Jason Parker interviews Joe Elsasser,CFP® regarding the new software he developed to help married couples maximize their lifetime social security benefits.
Below is the full transcript:
Announcer: Welcome to Sound Retirement Radio with host Jason Parker. Sound Retirement Radio is also live streaming online at soundretirementradio.com also available for Podcast on iTunes. Jason Parker is the President of Parker Financial, an independent E-Based Investment Advisory Firm specializing in retirement. Parker Financial is located in 1957 Washington Avenue Northwest Silverdale, Washington. Parker Financial is licensed and regulated by both the Washington State Department of Financial Institutions and the Insurance Commissionaires Office. The information and opinion expressed here are believed to be accurate and complete, for general information only. It should not be construed as specific advice for any individual and does not constitute a solicitation for any securities or insurance products. For more information contact Jason Parker at 360-337-2701. Online at soundretirementradio.com or parker-financial.net. Here’s Jason Parker.
Jason: All righty folks welcome back to another round of sound retirement radio. Seattle, Tacoma, Olympia, Gig Harbor all the good people right here in Kitsap County. I sure appreciate you’re all tuning in to our little program every week. Sound retirement radio we have a little saying at my firm Parker Financial and on this radio show, we want to keep you thriving in retirement. I want you to know also the title of my new book, Thriving In Retirement available at all fine bookstores. A little plug there for myself. But one thing we’re always trying to do on this program is bring experts on that have very specific knowledge about retirement issue we can talk about concepts, strategies that are really designed to keep you thriving in retirement.
Before we bring our guest I was just thinking the other day as I was driving home from work, I thought, what if … You remember that movie with Robin Williams? I think it was Good Morning Vietnam, you remember that? He’d start out every morning, “Good morning Vietnam” I’m just, boy that would sure be irritating if I did that every morning as I enter, said good morning to everybody. Wouldn’t I just drive you up a wall? Sure, my producers shaking, he said yes. Anyhow back on topic here we’re always looking to bring experts onto the program that are going to keep you thriving in retirement. Today I have a gentleman, Mr. Joe Elsasser he’s a certified financial planner in Omaha, Nebraska. He’s also the creator of Social Security Timing which is a software program that helps married couples identify the best strategy and timing for when to take their social security benefits.
Folks this is an important question, one of the most important questions specially for this baby boomer generation is getting ready to retire many of them don’t have a pension. Unlike the previous generation they … The baby boomer generation has to rely on social security benefits for income and the money that they’ve saved for retirement. There are some tips and tricks that are not readily available to the average Joe unless you know about them. I found this software that Mr. Elsasser has created, I think it’s really a great resource. Joe Elsasser welcome to Sound Retirement Radio.
Joe: Thank you Jason, thanks for having me.
Jason: You’re welcome. Joe I’m curious what prompted you to start exploring the social security claiming decision for married couples?
Joe: Probably the same thing that prompted you. Not is that you’ve got clients who are asking you on a regular basis when should we take social security? Several years ago there were … Starting in about 2007 there were some articles that’s started popping up in publications about some unusual claiming strategies that we’re available to married couples.
Joe: I’m sure you read some of those as well. Realistically, as I started reading those an article was also published by the Boston College Center for Retirement Research that really quantified the amount of benefits that the typical married couple leaves on the table by making a less and optimal decision. They found that even excluding some of the more unusual strategies, a typical married couple leaves over 14,000 dollars on the table. For most of my clients 14,000 dollar is 14,000 dollars that’s a substantial amount of money it’s worth looking into. Obviously what I found was that none of the major financial planning software out there in the market place could answer the question. I spent way too much time developing series of Excel spreadsheet obviously that got bigger and bigger and bigger and then couldn’t run in Excel anymore and so we had to turn them into a software program.
Jason: I know when you and I first talked you and I were some of those study groups early on trying to learn just as much as we could about this social security system. I was looking at your website recently socialsecuritytiming.com for our listeners out there great resource. That is the website, right Joe socialsecuritytiming.com?
