← Jill on Money with Jill Schlesinger
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- [00:00]
A
You know, I always say to make smart financial decisions. So let me ask you this. What exactly is that old car in your driveway doing for you right now? Seriously, is it an extra car? Nobody drives anymore. Maybe it doesn't run. Do you keep saying you'll sell it one weekend and suddenly it's been two years? Meanwhile, it's taking up space, costing you money, and slowly becoming part of the landscape. Here's the easy solution. Donate it to Cars for Kids. And yes, it's that Cars for Kids. The the one with the jingle you absolutely know already. 1877 Cars for Kids here's why people love to donate to Cars for Kids. It's ridiculously simple. You go to carsforkids.org Jill that's cars with a K. Answer a few simple questions and you're done. They'll come pick up the vehicle for free, tow it away, handle the paperwork, and you'll receive a tax deductible receipt. Done. Cars4Kids has been doing this for over 30 years and has accepted more than a million vehicle donations. So if you've got a car you're not using, turn it into something meaningful. Go to carsforkids.org Jill that's cars with a K. And fair warning. Now that jingle's going to be stuck in your head for the rest of the day. Hey gang. You know, over the years I've realized one of the biggest limitations in business isn't a lack of an idea. It's the manual follow up the legacy systems that demand your constant attention. Way back when, I remember the frustration of having to take a morning off just to drive to a physical branch to sign a piece of paper, which felt incredibly outdated in a world of digital first companies. Banking on Mercury eliminates that frustration frustration entirely. It's a best in class software experience that feels intuitive and reliable. From day one, you can apply online in minutes and immediately start using smart features like bill pay where you can just scan an invoice and the system handles the rest. You can even set up recurring payments and automated transfers to keep your accounts balanced perfectly. It's a smart all in one home for your finances that scales with you, allowing you to focus on the big picture of while the software handles the details. Visit mercury.com to learn more and apply online in minutes. Mercury is a fintech company, not an FDIC insured bank. Banking services provided through Choice Financial Group and Column NA Members FDIC. Welcome to the Jill on Money show. It's Friday, July 10th and we are here trying to help you make better financial decisions. I about all the different things going on in your financial life. So maybe it's about buying a home, maybe thinking about downsizing, maybe you're trying to figure out retirement, maybe you're trying to pay for your kids college education, maybe you're thinking about a new job. Whatever it is, what we would love to do is have just a ton of people come on the air with us and tell us their stories because that's the most fun. If you would like to be one of those people, go to jillonmoney.com, click the contact Us button, write us a note and check the box if you would like to come on the air with us. Now if you're kind of on the young side, let's call it like south of 45, you have got to check the box for video. And come on our sister broadcast, it's called Money Moves and there's video and audio and it's a brand new show and it's great and you know, you can get it wherever you get podcasts, but you can also subscribe to us on YouTube. But more importantly, we are seeking as many people as possible to come on the air with us live for that show. So again, just trying to like spread the wealth. So a little bit younger, maybe not quite as established yet. Come join us for Money Moves. It's been a blast so far, so thanks everyone who has participated. Okay, today we've got a real treat because you heard me talk about our Jill on Money Live webinar. And the most recent one was with Social Security expert Heather Schreiber. We had a zillion people who showed up for that. It was incredible. And if you want to just buy that webinar, you can do so for 15 bucks. But as a special treat and an enticement for you, we have asked Heather to join us today to give you a little taste of what you missed at Jill on Money Live. Because we had so many questions that we actually could not answer on that night. We just kind of cajoled her to come back on the air with us. So without further ado, the Social Security expert and queen Heather Schreiber joins us today. Hello, Heather.
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B
Well, hello to you both. I am so glad to come back and I wasn't surprised that we had so many questions about this topic. So I'm thrilled to be here. No arm twisting to get me to come back.
- [04:41]
A
All right, so we have a bunch of questions teed up for you and we'll see how we just go time wise if we don't get to your question. Don't worry. I'm sure that we will answer it in due course. But a lot of people are asking about spousal Social Security benefits. So let me start with Paul who writes, I am the higher earner. So if my wife took her benefit early, when I take my benefit, she will get 50% of my amount as if I took it at full retirement age, regardless of when I actually take it. But if I wait until age 70 and whenever I pass, she would get 50% of my benefits at age 70. Is that the case? If so, it would make sense for her to take hers early and me to wait until 70, is that right? I'm just trying to understand the right path.
- [05:36]
B
For me, it's a great question by Paul and it has a lot of moving parts. And so he has, he has part of that answer correct. Okay, let's peel it back and talk about spousal benefits. And it sounds like in his situation his spouse has a benefit of her own, it's just smaller.
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A
Right.
