Common Sense Financial Podcast

Making Sense of Social Security with Rich Grawer

Episode Intro

Social Security can be a maze of rules, exceptions, and formulas and can feel almost impossible to navigate for most people. That’s why Rich Grawer is back to talk about making sense of Social Security and the common sense guidelines that allow you to maximize your Social Security benefit and minimize your tax liability while in retirement.

Show Notes

  • Social Security as the system is an income replacement system. It is not meant to be your sole source of income in retirement. The first thing to understand is that the system is not meant to replace your whole income, and earners can expect to receive between 35% and 54% of their working wages in retirement.
  • There are three different ages you begin taking Social Security. The first is age 62, the second is age 65 when Medicare becomes available, and the third is your full retirement age.
  • The advantage to waiting until your full retirement age is that you can work and earn at the same time as receiving your full Social Security benefit.
  • One recent change in the past few years is that if you were born after January 1 of 1954, unless you’re the surviving spouse, you must take the highest benefit available to you when you file for Social Security.
  • The most a spousal benefit will be is 50% of what the spouse will get at their full retirement age, so if your own benefit is higher, you have to take your own. It also doesn’t count if your spouse waits beyond their full retirement age, the calculation remains the same.
  • Another key point is that every year before your full retirement age you take your Social Security, the more it’s reduced, and each year you wait your benefit is increased by 8% for each year it’s delayed.
  • At age 70, those Delayed Retirement Credits stop accumulating so there’s no rational reason to wait past the age of 70.
  • For widowers, the spousal benefit is 100% of the spouse’s full retirement age amount unless the Social Security was started early. The lowest amount is 71.5%. It’s also possible for widowers to start receiving one benefit and switch to another if the circumstances make sense. It’s very important for people that are involved in a death and receiving a survivor benefit to get sound advice on this and not try to do it themselves.
  • There are exceptions to every rule, and with 2700 rules, there are plenty of exceptions to the rules of Social Security.
  • The Social Security Administration can only give you the facts. They can’t advise you on the best course of action, so it’s important to seek out sound financial advice from an advisor you trust.
  • When it comes to retirement planning, or even the death of a spouse, pulling in the resources, and pulling the team together to make sure that everything is being looked at from multiple angles is critical for optimizing everything.
  • Many government employees don’t pay into Social Security, and for them the WEP was created to balance the benefits between pensions and Social Security.
  • Social Security is intended for low wage earners. Firefighters and policemen working additional part time jobs don’t fit that description, which is why the WEP was introduced. The more years of substantial earnings you have, and the definition of substantial changes from year to year, the less the impact of the WEP.
  • The WEP can’t completely eliminate your Social Security benefit. The GPO (Government Pension Offset) can greatly reduce a widower’s benefit to the tune of ⅔.
  • Social Security always starts calculating your benefit based on your full retirement age. One common myth is that Social Security looks at your last 10 years to make the calculation but that’s incorrect. They look at 35 years of earnings.
  • If you don’t have 35 years of work history, the calculation defaults to 0, so it’s a good idea to work at least 35 years prior to retiring.
  • You are unable to leave your Social Security benefit to anyone other than your spouse. If both spouses die, the Social Security benefit for both stops.
  • People often rely on Social Security and pensions for income in retirement without planning for what happens when a spouse dies and some or all of that benefit goes away. That scenario is where life insurance can come into play to make up for the income gap.
  • Social Security has been doing more online since the beginning of Covid. The best way to begin your application is to go online to and avoid waiting on the phone. Applying for widower benefits must be done in person or over the phone.
  • Always emphasize when you want your benefits to start when applying online. You can’t apply for benefits any earlier than four months from when they would start. You won’t get the final calculation right away, it has to go through a human being first but you should receive your benefit calculation roughly ten days after filing your application.
  • Don’t plan for retirement two weeks before you get ready to retire, you really need to be looking at that at least two years leading up to retirement to know what your timelines are.
  • Social Security uses something called provisional income to determine if any, some or all of your Social Security benefits will be federally taxed. Provisional income, by definition simply means your adjusted gross income plus one half of your Social Security benefits. The highest your Social Security can be taxed is 85%.