Jason interviews Devin Carroll about Social Security intelligence.

Devin has been helping people with money related advice for a while.  In addition to his ownership role at Carroll Investment Management, he is also the Chief Compliance Officer and half owner of Cogent Advisory Group, an SEC Registered Investment Advisor. Additionally, he has an active blog where he discuss Social Security and retirement related stuff at Social Security Intelligence.

Prior to opening Carroll Investment Management in 2010, he was a financial adviser at Edward Jones for nearly 8 years. He learned a lot while I was there and is very thankful for where he is today.

If you would like to learn more please visit the links below:



Driving Down The Retirement Tax Bill

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Below is the full transcript:


Announcer: Welcome back America, to Sound Retirement Radio, where we bring you concepts, ideas, and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement. Now here is your host, Jason Parker.

Jason: America, welcome back to another round of Sound Retirement Radio. I am so grateful that you’ve made this program as awesome as it is and I just really appreciate our listeners. As you know, I like to start the morning off with something kind of fun, and also a verse. We’ll start with a verse to renew our minds, and for the next several weeks I’d like to hear from you guys, what your favorite verse is.

 I know all of us kind of have those few verses that we carry around in our back pocket that we can pull out at any time when we really need it, and this is one of mine. It’s Philippians 4:14. It says, “I can do all things through him who gives me strength.” I love that.

 Then of course, we want to give you a joke, something that you can share with the grandkids or maybe not. I shared this one with my daughter and she said, “Dad, that’s really inappropriate, but here it is: Have you heard about the new movie Constipation? You haven’t? That’s because it never came out. That kills me. Like I said, my daughter had a mischievous little look on her face when I shared that with my seven year old, soon to be eight year old.

 Okay, so we’re going to get started with the program. You’re listening to episode 072 if you’re driving down the road this morning in the Seattle area and you can’t catch all the program, I want to encourage you to visit us online at soundretirementradio.com or soundretirementplanning.com, where we archive all of this content for you. We’re always looking to bring experts onto the program who we believe can add significant meaningful value to your financial life as you prepare for and transition into and through retirement. You’re listening to episode 072.

 I have a good fortune to have another financial advisor on the program this morning. His name is Devin Carroll, he’s the owner of Carroll Investment Management, he’s based out of Arkansas. Devin, welcome to Sound Retirement Radio.

Devin: Hey Jason. Thank you for having me.

Jason: Absolutely. I’m looking forward to this. This is a newer relationship where I’ve recently met Devin. He’s formed a bit of a mastermind group for other financial advisors that are working hard around the country to serve people well. One of Devin’s areas of expertise is social security, and he writes a blog, he maintains a blog, it’s socialsecurityintelligence.com.

 Devin, I was hoping today we could talk a little bit about social security. First of all, from a broad level perspective. What have you found? Why is social security so important from a planning perspective when you’re helping people prepare for retirement?

Devin: Good question Jason. I’ll tell you, for the first decade of my career as a financial advisor, I kind of downplayed the importance of social security. Part of it was the way that I was taught moving into it because obviously if we don’t count social security into our retirement income plan, what does that mean? You have to save more. You have to save more, it’s more assets to manage right? Then it was poorly understood, so I would tell people things like, “Hey, if social security is still there for you, it’s just icing on the cake, so let’s not include that in your plan,” but when I started looking at it and digging into it a little deeper, I found that it’s pretty important for most people. 38% of the average retiree’s income stream comes from social security, and if you start to really boil those numbers down, it’s even greater than that.

Jason: Wow. That’s significant. What do you think about the advice when you hear people say, “Hey, just start social security soon as you turn 62 because it may not be there for you and you just need to get your hands on it as soon as you can.” What do you think about that advice?

Devin: I heard someone that I respect a lot in our industry and was at a speaking event where she was talking about that very same thing. She said, “Here’s the way I answer that. I tell people, it’s not what if you die, it’s what if you live?”

Jason: Yeah. That’s a great point.

Devin: When we look at social security, now with the pensions that have gone the way they have since I believe it was 1975, 85% of product companies had a pension and the last time I saw that number updated by the Department of Labor, I think it was around 11% of private companies have a pension, so the burden for providing an income stream for life has been transferred right onto the backs of the worker’s savings and their qualified retirement plans at work.

 The whole idea of an income for life is something that’s rapidly drying up. Social security is one of those few sources of an income for life, and as such I think it’s important to make a fully informed decision on it and not just jump in there and make a quick decision because, “My mom died when she was 73, so I’m pretty sure I am, so I’m going to go ahead and file.”

