Social Security Filing Strategies

Hi everybody. Welcome back to another episode of Building Your Wealth Bridge. Little bit of a different format today. I'll be doing this episode solo. Part of the reason why I'm doing it alone was this episode's really going to be built off of a few different client cases I've had on Social Security over the last year. Three different clients, three different analyses around social security and really gave me perspective on three different ways to look at you know why you might want to file early or in the middle or you know as late as you can when you're thinking about social security and social security has been an interesting topic as I've you know got around 8 to 10 years in this business you know we run this analysis for clients as part of their retirement plan.

But it's an interesting topic to review with clients because number one, I've learned it's important to get to clients before they even reach their filing age. Because there's quite a range of ages where people could file. And so, you know, even as adviser, my initial thought was maybe most people were going to wait until their full retirement age to start collecting. But as an adviser, you know, that can be dangerous because there's just some people that have strong opinions about I'm going to file as early as possible.

And so we've kind of rebuilt our process to say and reach out to people at around 6061 to engage them and say, you know, let's take a look at what your filing options look like before you even reach early retirement filing age. But what's interesting is, you know, if they decide at 62 or we reach out to them at 61, yeah, I'm just going to wait until 70. That's another 8 years until they actually file. And what I've also seen is that things can change between, you know, 62 and 70.

I think one example might be there was this repeal of people that were having their benefit amounts affected by pensions that they were getting as a part of, you know, being an employee at a government entity. And people may have been making the decision to wait until 70 to file partially because their benefit amount was being affected by their government pension. When that rule got repealed, all of a sudden, people are getting a lot higher benefit amount. And so, it may make sense in the middle, you know, of that initial decision at 62 to say, "Hey, I'm going to wait till 70." If that rule change happened at 66, they might completely change their perspective on how they're going to file based upon, you know, a law change that occurs around social security.

So, I think it's an interesting topic number one because that age range, you know, is pretty wide, I think, in terms of when people are going to decide to file for social security. And yeah, I would say for viewers that are listening to this on Spotify, I put together a PowerPoint, you may want to watch this on YouTube. I'm just going to go through some of these slides here. I'm not going to do presentation mode just so I can flip between these slides. But another interesting thing that was kind of an eye openener to me when I joined the industry is that people have really strong opinions about social security more so than the age they think they're going to retire more so than you know what they think their Medicare strategy is or you know whether or not they need any sort form of insurance.

Clients that I've talked to over the years, you know, seem to fall into a couple of different categories and they feel really strongly about how they should file when it comes to social security. So I've got three client types here that I've seen over the years. And that first client type, and again, none of these are wrong approaches, but people just have strong opinions about them. The first type of client is the person that says, I'm going to file as early as possible. They felt, you know, I paid my dues into the system.

They don't fully trust that the benefits are always going to be there. You know, we've seen in the news if the government doesn't take any action. I think it's by, you know, it used to be 2035, but now it might be 2032 that benefits are going to reduce be reduced by 25%. You know, for anybody that is collecting them. And so, some people say, I'm going to get as much as I can now, even though by filing at 62, I'm going to get a much smaller benefit than if I would wait until my full retirement age.

People in this category also feel really strongly and I've noticed particularly with men they feel like you know what my dad passed away at 65 heart attack you know he was going to collect you know at 67 for social security and he didn't you know get a penny you know maybe his widow got something but that's not going to happen to me I'm going to collect at 62 and if I don't live long I'll have at least collected something along the way and so there's kind of a mortality issue there where people are just convinced that they're not going to live to 95.

Five or 100. The second type of client, and I would say of the three, this is the least common, you know, in terms of strong opinions, but some people will say, "Hey, I'm definitely going to wait till my full retirement age," which for most people at this point is pretty much 67. And really, the main opinion I've seen people have in this regard is I've paid into the system. I know if I file early at 62, you know, I'm going to get a very reduced benefit.

