so far down the list? Because, am I missing something or are you missing something? Of course, I suspect it’s you that’s missing something, whoever ordered them that way, not us.
But I’m happy to always learn, continue to be challenged and educated. So to your point, that’s why we go out and listen and see what others are doing and hear the messages that are out there. But yeah, John, to your point, YouTube is primarily optimized for clicks, not for a successful financial plan designed and customized for you. So it’s whatever’s going to get you to click.
John Mason: That’s right. And we’ll link in the show notes, we had Elaine Floyd, who’s a Social Security expert. We’ll link to her episode. That was one of our early video episodes, so I think you’ll enjoy that, audience. We’ll link to that. We’ve talked about Social Security in the past. I think we have a playlist where we talk about it as well, so you can see some previous content there.
We played around in RightCapital before clicking record today, Tommy. And we looked at “Diet Coke” and “Diet Pepsi,” that married couple that we talked about on a recent YouTube video. And we played around with the discount rate, and we set it at 4% or 5%, and it did not change the calculation. The recommendation from the software was still to delay both until 70. And then we dialed it to 5%, and then we dialed it to 6% discount rate.
And at 6%, which maybe is about what you would expect from a 60/40 or a balanced portfolio, you started to see that claiming strategy start to come down. It went to like 68 and 70, or 69 and 70. And then you went to a 7% discount rate and it moved it to like 68 and 69. You’re like, “Man, this is a pretty high discount rate.” Then you go to 8%. Boom, everybody should apply at 62. Or at least Diet Coke and Diet Pepsi should have applied at 62.
So 8% is a pretty high discount rate. And you correct me if I’m wrong, when we’re looking at a discount rate for a Social Security claiming strategy, we’re basically saying: is our portfolio going to earn 8%? And that’s certainly possible, but how many federal employees have we seen who have 50%, 60%, 70% of their money in the G Fund? It’s going to be really hard to hit an 8% discount rate with 50% plus of your portfolio in the G Fund.
Tommy Blackburn: Yeah. I mean, and sometimes you do come across retirees who are aggressive, but that is very rare. Most of the time, retirees tend to be more conservative. More of, again, “I don’t want to un-retire, I don’t want to have to go back to work. I want this to last my lifetime. I want it to have some growth. I want to sustain. I’ve got some other goals, but I’m not trying to hit home runs right now.”
So 8%, certainly a 60/40 can do that in certain years, but to plan for that is kind of an aggressive rate of return over a long period of time. So that is one of the things when you’re thinking about this discount rate argument, which I’m not saying it’s completely invalid, like I think there is a validity to thinking about a discount rate to Social Security, but figuring out what that rate should be is certainly debatable.
And that, I would say, is kind of an aggressive rate to have the hurdle rate that we’ve got to get over to make that decision worthwhile, our portfolio to beat. You can also make the argument that, yeah, maybe our allocation as a whole is going to get around that, which I’m not making that argument, but I’m just saying maybe we could, then, but it’s like, this is backed by the government. Cost of living is more like a bond, right, than it is the overall allocation. So, the end is more of a debate around what is the actual discount rate. I think you—I’m at least at the moment going to be hard-pressed to get to 8% as being the appropriate discount rate for that Social Security benefit.
John Mason: Well, we know from decades and careers of serving federal employees, and forgive us you, we’re not trying to over-generalize who you are as people, because you’re all different, but like, generally speaking, federal employees tend to be a little bit more conservative. Not necessarily politically, but financially. We chose security, we chose stability. We chose pensions. We chose benefits over maybe a high-flying career somewhere else with more volatility. We did that for a reason.
And then we tend to see federal employees also invest their money maybe a little more conservatively than somebody that took the high-flying career. So maybe we are just a group of people. Again, not overly generalizing because some people are different than that, but maybe federal employees are more conservative when it comes to how they spend their money, how they invest their money, their job choices.
So when we think about the 62 claiming strategy, maybe again, we’re not talking to you. Maybe that doesn’t hit where you are as a human. And like Tommy was saying on the discount rate, maybe we’re never going to get that return necessary to justify turning Social Security on at 62.
Now, this is kind of rapid fire, and I know we want to wrap up soon, is why would we encourage somebody to turn on benefits at 62? So, woo, woo, woo, stop, like, pivot. We said that was wrong, but what if we have under-18 children? We probably want to consider, or at least want to talk about, activating Social Security at 62 because we’re unlocking child benefits. We’re unlocking disabled adult child benefits.
Maybe we don’t want to delay all the way till 70 because our spouse has never worked and we want to unlock spousal benefits, right? So the calculation, Tommy, you know this, a married couple with no other things going on is one thing. A married couple with only one Social Security check is different. A married couple with some minor children or adopted children, or maybe there’s a large age discrepancy between spouse one and spouse two and a minor child is born.
I mean, I saw one where a 65-year-old was married to a 40-year-old and he had a 3-year-old daughter, and his pension from North Carolina allowed him to take 100% survivor benefits for the 3-year-old. And it was the same cost as what it would’ve been to provide it to a spouse. And so I know that’s a tangent, but that’s just an example of how you have to look at the individual family to understand what the best-case scenario would be or the advice that you’re giving for them.
So just think about unlocking those other benefits. And then, of course, there’s the tax planning window, which we think is sacred. You’re in control when you retire of how much income you generate from your Social Security, your portfolio, to a certain extent, your capital gains, and your interest. And using that time period where we haven’t activated Social, maybe you could have converted a bulk of your assets to Roth during that timeframe, so that way when you flip on your Social, it’s 100% tax-free at 70. We’ve done that for a client, and it worked out quite nicely and they’re happy as a clam.