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B
And so the way the rules work now, when both spouses are living, and incidentally, this also applies to some ex spouses that have been married for 10 years or longer and don't remarry. So the lower earning ex hasn't remarried. There's a potential there to also collect a benefit from the ex spouse. How it works is that the maximum spousal benefit during lifetime is, as Paul said, 50% of his full retirement age benefit. That does, it doesn't matter when he takes it in terms of that maximum amount. The amount that she gets is dependent upon how old she is when she files. Okay, so the big thing here is to get collect a spousal benefit, a, the benefit has to be greater than her own retirement benefit. So it sounds like in Paul's situation it is. Let's say that, you know, the benefit under her record is $1,000 at her full retirement age. And let's say the maximum spousal benefit is 1500. In that case, she could file early. She could file at say 62, collect, you know, say she's her full retirement age of 67. She collects 70% of that because she's taking it early. So she collects 700 now because he hasn't yet filed. And that's the big trigger that has changed over the years is that in order to collect a dependent benefit under a spouse or even a dependent child, that worker has to file. So let's say he does file at 70, she's filed for her own benefit. At 62. And let's suppose at the point at which he files at 70, she's at 67. So she's now entitled to that higher spousal benefit. But here's the catch. If she files early for her own retirement benefit, because as I said, Paul hadn't yet filed and she's only collecting, in my example, 700 instead of her full thousand, then when that additional spousal portion is paid, that 500, because remember in my example, I like examples that makes people understand it better, that 500 will be added to her 700. So she's not going to step up to the full 1500 spousal benefit because she filed early. So that's a critical takeaway. So a couple things. One, when someone has their own retirement benefit and they're also married and they could possibly get a spousal benefit, Social Security under the new rule says, okay, we'll pay you the spousal benefit, but only if it produces a higher benefit than your own, because they're always going to pay your own first and we're only going to pay it to you when your spouse files. So in this case, Paul would trigger the benefit. So going to the second part of his question, so say he files at 70 and he passes away. Here's the difference between spousal benefits and survivor benefits, because now we're looking at if he passed away before her, she then steps up to as much as 100% of what he was collecting at the time of his death. So if he waited until 70 as a survivor and because his benefit is higher, she would stop receiving her smaller benefit and she would step up to 100%. If, assuming she's at least full retirement age, say she's 80 or something, when he passes, whatever he's collecting at that point becomes her benefit. And that's the critical thing that spouses need to understand is that it does benefit, particularly in a situation like Paul's, which sounds like his spouse has a much smaller benefit. It pays to really consider waiting for Paul to wait until 70, even though it might delay when she gets that spousal top off portion, because it's going to help her in the long term if she's the survivor.
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A
Can I ask a dumb question, though? So if in your example, she files early. Right. She's collecting 700amonth. He never files. He drops dead when he's 68.
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B
Great question.
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A
Now what is she entitled to?
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B
Yeah. So if someone passes away without ever having filed in that situation, they would give her survivor base amount the start, the starting point for her would be what his benefit would have been had he filed at the date of death. Meaning, you know, his intention was to wait till 70. He didn't quite make it there. But she will be entitled to those delayed retirement credits he earned months beyond full retirement age that he, he made it with before he passed away. Now if he filed, say he passed away before his full retirement age. So say he died at say 63. Social Security doesn't say, well then too bad, we're just going to give you a reduction. As if you, the surviving spouse took a reduced benefit. They basically treat the survivor base amount as if he had reached his full retirement age at that point. So it's 63, using all the earnings he had under his record of highest 35, if he had more than 35, so there isn't a penalty. Now, had he filed though at 63, for example, or 64, that becomes the survivor base amount. Meaning what's the survivor based amount? That means Social Security, when a spouse passes, gives the survivor what's called a widow's PIA or primary insurance amount. It's the same thing, survivor based amount. How much could I collect? What's the most I can ever collect if I am at full retirement age or older? That's called that survivor base amount. So the timing really is critical, particularly for couples who have wide disparities in their income benefits. You really should consider the higher earning spouse waiting as long as possible to preserve both lifetime cash flow, the highest amount, and also for the surviving spouse. Because let's face it, when one spouse dies, our expenses don't go down by half. Right, right, right. And so that really is critical.
- [11:34]
A
So Jim claimed Social Security at 70. He's got a husband who's 64. Now the question that Jim is asking is, okay, he takes 70, the husband's 64. And he says, does it make sense for my husband to wait until his full retirement age of 67 to receive 100% of mine, which is much higher if I should pass? So he. Does he have to wait or he doesn't have to wait?
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B
No.
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A
So he doesn't have to.
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B
So Jim is the one that waited till 70 in this example, right?
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A
Uh, Jim took it at 70.
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B
Yes. Right. Okay, so Jim's the higher earner and his husband is the lower earner. And he's saying, should he wait until full retirement age to collect a spousal benefit? Right. If he waits till full retirement age, then he's going to get the full 50% of Jim's full retirement age amount, not his age 70, while Jim is living. Okay, so the benefit of waiting until his full retirement age is that he'll get the full 50% if he files at 64, you know, he's going to get a reduced spousal benefit or the spousal top off in addition to his smaller retirement benefit, he's going to get a reduced amount. But fast forward then, if Jim dies before his husband, then the same thing will happen in this is that now because Jim waited until 70, his lower earning spouse is going to stop receiving the lower benefit and step into 100% of Jim's benefit, assuming he's at least 67 and or higher, he's past his full retirement age at the time his gym passes.
