Voiceover: [00:00:00] Welcome to Metcalf Money Moment. The podcast unlock financial clarity and confidence with expert insights to achieve your goals. Hosted by Jeb Graham, Ethan Hutchinson and [00:00:15] Eric g Wymore. Each episode offers decades of combined expertise in wealth management. Retirement planning and more. Join us for practical strategies to inspire your financial journey.

Now your hosts[00:00:30]

Jeb Graham: welcome to Metcalf Money Moments podcast. My name is Jeb Graham, here with Eric Wymore and Ethan Hutchinson, who are partners and uh, co-hosts of the podcast. How you guys doing today? [00:00:45] Doing good. Yeah,

Eric Wymore: doing well.

Jeb Graham: Thanks. Doing good. Middle of summer. It's, it's hot out there. We got a little bit of rain this morning, which is good.

Absolutely. And, and we needed it. I know my yard was looking a little bit brown for the first time of the year so far, so, yeah. Well, hey, today, [00:01:00] uh, what we're gonna do is we're gonna talk a little bit about a subject that a lot of people are very interested in these days, which is social security. So, uh, as financial advisors, you know.

Pretty much every single one of our clients at some point, uh, start to try to figure out how and when [00:01:15] to take Social Security. Uh, it's obviously a huge piece, uh, of the, you know, US economy and, and how people, uh, in this country retire. Uh, to give you a couple stats, 67 million Americans will receive a social security [00:01:30] benefit in 2025.

So you think about retirees, baby boomers. Uh, it's a lot of people out there. And then another interesting statistic is that people that are leading up to taking Social Security one in three Americans say that they're confused about when to claim their social security [00:01:45] benefit and how to claim their social security benefit according to a Nationwide Retirement Institute survey in 2023.

So, um, you know, obviously social security is just a huge, huge piece of, uh, the US retirement puzzle. Uh, and they say that for. [00:02:00] 40% of retirees that Social security can make up more than half of their total income. Uh, and, and when the, so the system was designed, social Security was actually designed to replace about 40% of, of [00:02:15] retirees, uh, income that they had during their working years.

So, um, you know, obviously when we have clients come in, either they're, either they're young and they're gonna have to face it someday, or they're coming in right around that retirement time, uh, and it's time to kind of start talking about it. So. [00:02:30] Today, uh, we're gonna go through several different things.

First off, Ethan's gonna take us through kind of how, how, what is social security and how does it work? Uh, and then Eric's gonna take us through some of the rules of social security. And then I'm gonna talk a little bit about, you know, when you should [00:02:45] claim benefits and how to decide when to claim benefits.

So, so Ethan, let's talk about what it is and, and how it works.

Ethan Hutcheson: So, yeah. But what is Social Security? Uh, a federal program providing retirement, disability, and survivor benefits to the beneficiaries of the program. [00:03:00] So everyone knows about social security, you've heard about it, you know, it's part of a government program that you pay into.

So we'll kind of dive in a little bit deeper today and, and kind of uncover what it actually is. So the biggest question we, well, there's a ton of questions [00:03:15] around it, but one that we usually get asked is how is, how is it funded? How does this money get into the social security system? So. When you get paid by your employer, whether you're a WW two employer.

Employee or, uh, self-employed. Some form of your [00:03:30] paycheck goes to the Social security program. Um, if you're a W2 employee, 6.2%, um, of your pay of your pay goes to Social Security and then 6.2%, the employer also pays into the program, um, a [00:03:45] combined 12.4%. The lovely part about being self-employed is you now front the entire 12.4% so.

12.4% of your pay if you're self-employed, goes into the social security system. Uh, it goes into a trust [00:04:00] fund. Um, and, and Jeb made a good point about, uh, the trust fund itself. Earlier when we were having a discussion around this is it's not this massive fund that's invested, that spits off dividends and just, it's just this huge endowment, like all these big, uh, [00:04:15] institutions have.

It's essentially, uh, kind of like an escrow account. Money goes in. That you pay and then money comes out and gets paid directly to the beneficiaries that are on Social security that have filed, uh, and paid into the program. So a [00:04:30] lot of people think there's just trillions of dollars sitting in this thing.

And while it is healthily funded, I'm not sure if that's the word, it's funded healthy. Um, it's not this massive pool of money that that's just sitting there. Um, a big concern we get is so people [00:04:45] around my age, in their thirties and forties. Are really concerned that social security is not gonna be there when they go to retire.

