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☮️ How Social Security Fits into Your Retirement Plan! | Emma von Weise 🏦
1k Plays1 month ago
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🧬 Emma von Weise breaks down the basics of Social Security and how it fits into a comprehensive retirement plan, debunking common myths and sharing strategic tips for claiming benefits. 📈
Emma emphasizes how Social Security benefits should not be overlooked as a vital part of your financial strategy, covering everything from spousal and survivor benefits to the impact of early retirement.
In this episode, we discuss:
1️⃣ When to Start Claiming Social Security: Discover the pros and cons of early vs. delayed benefits.
2️⃣ Future Changes to Social Security: Learn what changes are on the horizon for COLA and the full retirement age.
3️⃣ Social Security as Core Income: Should Social Security be viewed as a primary income source or just a safety net?
4️⃣ Spousal and Survivor Benefits: Explore strategies for couples to maximize Social Security payouts.
5️⃣ Social Security and Early Retirement: Understand the impact of early retirement on your long-term benefits.
🔗 Emma von Weise's Links:
📚 Social Security Administration
📊 Mike Piper's Social Security Strategy Benefit Calculator
🌸 Lauren's cFIREsim calculator
🧮 New Retirement (now Boldin) calculator
🔗 David's Links:
📝 Blog Post on Social Security
🍏 Forget About Money on Apple Podcast
🎧 Forget About Money on Spotify
📜 Emma von Weise Quotes:
💡 "Social Security isn’t just an afterthought—it’s an essential part of your financial plan." — Emma von Weise
🔗 "Understanding when to claim your benefits is key to securing your financial future." — Emma von Weise
#socialsecurity #retirementplanning #financialindependence #emmavonweise
🎧 Listen & Subscribe: Don’t forget to subscribe to "Forget About Money" for more expert advice on securing your financial future. Hit the bell icon 🔔 to stay updated on the latest episodes!
Disclaimer: This episode is for entertainment and educational purposes only and does not constitute legal, tax, or financial advice. Consult a professional for your specific financial situation.
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Transcript
Podcast Introduction & Guest Introduction
00:00:00
Speaker
Social Security. What changes can we expect and how can you incorporate it into your overall financial and retirement planning strategy? Here we go.
00:00:13
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. Today's guest is Emma Von Wisey, a member of the financial independence community and an associate wealth advisor who helps families navigate financial transitions. She's passionate about empowering others to take control of their money, making it a tool for creating a fulfilling life. Welcome, Emma. Hi, David, excited to be here.
Social Security Basics & Challenges
00:00:40
Speaker
Today's topic of discussion is Social Security. We will cover the basics of Social Security and how it fits into your financial future. We'll talk about key factors like when to start claiming benefits, how Social Security is funded, and the impact of early retirement on Social Security benefits. Emma.
00:00:59
Speaker
I remember decades ago when people were arguing that Social Security would become insolvent by an insert year here. What are your thoughts on that?
00:01:10
Speaker
So this is a question that I love because we get all the time. um So the decades ago that you're thinking about was probably in the 70s or the 80s when they realized that there were a lot of baby boomers that were going to be retiring around the same time um and there weren't going to there wasn't going to be enough income to the Social Security to fund um And so what they did and around 1983 is they made a couple of big changes to Social Security to preserve it um for when that came up. So two of the big changes that they made were they made benefits taxable and they increased the full retirement age over 30 years.
00:01:52
Speaker
When they made those changes, they figured that it was going to last 50 to 75 years. And so now, about 50 years later, the trust funds projected to be depleted in 2035. Now, what does that actually look like when the trust funds depleted? um Every year, Social Security releases what they call the trustees report, and it kind of gives you a state of Social Security.
00:02:13
Speaker
twenty twenty three 2023's trustees report said that when that trust fund was depleted, they were only going to have enough income coming in to cover about 80% of people's benefits. The 2024 trustees report came out and that said they were going to have enough income upon the trust fund being depleted to cover 83% of people's benefits. And so as of right now, that is the worst case scenario. ah Everybody gets 83% of what they're entitled to.
00:02:42
Speaker
Now that's subject to change over the next decade. um But it is my belief that there will be some act that changes the way social security is structured now to prevent that depletion um and or increase the income coming in.
Future Changes & Solutions for Social Security
00:02:58
Speaker
So I found an article by Go Banking Rates and it talks about some of the changes to Social Security coming in 2025. And I think this is connected with maybe some of those things that you said that have happened in the past and will likely continue to help avoid Social Security become insolvent. And part of that is oh Two of the things that this article said that we're going to be changing in 2025 to Social Security is a smaller COLA, which is the cost of living adjustment. And the last few years, they've been higher than, I guess, in recent history because inflation has been so high.