Joe: It is.
Jason: Okay. One of the statements that was made on the website was that the difference between good and bad social security planning for married couple can be as much as a hundred thousand dollars?
Jason: That’s more different. That’s definitely substantial. We hear a lot today about social security being broke, wouldn’t it make sense to claim benefits as early as you can to make sure you get something out of the system before it’s all gone?
Joe: That’s definitely a common belief over half of married couples actually closer to 60 percent claim benefits at 62 or 63 and the fact is that particular decision can be one of the worst for most couple to make surprisingly enough. I’m going to take that question in two parts first off, whether or not social security is broke and second whether or not it make sense to hedge the fact that it could be broke by taking benefits early? Every year the social security trustee published a report that’s available on the social security website ssa.gov where they do actuarial projections. Basically means a bunch of math geeks get together and ran the numbers out over a ton of different scenarios to see how long those funds will last?
We’ve seen a lot of press lately, last year and this year in particular that social security is going broke that it’s in the red. And in the red concept is interesting because all that means is that social security took in less tax revenue this year than it paid out in benefits. What it does not mean is that social security is out of money, in fact in the trustees report that was released last week the OASI which is the Old Age and Survivors Insurance Program when you think about retirement benefits, typical social security for retirees that’s the fund that pays those benefits. The first year that the out go will actually exceed the income for that trust is 2017.
Then all the way through 2025, we’ll just be spending interest. Once 2025 hits that’s the first time we get into the actual principal of the trust fund. That wouldn’t be exhausted until 2038, then even after 2038 as projected that about three quarters of every benefit of every promised benefit dollar would still be payable by then current tax revenues. When you think about social security being broke it’s more a question of the current system couldn’t support indefinitely the benefits that are promised, but we have a considerable amount of time to make changes that would make it. I’m going to say sustainable over the very long term.
Jason: My clients keep encouraging me to work hard and pay my taxes because they say they want to keep collecting those social security checks.
Joe: Sure, I’m unlike you Jason.
Jason: I know, it’s like the year we’re eligible for benefits it the year this things only suppose to pay out seventy six cents on the dollar. Lucky you and me Joe, we better do an extra good job planning for our own retirement.
Joe: I’ve done a lot of training sessions for advisers around the country and that’s always one of the jokes, for retirement age for me will probably be 70, 72 but for those folks that are on the cast of making the decision today the adds or benefits are not going to change for them. The real reason when you look back at all the changes that have occurred to social security over the years, really no change except for the taxation of benefits. No change has affected people who are already on benefits or could be eligible to elect benefits in fact all of the proposals that are on the table they change benefits. They reduced benefits for younger folks, folks like us but for the people who are making that decision today, I’d plan on retiring under the current social security system.
Jason: That bring us into the second part of that question which is retiring and taking as much as you can get as early as possible because you’re retiring under the current system, how do you address that?
Joe: Realistically the advice that you hear most of the time is based on break-even concept. These ideas that if you take early you get a smaller check, but theoretically you’ll get more of them. If you take late you’ll get a bigger check theoretically since you got fewer years less to collect them you’ll get fewer checks. And that works great for single people but for married people that really doesn’t work at all, because married people benefits or dependent on the earnings of the other spouse. When you look at a married couple coordinating the benefits of the couple is actually what’s more important than the break-even for any individual, in fact if you do a break-even on two individuals you’ll almost always get the wrong answer for the couple and I know that’s a concept yours have been with.
Jason: Yeah absolutely. You focused a lot on married couples, what are some of the concepts, ideas and strategies and why is that even more important?
Joe: Sure, for married couples number the decision is more complex. If you think about a single person, they really have nine whole year election age option. They elect 62, 63 all the way through 70 nine whole years counting the end points. When you think about a married couple you actually end up with a grid, because each has nine whole year election option. They end up with 81 combinations of ages, 62 and 70, 70 and 62 and everything in between. Number one it’s more complex but number two married couples have some benefits available to them that just really are not available to singles. You got to remember that social security was created in a time at which many women did stay home to raise children.