Jason: Yeah. It’s one of the things we teach all the time too Devin, is that retirement is all about cash flow. It’s your income that will determine your lifestyle in retirement, not your net worth, and so I couldn’t agree more with you. I think social security is just such a fundamental, and especially when you point out the fact that it represents 38% of many people’s overall cash flow needs. It’s just a great, great benefit that a lot of people, they miss out on a lot of the benefits that are available to them because they don’t understand the claiming strategies, they don’t understand all the rules. Who would you say this is most important for? When people are thinking about retirement, should we be zeroing … Who would you say is the folks that have the most to lose if they don’t get this right?

Devin: I think what I find most people are surprised by when they come to my office is that for traditional retirement planning that they worked hard for so many years and they have that middle market is kind of who I serve here in my area. What they refer to sometimes as the mass affluent. They worked hard and they saved up for what most people, seems like a fortune, maybe three, four, five, 600 thousand dollars, which is a lot of money, and then when you go and try to convert that to an income stream, most people are surprised to find out how little they can actually get from that after working that hard. That’s kind of that mass affluent market is probably the one that has the most to lose by getting this wrong, by making that wrong decision.

Jason: That’s a great, great way to identify. It’s people that have saved 500, 600 thousand dollars that need to be planning for a really long time, science, medicine, technology, everybody’s living longer than ever before and I don’t see that really changing going forward. I see a lot more people going to the gym. Our YMCA here out in the sunny state of Washington is packed full all the time with people that are really making health a priority, choosing good living habits, and so I just think that social security is a core component of a good retirement plan, a good cash flow plan in retirement.

 Devin, what are some of the nuances you’ve found? When you’re helping people do the planning for social security, what are some of the … Where can you add value to people’s lives when you’re helping them create a retirement plan and you’re trying to incorporate social security into that cash flow plan?

Devin: That’s a good question. What I found was the difference that just being strategic in your overall plan and understanding that just because you retire at 62, doesn’t mean that you have to file for social security at 62. I often encourage my clients to unhinge those concepts and understand it. We don’t have to do both at the same time.

 I wanted to do some studies I sat down with a CPA friend of mine and here’s just one of the reasons that I encourage people to do a social security plan before they retire, we took similar individuals, similar couples here, and we each assumed that each of them rather, were getting $80,000 in retirement income, so we sourced that out and we broke it up. Social security, 401K distributions, and then some other income maybe from a rental property or something like that.

 The way that we broke those up was where one was getting more from social security from making the tactical decision to file later and the other was getting less from social security, but more from their 401K, but they’re getting the same amount of income, and I hope I’m not lost in the numbers here, but here’s the way that it worked out: $80,000 is what they each received, however over the course of their retirement lifetime, there was a difference of $164,000 in taxable income between the two and it was just from making a better filing decision for one. It was a difference in taxes paid according to again, I don’t get in the business of giving tax advice, but at the end of that retirement life cycle, it was a difference in taxes paid of $31,000 and some change. I’m going to tell you, that would buy some nice vacations.

Jason: That is great. I would love to see more. Have you written anything on that specifically? On the tax advantages.

Devin: I absolutely have. There is an article that I co-authored with that CPA that’s out there on my blog and I’d have to look up the exact address of it, but it’s one that we did back late summer, I believe.

Jason: After this program, go ahead and email that to me. We’ll include that in our show notes for our listeners and we’ll include a link directly to your blog post. That way when people want to, as they’re driving down the road this morning they may not be able to write it down anyhow so we’ll get that link into the show notes. I think understanding the fact that social security is tax efficient income, at least it is now.

 You know, I want to ask you, President Obama just signed this new budget deal on November 2cnd, that really made a pretty significant change to the claiming rules for social security. Some of the nuances within that system are going away really rapidly. In fact, there’s about a six month window for people that are born before 1954, where they really have to be thinking about this, January 1st, 1954, they kind of got this clock that’s ticking. As you look at that budget deal and you think about the impact that that’s had on social security claiming strategies, especially for married couples, what’s your take on some of those nuances?

Devin: It’s interesting. Those claiming strategies were billed as manipulative practices that benefited the wealthy and the truth is that’s not what they were doing at all. They were helping those people that we were talking about earlier that have worked hard, middle class, they saved up money, and now they’re figuring out that their retirement dollars just aren’t generating the retirement income stream that it should. They were turning to these strategies to increase that retirement income stream and now a lot of those strategies are going away, or at least they will for future generations.