Yeah, I want to get at least what I put into the system and what they promised to pay me if I wait until 67. And so I'm going to wait till full retirement age. I'm not going to wait until 70. But I'm going to wait until they're going to give me 100% of my benefit and then I'm going to file for social security. So that's client type two. And then the third type of client is the people that feel really strongly about waiting until 70. And the biggest thing that they like about that approach is, hey, every year that I wait after my full retirement age, you know, if that's 67 for someone, they're going to get an 8% bump in their benefit amount.

And so from a numbers perspective, they feel like, hey, I think, you know, I've got longevity in my family. I'm going to live long. I think I can beat the system by, you know, waiting a little bit longer. Of you know getting a guaranteed increase and then after I hit 70 you know if I lived to 90 I'll have collected so much more than if I had collected at 62 and lived to 90. So that's another interesting aspect I've seen with social security is people have these really strong opinions about it.

But I think what's really interesting about what goes along with people having these super strong opinions is that this filing for social security is much more of an art than a science. And really there is no perfect way to approach this. And the biggest reason is nobody knows how long they're going to live. So for that first client type that says I'm going to file as early as I can. You know, if they end up living to a 100, they would have collected a lot more if they would have waited until 70.

You know, assuming the government doesn't cut the benefits in future years. But it's the same thing for people that say, "Hey, I'm going to get that 8% increase every year after I wait for my full retirement age. And when I file at 70, I'm going to get a huge benefit amount. If they die a year later, you know, that will have been a mistake." And so there's no perfect scientific answer to when you should file. You know, people will ask me, we've run a lot of analyses where they say, well, you know, where's the break even point if I file at 62 versus 67 or 70?

And usually there's this range of, you know, somewhere between 78 and 82, if you live till at least that age. That's where you'll find that break even point. And so basically what that means is if you die at any point before you turn 78, you know, many times, not always, but many times we run these analyses, people that file at 62, you know, will have collected more by filing early. And then for people that live beyond 82, you know, they'll have collected more if they've waited until 70 to file.

And so even though, you know, no decisions bulletproof, nobody knows how long they're going to live, you know, there have been times, you know, early on in my career, I just thought, well, you know, is it worth doing a really thorough analysis, putting a lot of thought into it if you just don't know how long you're going to live? And I don't think you just throw your hands up and say, you know, it's not even worth looking at because I don't know how long I'm going to live.

I do think, you know, there's markers you can look at when it comes to your individual scenario. And there's three, like I said, there's three client cases that I ran into where I think, you know, we discussed what we think is the best path, you know, but what we thought might even be some alternative paths that would get people, you know, to probably the closest, you know, to opt optimizing their situation that they could from a social security standpoint. And so I always think an analysis is worthwhile even if it confirms what you already know.

And so just a couple of quick terms for those that aren't familiar with social security at all and just things that we'll be referencing throughout these three client cases. The first is, you know, I mentioned full retirement age. That's basically the age, you know, at which you're eligible to receive 100% of your social security benefits. For most people it's going to be 67. As I said, over the years, you know, it used to be 65, then 66, and you know, for some people 66 and three months.

But, we're getting to the point where pretty much everybody at this point, their full retirement age will be 67. Another term that we'll mention is the primary insurance amount. And so, when you hit 67, you'll see on your social security statement, they'll list, hey, your PIA, your primary insurance amount, you know, might be $3,000. That's the dollar amount that you'll collect if you wait until 67. And so that's just kind of a, you know, another term that they'll use when they're talking about your full retirement age and specifically the amount that you're going to collect.

And then the third term, and this is kind of a very unique provision that can come in play, but I want to mention it because, you know, it came into play for, you know, two of the client cases that we'll talk about is what's called the widow's limit provision. Okay? And the gist of it is, you know, basically the government wants to ensure that if somebody files early and they pass away and their widow or widowerower is going to be dependent on their social security, you know, to live on during the rest of their retirement, they want to ensure that they're getting at least, you know, a minimum amount of what they think is is appropriate.

