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Federal Employee Financial Planning: Social Security: Beyond the Basics (EP36)

Get ready to take your retirement benefits to the next level! As a federal employee, you've got a lot to look forward to: guaranteed FERS benefits and Social Security, plus a steady income that keeps the bills paid. But what if we told you there's a way to add some extra icing to the cake? In this episode, Michael, John, Tommy, and Ben are back to help you do just that. They're continuing the conversation about Social Security benefits and revealing how to stack the deck in your favor.

Listen in as they dive deep into the intricacies of Social Security, discussing the things you can't do anymore and how your benefits are calculated. They'll also touch on the income test and how it factors into the equation, along with the impact of taxes on your retirement benefits. It isn't just about the basics—it's about taking purposeful action to enhance your entire lifetime of good decisions. From the Social Security Fairness Act to retiring at 62, the hosts will guide you through the choices you need to make to take your retirement from good to great.

Listen to the full episode here:

What you will learn:

  • The importance of knowing how to maximize your benefits. (3:30)
  • Why you should put in the work to understand every benefit you may have access to. (6:00)
  • Common pitfalls to be aware of. (8:50)
  • How the Social Security Fairness Act works with someone who is retired CSRS. (13:10)
  • What you can’t do anymore in terms of Social Security. (14:30)
  • What to do if you’re in a situation where your spouse has passed. (16:30)
  • What the income test is. (18:30)
  • What you can do if it’s been a year since you started your Social Security. (22:00)

Ideas worth sharing:

“It’s not just about retiring at 62 and everything working out. It’s about purposeful decision-making to enhance the entire lifetime of good decisions, not just defaulting to the easy one.” - Mason & Associates, LLC  

“We want you to go from good to great.” - Mason & Associates, LLC  

“We do have options if you have had your Social Security benefits turned on for a year, but you want to make a change.” - 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 and Certified Public Accountant; and Ben Raikes, Certified Financial Planner and IRS Enrolled Agent.

Folks, may be one of the most credentialed podcasts for financial planning in the country. And then when you throw in the fact that we've specialized with federal employees for over three decades, definitely, one of the most credentialed podcast for federal employees.

We're going to continue the Social Security episode that we started a few weeks back, so Social Security Number 2 starting now.

John Mason: Starting now, that's right. Social Security starting now. So, welcome, welcome back. If you're tuning in for the first time, we're Mason & Associates. We specialize with federal employees.

What's important to know about us is we're financial planners first, and we're content creators second. So, if you'd like to become a client or you're curious what that looks like, you can reach out to us at .

Schedule an introductory phone call, or you can check out a prior episode, the New Client Process & Client Experience. It really details what it's like to work with Mason & Associates and our advisors. So, welcome, welcome back.

Also, YouTube channel is active. So, we are posting videos on YouTube. We're going to do shorter ones. We're going to discuss various different pieces of your financial plan, such as how to calculate your first benefit. How in the world does federal employees group life work?

So, the Mason & Associates YouTube channel is live and active. Check that out, like, subscribe, not only to this podcast, but to the YouTube channel. That way you get notifications as we release new content.

So, on the previous Social Security episode, we covered a variety of things. We talked about how the 1 million ways you can apply as kind of a marketing scheme. We talked about the differences between applying early and late. We defined full retirement age, FRA is age 67 for most of America at this point.

We talked about our strategy of typically maybe turning on one person's benefit early at 62 and delaying the other’s until 70. Mainly because of those delayed credits and the survivor aspect.

And we even touched a little bit on taxes as we talked about the 85-37 rule. So, if you missed that last episode, we would encourage you to go back and check that out.

On this episode, we want to talk about the things that you can't do anymore as it relates to Social Security, guys. We also, want to talk about how it's calculated.

And if we have time, we want to talk about the income test and how that factors in. As well as (if we have time) taxes, and really, really explain what this tax torpedo is all about.

So, I thought we'd start with how it's calculated, and then after that, maybe we'll dive into what we can't do anymore.

Michael Mason: So, as I think about this and I want to add or just start with this, we've got this intro music and the intro music has a couple of lines in it that I think will pertain here. “You'll rest easy once your plan is done.”

And then I don't know how much of it we play every time, but there's another one. “Gone are the days where we just hope and pray.”