00:03:36
Speaker
but they're going to expect that to be lower going forward as inflation has cooled off and probably will continue to cool off. And then the second thing is adjusting the full retirement age, which they've already done in the past. And I think they're going to even adjust it again this very next year, uh, just a few months. I think every year that seems like they adjusted a few months. Are you are you seeing that same thing? Are those the key or curious that you're seeing that they're going to likely continue to do as time goes by?
00:04:03
Speaker
Not necessarily. So those two items, so the cost of living adjustment, that happens every year and that's based off the inflation that occurred one year prior. um And so we had really high inflation in 21 and 22. And so then the cost of living adjustments has been high and now inflation has come down. So those cost of living adjustments to Social Security have also come down.
00:04:31
Speaker
Now, what we're seeing happen with the full retirement age, there's been no legislation changes there since 1983. However, the changes that happened in 1983, when we make changes, we don't want to impact people all at once, right? That hurts a little bit. If we went and changed the full retirement age from 64 to 67 overnight, a lot of people would be harmed by that.
00:04:55
Speaker
And so when they made those changes in 1983, they phased in, delaying the full retirement age over like 33 years. And so right now we are kind of coming up on the end of that, where most people's full retirement age is fighting up against 67.
00:05:14
Speaker
and that's the highest it's going to go. and And so that's what you're seeing there. Now, the trustees report every year, they started putting in possible options to increase the trust fund um or the income coming into it in the event of insolvency. Now, something else they put in the trust fund is saying, hey,
00:05:38
Speaker
This problem's coming up very soon. It makes more sense for us to act now so we can institute those changes over a longer period of time um rather than making all those changes when it's an emergency and having people affected it overnight. And so if you look at the trustees report, some of the options that they've listed are just one being right now the payroll tax on Social Security is 12.4%.
00:06:03
Speaker
um If they increase that to 15.73%, that solves the problem. um And there's other things that could happen, like you could increase the wage base, you could increase taxation. We could increase the full retirement age. um We could institute means testing.
00:06:21
Speaker
um there's a wide number of little tweaks that can happen. Because again, we're only going to be 80, we're going to be 83% funded. So we really just need to cover that gap. And there's a couple smaller levers that they can pull to solve that problem. Well, I think with each of those levers that you just explained or mentioned, I'm sure they will all have political costs and back and forth. And that should be interesting to see how it plays out.
00:06:48
Speaker
Well, and that's the thing too, is it just depends on who's in Congress, who's elected at the time that they're ready to make those changes. How is Social Security funded in the first place? So it's primarily funded through payroll taxes. So when you see that fight the line on your paycheck, that's going to your Social Security and your Medicare and your disability insurance. And ah right now, what what's the percentage right now? I think you mentioned, is it 12 and a half?
00:07:11
Speaker
12.4%. So how that works is the employee pays 6.2% and the employer pays 6.2%. So it's kind of a shared thing there. And then of course, if you're self-employed, you have the joy of paying both first edges. Now, if I work at all, do I qualify for Social Security or do I have to work a certain amount and pay a certain amount in to even qualify?
00:07:33
Speaker
Yeah, so how that works is you are required to have 40 quarters, um and that translates to about 10 years. um A little fun fact there, I started working at 15, so I will hit my 40 quarters this spring. I'm very excited. um um but then So while you need 40 quarters to qualify for Social Security, they're actually gonna look at your top 35 years of earnings to de determine your actual benefit.
00:08:03
Speaker
Top 35 years or top 35 quarters? Top 35 years of earnings. So earnings are reported on an annual basis. And then... Okay. What if you don't work 35 years? So if you don't work 35 years, that's a very common thing, especially with early retirement. um So what happens is if you don't have 35 full years of earnings, they're just going to factor zeros in there for you. So if I have 20 years of earnings, they'll factor 20 years of earnings and 15 years of zeros.
00:08:32
Speaker
So that's a that's a great way to bring your number down, just throw some zeros in and average it out, right? So that basically hurts you. I mean, it hurts you, but you got to live years without working. You got to be financially independent. So yeah, your social security benefit goes down, but I think it's kind of worth it.
00:08:50
Speaker
Okay.
Role of Social Security in Retirement Planning
00:08:51
Speaker
So in your opinion, you think what will happen to social security in the future is just minor tweaks along the way to continue to close that gap between whatever percentage. The studies show that we're falling short and then just minor tweaks along the way.
