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FEFP: Social Security: How to Maximize Your Benefits (EP35)

Do you ever wonder if you're making the right decisions when it comes to Social Security? With countless advertisements bombarding us with a million ways to claim our benefits, it's easy to feel overwhelmed and unsure of what to do. In this episode, Michael, John, Tommy, and Ben will be shedding light on the complexities of Social Security so that you can plan for a financially secure future.

Listen in to learn about the maximum benefits you can receive and why claiming your benefits early could result in missing out on half of what you could have received. You'll also hear about the Social Security Fairness Act, the three options you have in terms of applying for Social Security, and how to make the best decision for your unique situation. Plus, if you're married, they'll share tips on how to navigate the system with your partner.

Listen to the full episode here:

What you will learn:

  • The amount of opportunities for Social Security when you’re married or in a relationship. (1:30)
  • The max benefits of Social Security. (4:35)
  • Why you should not make Social Security decisions out of fear. (7:20)
  • Whether Social Security will be around in 20 years time. (10:45)
  • What the Social Security Fairness Act is. (13:55)
  • The three options for applying for Social Security. (17:00)
  • How to choose when to apply for Social Security as a married couple. (20:20)

Ideas worth sharing:

“If you claim your Social Security early, it’s half the amount of benefits that you could have. That’s a monumental decision, and we have to know why we’re doing it and we should not make that decision out of fear.” - Mason & Associates, LLC  

“When a married couple both have Social Security, at the first person's death, only the higher of the two Social Security payments stays around.” - Mason & Associates, LLC  

“Just because we’re delaying Social Security until age 70 doesn’t mean you’re going to live on less.” - Mason & Associates, LLC  

Resources from this episode:


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Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

Michael Mason: Welcome to the Federal Employee Financial Planning Podcast, hosted by Michael Mason, certified financial planner; John Mason, certified financial planner; Tommy Blackburn, also certified financial planner, certified public accountant, and Ben Raikes, certified financial planner and IRS enrolled agent.

Mason & Associates have over three decades experience helping federal employees. This episode, Social Security — you hear a lot about social security, John. I've been seeing ads on the TV of a million ways to claim social security and books on it. So, we figured we'd give you a quick podcast on social security.

John Mason: Oh, social security is so much fun, and it's such a big part guys of one's overall financial plan specifically for married couples or if you've been married before or if you have a deceased spouse. There are a lot of planning opportunities around social security.

Now, if you're single or never been married and don't have a deceased spouse, maybe there aren't as many opportunities. Maybe the decision you make isn't as — I don't know, Tommy, it's still critical, but it just feels a little bit different when it's single versus joint.

Tommy Blackburn: I think we're a little more — maybe indifferent is not the right word, but when we have a single person, we don't feel quite as passionately. But when we have a married couple and we have spouses, we tend to get pretty passionate about the strategy we're going to choose there because there's just a little bit more oomph to that decision and the importance of it.

But we were talking recently, fellas, about the importance of social security and how to plan for it. And I think even if you assumed what the average benefit maybe is somewhere between 2,000 and 2,500 for social security, over somebody's lifetime, I think it's probably what, easily $500,000 asset that we're talking about there.

So, it is a critical piece of anybody's planning and we're hoping to shed some light on it.

John Mason: Well, right before we dive into social security, I wanted to say two things because Mike, you introduced Ben Raikes and we're happy to have him on this episode as well. And you said “IRS enrolled agent,” and anytime those three letters, “IRS” comes out, that's a very scary thing.

So, for our audience, IRS enrolled agent is a really neat thing to have on our team at Mason & Associates, it's a tax designation. Ben spent quite a bit of time obtaining that designation. So, not only do we have the CPA, we also have Ben, the enrolled agent with us. So, that's really exciting.

And then right before we dive in, thank you for listening, thank you for tuning in as we release these episodes biweekly. So, welcome, welcome back.

Update on Mason LLC, Mason and Associates: we have YouTube videos coming. So, if you like this content on the Federal Employee Financial Planning Podcast, stay tuned. We have some YouTube videos coming as well that's going to tie in to a lot of the similar content that we're doing here. So, we're really excited to bring those to you.

We also want to remind you that we're financial planners first and we do this content creation second.

