You’re listening to uncommon sense, a podcast by Bowman Financial Strategies. I’m your host Erik Bowman, and thank you for joining me today. Hi everyone. Erik Bowman here, the owner of Bowman financial strategies in Englewood, Colorado. I appreciate you listening today. Today’s podcast is going to be discussing something that we work on every single day in our firm and that is social security maximization. We’re going to discuss not only the basics of social security maximization, but what are the three biggest mistakes people tend to make when filing for social security? So to get started, social security maximization is the process of analyzing all potential filing strategies available to a household and determining which strategy offers the highest potential income. You have worked over 80,000 hours [based on a 40 hour work week times 35 years] and contributed to social security for your whole life. You deserve to receive the highest income possible. Unfortunately, the social security administration cannot and will not help you determine what filing strategy is in your best interest.

Erik: 01:15

The Social Security Administration can only tell you how much your benefit would be at any filing age. They are neither licensed nor allowed to discuss filing strategies with the public. With a lifetime value of potentially over $1 million for a household. We recommend that you put the appropriate amount of effort into making this extremely important choice when to take social security. So to the question when to take social security, everybody has 96 basic social security filing choices, meaning you can take it as early as age 62 and you can delay as long as age 70 and if you count the number of months up (because you can take your social security benefit at any month in between those two ages), you have a total of 96 discrete choices and if you’re married, your spouse also has 96 discrete choices, which means when you look at the combinations of filing strategies, there are over 9,216 basic filing strategies for an American couple. Erik: 02:18 In addition, if you include all of the spousal benefit choices that are available to a married couple and to divorce participants, potentially the number of filing choices exceeds over 100,000 [https://www.ssa.gov/benefits/retirement/matrix.html] and if you compare all of those potential combinations of filing strategies, you could sort them from the highest amount of income you’ll receive over retirement to the lowest amount of household income you’re going to receive over retirement, and that difference can be as high as $150,000 or more of lifetime retirement income. In other words, by making the wrong filing choice, you could receive $150,000 less in lifetime income than if you made a more strategic decision. Erik: 03:04 The three biggest mistakes that people make when filings for social security, in my opinion, are number one, not paying attention to potential spousal survivor benefits, and only looking at a basic break even equation for your own personal benefit. By doing this, you totally miss out and don’t calculate the additional survivor benefit that would go to a surviving spouse in the event of death of a social security recipient. For example, if the higher wage earner delays taking benefits until age 70 increasing the total amount of social security they would get each year. If that person were to pass away, that higher check is going to be left behind for the survivor. On the other hand, if that higher wage earner took their social security benefit at age 62 for example, the earliest possible age to be able to take social security, the reduction is tremendous and that is going to be forever reduced in the amount that would be left behind for a surviving spouse. Most of the time it is the male that’s going to pass away first and therefore leaving a lower amount of ongoing monthly benefit to a surviving spouse.

Erik: 04:21

The second mistake that I often see is filing too early and having to pay back your benefits to the Social Security Administration. If you’re working and make over a certain income threshold and you are taking an early benefit from social security meaning before you hit full retirement age, also known as FRA and (by the way your FRA is determined by your year of birth but it’s going to land somewhere between age 66 and age 67) well if you take your social security benefit prior to FRA and you’re still working in making over the income threshold that changes each year, you very well are going to be stuck paying back $1 for every $2 earned over that threshold and it is possible that you could pay back all of your social security benefits. In addition, it’s a decision that is very hard if not impossible to unwind a very unwelcome situation.

Erik: 05:22

The third mistake I often see is not coordinating your social security filing decision within the context of your other assets. That means taxable assets that upon distribution you will pay income tax on such as IRAs and 401k’s and non qualified assets. Those that don’t have any tax benefits but you don’t necessarily have to pay income tax when you make distributions, you’ll only have to pay capital gains tax on the growth. Well in some cases, as an example, it may make sense to delay social and utilize your IRA assets until age 70. This may not apply to you, but the longest you can delay your benefits is age 70 and by doing so and lowering your IRA account balance from your mid sixties till age 70 when it comes time to take your required minimum distributions, you very well will be forced to take less out each year than you otherwise would.

Erik: 06:23

And then by turning on social security at age 70 what we see and what we need to understand is that only 85% of your social security benefits are taxed. So now at age 70 if you only have 85% or up to 85% of your social security wages being taxed and you are allowed to take smaller distributions from your IRA, you very well could find yourself paying less than federal taxes. The way I look at it is a dollar saved in taxes is an extra dollar you can spend in retirement. Now, this strategy does not necessarily work for everybody. If you need income, you very well will have to turn on your social security to start producing income if you’re not working anymore. However, if you do have a sizable retirement assets such as an IRA worth over a million dollars, you would want to analyze how it would look to delay social security, increasing that benefit and potentially utilizing your IRA in the earlier years of retirement to consciously reduce that account balance. Therefore, you would be reducing your RMDs or required minimum distribution amounts starting at age 70 and a half. You should always consult with a financial adviser and an accountant to ensure that if you’re going to implement a strategy such as this, that it makes financial sense Erik: 07:47 Because the value of your social security decision is so high, often worth over $1 million in lifetime income at the household level. We believe all retirement income plans should contain a thorough analysis so you make the most appropriate social security filing choice to maximize your social security income. After all, you have paid taxes into the system for decades and you deserve to maximize what you get in social security benefits. If you’re an existing client, please reach out anytime. If you ever have questions or need to sit down to discuss your plan. If you’re not a client and have questions, please contact our office to schedule an appointment by calling (303) 222-8034 or you can go to our website at www.bowmanfinancialstrategies.com and drop us a note. I look forward to hearing from you all. Have a great day. Thank you for joining me for Uncommon Cents, the Bowman Financial Strategies financial education series. I’d love to hear your feedback on financial topics. You would like to learn more about. Just drop me an email at erik@bowmanfinancialstrategies.com or go to the Bowman Financial Strategies website and send me a note on our contact page. In addition, you can always search for topics of interest in my archive on our podcast page at www.bowmenfinancialstrategies.com/podcasts Have a great day.

Disclosure: 09:25

This communication does not constitute federal tax advice and may not be used as such. Please consult a qualified tax professional for tax advice or assistance. In addition, investment advisory services offered by Change Path LLC, a registered investment adviser, Change Path and Bowman Financial Strategies are unaffiliated entities. [Please see the Social Security website at www.ssa.gov for more information. The information for this podcast has been taken from the Social Security Handbook found at ssa.gov . This podcast is meant for general knowledge, not specific to your personal needs. We are not affiliated with the Social Security Administration or any other government agency.]