Um, they think, Hey, I'm paying into this thing mandatory every time I get paid. My benefit's not even gonna be there. Why? Why do I continue to do this? Well, [00:05:00] there there's some nuances and some, some things that we can do, um, from a government perspective that can solve that issue. So, as it stands today, the trust fund's projected to be depleted in the early 2030s.

Um, it's 2025, so that's right around the [00:05:15] corner. Um, that's, you know, one or two presidents away that social security could be depleted. Um, after that benefits may be reduced, so it wouldn't entirely go away, but you might get about 77% of what you would've gotten if it would've been fully funded. [00:05:30] Um, there's a lot of little fixes that can occur.

So right now, if you make up to $176,000, that f tax that we discussed earlier, the, the, the 6.2% you pay into that up to [00:05:45] 176,000. If you make $250,000 a year from a hundred, from 176,000 up to two 50, you no longer pay into Social security. So that's called the wage base. And there are a lot of talks in [00:06:00] Congress and a lot of legislature being passed to try to adjust that a little bit.

And if we can maybe take that wage base from 1 76 up to 200 or to 2 25, that'll just further secure Social Security for the next decade or two decades. So little [00:06:15] nuances there. And if you're making two 50 mm-hmm you should be okay paying just a little bit extra in social security tax up to your wage base to help fund that.

Jeb Graham: And I'll, I'll say that too, is that I think for, um, you know, just in general, by the way, and I, [00:06:30] Eric, you, I don't know if you remember, but we used to, back in like 2013 and 14, we used to go give up at UMKC, we used to give presentations on social security. Mm-hmm. And there were people that were worried back then about this.

So this has been kind of something that people have known about forever. [00:06:45] And I do feel like where it is, there is a problem, there is a shortfall and, and if you think about it. It's because you've got all these baby boomers, right, that are retiring and they're collecting benefits and the workforce is smaller.

So now there's just more people taken outta the system and less people to pay into the system for that [00:07:00] kind of flow through escrow trust that you were talking about. And people have been worried about this for a very long time. I do believe, although there is a problem, it has been sensationalized a little bit as far as you know, like I think people are worried that they're just gonna eliminate social security or they're gonna cut benefits.[00:07:15]

Obviously, like some of those stats we gave in the beginning that, you know, how think how many people are pulling social security and how many people are so dependent on it. It, it would be political, suicide, you know, to just get rid of the program or I'd say even to cut, cut benefits. So, so you [00:07:30] talked about the wage base, they can raise the, the wage base, they could also just raise FICA taxes, right?

Yeah. They could raise FICO taxes a percent or two. Uh, there's several different things that they could do. Uh, to, to fix that problem. And I, and I think that I'm, I'm leaning toward the fact that that [00:07:45] betting on, that's what they'll do as opposed to eliminating any sort of anybody's benefits.

Eric Wymore: Yeah, absolutely.

Yeah, because, you know, you have the largest demographic that's baby boomers, and the second largest demographic is millennials, and now they're all into the workforce. They're all starting to kick in, you know, every one [00:08:00] of 'em is into the workforce. And there's another demographic, another generation that's coming into the workforce.

You know, the last time they made a major change was 1984. Uh, that's when they, you know, they made, they extended some of the full retirement ages and all that stuff, and, [00:08:15] and that lasted 50 years. So, I mean, yeah. I think it's certainly, you know, precedents to show that we, we will make some kind of a change to, to extend the benefits

Jeb Graham: Yep.

In the future. But it doesn't do anybody any good to have a bunch of retirees [00:08:30] that are, that are bankrupt. Right. And so I just don't think they're gonna do that.

Eric Wymore: Yeah. No, absolutely not. And so, well, let's talk a little bit about the rules or the, you know, kind of the basics of, of social security and the social security program.

And, and in order to be eligible, uh, an individual [00:08:45] must have 40 credits, which usually takes 10 years, uh, to accumulate those 40 credits. How you accumulate a credit is for every, and this is in 20, $25. Every [00:09:00] $1,800 or so that you earn, you. Achieve one credit. So you are only able to eligible to earn four credits in a year.