 I’ll tell you this. The [inaudible 00:11:45] that’s going away April 30th of this next year, 2016, so in order to use that really in any useful manner at least, it will still be here, but it’s practical use, it’s going to be worthless after April 30th, 2016. For those people that have turned 66, which is full retirement age right now, they have a very limited window of time to go in and use that. I didn’t use that strategy that much and didn’t see too many of my clients using that one either.

 The other more important strategy that I saw is the restricting the scope of an application to spousal only benefits, which allows someone to get only the spousal benefit from the higher earning spouse, generally while their own benefit growed with delayed retirement credit, that 8% per year for waiting, that’s the one that we saw more people using. In four years essentially, that will be gone as well, and boy that’s going to be a bummer.

Jason: That’s where the one comes in for those folks born before January 1st, 1954. They’re still going to be eligible for the restricted application. The file and suspend, that six months, getting us to, it’s not even six months anymore, it only gives us until the end of April. Those are for people that are currently full retirement age that have not filed and suspend. Those are the ones that really, if they haven’t done any social security planning, I would say that, boy the time is of the essence. Would you agree?

Devin: I do. Here’s the thing. Even if they think they may not be able to use that, it’s time to make sure because after April 30th, it’s too late.

Jason: Yeah. One of the areas where I know you’ve written a lot when I visited your blog, is you talk about the windfall elimination provision and you also talk about the government pension offset, but specifically I know that you’ve done a lot of work for teachers, as have we out here in Washington state, and I know that this is going to vary depending on where people are around the country so I think it’s really important that they find that advisor in their community that can really give them the specific advice they’re looking for, but tell me a little bit about what you found when you’re helping teachers with retirement planning with social security. What does that look like? What should they be thinking about?

Devin: For teachers, and it’s not just teachers, it’s other public service as well, so police officers, and fire fighters, and a lot of communities, and some other municipal workers, and state workers in some places will fall under these rules, but there’s some inequality I think at least. Some people think it’s perfectly fair within the social security system. Particularly for those people who have worked at at job where they have earned their social security quarters and then they go to work in a job where they do not pay into social security. For those people, when it’s time to file for their social security, those benefits are offset by the windfall elimination provision. It goes back to the 1970s and ’80s, there were some laws passed that amended the rules that was meant to keep individuals from double dipping, if you want to call it that. It’s the windfall elimination provision that covers your own benefit or if someone else is getting the benefit off of your own record, it would also reduce the amount they will receive.

 The other is the government pension offset, which is the one that catches a lot of people by surprise. I’d like to give you an example of that one. Let’s say that Mary is a teacher and Mary’s husband is, I don’t know, for example a pharmacist, and so Mary teaches for 30 years, her husband is a pharmacist for 30 years and they both retire at the same time. Mary hasn’t paid in any social security tax. Let’s assume she was a teacher the entire time, but her husband, let’s assume that he maxed his social security out just about every year. They both retire at the same time, they’re full retirement age, he begins receiving his full retirement age benefit. Let’s say that that was $2,500, but sadly two years after that, he dies. Now her social security benefit is going to be offset by two thirds of the amount of her pension from the time she spent teaching.

 Now here’s why that may not necessarily be fair. If she would have spent that at home and chose not to teach and instead just managed the household, she would have been eligible for a full survivor benefit, which would have been the same amount as he was receiving. In addition to that, while he was alive she would have been able to receive one half of his benefit amount, so effectively it’s a penalty for public service.

Jason: Wow, huh. How can people know if they’re going to fall under either the windfall elimination provision or the government pension offset? How do they know if they’re going to be impacted by that? What can they look for to identify that because I think one of the things you mentioned is that it doesn’t necessarily show up on your social security statement that they send out every year. Is that right?

Devin: That’s right, and that’s what catches a lot of people by surprise. They base this estimate off of your earnings only and without respect to whether or not you qualify for the windfall elimination provision or the government pension offset, so here’s the rule, it’s very simple, the government pension offset or the windfall elimination provision apply to those individuals who meet two qualifications. The first is that they must have qualified for a pension from a job where they did not pay social security taxes. Now really that’s both qualifications in one, but so just merely working somewhere does not on it’s own mean that they’re going to qualify, or that they’re going to be impacted by the windfall elimination provision. They had to have qualified for a pension from that non-covered work or that work where they did not pay social security tax.

Jason: Non-covered work, so if they’ve qualified for a pension and they did not pay into social security, those are the people, so where I run into this a lot of times is from folks that were under the old CSRS with the federal government. The new FERS retirement, the federal employee’s retirement system, they seem to have paid into social security even though they also have a pension that they’re eligible for. Is that where you run into this the most also? Where do you find this when you’re working with folks?