Now, as a federal employee, you can do nothing and just do your time. Your first benefit's going to be there, your Social Security's going to be there. But you can add some icing to the cake that's already being baked, by understanding how to stack the deck in your favor.

So, I thought that was important as we go into this.

And John, you mentioned the marketing. If you get invited to a Social Security seminar and you're a federal employee, before I would attend that seminar, I would make sure that the person knows something about FERS or not go because it's one of the three legs of your retirement stool.

John Mason: And before folks listening to this podcast register for one of those steak dinners or one of those seminars, we just encourage you to really do some fact finding, wouldn't we, Mike? Like who's presenting? Are there any designations? What are the disclosures?

I know when I personally receive these mailers for these events, I look hard to try and figure out who's presenting, what the topics are going to be, what the background of the presenters is. And you almost can never find it. So, that's a red flag 9 times out of 10.

I think we'd rather encourage folks to pay 500 or a $1,000. Pay for their own filet mignon and get quality information without having to be sold an annuity product at the end. So, that is a big call to action.

Number two, and then you have to talk about how it's calculated because that's where we're supposed to be going, is you mentioned that federal employees in particular can just wake up at 62 and everything's going to be okay.

And that for the most part, I think we all agree is pretty true. And that you're going to have a pension, you're going to have Social Security. You've been putting in 5 or 10% or more into TSP.

We know that at 62 you could just turn on Social Security and your plan would likely still work. What we want to encourage our listeners to do is not be okay with a plan that just works.

We hope the call to action here is if we don't turn on Social Security, then we can do more tax planning. Or if we don't turn on Social Security now, my surviving spouse is going to be better.

So, it's not just about retiring at 62 and everything working, so I'm just going to do it. It's like purposeful decision making to enhance the entire lifetime of good decisions, not just defaulting to the easy one.

Tommy Blackburn: We want you to go from good to great, and by making better, optimal, more informed decisions, how much more fulfillment might we be able to accomplish? Maybe we can take more trips, we can have a more of a peace of mind.

So, good to great. You could certainly wake up and you will be okay, but we want you to be better than okay.

Michael Mason: Correct. And as we talk about how it's calculated, if you're a federal employee listening to this, you're very comfortable with a thing called high-3, your highest three consecutive earning years. That's what your pension's going to be based on.

Social Security is your high 35. That means you're 35 highest years. Now, going back 35 years ago, the wage base, how much you pay tax on before they quit taking Social Security tax out, 35 years ago, might have been 70,000. Today, it's 160,000.

So, if you are bumping your head on wage base for the last 35 years, then you're going to get one of the highest Social Security benefits. So, it's based on how much you pay into the system.

Now, Tommy, you may be able to give … we don't want to get in the weeds because it gets a little difficult in the weeds, but here's where you can make some screw ups.

And maybe federal employees don't do it, but you could spend 5 or 6, 7, 10 years in a private sector business where you're not paying any Social Security because you're trying to minimize that big tax. Well, that's going to hurt you in the end.

Tommy Blackburn: Penny wise and pound foolish. So, you could take some strategies to minimize your Social Security wages to boost your cash flow today. But then it's going to hurt you on that retirement calc down the road.

And one of the things we'll mention is that Social Security's more than just a retirement system. So, if maybe you get hurt along the way and you also, just hurt your disability benefit under the Social Security system. So, we want to be thoughtful if we have control over that.

And I was thinking, Mike, as far as like how is it calculated, the 35-year high calculation? Absolutely. I would say just take the easy route. Maybe be aware of some pitfalls, but go to , pull that Social Security statement, it's going to have your earnings record and give you the benefit at different ages.

Maybe a pitfall to be aware of too, is if we still have a long time to work, that statement is going to assume we work until that age shown earning what we're earning right now.

So, if that's not the case, we need to be go a little bit more into the weeds to get to that accurate benefit.

John Mason: So, is a great tool and I don't know if they're even mailing Social Security statements anymore for most of America, but is a call to action.

So, let's say you're 40 years old and listening to this podcast, why? Because we want to verify that your earnings history is accurate and up to date. I believe that you only have a certain amount of time to actually fix a missed earnings year or fix a number that's wrong.