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A
I mean, it's interesting. So, so many people are asking this in different permutations. Yeah, Best practice when there's a disparity. Okay, the one who has the higher benefit. It is always best to try if you can. And again, gang, not everybody can do this. We get it. But if you could wait until age 70, this is terrific. Right now, the one who earns less and has a lower Social Security benefit. The reason why you wait until your own full retirement age, again, if you can afford to, let's just be clear, is that there are certain benefits during the life where you might get this 50% of the higher benefit. There's also the benefit that if this person dies, you will get that person's benefit. I think it's more important to sort of focus on when you're living, you have certain obligations that you have to meet. If you can meet those obligations and you have decent health, waiting until 70 makes sense. And if you're the lower earner, waiting till 67 makes sense. Is that, am I on the right track?
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B
I mean that would be ideal. But you know, there are situations and we're kind of being myopic in looking at the rules. Of course, I would say, you know, say Jim was still actively employed, you know, even though his. And maybe say his lower earning spouse, let's give him a name, Ted, so I can quit saying that. So Ted, let's say Ted is retired. Jim is still working. He's. He's beyond 70 at this point. Right. So he, but he's like, I love working. He's making a lot of money. I personally, because I don't like to pay taxes, I would personally say, well, if you don't need the money, Ted, I would wait until you're 67 or until Ted retires. So that at least, you know, you're getting closer to the 50%. Now, if he makes it to his full retirement age, and I keep using 67, but of course, if you were born before 19, January 1, 1960, it could be earlier than that. But you know, there's a lot of other things that go into it now. Let's be real though, Jill. I mean, people say, well, you know, hard enough for one of us to be convinced to wait until 70, why can't the lower one take the benefit early? And there are certainly situations where I say, hey, you want some spending money? You, you know, the stars align, you, you really just want it and it's not going to make materially affect long term. Right. We're really most concerned about the higher wage earner. In my mind, let's, let's really harvest that decision most. And then if Ted wants to take it early and let's say they're both retired and they say, you know, I want some spending money, just know that if Ted takes it at 64, then he's not going to get the full 50% because he hasn't made it to full retirement age.
- [15:42]
A
You know, I think that, of course, what you're hearing in Heather is the nuance for everybody. Right. And that each of you has a different situation. Now I got a crazy one for you. You ready for this? I mean, just because this has, it has age difference, it has some debt. Okay, get ready for this.
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B
Okay.
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A
This is a different Paul. This is Paul who's from New York, who says, I'm 67. My wife of 10 years is 48. Okay, you go, Paul. I make 3.8 times her income. So he's 67. He's already at full retirement age. Here's the current plan. He says, I want to wait to claim until 70. She will then claim on her small benefits at 62, then switch using spousal benefits to his at 67. And then he writes, literally this is what he wrote. And then to my survivor benefit when I croak, he did.
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B
Okay.
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A
Okay, now here's the wrinkle. We also have $54,000 in credit card and personal loan debt after buying a house. We are on track to pay that off in three to four years, but I could pay it off in one to two years if I claim right now. Okay. And that would cut my high interest debt, which is averaging over 20%. He said, I think my original path is better financially, mostly because my wife has such a long time horizon before we actuarially would pass away. So there is like at first when I saw this, I was like, wait a minute, you can claim now and get rid of your credit card debt. That sounds great. But he is right. She's only 48. So is it better for him to kind of suck it up, pay that horrible high interest loan three to four years?
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B
I'm with you. I think what I would really hear in that case is that wide age disparity. Because to me, and in that case, let's peel back and let's not even talk about the debt for a moment. If I heard the scenario, I would say, okay, well we know his plan is to wait until 70. You know, great plan. In that case, I would normally say, you know, if she's not working and it sounds like she probably isn't, she's a low, low earner or maybe hasn't even, doesn't even have a benefit. But I think she has a small one. I would say have her file at 62. And the reason I would is because he's already waiting till 70. And because of that wide age disparity and the fact that women tend to live on average about six years longer than men, I would say she's going to step up to that survivor benefit sooner than if she were closer in age to him. And so that reduction per se in the fact that she's going to take it five years early is immaterial compared to what she will sustain if she has an average or even longer than average life expectancy. That decision is really going to make a difference. Now, one thing he said in his scenario that I want to correct is this. Because of their age disparity, when she turns 62, she's going to be entitled to both her own smaller retirement benefit and the spousal benefit because he's already filed.
- [19:12]
A
Oh, right.
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B
So he said something in that example of she'll take her reduced benefit at 62 and then at 67 she'll you'll step up to my, the spousal benefit in that situation. That's not what's going to happen. Because when she's 62, she's already entitled because he's collecting and so he's in his 80s. That's right. And so that means that what Social Security does is they take the reduction first on his, her lower retirement benefit from her full retirement age amount and then that spousal difference. So the difference between his higher spousal maximum and her lower full retirement age benefit, that's called that spousal top off or spousal excess. That portion gets reduced by the spousal reduction factor and the two are combined. So there is no change at 67. So because she's entitled to both at that point she will get the higher spousal benefit, but it will be reduced as well. There is no switching over at 67 because she's already entitled to both.