And so there are cases essentially where, you know, somebody files at 62, they're getting, you know, a benefit amount where a widow can actually get a higher amount than that person was collecting after they pass. So those are just a couple of terms to be aware of as we go through these client cases. So, as I mentioned, three different client cases. One we'll discuss, you know, the case for filing early. The second one has to do with what I call, you know, a mixed strategy where, you know, we recommended, you know, one filing age for a spouse that was a little bit earlier on and we recommended for the other spouse maybe late waiting later to start collecting on their social security.

And then the final case study had to do with an individual where for both him and his wife, you know, we discussed it. We thought it might be prudent to wait until 70 for them both to file. And so these are real life case studies. We've changed the names for privacy, but the reason why I think as advisers we get excited when we've got these real life cases that we can bring and produce content with is, you know, sometimes I feel like when we don't have real cases and they're hypothetical cases, we'll start with the numbers and we'll kind of wrap a story around that.

But it really legitimizes to me to me when I run into these real life cases where people kind of come to me with their story and their scenario and then we kind of wrap the numbers around their circumstances that it just legitimizes that there is good planning to be done when it comes to something like social security. And it brings you know to my mind that you know even for someone like me that only works with 150 175 clients you know you may look at one or two of these cases and say well that's a very unique type of scenario.

You know there's a lot of people that are filing for social security year in and year out. And so I think you know even some of these maybe more unique seeming cases apply to more people than you think. And my thought is, hey, even if I work with 150, 175 people and I can find three different cases just among that pool of people, you know, it's probably affecting, you know, more people than I would have initially thought. And so starting with the first case study, this is Charlie and Emily.

All right, they're near retirees. They're actually retired now, but I was working with them a couple years ago. They were getting ready to retire. Charlie's 61 and Emily is 59. They're both retired. Total net worth they've got around 1.25 million in assets. Around 3/4 of a million is invested in assets with our firm. It's mostly, you know, qualified money in IRAs and then some Roth IRAs. And Charlie worked in construction for his entire career and then Emily was a teacher. It's relevant because they're both receiving pensions.

What's interesting about you them both receiving pensions and particularly for Emily, I think she worked in at a school district where her social security benefit was going to be affected by the fact that she was collecting her pension. And I'll explain, you know, how that changed here in a second when it came to their analysis. But we took a look at for Charlie and Emily what they would collect if they both waited until 67. And so Charlie's benefit amount was a little under 3,900 a month if you waited until 67.

And then Emily's amount was a little under 2,900 a month. And I think why that was important was this wasn't a scenario where you know Charlie's benefit amount was much larger than Emily's and Emily was going to depend on the spousal benefit or file for the spousal benefit. Their benefit amounts were relatively close I would say because they were both working you know over 30 to 40 years. And so that was kind of one thing that was a little bit unique to them. And then in terms of how they were approaching it, I remember when we started talking about social security and their portfolio with us, their thought like a lot of people was, you know, right now, you know, we've got our pensions, but then everything else we're kind of relying on the portfolio.

And as we know with markets, nothing is guaranteed. And so, you know, there was this thought of, hey, it would feel good to them to have another supplemental income stream get started, you know, one that was guaranteed, you know, and take a little bit of pressure off of the investment portfolio, but they weren't in a spot with their living expenses where they absolutely needed social security as early as possible. And so, what we had talked about and what they had told me was, hey, we could wait till 67.

We could make it work. What was likely was that you know they might have a withdrawal rate on their portfolio of you know maybe 5 to 7%. And so, you know, their thought was, hey, should we continue to withdraw from the portfolio and use our pensions and, you know, hopefully still continue to see the invested assets grow, but if we go through a tough market stretch, you know, is it worth waiting till later on to collect social security at the risk of maybe seeing our portfolio shrink because we're taking withdrawals, you know, from the portfolio.

And so couple things that Charlie was asking me specifically was, you know, first of all talking about should I wait until full retirement age at 67 to get that full amount of 3,900 or should I, you know, file early at 62, you know, and he knew that there was going to be a very reduced benefit amount that he was going to get. It would go from like 3,900 to almost 2750 a month. And you know, that's what he was grappling with was is it worth it?