That was a socially desirable situation but what that meant, was that they weren’t building up an earning history that would generate a large social security benefit or a substantial social security benefit. For married couples there are spousal benefits the lower earning spouse is basically entitled to higher of is her own earnings or her own benefit or half the benefit of the higher earner. There’s also a survivor benefit, when the first spouse in a couple dies the surviving spouse receives the higher of is her own benefit or the benefit of the deceased.
Jason: Yeah, I’m sorry.
Joe: That concept is just so important because so often, I know I’ve got clients that look like this I’m sure you do too Jason. It so often you got a higher earning husband who elects early and what’s actually happening is you short changing that survivor benefit for his wife.
Jason: The reality is women just tend to outlived us guys so it’s very important for folks out there to really look at when you’re doing this type of retirement income planning. Not just for your own life but also for that surviving spouse that could live another twenty, thirty years beyond you. Folks we’re talking with Joe Elsasser he developed some software to help married couples make the best decision possible regarding social security. His website is socialsecuritytiming.com. Joe we need to take a quick commercial break and we’ll be right back.
Speaker 4: Well, Jason Parker I just got through reading this book called Thriving In Retirement and you wrote it. Congratulations. Tell me why you wrote this book and what’s in it for retired people today?
Jason: Ten thousand baby boomers are retiring every single day. When people come into my office in Old Town Silver Dale they say, “They never want to become a burden to their family physically or financially” They don’t want to run out of money before they ran out of retirement. They want to pay in a legal manner as little tax as possible. They want to earn a fair rate of return on their money and out pays inflation. The biggest concern is they don’t want to make an irreversible financial mistake, that’s why I wrote this book Thriving In Retirement.
Speaker 4: I tell you what Jason, everybody that’s retired or thinking about retiring out to read this book. Now the question is where do they get it?
Jason: Call 1-800-431-1579. Pick it up at Barnes And Noble, Amazon. It’s available as an eReader. It’s going to be available in all your fine bookstores. Again if you want to buy it directly it’s 1-800-431-1579. Thriving In Retirement.
Jason: All righty folks, welcome back to another round of Sound Retirement Radio. I’m Jason Parker your host, President of Parker Financial in Old Town Silver Dale. We have Joe Elsasser certified financial planner on the program. Joe developed some software specifically to help married couples, help solve this problem of when they should take social security benefits how to coordinate those benefits? The best way to do that to really maximize your families lifetime social security benefit. His website is www.socialsecuritytiming.com Joes there’s a big difference in how much money somebody will receive depending on the age that they start their benefits. Would you speak for a moment to our listeners help them understand the difference between claiming benefits at 62 or 66 or 70 and what that looks like?
Joe: Sure and I’m going to probably over simply this example a little bit. This is going to apply to people born between 1943 and 1954. It’s a little bit different if you’re younger and it’s a little bit different if you’re older, but these are good rules of thumb and they apply to that largest group of boomers. Someone who elects at age 62 is going to receive 75 percent of their full retirement age benefit, full retirement age for this group is 66. If they wait till 66 they’ll receive a 100 percent of their full retirement age benefits and if they take benefits at 70 they’ll receive a 132 percent of what they would have got at 66. Now how do we get to the 132? Every year you delay pass full retirement age you get an 8 percent increase in your benefit, it’s called the delayed retirement credit. Really, it comes down to taking early gives you a reduced benefit, taking late gives you a increased benefit.
Jason: The other thing I would throw out there too Joe is, I met with a gentleman recently. Very, very sharp, but he originally thought he’s going to retire at 62, he turned the social security on he ended up going back to work and … If you take those early benefits there’s a limitation on how much income you can earn before you start getting penalized. You just really want to be careful if you plan on working starting those benefits at 62 really may not be a good idea.