And then finally, if you would like to become a new client, if you like what you hear, if you like our style and our flavor, we're Mason & Associates, you can start that new client process by requesting an introductory phone call at

Tommy Blackburn: And John, our promise on that intro call, I believe I've got it right now, is we'll answer the questions you have as well as the questions you didn't know to ask. I think that's our promise and our commitment if you reach out to us.

John Mason: And not only that, you'll be better off after that 15 or 30 minutes and before we had the call. So, we're going to add some value, you'll be better off, and we'll answer those questions you didn't know to ask.

So, Tommy, you hit the nail on the head earlier and I know Mike, you have this number. Social security is a big asset — 2,000, 2500 a month, 5, 6, $700,000 asset equivalent in a 401(k) or TSP.

Mike, what are those max benefits looking like? Because Tommy gave the average, but these maximum numbers are huge.

Michael Mason: Yeah, as I look at this, I'm 61 and I’ll be 62 in August, and I'm planning for well over a $60,000 benefit when I turn mine on at age 70. So, I look today and the highest benefit you could have if you turn full retirement age, which is 67 this year is $43,500.

And just delaying three more years after that with the 8% credits, you can take that up to 55,000. So, three years from now, you're 67 today, three years from now, you delay, it's 55,000. And Tommy, that's only 55,000, if there's no COLIs along the way.

Tommy Blackburn: Or maybe we should call them COLIs (cost of living increases) because they don't go down, but they only go up with inflation. And over the past two years, we've seen that increase by about 15%.

So, hopefully, those inflation rates slow down on us, but safe to say, it's going to be at least 55,000, and probably easily that 60,000 number that you referenced a second ago.

John Mason: And Mike, you just gave us those max benefits at 43,500 at what we call FRA. So, FRA stands for Full Retirement Age.

For most people listening to this podcast, FRA is going to be 67. If you're maybe a little bit older, I think born before 1960-ish, just double check that, fact-check that. Your FRA could have been 66 in six months or 66 even. So, for most people, 67 is FRA, 44,000 at FRA, 55,000 at age 70.

Really quickly, if we claim that benefit at age 62, which would be the earliest possible time one could claim that benefit, I think that's about 70% of the 43,500 you mentioned earlier. So, in that example, we're talking a $30,000 benefit at age 62, which is Tommy's 2,500 a month on average. So, why is this important?

Well, 30,000 is like half of 60,000. So, by claiming this benefit early, instead of having 60,000 for the rest of your life and spouse's life, if you claim early, it's half of that, that's a monumental decision.

And we have to know why we're doing it and we shouldn't be making that decision out of fear. And unfortunately, I think we see a lot of clients that make social security decisions out of fear.

Michael Mason: I sure would've liked to have had an 8% cost of living on 60,000 last year versus 30,000. And I know we're going to talk about it, but if that's all you have … like my wife Bobby, she's going to claim something very close to that.

I mean, we could see $120,000 in social security income, and we'll talk about the taxation of it, but a simple statement, if that's all the income we have, we're not paying any tax in Virginia or federal on $120,000 of income.

John Mason: Well, Mike, I love that, and why don't we just go straight into the taxation of social security, and I don't know if this is the official rule, but here at Mason & Associates, we call it the 85/37 rule.

And what that 85/37 rule means is that at most, 85% of a family's social security is subject to federal income tax. That does not mean Tommy, that they pay 85 cents on the dollar in taxes. What are we saying when 85% is subject to taxability?

Tommy Blackburn: I think it's a really good point to drive home because I've definitely had people have the misconception that the tax rate on my social security's going to be 85%, like this is highway robbery.

No, what we're saying is that if we had, let's just say $1,000 of social security coming in, depending on the income, other income on our tax return, we could have $850 of it subject to tax. So, 850 could be taxable, the other 150 would be tax-free. That's the worst-case scenario.

And as Mike mentioned, in many states, it's not taxed at all. So, we could be anywhere from 0% of it hitting the tax return up to 85%, then we multiply that by our normal tax rates.

John Mason: So, 85% is the maximum that flows through. And guys, we didn't pull this preparing for the episode, but right in the middle of your tax return, if you're looking at IRS 1040, there's two boxes for social security.