00:09:07
Speaker
Yeah, I think at some point there will be, well, I think they'll create, it'll probably be one piece of legislation. um They'll probably come out with one thing that says, okay, this is our fix to this problem. um Now what we've seen with previous pieces of legislation is that there are clarifications that need to happen. And so maybe, but I think there'll be one piece of legislation that'll impact it. And whether that happens next year or that happens six years from now, we don't know.
00:09:34
Speaker
Yeah, and I know some of the big ones that that we we have to consider is you know raising the retirement age, which they tend to like to do, and then you know either increasing taxes or reducing benefits for high earners. But again, you can't please everybody, but this is a pretty big deal as it provides ah that income floor for many people in retirement.
00:09:57
Speaker
Yeah, I am 24 years old and I fully believe that I will be getting some form of social security when I turn or when I get to that age. What are some key aspects of social security that people tend to overlook when planning for retirement?
00:10:13
Speaker
I think especially with early retirees, we have the tendency to be conservative. So I think in general, people tend to overlook social security at all. You know, they hear that the trust fund is depleting. They don't know what that means. They think, oh, I'm retiring. It's so far out that I'm going to get that. Why count on it anyway?
00:10:33
Speaker
um But if you get a $20,000 a year benefit from Social Security, just looking at the four per several, roll that's equivalent to having an extra $500,000 in your portfolio. That's not worth overlooking. That could lead you to retiring much later, under spending. It's not something that we should just, oh, we'll wait until I get it. um It's definitely something that can be factored in your plan now.
00:10:59
Speaker
Emma, so assuming that we do have Social Security when we reach that age, how does one decide when the right time is to start claiming Social Security? Yeah. And that is going to be so dependent, but we can give you a lot of generalities here. um So how is Social Security generally claiming works is you can, for most people, you can claim at 62. And that's the earliest that you can claim. The latest that you can claim is 70. And so there's eight years in there.
00:11:28
Speaker
And then you have what we were talking about earlier is your full retirement age. Now, what does that mean? Full retirement age is the point at which that's your full benefit. um So for a lot of people listening, they're younger, that's going to be 67 as of right now. So that's kind of the number we'll use there. So your full retirement age is 67. That's when you're going to get your full benefit amount. If you claim earlier than that at 62, you're going to get a reduced benefit amount. If you claim later than that,
00:11:56
Speaker
you get an increased benefit amount. And so from the point when you're 62 to 67, by claiming early, you have up to a 30% decrease. It's factored each month that you claim early, you have a small decrease, up to 30% of your benefits are reduced. um On that other end, from 67 to 70, those are called delayed retirement credits.
00:12:20
Speaker
And that comes out to, again, it's it's factored monthly, um but that comes out to about 8% each year. So from 67 to 70, that's 8% each year. That's about a 24% increase in benefits.
00:12:35
Speaker
um And so from there you can decide, okay, when does it make sense to have my benefits reduced or do I want to wait to claim? um For single people, this is probably it's probably the easiest and least complex decision. um It's all kind of based off lunch expectancy, right? That's how the social security system bases social security. So if you have relief or health, maybe it makes sense to claim earlier.
00:13:03
Speaker
However, generally we view Social Security as insurance. It is longevity protection, right? And so for a lot of people, it makes sense to wait until 70 to claim because that's when you're getting your maximum benefit.
00:13:18
Speaker
And then if we are fair thinking of it as longevity insurance, then we want that maximum benefit for as long as possible. Now, we don't know when we're going to pass, um but it gives us the best outcome in the event that we continue living.
00:13:34
Speaker
That's a great review of how the decision to take social security at a particular age affects the numbers. But we talked about life expectancy. I do hear stories about people who know they have like this runs in their family or their parents died at this age. So they don't expect themselves to live beyond that. And that's a factor for them to take it early. And you also hear the other people have the same say,
00:14:01
Speaker
you think you're going to die sooner because your parents died at a particular age, but then you live another 25 years past their date. So life expectancy, health, which we talked about those, how about just financial needs? is Is that what if you don't need the money or if let's assume you don't need the money and would that be a reason to take it or not to take it?
00:14:25
Speaker
I still like delaying till Stephanie if you don't need the money and just because it is that longevity protection. It is making sure that you have this base living expenses or you have this amount that will last forever. um And that just gives you the freedom and the flexibility to be more comfortable spending your money now. um So by increasing that kind of floor for yourself, um it just creates a more stability for the long term.