You know, that's five more years that he could be collecting a social security benefit, but at the cost of $1,100 a month. You know, that's not a small chunk of change. And so, that was question number one was should he wait or should he think about filing early? His biggest concern was really about Emily and how Emily's benefit was going to be affected. And he was curious, you know, if I file early, how is that going to affect her filing strategy and her potential benefit? And mainly what he was looking for was, is there any negative negatives to her benefit about by from what I do essentially?

And so that was another question you had. And I think the final thing was thinking about, okay, depending on what I do, you know, Charlie's like, I've got the higher benefit amount. Something happens to me, you know, I pass before Emily does, how does that affect her survivor benefits? And so those were the main things that that he was looking at and, you know, had a couple thoughts after started to review things. And at the first, I think the most important one because he was very concerned about Emily's benefit was looking at what his benefit was versus what her benefit was a full retirement age.

And like I said, they were relatively they were close enough to where no matter how long Charlie waited to collect his benefit, Emily was never going to file for the spousal benefit. She was basically going to file for her own benefit at some point. And that was always going to be higher than if Charlie, you know, delayed. He started collecting his own benefit and then Emily wanted to get spousal benefit. And so I think that was really important to know upfront because it told Charlie that hey you waiting might be good for you but it's not good for Emily.

So that's important for you to know upfront. The second thing that was interesting you I mentioned you know Charlie was in construction, Emily was teacher was a couple years ago. I think at least Emily's benefit was going to be affected by some of the provisions that were in place in terms of, you know, government pensions offsetting some of her social security amount. And so, when that was repealed, it changed the numbers in terms of how much Emily was going to be able to collect. And so, I think that was key to know was that, you know, had they looked at this just a year or two ago, they might have made a decision based on outdated information.

And so it can be critical, you know, now that that provision has changed, for people to take a fresh look if they're thinking about their filing strategy. And I think the third thing, and this was, you know, a bit of a unique provision that even I had, you know, not too much awareness of, was thinking about Emily's survivor benefit. Okay. And basically, you know, to answer Charlie's last question of, you know, if I file early at 62, how is that going to affect, you know, Emily's survivor benefit?

And the answer there is that it was going to be affected. So, Charlie would collect less during his lifetime. Which meant that, you know, Emily potentially would collect less through her survivor benefit. But after digging into it, you know, that reduction would be not as much, you know, as maybe she initially thought because of what's called this widow's limit provision. And we'll kind of go into how that came into play when we thought about them filing early. And so, you know, what we ended up thinking about at the end of the day, you know, and I would say health-wise, you know, in relatively good health.

I think you know maybe they were both former smokers so that was something to be taken into account. You know relatively average I think longevity and in the family and so that's not something that weighed heavily on the decision but you know what really drove this recommendation for them to file early to me was the existence of this widow's limit provision. Okay. And so what I thought might be a good idea was because Emily was going to get no benefit in the in the form of a spousal benefit by Charlie delaying his benefit and they could use the income.

You know, I thought it was interesting to explore, you know, Charlie filing early at 62 and basically he would get around 2750 a month. They're very close in age. So basically Emily would kind of fall in right behind him and when she hit she hit 62 she could start collecting her own benefit and she would get around $2,000 a month. And so, you know, the main thing that we were looking at was, you know, what happens if Charlie dies? And, if he died early on, you know, at 62 or 63, you know, Emily would still be collecting her own benefit.

You know, she'd be missing out on the 2750 that Charlie was getting, but she'd still have some income coming in because she filed early as well. But at some point she could file for her survivor benefit and basically she would want to wait until she can get a 100% of her survivor benefit and that's based upon something called the widow's benefit matrix which is really it's just on a case-byase basis. So that's a different age for everybody. But what the key factor here for me in this scenario was, you know, in most circumstances when someone files for a survivor benefit, they basically get what their spouse was collecting.