So, annual check on, just like you would a credit report, make sure that your earnings history is accurate. And for those who are old or approaching retirement, we want to have an accurate estimate on what those benefits are going to be when you retire.

Tommy, you mentioned a pitfall. In SECURE Act 2.0, they just made it so that federal employees retiring under law enforcement, 25 years and any age have penalty free access to distributions from Thrift Savings Plan.

John Mason: So, what are we going to see here? We're going to see ATF, FPI, other acronyms starting to retire earlier.

Well, when you look at that and somebody retiring from one of those law enforcement systems at 48, they think their Social Security's going to be $3,000 assuming that they work until full retirement age.

We have to now, plug in zeros. So, I mean, you remember, our audience remembers you get a zero on a homework item in high school, that messes up your grade for the entire quarter. Zeros are bad and zeros are bad for Social Security too. So, that is a big pitfall.

Tommy Blackburn: And that's the one we wanted to make them aware of is that statements assumptions are accurate. It's pretty, pretty great statements as far as … but that's one of the pitfalls.

The other we talk about before the Social Security Fairness Act and being aware of WEP as well as GPO offset. If that affects you, you're not going to see that on the statements. That's where you got to go a little deeper as well.

John Mason: And then since we're talking about how it's calculated, we've talked about the high 35, we've talked about how zeros plugging into the calculation really hurts you.

All the thing is you have to have at least 40 quarters, which is 10 years of working and there's a dollar amount that you have to earn per quarter or credits, I think is what they call it now.

So, 35 years is how it's calculated. You have to have a minimum of 40 credits. If I make a W-2 wage of 50,000 and my Social Security is $2,000 a month, you make a 100,000, is your Social Security benefit 4,000 a month?

Ben Raikes: The answer here is unequivocally no.

John Mason: And maybe you can share with our audience just a little bit about how Social Security works and what I'm alluding to here because I think that's part of the calculation as well.

Ben Raikes: So, the actual calculation that goes into what your Social Security benefit will be can be somewhat complicated. But I think the general takeaway from this, is that Social Security replaces a higher amount of income for those that do not earn a high amount of income.

So, if you make $30,000 a year every year for your working career, when it's time to turn on Social Security, your Social Security benefit might be really close to $30,000 a year.

But if you're someone who makes $200,000 a year each and every single year for your working career, you are going to get nowhere near that same replacement value from your Social Security benefit.

John Mason: And on the last episode where we did Social Security, Mike, you had mentioned that the maximum benefit in 2023 for somebody who delays all the way until age 70 is like 55 grand.

Well, Ben, you just mentioned I'm making $200,000 a year and the most I can think to replicate from Social Security is 25% of that. So, Social Security absolutely gives a higher benefit to the lower income.

And, Mike, I'm not happy about doing this, but I've got to let you just do your Social Security Fairness Act because Ben just talked about disproportionate benefits to lower income.

How does that work with Social Security Fairness Act and maybe somebody who's retired CSRS?

Michael Mason: Well, yeah, you retired CSRS and those last three years were $200,000 as your high-3. 80% of 200,000, that's my math. Eight times two is 16, that's $160,000 pension. You just can't get there from here on Social Security.

John Mason: But more importantly, let's say they went to work at 7-Eleven after that?

Michael Mason: Or they dabbled at 7-Eleven or they dabbled teaching and they made 15 to $18,000 a year in the Social Security system.

Well, part of this Social Security Fairness Act is the elimination of Windfall Elimination Provision that says, “We're not going to let you build a monster pension in a system that doesn't pay into Social Security and get really a millionaire's pension 160,000 a year.”

“And then look like a pauper for working at 7-Eleven and get the same increased benefit as somebody that only made $18,000 a year.”

John Mason: Exactly. So, so much to talk about with Social Security. I think we've done a good job covering kind of like the baseline of how it's calculated.

So, let's talk about what we can do now. And last time we talked about really you have three options, Tommy. Previously there were other options with Social Security, but what went away and what are we left with now?

Tommy Blackburn: What went away was the file and suspend and the restricted application. And we’ll put an asterisk around that because that still exists to a degree depending on when you were born and under other strategies.

But it was also, called the claim now, and claim more later strategy, which said, “Hey, at our full retirement age, (let's call it 67) Tommy and John are married, Tommy can file for his Social Security and then immediately suspend it.”