Joe: Yes that can hurt. If you take at 62 and it can hurt for two reasons. If you take prior to full retirement age the only way that you can increase your benefit later, get the late retirement credit, is by earning over the max what it will actually end up happening is social security will credit you back for those months that they withheld benefits. If you earn over … I believe it’s 14160.00 dollars if you earn over that, then for every 2 dollars of earnings between 62 and 65 for every 2 dollars of earning you’ll have 1 dollar of benefits withheld. The way that it actually works is they don’t withhold them until the year following because those earnings aren’t reported to social security until the year following, year that they are earned.
Then they just stopped checks until you’ve caught up. That can be a big surprise to a lot of people. The second major reason if you plan to work it can make a lot of sense to delay benefits is that there are some unusual claiming strategies that are available to folks once they hit full retirement age.
Jason: I talked about some of those in my book Thriving In Retirement. I have a chapter on how to maximize social security benefits, but would you mind taking just a quick minute and maybe sharing some of the more unusual situations that you’ve encountered?
Joe: Sure, there are really two strategies or techniques I would call them that are available that most people don’t know about. The first one is called a restricted application and here’s the example. Actually I’m going to quickly tell a story if it’s okay Jason?
Jason: Yeah, please.
Joe: A fellow two doors down from me and my office, he’d been in financial services for 30 years. He actually paid another advisor to prepare financial plan and one of the questions that he asked that advisor is of course when to take social security? He and his wife were both 66 at that time. His full retirement age benefit would have been about 2000 dollars, I’m rounding off here for simplicity’s sake. His wife full retirement age benefit would have been about a thousand dollars. The advisor gave them a pretty good answer. It was, “Mrs. You should go ahead and elect your social security benefits now, Mr. You should wait till the age of 70, and the reason you would do that is to get those delayed retirement credits and to build up a survivor benefit for the Mrs.” That’s pretty good advice but for these particular couple that would have meant they were leaving about 24000 on the table.
Obviously you’ve heard this one before Jason. Here’s why, Mr. actually has the ability to file what’s called a restricted application. He can claim his spousal benefit under the Mrs. earnings record, which gets him half of her benefit that’s 5000 dollars per month that he can collect 6000 dollars per year, while still getting the delayed retirement credit on his own benefit. That first technique is called the restricted application, in that particular case it netted them an extra 24000 dollars while still getting the boost in his own benefit for waiting.
Jason: That’s great pretty much the same concept or strategy where she’s taking her thousand dollars, but now he’s filed for this restricted application which makes him eligible to take a spousal benefit while continuing to earn the delayed credit. There’s just one piece there that was missing that made a substantial difference, 500 dollars a month of additional income that was available to them.
Joe: Absolutely and there’s another one. There’s another option that they had and obviously they had the way, the options for which one they wanted to choose but here’s the other option, rather than having Mrs. elect her own benefit she could have elected only her spousal benefit. In order to do that though mister has to have already filed that would have created a trade-off between letting him increase and build a survivor benefit for her or letting her build her own benefit. There’s a way around that too though and that’s called a file and suspend, in a file and suspend situation someone would file for benefits. You got to be at least full retirement age to do this.
Joe: Keep in mind.
Jason: All right.
Joe: You file for benefits then you immediately request that social security not send you any checks, sound strange right? What that allows you to do, it allows your … The lower earning spouse to be able to access the spousal benefit and then allows you to still continue to earn the 8 percent per year delayed retirement credits. It’s exactly the same as if he had waited until aged 70 except that he’d made the spousal benefit for the Mrs. What she could then do is file for only her spousal benefit and get the delayed retirement credits on her record too, rather than only getting a thousand dollars per month she switched over at seventy, two, thirteen twenty.
Jason: Well okay. Now under that scenario though the spousal benefit would have 50 percent of his primary? She’d be getting maybe … Under that scenario they maybe be getting a thousand dollars a month instead of the fifteen hundred starting at 66 is that right?