So, at first glance, you would think, okay, Emily was collecting around $2,000 a month. Charlie was getting around 27.50. When she files for her survivor benefit, she's going to get 27.50. But, you know, I'd mentioned the government has this widow's limit provision, which essentially states that they want to make sure that, you know, Emily is getting at least, you know, a minimum amount that they think will help sustain her living expenses. And so essentially what she would qualify for instead of that 2750 is 82.5% of Charlie's primary insurance amount, which again that primary insurance amount is the amount that Charlie would get if he waited until his full retirement age.

Okay, that amount is around $3,200 versus 2750, which is basically like an extra 500 bucks a month. And so, you know, once I had heard about that and then looked at the numbers of what it might look like for the two of them, I compared that 3200 to what Charlie would be collecting, when he turned, I think it was 65 or 66. And if Charlie waited until 65 or 66, he would get around that same amount. It would be around like 3,200, $3,300. And so, the way that I looked at it was Charlie can basically file at 62.

Okay? He gets three extra years of collecting his benefit. Okay? And assuming something happens to him, you know, Emily would get the same amount in a survivor benefit that she would have gotten had he waited until 65 or 66 to file. And so, you know, this is not something that's saying this is definitely the only answer. You know, it is totally dependent on how long they live. But I thought it was kind of a somewhat of a convincing argument to me when I looked at it to say, you know, if they both file early, you know, they'll get this income stream to start coming and it's reduced benefits, but it takes a lot of pressure off of their portfolio.

And their benefit and balance are close enough to where there's no sense in Charlie waiting just so Emily can get the spousal benefit. And you know, if Charlie does pass away, you know, he's the higher income earnner from a social security standpoint, Emily's going to get an increased benefit, not only from her benefit to what Charlie was collecting, but even an enhanced benefit through the widow's limit provision. And so, I think that was just something that was very interesting to me. It was kind of a nuanced case where I'd never heard of this widow's limit provision.

And it really surprised me because when I initially sat down with them, I thought, you know, I've never really had a case where I thought, you know what, it makes a lot of sense to file as early as possible. But that was, that was a bit eye opening to me. So, second case study came up shortly after that. And this is Alex and Carrie. Again, they're both retired. Alex is 63 and Carrie is 61. Okay. What was interesting about this case, or I should say different from Charlie and Emily, is that even though Carrie's younger, she, has a much higher, primary insurance amount than Alex, or I shouldn't say much higher, but it's about $1,000 higher a month.

And so, Alex is older than Carrie is. But his benefit amount is going to be smaller when he files. So, their net worth, they had a sizable net worth. It's around $5 million in total. Okay? And around 4 million of it's invested and then they've got a couple of homes that are worth around a million each. But what was unique about their case, you know, on the face of it you think, hey, you've got $5 million, you should be fine whether you file at, you know, 62 or 70.

But what was unique about their case is they had around $2 million around 40% of their overall net work worth in a single stock that the husband owned and he had owned for years and years and years. And so his concern was you know they're retired, they're still relatively young, they're not collecting social security yet. And every time he needs money he's relying on his portfolio and he's been kind of chipping away at this concentrated stock that he has. But every time he sells a piece of it, you know, he triggers a big gain.

He's got very low basis in the stock. So he's triggering taxes. And he feels very dependent on this stock, you know, meaning that if that stock were to crater and lose 50% of its value, all of a sudden their total net worth goes from 5 million to 4 million. So, he felt like he was very dependent on the stock more so than he would have liked. And lifestyle-wise, you know, they didn't live overly extravagant lifestyle. They had two homes. But they do live a good lifestyle.

They like to travel a lot. They give to their children. They're not planning on selling either of their homes. They really want to hold on to them. So their expenses are a little bit higher for the you know maintenance and upkeep on those. And so the main concerns, you know, I mentioned the first one was Alex's concern that if that stock craters, he's, you know, going to go from being super confident in retirement to all of a sudden questioning, hey, can we afford this? Again, similar to Charlie and Emily, they felt like they were completely reliant on the portfolio and they thought that turning on a guaranteed income stream like Social Security might take some of the pressure off of the portfolio and just allow them to lower their withdrawal rate where they can keep more of their funds invested, create a little less of a tax problem by not having to sell, you know, the single concentrated stock at a huge gain each year.