And what it did was it unlocked my benefit so that John, my spouse, could then file a restricted application for half. So, he could get half of my benefit while we both delayed ours to age 70.

That was the file and suspend with the restricted application strategy. That was done away or began to phase out back in 2015, I think. In the dead of the night Congress changed that rule on us.

So, for all intents and purpose, we'll just say that's gone. Now, where does it still exist?

Michael Mason: That would be in the survivor mode. And this is extremely important. If you're 62 or 63-year-old and you just lost your 64-year-old spouse, you have the opportunity assuming that spouse did not claim Social Security. They died, let's say on the job.

Now, you have the opportunity to claim a survivor Social Security based on their full retirement, age 67. But if you did that, they're going to reduce your benefit because you're claiming it's 62 or 63.

Or you have the opportunity to claim your own benefit. You're not working, claim your own benefit, it's probably smaller. Claim that benefit until you reach age 67. It doesn't benefit you to claim or to delay any longer because the most you'll get is the age 67 survivor benefit, the full retirement age.

So, maybe it makes sense to claim your own and then turn on survivors Social Security.

Tommy Blackburn: So, I think the key here (because there's a lot of details there) is if you're in a situation where your spouse passed, is to contact an advisor, whether it's Mason and Associates or somebody like us who actually is going to spend some time understanding, do we turn on your benefit, do we turn on your spouses?

There's some nuances here, we want to make sure we're planning appropriately. That would be my take away.

John Mason: A hundred percent agree. And I know we do a lot of fact finding around Social Security.

And as we're making new clients and talking with new potential clients, one of the questions we always ask is, “Are you married during this introductory phone call? Yes, no. No were you ever married before? Do you have a spouse that has ever passed away?”

And we like to know about those prior marriages, whether they ended in death or divorce because it unlocks some of these benefits that maybe advisors who are only trying to manage the money maybe aren't going as far down those questions.

And they can be uncomfortable. They can be uncomfortable and they're not easy questions to ask. So, if somebody was to reach out to us, Mike, and say, “I'd like to have an introductory phone call.” I don't want to scare them away, but we are going to ask them the hard questions.

Michael Mason: Well, you can't be a source without asking and understanding the information. I made a point on the survivor Social Security whether he or she should claim her own.

But I did make a point to say they're not working. So, I think this can kind of lead us into the income test. Just because you have a spouse that's died doesn't mean you get a benefit.

If you're still working and you're making more than 40 or $50,000 a year, it probably makes sense not to do anything because there's a Social Security earnings test. If you have earned income of a certain amount there, you are going to have to pay back if you claim Social Security. Who wants to take that one?

Ben Raikes: So, the way I believe that works is again, it's if you are earning wages and collecting Social Security before your full retirement age, what happens is your Social Security will be reduced. What is it? $1 for every $2 you go over the specified limit?

Tommy Blackburn: Yeah.

Ben Raikes: So, you might actually turn your benefits on and think, “I'm rich, I have all this cash flow coming in.” And Social Security says, “Hang on, wait just a second here, you're still working. We are not going to give you your full benefit until you reach that full retirement age.”

So, it can be again, Tommy's point, there are so many different situations whether you're working, whether you're married, whether you’re divorced from your spouse or your spouse is deceased. These are tough, complicated questions and you really need to be seeking out an advisor to answer some of these things.

John Mason: So, the income test, Ben, like you described perfectly was $1 for every two above like 21,000 of earnings. And then that transfers to the year you turn full retirement age, that income test goes up to 56,000.

And the calculation changes a bit there too. It's $1 for every three over 56,000. And then once you hit FRA you can make unlimited income. So, you kind of have these three points in time to look at.

And, Mike, man, we have so many good stories. We were doing a presentation for the Department of Navy and we were standing there and we were talking about Windfall Elimination Provision and we were talking about income tests and how all this works.

And this one lady raised her hand and she was like, “I'm actively working, I'm CSRS. What does that mean? And my spouse died last year.” And we were like, “Well, you can just keep going to work and you can claim this survivor benefit of 30 or $40,000 a year.”

And everybody in the audience was like, “She can't do that. She's CSRS.” And you were like, “Well it stands for government pension offset, not government you go to work offset.”