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C
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- [21:20]
A
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A
by supporting International Animal Rescue. Call 508-826-1083 or search the Great Bear Rescue to learn. Now we're talking a lot about planning and how to collect and there are a couple of questions about how one can test the numbers and really determine. For example, I have a question here from Jennifer and she's you know, how do I calculate my benefit if I plan to retire before age 67? SSA.gov website assumes that you are working until the year you claim when they give you these estimated benefits. So two questions that I'm going to add on to that which is is there some formula you can apply? Is number the first question and is there a different website that you would use to try to calculate Social Security benefits that are more that's more customizable even if there's a paid site that you think is worth putting out there?
- [22:42]
B
Well, if her question is more about and this is a common question, I'm going to retire. What if I retire at 55 but I know that my benefit projections are going to assume that my most recent year of earnings is what I'm going to continue to earn up through the projection date. So 62, full retirement age and 70. So how do you navigate that? And in that case, there actually is probably a little known tool that most people don't pay attention to when they log into their own Social Security account. And it is, you log in and right on the homepage, it's called retirement calculator. And if anyone pays attention to it, what you'll see when you log into it is, is for most people who filed their taxes for 2025, they're going to log into it. If they're not collecting already, obviously, and they're going to see their most recent earnings there on that retirement calculator. It's already populated. But if someone like Jennifer says, well what, what if I retire early and I want to know now what that will do to my, my projections if I wait, you know, what, what's that going to do? She can go into her online account and change her most recent year of earnings to zeros. And then she can say, I plan to retire at X date. And Social Security will automatically, because it's inside of her account and it already has stored her all of her historical earnings, it will make that calculation for her and it will immediately spit out new estimates. And she can even do what if scenarios like what if I go part time and I'm earning this and say when she's going to retire and Social Security that, that calculator starts giving her all of those different projections based on those assumptions and she can download it into an Excel table. It's kind of cool if you are
- [24:20]
A
someone who's a high earner. Okay, just to like play with this a little bit. And you just say, you know, you make well beyond the Social Security wage base. Let's just pretend, right? You then want to back off. You want to have like we have a lot of people come on the show. I need an off ramp. I need something like dialing it back and. But you always make at least the Social Security wage base. Will your benefit change from going to making, from going, let's say to making $800,000 a year to 200,000. Or is it. It won't matter.
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B
It won't matter.
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A
It will not matter. So as long as you're earning the Social Security wage base, especially for higher. And I imagine. See, the thing is, I think that when people are high earners, sometimes they're like, I just have to Keep working. And you're like, well maybe not, maybe that's not the case.
- [25:06]
B
Right. I mean, and so think about it, that taxable wage base, so this year it's 184,500. That means for, for Social Security taxation purposes. So the 6.2% the employee pays and the 6.2 that the employer pays, it stops there. Whereas the Medicare tax right. Is on all earnings. So if someone's making 800,000, they're going to pay that 1.45% for Medicare on all of it. But for Social Security, the benefit calculation that's based on someone's highest 35 years of work is always capped at whatever the annual taxable wage base is. So yes, you're right, that's not going to affect them. If they go down to 200, they're still above the taxable wage base. Only the first 184,500 this year is going to reflect in their benefit computation. Now it works interestingly the opposite too because what I often see, Jill, and I know that you and Mark see it too, business owners who tend to report lower W2 compensation if they're an S corporation. Right. And the rest of it is K1 pass through income. And so those. Right. It doesn't count. And so what they'll see is they'll say, gosh, I'm this highly successful business person, I have this thriving business, but my Social Security benefit projections don't reflect that success. And that's because they're on the opposite end. They say they might be getting approaching, they may be looking at 55 and going dear, you know, gosh, my projection isn't showing that and I might have a stay at home spouse or a much lower earning spouse that they might say, oh gosh, now what should I increase my compensation in the next few years to help bolster that benefit? Because not only is it important for, for my benefit, but also could affect a surviving spouse that maybe was in a support role for that business and really didn't get paid much. Right. So that's the other side of it.
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A
I just have to tell you something. My mother in law, that's what happened to her.
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B
Well, that's exactly it. And that's usually what happens. Right.
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A
And she was livid because guess what, she lived till she was 98. So she left a lot of money on the table. Yeah, she's like the, she's like the accountant screwed us. This was the worst advice. So dumb. Anyway, she was very smart woman and she was, she always felt like, oh this is such, this was terrible advice. So just so we go back to the SSA.gov website because it sounds like that retirement calculator, if you're in your own file, is really valuable. Is there a way to use it when. With a spouse playing that part of it or not?
- [27:35]
B
Absolutely. And there, there is absolutely a spousal section on it and it will tell, you know, the person whose account you're in. Now, you can't merge the two together, but you have to know it'll, it'll run the spousal numbers too. Oh, great. Inside of each individual account. It's great. I tout it wherever I go because most people just don't really pay attention to it or don't really know how to use it. And that is absolutely. The spousal section is on there, too.
- [28:00]
A
So Amy, who wrote in this is exactly what she should be doing because she's saying that she's waiting to take Social Security at age 70, which is in 10 years, the husband would start at 67. And he's talking about spouse, she's talking about spousal benefits. And she said, is there a good method to figure out the timing on when he should actually take his Social Security with a age difference? A little bit. And anyway, I think that this is exactly the case where if you had both files and you were kind of playing with the numbers, you might determine, determine that, you know, if you're going to take in seven at 70, he's going to do it at 67, then you're in good shape and that, you know, if he waited till 70, you'd see what those numbers are. But like, it's quite interesting to me that, you know, so she, again, there's a five and a half year age difference, which does kind of complicate things, except that in this case the woman's older.