And basically, you know, be able to invest a little more for the long term than constantly having going back to the portfolio to sell and raise cash. They also have an accountant. Yeah, I mentioned people have very strong opinions. As the adviser, they came to me, but they also talked to their accountant who was a friend, and he was one of those people with very strong opinions about you definitely should be filing as early as possible, no questions asked. So we took a look at his situation and you know a couple of thoughts that I had come up with was you know Alex because he had the lower benefit amount and because he was older again it didn't make a bunch of sense for him to wait until his wife filed because he wasn't going to collect a spousal benefit.

Basically he was always going to collect his benefit amount you know no matter how long she waited. Thing was also because he's older. One thing that widows, you know, if Carrie survives Alex, that's important for them to know is you don't have to switch to, you know, your survivor benefits right away. Or if she hasn't filed for her personal benefit, she can file for survivor benefits and continue to delay her own personal benefit. And I think there's a bit of a nuance there where people think, well, if I'm already collecting my benefit, well, she's got the higher amount.

So, she, you know, would continue to collect her benefit amount. But if she hasn't started collecting her benefit amount, you know, she can, as I said, delay that. So, that that those were just a couple things I thought were a little bit nuanced in their situation. So, what we ended up coming up with in their case, again, it was a little bit mixed in that we suggested that, you know, maybe Alex think about filing now at 63. Again, it's going to be a reduced benefit amount.

He's only going to get around, you know, $18.40 a month. But it starts to help with that concern of being completely relying on the portfolio. You know, start to get some money now, and not have to wait, you know, another four years. It made a lot more sense for Alex to file now than Carrie because the longer Carrie waits, you know, the more beneficial that's going to be to her benefit amount. You Alex has got the smaller amount, so any increases he sees by waiting are going to be smaller in comparison to Carrie.

So, between the two of them, you know, it's more attractive for Carrie to wait, and she's only 61. And so what we had talked about was, well, why don't we think about starting Alex's income stream now and then Carrie can start delaying her own benefit. Okay, she doesn't file at 62 or 63 because they've got $5 million in net worth, you know, because Alex has started his benefit stream. It makes sense for her to wait because they don't absolutely need the income. And so there's because like I said, there's more of a benefit for her to wait.

She should continue to do so for a period of time. What was also comforting to them was, you know, if again that scenario where Alex, he's older, if he dies in the first couple of years, okay, by filing at 63, you know, him passing away, Carrie could file potentially for survivor benefit. And again, similar to Emily and Charlie, you would think that, okay, she's just going to collect what Alex was collecting, which was 1840. Okay, but because he filed at age 63, you know, that widow's limit provision came into play again potentially.

If he filed for 1840 a month, he passes away, she was going to get, you know, I think it was closer to like maybe, you know, 2,000 or 21,100. So, she would have gotten a higher amount if he passed away. What would have been nice for her is as a widow, she would have been able to file for survivor benefits, but to continue to delay her own benefits. And what's interesting is if she starts collecting survivor benefits and she continues to delay her own benefit, she can go beyond 67.

So, she could even wait until 70 and, you know, get all these increases on her own benefit. So that's what we ended up coming up with at the end of the day. And so a little bit different for Charlie and Emily in that it was a bit of a mixed filing strategy. And the third case, this was with Billy and Kristen. This was, you know, a client I talked to about a year or two ago. They were one of these clients that were very convinced that they should wait until 70.

But we reviewed it again once they hit full retirement age. Billy's, you know, currently 68, Kristen's 67. Again, they're both retired. You know, very high net worth family. They've got around $14 million in assets. Around 10 million of that is in their portfolio. One unique thing about them is, you know, they were very aggressive in putting as much money as they could into qualified accounts, you know, through like 401k defined benefit plans, IRAs, and that's basically where they stuffed all of their retirement money while they were working.