00:14:53
Speaker
Maybe you don't have longevity in your family, but that doesn't mean that that's not going to carry over to you. um A lot of people, they're just trying to gain the system. They're trying to get the best return on their investment. um We want to plan for the worst case scenario. The worst case scenario, well, worst case financially, but probably best case for you is living a long, long time, right? The longer you live,
00:15:19
Speaker
the more money you're going to spend. um And we want to hedge our bets. We don't know how long we're going to live. Now, sometimes you do know. um Sometimes your health is poor and you just know for a fact, maybe I've got 10 years left. Then yeah, take it early. But if you don't know if it's just kind of that pessimistic attitude, then it probably makes sense to delay.
00:15:41
Speaker
Dave Ramsey had an article or at least an article was talking about a Dave Ramsey claim that said you would be better off taking it at 62 if you invested every penny of it into the market. He wasn't specific on to what investment. He just said a good general.
00:15:56
Speaker
mutual fund, ah but as we're members of the financial independence community, wait we are planning assumptions are broad market index, 8% return. What if someone starts taking social security at 62 and invests it? Could they end up better off than if they waited till 67 or 70?
00:16:14
Speaker
Well, if you use Dave Ramsey's 12% mutual funds, then sure. um But I don't know anybody that's able to find these elusive mutual funds that he mentions. And so yeah, we're kind of basing our assumptions around 8%, right? And as I just said, from 67 to 70, your benefits growing 8%.
00:16:33
Speaker
um And then on the broader scale, from 62 to 70, that benefit difference, that's about 77% increase in benefits from 62 to 70 if you were to wait that entire time. There is relatively no investment where you can get that return with generally no risk.
00:16:53
Speaker
um And that's what Social Security is, is there is very little risk to that return. ah if You can't get that in bonds, you can't get that in a CD. and Yes, the market may outperform that, but there's a lot of risk there, there's a lot of volatility, and it's not worth the trade-offs.
00:17:11
Speaker
I got onto ssa.gov last night and I had not logged in for a very long time to figure out like what my benefit would be. I am early retired, i early retired at 43. I did make good money for the last number, so I do qualify. So I went onto to the ssa dot.gov website and it said that my, if I took it 62, my monthly is expected to be $1,556. And if I wait till 67,
00:17:39
Speaker
2210. And if I wait till 70, 2741. So what I did is I took, assuming I don't need the money to live on, I took that 1556, put it into investor.gov, compound interest calculator at 8%.
00:17:54
Speaker
for eight years. I think it was eight years. so And it turns out that that would grow to about $198,607.11. So by the time I turned 70, I would have a lump sum. This is assuming the market 8%. And we don't know that, but for general planning, that's kind of like what we go with.
00:18:14
Speaker
$198,607.11. Now the difference in the monthly payment would be about $1,185 per month. So for me, it's like, would I rather have $200,000 in the bank and a reduced payment or wait that long eight years and then start getting a payment of $2,741?
00:18:36
Speaker
I don't know when I think of it like that I'm kind of a fan of the burden hand I understand what the math says and I do understand that the downside risk is that the market doesn't return or that you actually do end up spending the money on maybe not necessities but I do know that as you get older that your longevity decreases.
00:18:54
Speaker
Which I mean, that's to be factored into. So I spoke with Stan Hathcock, who is the annuity man. And he did say that the best annuity you have is social security. So I don't really know the right answer here. I mean, I think if we get amazing results in the stock market, which we don't know, it could turn out better, but we just don't know. And there are other factors to consider as well.
00:19:17
Speaker
That's the thing is you just don't know. And if we factor in 8% a year and we put it in a calculator, yeah, it's gonna come out better to take that money and invest it. But realistically, over an eight year period, there is no certainty. um And we
Integrating Social Security with Other Retirement Accounts
00:19:34
Speaker
don't know what that eight year period will return. Even in my job, just looking at pure investments, we always look at the risk adjusted return of the investment. We don't look at the return of the investment.
00:19:45
Speaker
And so if you have two investments and they're both going to give you 10%, but one is riskier than the other, which one are you going to pick? Or even a more dramatic example, um if you have two investments and one gives you 12% return and one gives you 10% return.
00:20:03
Speaker
But the one that gives you 12% return has a whole lot more risk. Well, then you'd probably take the 10% return because that's a guaranteed 10% versus risky 12. It's the same thing with Social Security. Your investment could make more, but you don't know and the reward is not enough to justify the risk.