That's where usually a lot of times people will say it's 40 quarters, well, it's 40 credits and you [00:09:15] can earn four of them per year. Uh, but for every $1,800 you earn a credit. So for once you hit $7,240 in, in a year, you've earned your four credits for that year. So [00:09:30] most individuals. You know, if you have a full-time job, I would say that most individuals have their four credits for the year, you know, by the first, you know, by the end of, uh, end of the first quarter of that calendar year.

Um, so [00:09:45] then when can you claim for this particular, uh, exercise where you can claim between any time between age 62 is your first eligibility, when you're first eligible? Up until age 70 when [00:10:00] you must claim because there's no more benefit to you. Uh, right smack dab in the middle of those ages is your full retirement age.

Uh, for, for one of the changes in 1984 is they kind of added some different full retirement ages. But [00:10:15] if you were born in 1958, your full retirement age is 66 and eight months, so it's coming up 1959. Your full retirement age is 66 and 10 months. And anyone over 19, uh, [00:10:30] born 1960 or older, your full retirement age is age 70.

Now, again, you can, that's when you're, you're, you're at your full benefit amount. And Jeb, you're gonna go touch on this a little bit later, but if you draw your social [00:10:45] security before that, you're gonna have a reduced amount. If you draw it after that, you're gonna have a little added benefit. So we'll save, save some of those numbers for, for your, your part, but.

Um, and again, how are those benefits calculated? [00:11:00] Well, it takes those, it takes your highest 35 years of earnings. So as Ethan mentioned earlier, you make, you, you, you know, you have earnings, you 6.2 goes from you, 6.2 from the employer [00:11:15] goes into that fund. You have those earnings tax and all up to your income up to $176,000 goes into that trust fund.

And it calculates those 35 highest years. So for most individuals, those [00:11:30] last 5, 10, 15 years of earnings are usually their, generally their highest earnings. And, and what you're doing is you're replacing, it's important to work all the way through until you start drawing social security, generally speaking.

But what you're doing is [00:11:45] you're replacing those years when you're in your twenties. And thirties and just kind of starting off and having a lower income. So it is important to kind of generate those higher dollars towards that get calculated towards your retirement benefit. Um, and [00:12:00] then also another thing that that happens for your benefit is every year there's an a cost of living adjustment.

And that's spit out by, you know, the Social Security Administration. Figure out what costs. You know, I think a few years ago when inflation was pretty high, most individuals got a seven, eight, 9%. [00:12:15] Uh, cost of living adjustments to their social security. Now that inflation has come down, you know, you're back to kind of your normal two and a half, 3%, uh, roughly cost of living adjustments, which is, it's a good benefit for individuals to have.

Um, couple [00:12:30] more things. There is also what's called a, a spousal benefit. So, uh, if your spouse, let's say that individual stayed home, you know, state, right? You know, stay was a stay at home mother, stay-at-home father. [00:12:45] Uh, was out of the workforce for a number of years and then maybe got back in later. And their benefit is, it's a benefit, but it's not quite up to 50% of their spouses.

Well, they can draw. Once their spouse draws on their benefit, [00:13:00] the spouse can take up to 50 or can draw their benefit up to make sure that their benefit amount is at least 50% of their spouses. So an example is if, uh, John Doe. Has [00:13:15] a $3,000 a month benefit and Jane doe's is only a thousand dollars a month.

Well, this spousal benefit will allow for her benefit to be bumped up $500 to equal 50% of John doe's benefit. It's an enormous benefit [00:13:30] and everybody should be taken advantage if, if they, if they don't quite meet that 50%, uh, uh, barrier.

Jeb Graham: Yep.

Eric Wymore: Um, and I'm gonna touch a little bit on taxes. You know, that's a big thing.

People will say, all right, well, or [00:13:45] it's a little bit of a surprise. They, they're, you know, they start drawing social security and, and it could be taxable, right? Could be taxable income. And, and, and, and I think usually a lot of the things is they, they hear the terms 50% and 85% taxable [00:14:00] doesn't mean that 50% of your social security benefit is taxed at 50, at a 50% rate.

It just means that 50% of your benefit could go into your taxable income. Same with 85%. So there are some numbers that you [00:14:15] wanna make sure you know, that you're just aware of. If you have other income, retirement income, part-time job income, that it could affect your, retire your taxability on your social security [00:14:30] for

Jeb Graham: sure.