Jason: I’m trying to work these numbers in my brain as you’re talking Joe. If you go into social security office to claim benefits, will those people help guide you through this decision making process?
Joe: You got to remember the folks in the social security office handle an incredible variety of issues. They’re dealing with everything from retirement to disability claim. They’re answering all sorts of questions. Out of the gates I would say that it’s a big job for anybody to get a hundred percent right, but there are a couple of things about how social security personnel are trained that really prohibit them from providing advice. The first one is that they have rules that say they cannot provide actual claiming advice. They can tell you about these options if you ask about them, but their focus is really on the monthly benefit amount. Meaning, when you go into the social security the person you meet with has been trained to help you walkout that day with the largest benefit that you’re entitled too that day.
That day is the keyword. One of the major difference is between the way of financial planner looks at a problem, a retirement problem and maybe the way a social security personnel might look at the problem. We tend to be concerned with not just the biggest you can get today but how that’s going to impact you over your retirement lifespan. It’s really a different perspective.
Jason: I really liked that and I sure appreciate it. For our listeners if you’re just tuning in and you’re getting ready to retire, I highly recommend you go to … We got Joe Elsasser on the program. He’s a certified financial planner out of Omaha, Nebraska and he developed some new software to help married couples determine the absolute, best way to maximize their social security benefits to get the most out of that social security system as possible over both people’s life times. Joe what about taking money out of retirement accounts? Like 401K’s and IRA’s? Some people believed that it’s better to take out as a little money as possible from those accounts. What’s your take on that?
Joe: I’m going to say that I think rules of thumb are dangerous because everybody’s thumbs are different sizes. We hear a lot about the idea that if you got money in RIA accounts or 401K accounts it’s best to let it just there for as long as possible because that increases the compounding effect. There’s a lot of research out there that actually shows that because of the differences in how social security is taxed, versus how your retirement account balances are taxed on withdrawal. That in most cases it actually makes more sense to spend your retirement account balances or a part of them that would [navigate 00:26:52] spending a hundred percent of those balances down, part of them in order to bridge the gap to create a larger social security benefit overtime. There’s several articles out there that refer to that as the tax torpedo.
Jason: We can Google the tax torpedo and look at some ways for generating the most tax efficient income possible as people transition through retirement?
Joe: That’s absolutely true. Social security timing for those of the listeners who might not know, you hear a lot of negative about it. The one thing you got to remember is at worst 85 cents of it even if you’re super high income earner, 85 cents of every social security dollars taxed and generally a hundred percent of your IRA or 401K withdrawal is going to be taxed. That alone creates a little bit of tax advantage for that social security dollar, but there’s also a very strange tax formula that it goes through. That for middle-income folks has a substantially larger impact than just 85 cents on the dollar taxability.
Jason: That’s an excellent point. Joe, what’s been your experience the most advisers look at social security when they’re designing a retirement income plan?
Joe: Not the way you do.
Jason: I appreciate that.
Joe: You can tell right away with you sit down with an advisor. For example, if an advisor is going to go through your social security statement with you and explained, “Well wait a minute there are a few assumptions that are built in to your social security statement and can go through some of those assumptions” For example, if you’re looking at the age 70 benefit and comparing it to the age 62 benefit, it may not look like that much of a difference. What you got to keep in mind the statement doesn’t assume any cost of living adjustments occurring between age 62 and 70. Historically, there really has only been one-two year period we just saw it where we went two years in a row with no cost of living adjustment. Every other year, one year period went the longest.
Jason: Joe that’s an excellent point and we’re just about out of time. I want to direct people to your website one more time. Joe Elsasser, certified financial planner social security timing if you’re just getting ready to make that decision. Joe thanks for being on the program.
Joe: Outstanding, thanks Jason.
Announcer: You’ve been listening to Sound Retirement Radio with host Jason Parker. For more information contact Jason Parker at 360-337-2701 or online at soundretirementradio.com