Tommy Blackburn: Yeah, so I think I know who you’re talking about. I’m still trying to digest being 65 with a 3-year-old, though. That is—just from a, I know me, much younger with that age, having that age of child, I can’t imagine being 65 and trying to keep up with a 3-year-old. But I suppose they can do it. And if this person is very young at heart to be able, so I’m just impressed at that fact pattern.
John Mason: Well, there’s two outcomes, right? Outcome one is he’s going to exit the plan sooner, or he’s going to exit the plan way later. One of the two things is going to happen.
Tommy Blackburn: He’s got that 100% North Carolina benefit going on, which yeah, they probably want to revisit their formulas there if they’re not adjusting that at all, because that 3-year-old is guaranteed, most likely, to get this benefit. So that’s pretty, pretty interesting.
Yeah, John, I think you hit a lot of them. You mentioned: what if we only have one working spouse? So if that one, in order to unlock the other spouse’s, if they don’t have a benefit, it’s going to be 50% of the high earner. Because we only had one in this. They have to file, the earner, the person with the actual benefit, has to file to unlock that 50% for the spouse.
Whereas many times in today’s world, like John said, we’ve got two working feds, two working federal employees. So they each have their own benefit. We can therefore file for your benefit at 62 and delay the other. But if both benefits are tied to what one person does, that can change the advice to where maybe we don’t want to delay it.
John, I think you mentioned different ages and spouses coming in. I was thinking about this—a little bit of a tangent, I’ll try to get through it quickly. But you mentioned earlier on, we talk about life expectancy with clients. We do that. I know when I go through it with plans, I usually say, “Hey, like, this is what we’re assuming. Do you have strong feelings? Is there something in your background?” So we do try to get out ahead of time: what are your thoughts on life expectancy? Because things are built into, assumptions are based around this.
And I had a client say like, “Actually, I’ve got this thing in my background where chances are I’m not living that long life that most of your clients are. And my spouse, the female, is actually older by like a few years in this case.” And so as you start putting it together, it’s like, yeah, you should take Social Security at 62 because chances are you’re not making it past that 78, 80 age. I hope you do, but the probability is you aren’t, and your spouse is older, so chances are they’re not going to get your benefit by us delaying it. So, you know, the stars, you hate to say stars aligned in that fact pattern, but that was the fact pattern. It made sense. So the advice is certainly customized, and hopefully that’s just a good example for folks that there’s a scenario for you.
John Mason: I love it, Tommy. Well, I think we should wrap unless you have any closing thoughts.
Tommy Blackburn: We should wrap. I was thinking you just say—
John Mason: We should wrap, but we’re not going to.
Tommy Blackburn: Yeah, we’re not going to. Because you just put some thoughts in my mind. You mentioned federal employees/retirees being conservative, and I thought to myself, we are a reflection sometimes of our clients. I think John and I have mentioned this before: we get together with other financial advisors and we find that we’re usually on the more conservative side amongst financial advisors. We are clearly a reflection of the folks we work with, for whatever that means.
And the other thing I was thinking, John, because you brought in 2008 and it just kind of got my memory going back there. I was like, man, how cyclical everything is. Because when the world was on—it wasn’t on fire, but when we were dealing with crises, when the market wasn’t doing its best, I think everybody wanted to delay Social Security. It seemed like the theme at the time was, “Hey, it grows by a guaranteed X percent per year,” and everybody really liked that because the market wasn’t reliable. And now we’ve had a bull market for a while. And now we’re saying, “Hey, let’s take Social Security early.” So I suspect it is just a matter of, again, zoom out, let’s look at the plan. Let’s look at long-term trends and not get too caught up in recent history to influence all of our long-term decisions.
John Mason: And maybe a good public service announcement, or maybe safety announcement in this instance, is we’ve been in a bull market really for quite some time. We had some COVID in there, we said some other things. But if you go back to like 2017 through now, like, wow, the market’s done really good. And then post-COVID, really good.
If you haven’t rebalanced in a while, you might want to revisit that, audience. Rebalancing is the idea of having the appropriate amount of stocks and bonds in your portfolio. We typically rebalance our client accounts on a quarterly basis. Last year was a good year, which means your stock/bond allocation is out of whack. Your investment allocation should not be based on your feelings for what’s happening in the market today; it should be based on a long-term strategy designed so you don’t run out of money before you pass away. Whether that’s a 60/40, 80/20, 20/80, it should be customized to you, and your plan should be goal-specific.
If you haven’t rebalanced in a while, please consider doing that. We can’t tell you the perfect cadence because nobody knows, but it’s more than “never.” We can tell you that. Rebalancing never is typically not the desired outcome. So, quarterly, maybe annually, somewhere in between is likely where you want to end up. Set a hard and fast rule, that way you stick to your systems.
Tommy Blackburn: I love it, John. I hope the audience has enjoyed today’s conversation. Hopefully it was helpful, educational, and I think it’s a good time to wrap. I think it was a fun one.
John Mason: Awesome, man. Well, thank you for your time today.
Tommy Blackburn: Thank you.
John Mason: Audience, thanks for joining us on another episode of the Federal Employee Financial Planning Podcast. We’re honored that you spent some time with us today. Do all the things for us, and we’ll see you next time on the Federal Employee Financial Planning Podcast.
The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.
We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.