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B
Right.
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A
Which is a little bit different than when the man is older and you know that their life expectancy is shorter.
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B
Right, Exactly. You know, and so all of these, it's, that's why I love what I do. Because every situation is so unique. You know, you don't get the textbook. The woman's the younger one and the woman's the lower earner, necessarily, or whatever. So it really is a situation where, you know, obviously you're trying to leverage and maximize this cash flow because it is one of the sources. And for a lot of people, it is, you know, with pensions no longer being a thing for people, private sector employees for most, you know, this is an important decision you know, if one waited till 67, the other waited to 70, I'd be thrilled with that because a lot of people don't do that. Right. So it really depends on so many other things too. You know, what are they trying to do? What other sources of income are they going to use to supplement retirement? You know, is there a possibility that they could, you know, draw some pre tax, you know, 401k balances early in retirement to lower the effect of RMDs down the road? There's lots of things that go into it, which is why I always say you can't look at Social Security claiming in a silo because it's part of a puzzle and it's, you know, I always say it's the first tax decision in retirement because that is sort of the foundation for a lot of people. It is tax favored from the standpoint of we know at least right now that 15% of Social Security is protected from federal income tax. And also it's, you know, a lifetime benefit that does, in a lot of cases for married couples pass on to the lower earning spouse if that person survives. So there's a lot that goes into that beyond just looking at benefit amounts and ages. But that certainly makes a difference. You know, if there's a much younger, you know, what if on the flip side, the one we were talking about where the 48 year old and the 70 year old or whatever, you know, what if it's the younger earner that's the one that has the higher benefit? Right. You're like, well, unfortunately for you, you probably need to protect yourself. Right, right, right, exactly. So you know that it's just such a, such a critical decision that really you have to look at the individual and, or the couple, if it's a couple, and really look at, you're trying to create a strategy, a retirement income strategy that's both tax efficient and that thinks about the survivor when determining how the filing is done. And think about all the, you know, the risks that you talk about, you know, inflation, that policy risk. I mean, let's face it, you know, policy right now and retirement rules right now could be look different 10 years from now. You know, tax rates could be different ten years from now. So you're just always trying to make the best decision with what you have and trying to, you know, mitigate all of those potential risks as you do it.
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A
This is one, I want to ask this question. This is anonymous. Ask this because I've heard this a ton and I want to really get to the Core of this, which is many people will say, why should I wait to collect when I can claim, have that money and invest that money? And so that's one thing which is like, okay, maybe, but it's not a guarantee and investing is risky. And so I know the last 10 years hasn't felt that way, but it is. Okay, but here's the interesting thing. I've heard this many times. Anonymous says my financial advisor said that I would end up with more money to spend or leave my beneficiaries if I were to collect at age 67, because then I would not have to tap into my existing funds. And Anonymous goes on to say, I assume that could be true if I need to do that. I am partially retired, I live modestly. What should I use to confirm or counter that theory for myself where somebody saying like okay, yes, you get more money if you're 70, but then you know, for those extra three years you have to go into your money that you have and spend it. What is the right confirm or counter of that theory?
- [32:57]
B
Yeah, so again, it depends on, I don't know if this person asking the question is married or not. So I would say I think not. Okay, let's just say a single. So that makes it a little bit easier. You know, my thought is legacy planning is important for this person. Okay, it sounds like I'm thinking. And also, so they're saying if you file, the advisor saying if you file at 67, you won't have to tap into your fund. So what I hear is if we have a large pre tax amount, let's say, say we have a large 401k and I tend to see that often that we still have a lot of pre tax balances. You know, we have workers that have saved hard. And so that theory would be, you know, don't take it until you have to. You know, RMD required minimum distribution age at 73 or 75 depending on when you were born. I look at that and say, okay, well if your legacy planning is important to you and also the fact that you know, how much are these RMDs going to be? If we go ahead and take Social Security now to get the income we need and then we're forced at some point to take RMDs, is that going to have a lesser known effect in terms of could that cause Medicare premium problems? For example, you have to look beyond just Social Security. And what I mean by that for the listeners that don't know is that, you know, for a single person, Medicare premiums for part B are based upon your adjusted gross or modified adjusted gross income, which is tax exempt interest plus plus your AGI and Social Security looks at your, your MAGI to determine this year's premiums by looking at that figure from two years ago. And so in my mind I would be asking in this situation, well, how much? If we do that, if we take benefits at 67, we don't have to worry so much about a spouse. So that's, that's good. Is that going to then come back from a tax standpoint later? Because we're at some point going to have to dip into that money which we do want to leave to our kids. Right? Let's say that's the goal. Is that going to cause more Social Security to be taxable because we've waited to take any money out of those qualified plans when we're absolutely required to. Or could it cause Medicare premiums for Part B and Part D to be higher? Because once someone gets over in this year, for example, if MAGI for a single person is over 109,000 by even a dollar, they don't pay the standard Part b premium of 202.90 this year. They would pay that plus what's called an income related monthly adjustment amount or a premium surcharge. Social Security says, congratulations, because you've earned and done well, you're going to pay more of that premium subsidy than we would normally pay because the government pays about 75% of those premium costs and they pass off. The part B premium itself represents 25% of that for most people. You know, you, so you have to look at okay, if I, if I do it this way, am I creating a ripple effect problem that I'm not thinking about right now? I have to calculate my RMDs and say, okay, could this push me over with other income? I have to create a problem. Maybe not. The other thing I would say too when I hear legacy, because legacy planning is important for a lot of people is fast forward, let's say this person lives well into their 80s and let's hopefully hope 90s, and they've left this, this 401k or IRA to their children. Well now they've just passed on a ticking time bomb. That is the gift that keeps on giving over. You know, they have to, most non spousal beneficiaries have to take this money out in 10 years and that could cause a problem for that person because now they're in their 60s doing Medicare and it could have a ripple effect on them. So my point of that is that it's not as easy as saying, just take it. At 67, I know legacy is important to you. We really want to look at, well, what types of funds or assets are we leaving to our heirs? Because we could be passing this problem on to our heirs.