Which was great, and they got a lot of growth and a lot of tax deferral by doing that. But now that they're in retirement, even though they've got $10 million, you know, everything that's coming out of the IRAs and the 401ks is taxable at ordinary income rates. And so, you know, they've got, you know, a bit of a tax problem because they've got all their money in qualified accounts. They also live a very good lifestyle. They've got multiple homes. They're extremely generous with their children. And they like to spend good money on things that are important to them.

Like to take really nice trips. They like to take their family on very nice trips. So they have an expensive lifestyle. So, you know, it's very unlikely that they're ever going to spend all of their wealth, but you know, because of those factors that they had all their money in qualified accounts because they, you know, live, you know, a very good lifestyle, they still wanted to review, you know, the best filing strategy for them. So when we talked about it again, you know, Billy's main concern was not about running out of money in retirement.

But he was looking at it from a numbers perspective. And he was thinking about, you know, how do I get as much as I can out of social security. You know, they were already at full retirement age, so filing early was out of the question, but the main question was, should we file at full retirement age or should we wait until 70 to file? And that's what we were kicking around. And then, for Kristen, she was going to take the spousal benefit. So, this will be the first case where that comes into play.

Billy's benefit amount was high enough to where after he started collecting, Kristen was going to qualify to take the spousal benefit. But Billy had a question around that of like, okay, does that affect anything? The fact that, you know, she can't file until I file. So, it's like neither of them are going to be collecting until Billy made a decision. And so, you know, when you think about filing at 70, that's important because it's like, okay, Kristen can't, you know, collect until Billy collects. And if Billy waits an extra, you know, two years, that means that Kristen waits an extra two years.

And so, thought about it, you know, put some thoughts together and I think in their case, you know, it really made a lot of sense or at least that you can make a really good argument that they should wait until 70. So, I laid out a variety of different factors that I've listed here that I think went into that mindset. And so, the first one we mentioned earlier was, you know, these 8% annual increases. For anyone that waits after their, you know, every year you wait after your full retirement age.

When it comes to social security, you get an 8% automatic increase. I think about that from an investment perspective. You know, if you think about, you know, money that you put into your investments, there's very few investments that will say, "Hey, you can put x amount of dollars into this and we guarantee you're going to get x% return on your money over the next three years." And so I think from an investment perspective, you know, that's hard to beat. 8% annual increase guaranteed. You know, the biggest offset to that argument is, well, once you die, that goes away, right?

Your investment assets, you know, even though there's no guarantee of how much they're going to increase, that will get passed along to your children. With social security, if you wait too long and then you die early, that goes away. But it is an attractive feature from an investment perspective. The second thing is, you know, cost of living adjustments. And that that's not specific to people that wait until 70, but when you think about you know, if there's a 2% cost of living adjustment, you know, if you have a higher benefit amount that you get at 70, 2% increase on that higher amount at 70 is going to be larger than a 2% increase than the amount that you're getting at 67.

So, it's not big dollars, but when you think about how that compounds over time, if you start collecting at 70 and you get a cost of living adjustment, you know, on a monthly benefit, that compounds over time. And so for people that file at 70, you know, that spread between, you know, the cost of living ad cost of living adjustment on dollars that you get at 67 versus 70, I think is more attractive at 70. And that should be, you know, factored in. Life expecties. This is the biggest question mark, but you could argue for people that have a very high net worth, you know, in this case, they've got around 14 million in assets, they can probably afford pretty darn good health care.

Maybe even they have a concierge doctor, you know, they've just got access and funds to be able to get top quality health care. And I think what that indicates is there's a higher percentage chance that they are going to live to 90 plus. And so that's important because if you can get beyond that break even point we talked about earlier, you know, if it's at 82 and you think, you know, it's pretty likely that I might live to 90 because I can afford really good health care, that should factor into waiting longer.