00:20:23
Speaker
You and I and many ah people like us who probably many people who are listening to this podcast, they already have a basic understanding of retirement planning. How does social security integrate with other retirement income sources like 401ks, pensions, and personal savings?
00:20:39
Speaker
So Social Security is an income source. Your pension is an income source. Your 401k can create an income source for you. and And so it just needs to be factored into your plan as, hey, I'm going to get this income at this point. And there are calculators out there that they give you, they allow you to put in your estimated Social Security benefit to kind of factor that into your plan.
00:21:04
Speaker
So let's assume someone has a few of those options. and Let's assume they're taking at 62 or whatever age they're taking, but they have a few, they may have a pension or 401k or a Roth or whatever it is. How do you, what's the priority as far as like tax liabilities and things like that? How would you advise a client ah very generally ah to prioritize how they use those funds and what order or and what amounts to to meet their income needs?
00:21:32
Speaker
Yeah, so something to think about is a lot of times we want to, well, and this is just very general, okay? But a lot of times we want to kind of delay taking those pre-tax dollars. um That 401k money and kind of waiting until we have to. But then the problem with that is it grows and grows and grows.
00:21:52
Speaker
The other problem with that is if you're delaying Social Security or don't say you're taking an F70, then that can say your benefits $40,000. That's stacking that first and then all that pre-tax income that's going to go on top of that. So that's automatically being pushed into a higher bracket. Whereas if you're delaying Social Security, instead with a lot of people what we do is we kind of pull some of that pre-tax income out earlier and it How much just totally depends on a tax situation, what their income needs are. I mean, every person's different. The makeup of what their accounts are, how much is in pretax, how much is in Roth, how much is in taxable. But our general goal over is to just spread out their tax rate and make it as even as possible over time. And so if you're delaying taking Social Security, you have that benefit of that pretax money coming out is going to be in a lower bracket.
00:22:46
Speaker
So Emma, when someone is trying to decide which bucket to take the money from, social is social security taxed? So it app depends. um The biggest, factor or the factor it depends on is your income. um So for an individual filer, and for an individual filer, once your income hits $25,000, then you're going to pay about fifty tax on 50% of the benefits.
00:23:10
Speaker
Once your income hits $34,000, you're going to be taxed on 85% of the benefit. The interesting thing about that is that was made as part of the 1983 Act to preserve the Social Security Trust Fund. and Those income limits were not inflation adjusted. And so that doesn't go up at all. Those thresholds are going to be the same.
00:23:31
Speaker
In your opinion, should social security be viewed as a core part of retirement income or more of a safety net? And does it matter whether or not you're trying to retire early or not? Yeah, I mean, again, social security is income. um It should be factored into your retirement plan. It should not be viewed as just, oh, is I still on the take if I get it. um It's income just as your house has standing in your financial plan.
00:23:57
Speaker
If you have a $500,000 house, you can't say, oh, I'm going to ignore that. No, that's $500,000 that you could tap if you need it. That should be factored into your plan. Again, otherwise you're just under spending and you're just delaying retire.
00:24:12
Speaker
So how does that calculation actually work? So if you're advising somebody who's let's say wants to retire early or let's even just get away from the retire early aspect of this at 55, I guess for some people that would be considered early too. So retiring at 55, how does that conversation go 20 years sooner when they're trying to set up their retirement date? Like how do how do they, how do they balance those numbers?
00:24:35
Speaker
Yeah, so if you're just using spreadsheets, it's difficult and because you have to have to calculate the present value of the lump sum of your future social security benefits. However, we have technology that makes our lives way easier. A lot of the calculators out there now will allow you to put social security in and factor that in. um I know CFIR SIM does. I'm pretty sure new retirement does as well. um And so I think that's probably the best way.
00:25:03
Speaker
Emma, you've already covered that there's a minimum requirement to meet, to even qualify for the benefit. So for those in their early retirement community, they may be concerned with that. How did they determine what their social security benefits going to be? Yeah. So we talked earlier how there's those 35 years of earnings and how you're going to have some zeros if you don't meet that.
00:25:28
Speaker
So if you're going to go pull your social security statement right now and you're looking at retiring, you're going to get a number that's not going to be necessarily accurate because there's going to be a lot more zeros in there. So your social security statement, when you pull it online, what it's doing is it's assuming that you continue working and making the same level of income that you're making now until you claim benefits.
00:25:51
Speaker
If you're retiring early, you're going to have a lot of zeros that that system is not accounting. That statement is going to be overestimating what your actual benefit is going to be. Now, socialsecurityssa.gov, they have a calculator where you can go in and then you can put your earnings each year, and then you can put in zeros for future years until you claim, and that will give you a much more accurate number.