- [36:49]
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- [38:45]
A
So I just want to shift gears. We've been talking about Social Security retirement, but of course Social Security has a disability portion of. And we have an anonymous question. It says, for a child with a disability, should there be a file and suspend at age 67? Is that the appropriate option? That way I would have benefits for the adult child with a disability and then I guess I'm not sure. File and suspend and then what? Maximize the parent at age 70. I don't know how that works. Explain.
- [39:16]
B
Yeah, so let's peel that back and just tell the listeners what file and suspend even means. So in the old days, so pre2016, there was a great strategy that was primarily used for couples, but it could be used for children, dependent children too. And what that allowed is for someone who reached their full retirement age that was, let's say the high earner, they could file for Social Security benefits and immediately suspend it. It's like, why would you do that? What's the, what's the point of that? The point of that was to allow the benefit to open up to a dependent. So that action allowed that higher earner to say, okay, I'm filing, I'm immediately suspending so that I can hold out and take my benefit as late as age 70 to maximize it. But that action allowed, that was the trigger that allowed a dependent child or spouse to collect benefits during that suspension period. That file and suspend, the act of doing that for that reason is no longer available. And so in order for a dependent spouse or a dependent child, in this case, we're talking about a disabled child to collect benefits on that parent's record, the parent has to file. There is no file and suspend anymore. What this person might be talking about, we could, you know, get crafty with it. Let's suppose that this parent filed early because they had a disabled child who was disabled before the age of 22 and they're entitled to what's called disabled adult child benefits or DAC benefits under the parents record. So let's say they said, well, I triggered benefits early so that it would turn on the ability for my disabled child to collect benefits for some time. But then I also have a spouse I need to protect. So I'm suspend my benefits from 67 to 70 to recovery. Some of that reduction that I took to open up benefits for the child. But that also means if they do that, then during the period of suspension, their disabled child would no longer receive a benefit until they then re they unsuspended their benefits. So it's kind of that can get quirky. The bottom line is suspension of benefits means that no dependents are going to get benefits during that period of suspension.
- [41:33]
A
Okay, now here's a case with a couple and Social Security disability is folded in. Kathy is 67 and she says I'm waiting until 70 to claim. My husband is 63 and he just qualified for SSDI.
- [41:52]
B
Okay.
- [41:52]
A
Okay. Now both spouses take pre tax IRA distributions. So meaning I guess that they're taking not required minimum distributions, but they're taking distributions from their accounts. The question is, will a portion of SSDI be taxed due to these traditional IRA distributions?
- [42:17]
B
The answer to that is possibly right, because even though it's disability, now you got to remember SSDI works under the same what's called combined income or provisional income rules that determine how much of Social Security benefits are federally income taxable. It doesn't matter that it's a disability benefit. So the answer to that is it could, because if this couple's adjusted gross income plus 50% of his Social Security benefits annually, plus any tax exempt interest, right? If that amount, that's called combined income, if that total is exceeds $32,000, then as much as 50% of those benefits could be subject to tax. And if it exceeds $44,000, as much as 85% can be taxed. And this people are listening, going, wait a minute, I've been hearing all over the place that there's no longer tax on Social Security.
- [43:19]
A
Whoops.
- [43:20]
B
Yep. And that is not exactly true. This new senior deduction, which I hope you don't mind I'm going to bring this up because I know screaming into the thing going, what is this? This know what she's talking about. So when one big beautiful bill act, you know, added some provisions that eliminated tax on some overtime, some tips and Social Security was the tagline, what it did was it, it offers temporarily from 2025 through 2028, this new senior deduction. For individuals and couples that are age 65 and up, they have to income qualify. So meaning that if it's a single person, if their adjusted gross income plus some foreign income is under 75, is 75,000 or less, then they get this additional $6,000 deduction. Okay? Couples, if it's 150,000 or less, they can both. If they're both 65 and up, they can get double that or 12,000. It starts to phase out once AGI increases, but it isn't tied to Social Security taxation. So you still have to go through this process of figuring out when you do your taxes, do any of my Social Security benefits, including disability, because this couple has IRA distributions, it could cause a portion to be taxable. They still have to include that in AGI. This senior deduction, and this guy is 63, so he's not eligible for it. That senior deduction comes after the fact. And so what often happens is it could offset or eliminate the amount of taxes paid on Social Security, but they're not related directly. So you still have to go through the process of figuring out how much to include as part of AGI on the tax return and then see if you're eligible for this additional standard deduction or you can get it as a standard or itemizer.