Devin: In my area, we don’t have too many people who are impacted by the old CSRS. Most of the people that we’re running into are teachers. We’re not having to look, because there were some funny rules about social security moving from the CSRS to the FERS, the new plan and with teachers we just don’t have any of that to consider.

Jason: With teachers I think you said that there were 15 states, right, that were impacted by that. Not every state has that provision for retired teachers. Is that right?

Devin: That is right. That is right. Some teachers, for example I live in Texarkana, so my practice is in Texas, my home is in Arkansas, which is about two miles from here. Teachers in Arkansas pay in social security tax. Teachers in Texas do not. It gets really complicated for those teachers who live in those border towns and who may cross over during the time of their career.

Jason: Yeah, and I know here in Washington state, our teachers pay into social security also, so it’s an important benefit that we’re helping many teachers plan for when it comes to social security.

Devin: Certainly.

Jason: Devin, I just think this work that you’re doing is so important. I want to let our listeners know, we kind of have a special promotion going on for the month of December for our listeners, whether you’re a Podcast listener or you’re driving down the road this morning, if you would like to have a free copy of Sound Retirement Planning, you can visit soundretirementplanning.com/radio. For a limited time that is going to be a promotion where you can get a free copy of my book, and we just want to do that to celebrate Christmas. There’s a lot of people out there getting ready for retirement and really what I’ve found people want is good advice, so again if you’d like a free copy of Sound Retirement Planning, my best selling book on Amazon, you can go to soundretirementplanning.com/radio and request a copy of the book.

 We have a couple minutes here left Devin. With respect to social security, now before I get too carried away actually I want to make sure, there’s some of our listeners out there that are going to want to speak with you probably directly, so can you tell our listeners a little bit more information how they can get in touch with you or how they can contact you if they’d like, to pick your brain a little bit about some of these social security decisions?

Devin: Absolutely. On my website, socialsecurity.com in the top there’s a contact me button.

Jason: That’s socialsecurityintelligence.com, right?

Devin: That’s right. Did I misspeak that? I may have.

Jason: Yeah, you just said socialsecurity.com. It’s socialsecurityintelligence.com.

Devin: Oh yeah, yeah, socialsecurityintelligence.com. There’s a button at the top, contact me, and that will take you directly to my contact information.

Jason: What’s the number one concern because you’re out there just like me, you’re working with real people, you have people come into your office every day and they’re getting ready to retire, maybe they just retired, what’s the number one concern you hear from people?

Devin: As it relates to social security the number one thing I’m hearing is that they’re afraid they are filing and making an irrevocable decision without all of their facts because now there’s some rule changes where the administration can’t necessarily give them advice, and so they’re filing blind to an extent, so the number one concern then that I would have about someone retiring, is make sure you know your options before you file. Whether you read it online and there’s lots of free resources out there. Just do your homework.

Jason: Yeah, and you know I actually had a gentleman who was the western Washington public affairs specialist here in the state of Washington from the social security administration on the program, and I asked him Devin, I said, “Hey, why is it that the social security administration isn’t helping people with some of these claiming strategies?” He was just very straight forward, very blunt and he said, “Jason, we’re not financial advisors. That’s not our job. Our job is to help people qualify for the highest benefit they’re eligible for the day they walk into the office, not to show them how to maximize benefits over their lifetime. That’s really the job of a financial adviser,” and that’s why I think it’s so important. What you don’t know could hurt you, and so we want people to educate themselves. We want them to have access to good information.

 One last time, I want to remind our listeners you’re listening to episode 072, I have Devin Carroll on the program. You can find him at socialsecurityintelligence.com. Again, for folks that are getting ready to retire, if you want to have a good plan, start by educating yourself. Get a free copy of my book, Sound Retirement Planning, go to soundretirementplanning.com/radio. Any parting thoughts here in the last 15 seconds Devin, before we finish?

Devin: Again, I can’t emphasize enough how important it is to get a plan. I would never consider filing my taxes by dropping all of my stuff off at the IRS office and saying, “Call me and tell me what I owe.” You shouldn’t file for social security the same way.

Jason: There you have it. Thank you for being a guest on Sound Retirement Radio today.

Devin: Thank for having me.

Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only, and should not be construed as specific tax, legal, or financial advice for any individual, and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program, Parker Financial, it’s representatives, or it’s affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee based wealth management firm located at 9057 Washington Avenue Northwest Silverdale Washington. For additional information call 1-800-514-5046 or visit us online at soundretirementplanning.com.