One is gross social security received, and it's box A. And then when you move across the tax return to the right side, there's another one and it's box B, and that is gross benefits received is A, amount subject to tax is box B.

So, if you're curious how much of your social security is flowing through to the tax return, it's going to be the amount in box B. 37, Mike stands for the 36 states plus Washington DC that they do not tax social security benefits at all.

Michael Mason: So, when we're talking about this and we're talking about income tested to determine how much of social security flows onto your tax return, just remember we're talking the federal tax return.

Because it doesn't matter how much you're making in the state of Virginia and these other 36 places, doesn't matter how much your income is. That social security is not going to be part of the state return.

Ben Raikes: John, you mentioned DC and so I'm going to take us down that path here, and maybe take us a couple of steps back and kind of answer a question I think is on a lot of people's mind probably listening to this podcast is, is social security even going to be around for me?

We all talked about how big of an asset it is, how important it is, the maximum benefits, and we can talk about a lot of really fun things about when to claim and how you might be able to maximize your family's benefit if you're divorced or maybe you have a deceased spouse.

But maybe we can shed some light on do we believe this benefit is still going to be around for our clients?

John Mason: Wow, Ben, that's a really loaded question and I think all four of us and we’ll throw Ken in for number five believe that social security will be around, and will it look the same as it looks today?

We'd have to say that the answer is emphatically no. It's probably going to look different. Does it look different for Mike at 61, 62-years-old than it looks for the three of us in our early thirties?

Yeah, I think it looks different. Will 35-year-old John Mason be able to claim social security benefits at 62 when my life expectancy is probably 95 or 100? No, I don't think that that's really going to be a thing going forward.

And then I know Tommy, there's some other things on your mind too on how we can kind of fix this problem.

Tommy Blackburn: Well, maybe John can still claim at 62, but if they push the normal retirement age back to 70, maybe you're getting half of your normal benefit. So, that's one way they can do it, is by pushing that normal retirement age back. There's plenty of thoughts out there.

It's interesting, social security, the solutions out there will fix it. It's actually, they know how to fix it, just nobody wants to deal with it because it's unpopular. But we can raise the tax rate how much we contribute into social security. So, right now, that's 6.2% for the employee and 6.2% for the employer.

In addition, we can remove the cap. As we were prepping for this, we figured the current wage base, how much, once you get to 160,000 in 2023 of wages, you stop paying social security, they could remove that.

And I know there's been proposals that say, “Hey, once we stop at 160 for example, but then when we get back to 400,000, we start paying social security taxes again,” that's one of them.

Another is we talked about the COLI earlier. There have been proposals out there to change how that cost-of-living adjustment is calculated so they could water that down. There's a number of ways they could fix it.

I think to answer Ben's question, I would say it's far too important of a system. I think last we looked, there was over 60 million people in this country drawing social security.

It is really hard for me to see … it's just a pillar of our retirement system. It's hard to see that going completely away. Does it look different in the future? Probably.

Michael Mason: It's the single largest line item in the budget and I would say to you that — and then we want to move on from this. I would say to you that the biggest threat to the solvency of social security is the Social Security Fairness Act that 250 members of Congress have signed onto.

So, on one hand, they're going to raise the revenue by raising the wage base. On the other hand, they're going to give benefits to people that don't deserve them. So, keep an eye out for the social security wage base.

Let's talk about some claiming strategies, one or two that still exist as we dive into more in depth things we can control. In social services.

John Mason: Well, you can't just throw out Social Security Fairness Act and act like we are not going to talk about that at all.

So, the Social Security Fairness Act, Mike, as you mentioned specifically, is Government Pension Offset and Windfall Elimination Provision and how all that works.

So, if you're listening, if our audience is listening to this, we have other episodes where we specifically talk about Social Security Fairness Act, Government Pension Offset and Windfall Elimination Provision.

We would encourage you to listen to those because I know Mike, that's something you're very passionate about and something that we believe potentially CalSTRS, I believe doesn't pay into social security.

There's other retirement systems like Norfolk, Illinois has some where those folks don't pay into social security, and the United States government is talking about giving access or giving benefits to folks who have never paid in a penny to the social security system. I agree, it's dangerous. So, past episodes folks can check that out.

Tommy Blackburn: Episode 11 and 12 to be specific.

John Mason: Perfect.