So, this lady, because she was still actively working CSRS, GPO wasn't applicable yet.

Michael Mason: Well, yeah, the greatest example of that in real world post COVID is Dr. Fauci. He's married to a FERS employee, he's CSRS, he's 70 some years old. He may be the oldest CSRS active, I think he's even 80.

But the fact is, he's drawing 450 grand and until he retires, he can draw Social Security from his spouse, half of her record as if he was a stay at home, raise the kid's spouse his entire life.

So, yeah, it's government pension offset, it's not government earned income offset.

Tommy Blackburn: And he might as well, because when he does retire, Social Security's gone under these tests, he's not getting anything. So, almost it would behoove him to take advantage of that now, whether it's right or wrong, because it's not going to happen once he retires.

John Mason: Well, a couple, maybe two or three other points to hit and we're not going to get into the tax torpedo on this episode guys. We'll have to do another one because we've already covered so much.

I wrote down as we were talking, what if somebody is listening to this podcast, they're listening right now, and they say, “Oh my goodness, I should not have turned on Social Security on my birthday January 1 st of 2023.” What's the option?

Ben Raikes: I believe they have at least what at, 12 months to pay back the benefits that they have received. And then they're essentially starting as if they had never turned those on to begin with.

So, they could pay them back, say, “Mason & Associates, you had a great podcast. Help me figure out what I should actually do to maximize my benefits.”

So, if you've started within a year, you still have some time left to change your decisions or make any alterations and you may actually just even double check on that and say, “Hey, you did the right thing.”

John Mason: And, Tommy, in addition to what Ben's saying, what if it's now, January 1 of 2024 and we're past 12 months? Does that person have any options?

Tommy Blackburn: They do. It's just going to be a little bit of a longer strategy there. And that one's going to be, once we get to our full retirement age, which we'll just say is 67 for ease here. At 67, we can still file a suspension, which is to freeze our benefit. “Hey, Social Security, stop paying me.”

And what's that's going to do is we're going to get those delayed credits of 8% per year all the way up to age 70 if we want. So, that'll undo the reduction that we most likely experienced by taking it early. So, we do still have options.

Most people are not going to be excited about the idea of turning off that income stream, but if we pull a whole plan together, hopefully, we can illustrate why this makes sense.

Michael Mason: Well, you never know, Tommy, I mean, multiple things could have happened. Maybe they worked private sector for a while and now, at age 65, a private sector pension kicked in at 60. Yeah. So, at 67, they say, “Hey, I can shut it off.” Maybe they just inherited some money.

Tommy Blackburn: I was thinking the same thing. Maybe we have some inheritance and now, we have a new bucket of money to work. Maybe our situation has changed. So, we can still make those changes.

I would say too, John, (I'm going back) I was thinking about the earnings test here. In particular, maybe if we're a widow, maybe life has changed there as well where you want a good advisor helping you analyze the numbers.

Hey, we go to work for fulfillment as well as financial reasons. We get that, but I don't know, I would want to take a hard look at what is the value of actually going to work under these situations or do we just take a Social Security benefit, particularly if we're delaying another one, it's going to grow even more.

So, there's a number of factors here that somebody qualified will help you examine and understand your options.

John Mason: Well, it's the value of having a financial planner or a financial planning team in your corner. And I know Ken says this very well when he meets with clients, but it's like, “It's very important that both spouses are there because if one of you dies, the plan doesn't change.”

And what that means is we're talking to our clients about Social Security planning strategies at 57. We're talking about what happens if one of you dies at 62. We're having these sort of philosophical conversations along the way so that when life happens, the plan doesn't change.

And even more important, Tommy, when you're a widow or widower, the last thing you want to be doing is interviewing people and determining whether or not they have your best interest at heart, whether or not they're a fiduciary.

Hire somebody now, while things are good, so when things aren't good, you already know you have somebody you can rely on.

Folks, this has been another episode of the Federal Employee Financial Planning Podcast. A lot of Social Security benefit. We're going to do another one and we're going to talk about taxes and a variety of other items that we haven't covered yet.

Thanks for being there with us. We're Mason & Associates, If you haven't already, please leave us five stars. Follow this show so you're notified. Don't forget the YouTube channel.

And oh, by the way, if you have questions, you can reach out at .

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.