00:26:19
Speaker
um because the social security statement is just not going to be accurate. Something else that I like to do is I wait until people have retired. Now, obviously this isn't to help with the pre-planning, but to give you a better accurate number after people have retired, and um usually it takes maybe two years for social security system to catch up to the fact that you've had a year of zero earnings. um And then you can pull that report and that your last year of earnings was zero dollars. It's going to project that moving forward and it's going to give you a much more accurate idea.
00:26:49
Speaker
Does that calculator assume certain inflation adjust like this cola increases because like if i put them if i look at it right now is that in today's dollars or is that in like when i'm sixty seven dollars it's in today's dollars okay so.
00:27:06
Speaker
And same for that Social Security statement. When you look at that statement, that's in today's dollar. So it will be inflation adjusted. And and so with the inflation adjustments, there's two different things going on. um Social Security will inflate your wages because obviously $20,000 30 years ago is not $20,000 today. They'll inflate your wages, and then once you start claiming, they'll inflate your benefit. Those are two different inflation amounts. The wage inflation goes until you're 60, and then the cost of living adjustments will start at 62. Okay. And they're different rates. They're considered different rates. They're different. they're based The wage inflation rate is based off what wages are inflating at, and the COLA is based off what this cost of living is inflated at. And so each year, they will be different.
00:27:55
Speaker
Okay, so we'll try to get back to the basics a little bit here.
Complex Claiming Strategies for Social Security
00:27:59
Speaker
I know, we got too far. I wasn't even going to bring that up. No, that's good. Like, I like that we get into the weeds a little bit because somebody's going to be wondering that. So we just talked about like the basics of the social security benefits as easy as they come. And that would be for somebody who is single, but what factors complicate the process of claiming and receiving social security benefits for an individual who isn't single or who has other things going on?
00:28:25
Speaker
Yeah, that's where it really starts to get complicated, um especially when you pull in the auxiliary benefit. So if you are married, if you are a divorcee, if you are a widow, if you have minor children or have a disability, um you throw a pension in there. um There is a lot of complexity. Social security, there's over 2,700 rules, um and it can be hard to navigate and find what applies to you.
00:28:49
Speaker
So there are kind of calculators out there that can kind of help you if you have these special circumstances where you can go in. um My go to is open social security created by Mike Piper. um The problem with these calculators though is they're using a pure like longevity viewpoint um and they're taking in like actuarial life tables. And if we're viewing Social Security as longevity protection, then we don't necessarily always want to rely on the calculator that's assuming we're going to die at 85.
00:29:24
Speaker
So it really is important to take into consideration just what makes most sense for you. But these calculators can be a tool to kind of help you decide what makes the most sense. um When you start to pull in spousal benefits and survivor benefits, there's a lot more to consider than just how long do you think do I think I'm going to live, right? Let's talk about this with a partner.
00:29:48
Speaker
um Say you've both worked your life, you both have reasonable benefits, okay? It is generally best practice for the person with the higher benefit to delay until 70. The reason that is is because when you have two partners and one passes away, survivor benefits are 100%. And so you get you get the higher of the two benefits. So if your benefit's lower, then you automatically get your spouse who passed away's higher benefit.
00:30:15
Speaker
um So if you have two, we always want the person with a higher benefit to delay until seven. Now then what does the other person do? That again, it so depends and really depends on each person's situation. A popular strategy is for that second spouse to wait until 67 and claim at their full retirement age. When they're getting their full benefit, it's not reduced, but they're also not maximizing it.
00:30:40
Speaker
Now, other things can come and play if there's a large age gap between spouses. If you're 10, 15 years apart, then maybe it makes sense for the person with the smaller benefit, if they're younger, to claim earlier, maybe even sometimes 62. Because if that person with the larger benefits delaying till 70 and they're 15 years older than you, well, then respectfully, odds are they're going to die before you get to 70.
00:31:11
Speaker
That longevity break even analysis becomes a whole lot simpler um when you guys aren't the same age. Now, if you are the same age, that's kind of where it's not as black and white. And you can't screw it up too much if you're deciding, oh, should I claim it 67 or should I wait till 70? It doesn't make a huge difference. It's really what makes the most sense for your plan and for your situation.
00:31:39
Speaker
You're right. That does sound complicated. And I even sort of like this stuff, but i so I can't imagine somebody who's completely unfamiliar with retirement planning or maybe someone who just doesn't like to deal with it. Where can they go? Who should they contact? Should they just go through the 2,700, 2,800 rules or whatever it is to figure this out on their own? Where can they go to figure out their best way forward regarding the social security benefits?