Michael Mason: And the GPO is the most important one. And I would just say now that you've let it extend one of your bigger organizations, National Association of Retired Federal Employees is supporting the elimination of government pension offset, which is what this Social Security Fairness Act does, and it should be called the Unfairness Act.

And here's what it does, it gives a windfall to the CSRS retirees that never paid in the system. And it puts at risk the FERS employees who have paid both into social security and their FERS annuity.

How can an organization that supports federal employees give a windfall to one and put at risk the other, which is going to be the greater number of people? Because there's no more CSRS being hired, really listen to this, understand it, it is going to hurt FERS employees, and it's going to give an unneeded, unbenefited, unearned benefit to CSRS retirees.

John Mason: So, Mike, you had teed this up and I think it's really good to get back into the planning options. And Ben, maybe you can help us with this a little bit.

So, there's a lot of people that I think still do seminar marketing and things of that nature, and they talk about social security, and I think they make it more complex and it needs to be. And that's not to be said that social security planning isn't significant and a considerable amount of time should be applied towards it.

But we see things like, “Come out to this free steak dinner seminar and learn about the 72,000 ways one could claim social security retirement benefits.” Speak a little bit to that please.

Ben Raikes: Well, and John, I think to be fair, there's millions of ways to apply for social security benefits. Between what you and your wife could do, you could apply one day, the next day, the next hour, the next second.

And what those marketing schemes are really trying to give you, they're trying to say, “Hey, there's a million different times and dates and places and different methods of applying for social security, there's millions of them. You need to come see us.”

When in reality, we look at it and we say, “You really have three options: you can apply at 62, you can apply at your full retirement age, which is most likely age 67, or you can apply at the last possible age, which is age 70.”

And each of those have their own benefits, and it may depend on your own situation, whether you go early or you go late. Tommy, maybe you could talk a little bit about a strategy that we use at Mason & Associates that we see with a lot of our clients.

Tommy Blackburn: So, typically, I think what you're referring to is for a lot of our married clients, a normal type of scenario here. So, there's always customizations, maybe we're working past our normal retirement age, different things happen.

So, we customize for each case we have, but typically, what we're going to see is we have two spouses, usually one has earned a higher benefit and the other has earned a lower benefit.

And what we find usually makes sense is let's have the lower earning spouse, the spouse with the lower social security record, let's take that one early and then the spouse who has earned that higher social security benefit, let's delay it hopefully to age 70.

So, why do we do this? I think there's a number of reasons we do it. Some of it's psychological, like I think it feels like, “Hey, we're hedging our bets.” Clients feel great about, “Okay, we'll start taking something early, and then we'll delay the other one.” So, we're kind of hedging as to what happens with social security.

The primary reason though, well one, the math supports this, we get pretty close to if we both delay 70 by doing this, and it's the survivorship part of this. So, we delay one benefit and it's growing at every year past our normal retirement age at 8% per year.

As Mike said, that thing's getting to over 60,000 a year right now, potentially if we have that maximum benefit. And so, what happens, fellas, when we have currently, let's say we're both alive, both spouses are collecting social security, why is this so critical on the backend?

Michael Mason: How many times over the last 35 years in this business has a retiree been surprised at age 63 or 64 that at their death, only one check stays at the household. So, if I'm drawing a $50,000 check and Bobby's drawing a 30 while we're alive, that's 80 grand.

But at my death, Bobby's 30 goes away, my 50 stays there, only one check stays. Folks, this shouldn't be a surprise, I just did the math.

35 years that you've paid into social security at 26 pay periods a year, you've had 910 pay periods and you have no idea what you're paying into and how it's going to work. You shouldn't be finding this out at 65 when it's kind of a little bit late to plan for it.

Tommy Blackburn: And probably one of the largest deductions that's hitting your paycheck, that 6.2% is flat, it has got to be one of the higher ones that you would think it should draw a little bit of scrutiny if you look at your paycheck.

John Mason: Well, between the two of you, Mike and Tommy, I think you both hit this really well. We like to start one person's benefit at 62, delay the others until 70. And Tommy, I think you mentioned, it's kind of hard to stomach both people delaying to 70.

That's a really hard emotional decision, especially when somebody retires, and they went from making money every two weeks to now, going to withdrawals and once a month income. So, it's really hard to overcome that emotional hurdle.