Nice. Yeah. Yeah, that's, that's always something to know. And, and by the way, that, that's one like, kind of shameless plug there on Holistic plan, right? Like when we're, when we're working with a client and we use holistic plan, which is, um, you know, our, [00:14:45] our tax planning software, that'll help us determine, you know, that's one of the things we'll we'll use to help determine, you know, when to take Social Security as well, is just make sure you know, kind of what your tax liability is gonna be like when you're, when you're gonna be paying your quarterly taxes and things like that.

So, [00:15:00] um. So let's, let's talk about when to claim benefits. And this is something that we work through with clients constantly. Um, and it's, you know, it's unique for every single client. But first and foremost, let's talk about, you know, kind of what, [00:15:15] what the cost of taking it early versus late and stuff like that.

Is, uh, Eric mentioned a minute ago that basically you, the earliest you can take a benefit is age 62. Okay, well. There's no benefit of waiting till after age 70. So you're, because [00:15:30] basically your benefit's not gonna grow anymore. So you're gonna take it sometime between age 62 and 70. If you take it at age 62, you're gonna get a permanent reduction of about 30% from what you would get at your full retirement age.

Um, like Eric was saying, full retirement [00:15:45] age for most, between age 66 and 70 67. Um, so if you take it early, that's, you know, at age 62, that's a 30% reduction from full retirement age. Every year from age 62 on that, you wait, you get an [00:16:00] 8% increase. Okay. So meaning, you know, if you take it at at at age 63, it's 8% more than it was at age 62, so on and so forth, all the way up to age 70.

So, so what we get from clients a lot, and this is something that I think we want to clarify today [00:16:15] on what our opinion of a breakeven is versus what a lot of people's opinion of a breakeven is, uh, as financial advisors. But people always talk about the breakeven point of social security, and I think. The blanket thing that people are saying when they mean that is, uh, where, when are you breaking [00:16:30] even on the amount that you would take out of the Social security system?

Okay. Meaning if you took it at age 62 versus age 70, when would you break even on the amount that you've taken outta the Social Security system? Well, that number, a little bit different for each person, but typically it's gonna be [00:16:45] in your very late seventies or very early eighties. Okay? And what that means is, again, if you take it at 62, 65, 67.

70, whatever it is, you've taken the same amount out of the social security system. If you, if you're taking kind of [00:17:00] that approach to when you're gonna take your benefit, you know, if you think about it, if you have longevity in your family, uh. Then you may want to wait till age 70 to take that benefit. Or if you are not in good health, you might want to go ahead and take it at age 62 [00:17:15] because really you're trying to figure out how much you're taking out of the system.

And again, that break even is gonna be around that age 80. Now, where we as financial advisors, what we're much more concerned about is how are we maximizing your portfolio value over time and [00:17:30] how are we maximizing the utility of social security? So a good example of that is we have, and we, we deal with this.

I mean, you guys probably too every month, right? Mm-hmm. Where you have somebody that's getting ready to retire and they're gonna retire early, and they wanna know whether they should take it at [00:17:45] 62, 67 or 70. And what we're gonna do is a side by side comparison in E-Money, which is our financial planning software, which is a very, very sophisticated software.

And we're gonna show them a side by side of taking it 62 versus taking it at 67 [00:18:00] versus taking it at 70. And what a lot of people don't think about is if you're gonna, if you're gonna retire at age 62 and you're gonna wait till 67, well that's five years there that you're gonna need to pull money outta your portfolio, right?

In order to live. Whereas, or [00:18:15] more money than you're already pulling outta your portfolio because you're not getting any social security benefit. So really when we're talking about break, even as financial advisors, we want to account. For the extra money that you have to take outta your portfolio to live during that five years and then [00:18:30] figure out when the portfolio breaks even.

So for instance, if you have to take an extra $150,000 outta your portfolio over that five years, well then we need to know when your portfolio catches back up to that $150,000 that you took out. A lot [00:18:45] of times that break even could be in your mid nineties, late nineties, or even over a hundred years old.

So many times when we have a client that's retiring early, if they've got a million or $2 million in their portfolio or 3 million, our system will show that it's better to go ahead and take it early. Okay? [00:19:00] However, there are a couple other factors in taking early Social security. Number one is if you're, if you're getting health insurance, you need to make sure that a lot of times you have to stay under a certain income threshold to keep those health insurance premiums down.