00:32:08
Speaker
Yeah, so I think for a lot of people, including DIYers in the fires community, it makes sense for them to engage with a financial planner around the time that they're retiring. I think there are benefits of doing it before. I think there are benefits of doing it after. But I think the biggest point would be around that time when you're thinking of retiring. And you can kind of have someone come in and make sure you've got all your ducks in a row, make sure that you've accounted for everything.
00:32:38
Speaker
help you with taxes, help you with distribution, they'll help you with your social security claiming strategy. um So that's one option to get overall comprehensive help. But then of course there's Mike Piper's open social security calculator if you want to try and do it yourself.
00:32:53
Speaker
There are probably consultants out there that you can pay them $100, $200, $300, and they'll give you your optimal claiming strategy.
Emma's Motivation & Financial Planning Approach
00:33:02
Speaker
um The people who I would not talk to is the Social Security Administration. It is not their job to give you their your optimal claiming strategy. It is their job to help you claim benefits. um And while they may be able to provide you guidance, it is not the guidance that I would trust.
00:33:21
Speaker
Okay, so to sum up everything we've talked about up to this point, you do believe Social Security will be available to those who qualify in a reliable capacity when the time comes and that a person can use the SSA.gov or the numbers on the SSA.gov website expected amount in their retirement planning. However,
00:33:43
Speaker
when the time comes for us to actually receive the benefits, the program may look a little bit different to help ensure that it's not insolvent. Yes, and retirement planning is fluid, right? We are constantly receiving new information and using that to update our plan. We are not creating the plan and then retiring and never going back to it again. There will be signs that Social Security is changing if there's going to be changes, and we will have time to prepare for that.
00:34:10
Speaker
Emma, anybody who's watched this is probably wondering, I'm not going to ask you on camera, but they're going to know that you're younger than most financial advisors that they've ever come across. And I'm going to guess somewhere in your mid twenties, but what attracted you to the world of finance at such a young age?
00:34:27
Speaker
So really it was just, I mean, um my family, we didn't grow up very fluent. And so I knew that my finances were going to be all on me. And I also knew that I was going to have to support my family in some way. um So as I said earlier, I started working at 15.
00:34:49
Speaker
And so just kind of in me working and saving up a whole bunch of money, I was like, okay, now what do I do with it? um And in looking for those answers, I kind of started optimizing and hacking things and eventually I figured out how to invest and it really.
00:35:07
Speaker
I was like, oh, is this how compound interest works? And then once I kind of started putting all the pieces together and I realized that financially, long term, I was going to be OK as long as I kept saving, I felt this weight lift off my shoulders.
00:35:22
Speaker
And I was like, okay, I want to do this for other people. If I can make other people feel so secure doing the just a couple of things that I've done for my own financial self, I want to help others do the same thing. And so that's kind of how that happened. And I got so lucky that I came to this realization while I was in college.
00:35:41
Speaker
um And so at the same time, I was pitched on the financial planning program at my school. And I was like, oh, wow, you mean I can do my hobby as a job? Sign me up. It's been fun ever since.
00:35:55
Speaker
Well, first I think it's a rarity for anybody, particularly at your age, to find a career they actually enjoy and have find fulfillment in. So congratulations to you. and I'm not sure how many clients you've had or how long, exactly how long you've been doing this.
00:36:11
Speaker
But you've probably got a pretty good track record so far in helping clients feel financially secure, which was a big motivator for you to to go to this line of work. What kind of financial challenges do you help your clients overcome most often?
00:36:26
Speaker
I mean, it truly is every single person is different. there is all and it's The challenges we help people overcome are more often life challenges than they are money challenges. The biggest money challenges are spending or saving. and People either have trouble with one or the other, um but it's really just life and really just navigating The things that come up as you go through life, you have aging parents, you yourself are aging, navigating, starting a family, navigating, getting married, navigating, combining finances with someone. It really is, I mean, my job is different every single day. And that's one of the things that I love most. We can have a client for 20 years. Obviously, I wasn't their advisor for 20 years. And every time they come in, we talk about something different. um Just because things are always happening and things are always evolving.
00:37:18
Speaker
So Emma, you've been doing this for a number of years now. How has your perspective on retirement planning evolved since you started your career? Yeah, it's funny. So because I came from the Phi community first, before I came an advisor, there were two things that I was very, very excited to do as an advisor.