You also mentioned that the math is pretty similar, starting one early and one late versus both going late. And Mike, you hit that perfect because you said remember at the first person's death, only the higher of the two check stays around.

So, let's go back to your example with Bobby. If hers is 30 and yours is 50, and you die, she gets 50. Well, if Bobby delays till age 70, now she goes to 45,000. So, 50 and 45 instead of 50 and 30.

Well, now, at her death, it's only 50,000 that stays around. So, the math doesn't really support, especially when you start putting in life expectancy. We almost want the gap between the high and the low to be as big as possible, don't we?

Michael Mason: Yeah, and the only thing that interferes with that, because I don't want to pretend like we give advice for other people and we take it differently. Remember, I said Bobby and I may each have a $60,000 benefit.

Well, when she turned 62, she's probably still working, and she's Chief Operating Officer at Mason & Associates. So, if she's still working, we can't turn her income on because she's going to give it all back, which is another piece we want to talk about.

So, maybe she retires at 64, 65 and that's when we look at this strategy of, she turns hers on and I continue to delay.

John Mason: Well, fellas remember, and our audience needs to hear this loud and clear, and I know it's something that we mention to our clients all the time when we talk about delaying social security, is just because we're delaying that benefit does not mean that your retirement is going to be worse.

Let me say this again: just because we're delaying social security until age 70 doesn't mean you're going to live on less. And Ben, how do we do that for our clients?

Ben Raikes: Normally, if we're delaying social security as part of going through our financial plan, let's say that your social security would pay you $2,500 a month and we're telling you, “Hey, you go to Mason & Associates …” they said, “Tommy and John said that I'm supposed to delay that $2,500 a month, I'm going to be Eden Ramen. What am I supposed to do?”

No, that is not what we mean at all. What we mean is that $2,500 a month that was coming from social security, we're going to take that from somewhere else. Maybe you have an IRA or maybe you have a TSP or a joint taxable account or some cash.

At that point, we're going to say what is the most tax-efficient place to pull these other income streams from? And then when it's time to tone our social security, we might actually turn that other income stream off.

So, it's not about delaying social security and delaying gratification and delaying getting to take those vacations and trips that you want. It's actually about maximizing all those things. But we just have to help you figure out what do I do first?

John Mason: And it's really scary because not many people want to take double withdrawals for 6, 7, 8 years as they're delaying that benefit. But the math is pretty clear when you assume average life expectancies that it works out.

Tommy Blackburn: And it doesn't get more fiduciary of putting your clients' interests ahead of your own in these examples. So, our advice is usually counter to our own interests, this is a classic example.

“Hey, you should delay social security so that we can take higher distributions from your investments to supplement your lifestyle so that you can still live that fulfilling life …” that lowers our compensation.

But we give this advice all the time, and then we may take it a step further and say, “Hey, how about we do a Roth conversion because we have a better tax window to plan in right now?”

Well, that probably lowered the assets that we're managing as well, but that's what a real fiduciary would do. The easy thing, the self-serving thing would say, “Take your social security in full as fast as you can and just don't leave your investments alone.”

Michael Mason: The best financial plans — I've been doing this 36 years and the people that are most prepared for retirement are the ones that think about it in advance. They give up something today for something more in the future. We give up into our 401(k) as much as we can for something better in the future.

But I've learned guys over time, and you've heard me say this a bunch; I guarantee you as you're doing this math and you're thinking, “I'm delaying till age 70, what if I don't live to that magic breakeven point?”

So, here's my commonsense answer to that. If you and your spouse both die before you've reached that magic point, I can tell you that you're not going to be floating up to heaven kicking each other in the butt for taking social security delayed.

But if you're alive at age 90 and you took it at age 62, you might be, if you could still get your foot off the ground, kicking each other in the butt for taking it early.

John Mason: Well, guys, let's break, let's do another episode on social security because I know we have more to talk about. So, we're going to end this episode, this was effectively Social Security part one.

I don't know how many other ones we may uncover as we record more but stay tuned. More episodes on social security to be released in the future. Thank you for being a part of our show. Thank you for tuning in to another episode of the Federal Employee Financial Planning Podcast. We're Mason & Associates,

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.