Tom Mosley:

Hey, welcome to the Ease Into Retirement Show. I’m Tom Mosley, and I promise you if you’ll give me a few minutes here I’ll try to increase your financial knowledge. Today we’re going to talk about a subject called how does drawing Social Security before you reach your full retirement age impact your benefits? Now, if you don’t know what your full retirement age is then go back and check a previous episode that we put out, and just put in there full retirement age and the whole episode is on what your full retirement age is, but I really want to emphasize how it makes a difference in your benefits, and for those of you who are married, it could also make a drastic difference in their benefit.

Tom Mosley:

Now here’s what I’m talking about. Full retirement age, I’m just going to pick 66 as a full retirement age, if you draw … You can draw as early as 62. Okay? You can start drawing at 62. There’s some earnings test, if you’re still working and you make more than $19,560 you probably don’t want to draw because you’re going to have to start paying back what you’re drawing from Social Security. You don’t probably want to do that, but if you are not working and you’re never going to go back to work, and you’ve got it made and you’re living in Shangri-La and everything is great, I hope that’s true for you, then you might want to turn on your Social Security, but if you’re living in Shangri-La you might want to leave it alone.

Tom Mosley:

But, anyway, if you turn it on at 62 you’re going to take a 25% haircut under what you would get at full retirement age. If you turn it on at 63, you’re going to take a 20% haircut, and the closer you get to that full retirement age the closer you get to making your full benefit. But then if you work past, or you let it go past, the full retirement age it grows at 8%, 16%, 24%, 32%. In 27 years of being a financial advisor I have actually seen people, that if they turned it on at 62 versus allowing it to grow ’til they were 70, they actually doubled their Social Security benefit.

Tom Mosley:

So here’s the major answer to this question, just for you, is if you turn your Social Security on before you reach full retirement age you’re going to take a haircut, a pretty good haircut, and that’s where you enter. You’ll still get all the cost of living raises each year, but it’ll take you a long, long, long time to catch up to where you would be if you just waited, if you’re still working. Now, I want to show you some examples, some hypothetical examples, and in these examples I’m going to bring in the fact that for those of you who are married it not only affects … When you turn it on it affects your Social Security, but it could affect your spouse’s Social Security as well.

Tom Mosley:

Now I’m using Tom and Susan, I’m using myself and my wife, and let’s say we’re both 66 and we both reach full retirement age. Now, if my full retirement benefit is $2,000 at 66 I’m going to start getting $2,000, but let’s say, and it did happen with us, Susan was a stay-at-home mom for a long time and then she went back into the workforce. She had been in the workforce previously, but let’s say at 66 her benefit should be $600. What they’re going to do at Social Security is, because we’re married and I’ve reached my full retirement age when I start to draw, they’re going to bump hers up to $1,000 or half of mine.

Tom Mosley:

Now, Social Security says don’t say half because you got to go through this calculation, and this calculation, and this calculation, and guess what? It comes out to half, if you’re both full retirement age, and they don’t want to say just half and I’ll show you why in a couple of slides, and maybe even in this slide; because now let’s say I took my full retirement benefit, I took my retirement benefit from Social Security when I was 62, well I’m taking a haircut, remember? A 25% haircut to $1,500. Remember Susan, she’s 62 as well, she won’t make $600, she’ll make $450, but they’ll bump hers up. Wait, she not only takes a haircut because she’s 62, she takes a haircut because it’s playing off of my benefit and I’m taking mine early as well, so she’ll only make about $700, not quite half of what I’m actually making if I take mine early and she takes hers early.

Tom Mosley:

Now what if we both wait till 70? A Little catch here, okay? Now you remember I get a continued increased benefit of about $2,700 a month; Susan, remember, is $600, so she’s going to turn hers on at 70. She’s going to not get $1,350, half of my 2,700, because they will give her up to half of my Social at my full retirement age. And, remember, my payment at full retirement age was going to be $2,000, so they won’t give her $1,350, half of my enhanced benefit, they’ll give her $1,000, half of my full retirement age benefit.

Tom Mosley:

Now, I’m going to get a little tricky with you. Let’s say I’m full retirement age and Susan is under full retirement age. Well, I get my $2,000 benefit. Susan should have gotten $450 ’cause she’s taking a 25% haircut on what she normally would get at $600 at full retirement age, so she’s going to get about $700 because she is underage. So taking benefits, either yourself or if your spouse takes benefits off of you, or you take benefits off your spouse, taking benefits before full retirement age, the point I’m trying to drive home to you here is taking benefits before full retirement age is going to impact in a negative way your Social Security payment amounts.

Tom Mosley:

How does drawing Social Security before you reach your full retirement age make a difference? Hopefully you get it. I know I went through a lot of numbers. I showed you a lot of slides, so just work through them each one at a time. Go back and listen to it, but the biggest thing is you need to get some input from a financial advisor so that they can give you some direction because it’s not just your Social Security, it also has to do with other assets that you have, other income you can draw. You say, “I’d like to wait till I’m 70, but I’m going to have to eat dirt between now and that time.” Well that’s not an acceptable choice. So yes, you need to get some input before you decide what’s best for you and you make a decision.

Tom Mosley:

And be careful with the Social Security Administration. Great people work down there, but they’re meant to follow policies and they’re told many times, “Don’t give advice because if you give the wrong advice and they don’t know all the stuff about Social Security, if you give the wrong advice, you might lead somebody wrong and they might be upset with us, and sue us, and all kind of stuff,” so make sure and get input from a financial advisor, but then when you go to get your Social Security the final answer, and make no mistake about it, is not your financial advisor. The final answer is the person that you work with at the Social Security Office, but the financial advisor can tell you the right questions to ask and the right Social Security provision to follow so you can get the most out of your Social Security, whether you’re turning it on before full retirement age or after full retirement age.

Tom Mosley:

Thanks for listening today. This has been the Ease into Retirement Show, and I’m Tom Mosley. Give me about 10 minutes every week and I’ll do my best to increase your financial knowledge.