00:37:35
Speaker
One was optimize everything and two was to educate everybody. Now for the optimizing, the longer I do this, the more I realize that most people don't want the optimal choice. They want the choice that makes their brain happy. And sometimes it's my job to make people eat their vegetables and other times we choose the less optimal road because it helps them sleep better at night. um This can mean paying off a mortgage early or sometimes it means having more cash than necessary.
00:38:04
Speaker
um This will shock everybody, but last year my car died and I took out a 12.24% interest loan on a 10 year old car. Did I have the cash to pay for this car? Yeah. But did spending that cash on or spending so much of my cash on my car make my brain happy? No, it did not make my brain happy.
00:38:24
Speaker
So I took out the loan and I paid off the car in less than a year and $600 in interest to not have anxiety. That was a pretty good trade to me. And so kind of like dialing back that optimization a little bit for comfort and for peace of mind. And then the other thing was education. As a DIYer, I believe that everybody could and should be a DIYer.
00:38:48
Speaker
It's not optimal to pay somebody to do your finances. I wanted to understand everything and it shocked me when I realized not everybody cared as much as I did to understand things. I joke at work that I wanted people to be so educated that when they're out to dinner with their friends and asset location comes up, they know to say that their bonds are in their IRA because then the income doesn't hit their tax returns and then it slows the growth of the IRA. Nobody's going to do that.
00:39:17
Speaker
So what I've come to realize is that like our willingness and excitement in managing our finances does not automatically translate to the people around us. And the families we work with, they want to be educated to an extent, but they don't care why their bonds are in the IRA. They have intentionally chosen to not worry about the technicalities of their finances, and they've put trust in us and they're happy to pay for that benefit.
00:39:40
Speaker
Well, I would be interested to ask the same question another five years from now too, as your experience in your career expands and as you experience more of your own life situations. And I think that is one of the cool thing about retirement planning and finance and behavioral finance and all those things. And it kind of,
00:40:05
Speaker
As you said, it's obviously still it was dynamic or a moving target or it's always changing, but it is.
Closing Remarks on Financial Planning
00:40:11
Speaker
and And I think that is what makes you excited about this. That makes me and many people are probably who are listening to this and it's the reason why I do what I do with biology and this podcast. And because it's always something new, there's always another angle. There's always something else to talk about that even we've never heard of before. And it goes down to where the rubber meets the road with each particular individual.
00:40:34
Speaker
everybody has their unique circumstances. And when we start from there, it's way less about like spreadsheets and way less about ah you know optimize this or that it's about that's that. That's where the fun of all this comes in. You and I met briefly before, but since then, your reputation continues to circulate around the financial and independent space.
00:40:56
Speaker
among very credible people like Mark Troutman, Kevin Sebesta, and others, including my brother, Steven, who runs the Camp Fi's. And by the way, he just said your talk at Camp Fi was amazing. So congratulations. And I guess we'll see that on his YouTube channel at some point in the future. but How does financial independence intersect with traditional retirement planning that you may be more familiar with in your career?
00:41:23
Speaker
Yeah. um Well, first of all, shout out to Mark and Kevin. They are just amazing people. Their knowledge is phenomenal, and they've just been tremendous mentors to me. I just so appreciate their friendship. When it comes to financial independence and traditional retirement planning, there's a lot of carryover. I mean, both are retirement focused, and but they're also both very different. Financial independence is definitely more complex.
00:41:48
Speaker
in that there's a lot more variability. When you're young and you're retiring young, there's so many more ways your life can change. You can get married, you can have kids, you can live to a higher cost of living area, or you can have a friend named Kristin Knapp who's starting to plan trips around the world that you didn't budget for. Life is just really fluid. And when you retire at 65, there's still variability, but it's easier to anticipate.
00:42:14
Speaker
and For a lot of people with financial dependence, that variability and and uncertainty, it's scary. and So it can be a lot harder for people to pull the trigger early than at that traditional age. So just as a reminder to all those with one more year syndrome, your worst case scenario is that you have to go back to work for a couple of years.
00:42:37
Speaker
Your best case scenario is that you have a darn good time. um So if your worst case scenario is everybody else's everyday life, then you should be comfortable taking that extra risk to retire early and just live the life that you had planned to.
00:42:53
Speaker
Yeah, I can't agree more. Well said. Emma, thank you very much for talking with me today about integrating Social Security into our overall financial plan, helping us feel more confident ah about our retirement strategy. Thanks so much, David. This was a fun one. And thank you all for watching and listening.