Doesn't mean that [00:19:15] you don't want to take Social Security, but it does mean that we need to account for that in the plan and still see, you know, what the numbers show and, and what's more beneficial. And then the other thing is, is we have a lot of people that do retire early and then they work part-time.

Okay? If you're gonna [00:19:30] work part-time and make over this year, the number is $23,400. You definitely don't wanna take Social Security early. And the reason is, is because if you take it early, like we said earlier, you're permanently reducing that benefit. But then if you make more than [00:19:45] $23,400 a year, you're actually gonna further reduce that benefit.

So you're kind of getting double whacked there, if, if that makes sense. Mm-hmm. Because you're, you're taking a smaller benefit and part of that benefit is getting eliminated. So I think just to kind of put all this in [00:20:00] encompassing, is that the most important thing is. Is that it's not, it's unique for everybody, right?

So whether you take it early, whether you wait till later, it's gonna be unique for every individual. And I think it's very important to meet with a financial advisor and to put [00:20:15] together a plan so that you can kind of see what those numbers look like long term. And to Eric's point earlier, you know, where you have spousal benefits and spouses taking it at certain times, there's, you know, there's some things that a financial advisor might be able to point out to you.

Some strategies [00:20:30] there. That might, uh, increase, you know, your overall financial health down the road as

Ethan Hutcheson: well. So, and Jed, there's other little nuances too. If you, if you're divorced and you've never gotten remarried and your ex-spouse has a higher wage base or income, you might be [00:20:45] entitled to their social security when they turn 62.

Um, yep. If you're widowed, there's survival benefits. There's a lot of little nuances, um, that might not affect everybody, but they're available to everybody, so. Just to dovetail off, Jeff, [00:21:00] have the conversation with your advisor.

Jeb Graham: That's a great point. Yeah. And, and by the way, in this podcast, we've probably touched on 10% of Okay.

Yeah. Really the, the intricacies of social security. And we do go much more in depth, you know, when we, when we

Ethan Hutcheson: have a client in here. [00:21:15] So I think it's important too. I mean, if you're above the age of 40. Go ahead and log in to ssa.gov, get a login, established p print a PDF of your statement and send it to your advisor.

So if you're listening to this, call [00:21:30] it, we, I love it when I get those unsolicited social security statements. I'm like, Hey, great. Thank you for the update Cost of living hit you, cost of living adjustment. Hit your, your wage wages. We'll, we'll update your plan. So if you're thinking about it or listening to this, just do that today.

[00:21:45] It'd be, it'd be great. Your planner would love it. That's a great point.

Jeb Graham: And for sure, like. We talked about this earlier too. I, I think it's so important for them to, to print off a statement. Our system will estimate it. So when we do an e-money plan for somebody, it will estimate [00:22:00] it based on their income.

But we found a lot of times it's not quite as accurate as what somebody actually printing it off, uh, is. So it's, it's great for us to have those. And we do have clients that actually print that off every year and send it to us and, and we update it for 'em and mm-hmm. And we love [00:22:15] to do it so. But anyway, this, this has been super productive.

Uh, I think, you know, half hour here talking about social security. If you have any other questions about social security, certainly give us a call. Um, 'cause we'd love, we'd love to answer 'em. And it's something that we spend a fair [00:22:30] amount of time. Time studying up on and, and learning more and more about, 'cause it's, it's, it's always changing.

It's never stagnant. They're always kind of updating rules and things like that. So, uh, but this is Metcalf Money Moment podcast and we're signing off.[00:22:45]

Voiceover: Thanks for tuning in to Metcalf Money Moment, the podcast. We hope today's episode provided valuable insights to help you unlock financial clarity, confidence, and peace of mind. For more expert advice and [00:23:00] resources, visit metcalf partners.com. Until next time, make every money moment count.

Disclaimer: Jeb Graham, Ethan Hutchinson and Eric Wymore are registered representatives with and [00:23:15] securities offered through LPL Financial Member FINRA SI PC Investment advice offered through W CG Wealth Advisors, a registered investment advisor, WCG Wealth Advisors and Metcalf Partners. Wealth Management is AR separate entity entities from LPL Financial.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations [00:23:30] for any individual to determine which strategies or investments may be suitable for you. Consult the appropriate qualified professional prior to making a decision.

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