Survivor benefits. This is an interesting feature as well. You know, we talked about typically when somebody passes away, their widow is able to collect what they were collecting. We talked about the widow's limit provision where you might actually be able to get more if they file early. But when it comes to the typical spousal benefit, you know, you usually get 50% of whatever your spouse's benefit is at age 67. But survivor benefits are different. If someone's collecting a higher amount at 70 and they pass away, you get exactly what they were collecting.

And so if you're getting the spousal benefit, you may not get an initial benefit when your spouse files at 70 because the benefit you'll be receiving as a spouse is 50% of their primary insurance amount, which is a lower amount than what they're collecting at 70. But long-term, if they pass away first, you will get a benefit from collecting their higher benefit amount that they got at 70. So I think that's important. And then I think the last thing that I mentioned and again this is not a big deal breaker but I don't see this covered a lot in articles and I think it's important is taxation.

So when you think about you know this couple they've got all their money in qualified you know IRA 401k assets you know everything that comes out of there is 100% taxable ordinary income rates. Social security benefits at the most they're going to be taxed you know 85% of the benefit amount is going to be taxed and so one of the things that we talked about with this couple when we were deciding 67 versus 70 you know basically the choice was hey we could either you know start collecting now at 67 get a little bit of a lower amount but we'll have to take less out of the IRAs and 401ks you know or we can tap a little more of the IRAs and the 401ks and then start collecting social security at 70 from a tax perspective, it's more tax efficient for them to collect the benefit at 70.

I think and I think it can come in two ways because if they're taking a little more from the IRAs and the 401ks at 67, 68, 69, you know, they may be able to spread out the tax bill from their IRA distributions, you know, over more tax years, they might end up in a lower tax bracket in total in retirement by kind of whittling away at, you know, those IRA and 401k balances. And when they file for social security, it's 70. You know, they get this higher benefit amount, but only 85% of that amount's going to be taxed.

And so, it's more tax efficient. It's not substantial. You know, it's a 15%. But it is something to consider. So, for all those different reasons, you know, when we had talked about it, you know, outside of their life expectancy being a huge question mark, we came to the decision that waiting until 70 was going to make the most sense for them. And they were more likely to maximize dollars by rolling the dice that they would live beyond 82 because of all the features mentioned here that that guaranteed benefit increase of 8% cost of living adjustment life expecties spousal benefits and taxation I think all played into that decision and so those were those three different case studies that again just kind of opened my eyes to you know there's a lot of different ways you could go here.

And again, I'll be the first to say and what I advise my clients when we look at social security is trust but verify. You know, I always think it's really smart to make an appointment with the Social Security Administration. You know, talk to the experts sitting at the desk there and say, you know, I read about this or I talked to my adviser about that. You know, they mentioned something about a widow's limit provision. Can you explain that a little more to me? Or, you know, we think this is how, you know, this will work if I pass away at 65, you know, and I want to confirm that the survivor benefit will be this.

You definitely want to have that conversation with someone that works for the SSA before you make your filing decision. Because it's a really important decision. I think, you know, normally you get the opportunity to maybe change it over the first 12 months of filing. But many times, you know, pretty much always beyond that, it's an irrevocable decision. And so, I hope this has been helpful. Again, each of these cases, you know, I'd like to hear about, you know, alternative paths that people might find, where they think, you know, there's a better argument to be made about how we approached each of these situations.

But, you know, is always I suggest talking to your advisor, you know, your accountant, talking to Social Security Administration, you know, really looking at your individual circumstances. And I think if anything, that's hopefully the main takeaway from this today is that, you know, I do need to take a close look at my individual circumstances because it's not just a one-sizefits-all. And it's also not a decision where, hey, I don't know when I'm going to die, so there's no point in looking at it. And so, as always, if you have any questions, feel free to reach out to our office. And appreciate everybody for joining me on another episode of Building Your Wealth Bridge.

This transcript was generated from the episode audio and may contain errors.