- [45:11]
A
Listen, I think, Heather, that when people filed their taxes this year, there were a bunch of people over 65 who were like, they thought that, that $6,000 was just a credit. They just thought it was above the line.
- [45:24]
B
I get it.
- [45:25]
A
No matter what. I'm sorry to tell you, Heather's also, that's not how it works. Yeah, if you didn't claim it and you think you're entitled to it and you think you blew it, then go ahead and check out whether or not you could be entitled to it. I mean, it's like an amended return is not that hard, especially if there was money to be made. But you, you know, you can almost guarantee that people who are making, you know, six figures as individuals or, you know, 150, $200,000 as married, you know, $250,000 as married, filing jointly, you're not going to get it. So it's okay. But like, you have money, it's okay. I have another question for you. This is from Anonymous, who wanted to know if could you just go through the divorced spouse. You're married for more than 10 years, then divorced. Is there any impact on your own record, on the ex's record, about claiming on their record versus yours? Like, what's the answer to that about divorced spouse and Social Security?
- [46:24]
B
Okay, so much to the ex that wants to take benefits from the other ex, it doesn't affect their benefit. It's not going to reduce your ex's benefit if you are somehow entitled to an ex spousal benefit on the record. Sorry, that isn't how it works. Nor does it affect any new spouse they might have that is dependent who could also collect spousal benefits because it's higher than that new spouse's benefit. Much to your chagrin too. If you're listening, the big critical ingredient for being able to collect under a former spouse is you hear 10 years all the time. That's the critical eligibility. First check. Mark, were you married to this person for 10 or more years before the divorce was final? If the answer is yes to that, then it works the exact same way that we talked about earlier in the program about spousal benefits. The amount is the same if you are the ex spouse that thinks my, my former spouse of 20 years was definitely the higher wage earner how can I collect that ex spousal benefit if it's higher than your own, it's a no brainer that you will be able to as long as you don't remarry. If you remarry while your ex spouse is alive and you're, you want to collect, you can't collect, okay, because you're remarried. But let's suppose you don't remarry. You've now hit 62, let's say. And you say, you know what, my spouse of 20 years, I know that their benefit is far greater than mine. I stayed home, raised children. You know, I kept saying that for, for the dependent spouse to file or any dependent, that worker spouse has to file for the benefit. That's the trigger in the case of ex spousal benefits, a lot of them say, well I don't know if they filed or not and I don't want to know. Right? And how do I don't want to talk to them. First of all, they can contact Social Security with the appropriate, you know, divorce decree and marriage certificate to prove that they were married to get information as long as the ex spouse is at least 62. So the one that you want to file under, as long as that ex spouse is also 62 and your divorce occurred at least two years prior to your, your desire to claim, now you can file. That's called an independently entitled ex spouse. Meaning that's the only situation in which you don't have to call your ex spouse and say, hey, can you go ahead and file for benefits? Because that's the trigger for me to get this higher spousal benefit. It's a unique rule that only applies to ex spous.
- [48:47]
A
It's so interesting to me because you mention the sort of I'm going to, you know, zets them by doing this. It's like, of course the system is not made so that you could do such a thing, but I do appreciate it. Jim wants to know, when you pay taxes on the portion of your Social Security retirement benefits, does that tax revenue go to general revenue for the government or, or does it go to improve the Social Security trust fund?
- [49:18]
B
Now, great question. The taxes collected on paid benefits that we were just talking about, that goes directly to the trust funds, the portion. So there were two different amendments. There was an 83amendment that when we were getting precariously close to having solvency issues or insolvency issues as we are today, that added this taxation of up to 50%, that portion that's collected on Social Security benefits today goes into the Social Security trust fund, the portion above that. So if you're collecting, you know, the 93amendments is what added the up to 85% could be taxable. That portion of taxes collected goes into the Medicare insurance insurance trust fund. They're still going into the trust funds. They do not go into general revenue. The way the trust funds are funded are through payroll tax. Right. For workers, current workers. It's a pay as you go system. Interest income on, you know, U.S. securities that are used and also taxes collected on benefits. So they definitely do go into the Social Security and Medicare trust funds.
- [50:27]
A
Another one wanted to know about said like, is it true money that has, has not been allowed to accrue interest that was in the trust fund? That's not true?
- [50:35]
B
No, that's not true. So people say, oh, they're borrowing against it. I mean, what's happening is the trust funds are, you know, to the extent that there's additional money in there that isn't being paid out, the government may borrow from it. I'm using air quotes and you can't see it. But what they're doing is they're giving in return to the trust funds promissory notes in the form of US securities bonds. Right. So they're not, they're saying here, we might take this revenue that's in here, but we're replacing it right now. You've got bonds, U.S. bonds that are in the trust funds. That's an IOU. And when Social Security needs that revenue to pay out benefits, then they're going to go to the government and say, here, pay up. We need this to now pay benefits. So people start to think, oh, they're, they're infiltrating the trust funds. They're, they're not in the way that you're thinking because we're, the trust funds are a creditor just like anybody else who would purchase a bond. Right. From the US Government. It's a US backed security. So it isn't the way people think. They just use it. If there's excess in the trust funds for cash and then they just give them. That's where the interest income comes from. So yes, we're still earning interest income on any US securities that are in the trust funds.
- [51:50]
A
Okay, I have one last question which I think is actually a very smart question just given how much identity theft is in the, the universe.
- [51:57]
B
Yes.
- [51:57]
A
And this is from FC who says given recent security breaches and identity theft is obviously going crazy. If someone were to try to file a claim or change my Information using my Social Security number, how quickly would I be notified and what steps protect my future benefits? I think this is an interesting question.
- [52:22]
B
It is an interesting question and isn't one that Social Security, I mean it happens unfortunately. And you know people, there's so many scams, you can't even keep track of them. What I would suggest there, and this is what I personally do because I am always hyper alert and vigilant is I keep my credit frozen and I also have the alerts from the bureaus because that's the way you're going to find out that someone's using your Social Security number for something. But that's also a reason you want to go into your. If you think that someone has used your Social Security number to start getting benefits or something, that's the reason why you want to go into your online account because it will show there that somebody's getting a benefit. Now I hope that, that, I mean it has happened. Stranger things have happened. This is sort of an all encompassing question of how do I protect myself from these frauds I personally have set up. You know, you can have a credit monitoring service. You could. It's not, you don't even have to pay for one. I went in just to test it and I went to the three major credit bureaus myself and added a credit freeze that I can unlock. It's an app on my phone and if I'm going to go get something that requires me to do it, I temporarily unlock it so that I can get the credit. I'm not really a big fan of credit, but you know, I can temporarily unlock it. I think that being vigilant beforehand by protecting yourself with those types of measures is better than finding out after the
- [53:41]
A
fact that I'm a few. A huge fan of freezing credit also. And I just think that whatever even it used to be so much more cumbersome as you say. But I do think it's the best way to protect yourself. I think that the federal websites, whether you're using SSA.gov or the IRS website, these are actually, they're actually cumbersome. Sometimes. Like I'm like, oh my God, this IRS. Like it's like you have to go through 22 hoops, but thank goodness, right?
- [54:07]
B
Right.
- [54:07]
A
So I think that's great advice.
- [54:09]
B
And they send their Social Security sends their everything, their communications come by mail. So do not believe anything that's coming to you by text or some weird phone that's saying oh you whatever, mail is the way they, they send things. So. But Again, protecting yourself means being vigilant. Going into your websites, go into, you know, Social Security.gov, go, put a credit freeze, get a monitoring service. If you can afford to do that. That's. That's the easiest and best way to prevent something from happening.
- [54:36]
A
The reality for everybody is that this is, I know, a very complicated topic. And Heather, as you can see, is or hear, is an incredible, incredible resource. If you feel like you just can't get enough of Heather, I encourage you to go to the website. Go to jillonmoney.com and you can go to Jill on Money Live. You'll see where we did the webinar with Heather, and you can stop it and start it. And, like, it's. It's a little bit easier. Maybe, like, we covered a lot of ground here today, but you can buy that single webinar for 15 bucks. You can also just subscribe to Jill and money live, $45 for the next 12 months. And you'll get the Heather webinar and any other webinar we've done along with her pal and our pal, Ed Slott, and you'll get all the great stuff that we do in the future. So, Heather, I just. I cannot thank you enough. You are so amazing, amazing. And the amount of information that you are able to just access in five seconds is just incredible. So thank you, thank you, thank you. We adore you, and we'll always have you back. And unfortunately, Mark has your number. So, you know, whenever we get a question that we can't answer, Mark's like, I got to get that to Heather.
- [55:46]
B
That's right. And I love doing it because, you know, as your listeners know, I mean, we have to advocate for ourselves. And you do that every day. And I do that. And so. So I want to make sure that they, you know, that our listeners get the best information they can.
- [56:00]
A
That's amazing. So thanks so much to Heather, and thanks so much to you all for listening. You know that you can subscribe to us on the Odyssey app, and you can also check out our sister broadcast called Money Moves. You can also get that on the Odyssey app or on YouTube. And know that every single time that we come on the air with you, we are so grateful that you listen and support. Support us. We are really. It's just amazing. It's Friday, so let's do some thank yous. Our music is composed by Joel Goodman. Mark Tio is the executive producer and king of all things web. We are distributed by the lovely folks at Odyssey. We always ask to please lift someone up. Change your work, change your wealth, change your life. Thank you for listening, and we'll talk to you on Monday. Hey there. It's Jill Schlesinger. I'm launching a new show. It's called Money Moves, and your money is going to move. We're gonna help you make better financial decisions. We're gonna call out the B.S. you're finding all over social media. We're gonna give you actionable guidance to make your financial life clearer, less stressful. We're gonna answer your financial questions and take the mystery out of your financial life. Follow and listen to Money Moves with Jill Schlesinger. Wherever you get your podcasts.