Transcript:
Easan Arulanantham:
I’m nearing retirement, I recently heard about delayed retirement credits. And how do those work.
Tom Vaughan:
delayed retirement credits is a fancy word for the fact that if you do not take your Social Security at your full retirement age, you will actually start getting paid sort of a bonus and way, I guess, more and more money on your Social Security. And so the more that you delay taking your Social Security, the more that you can receive at that point in time. And just to kind of capsulize, that it grows to two thirds of a percent per month. So every single month that goes by past your full retirement age, you are going to get an increase on your Social Security benefit guaranteed by the US government, that comes out to 8% a year, right? Then when you look at the other part, which is kind of fascinating, even though you’re not getting it, you still receive the cost of living increase. And so last year, this year, for 2022, the cost of living increase was 5.9%. So you get that 8% plus that 5.9%, your Social Security benefit just grew 13.9%, right in one year, guaranteed by the US government, because you didn’t take it at other branches and not taking that to pay the taxes on it, you know, because a lot of times it’s taxable, for people, you know, doesn’t really have it, and that guaranteed growth, the rumors around how much they’re going to increase the cost of living increase for for 2023 are pretty dramatic. So there might be a really, you know, another add on even more than the 5.9%, we will find out in October when they announce that.
Easan Arulanantham:
It’s powerful when you think about 8%, guaranteed every year you can gain. If I had an investment, I can guarantee 8% Every year I would love that, you know, maybe I just harbors, all my, you know, investments into that.
Tom Vaughan:
Exactly looks really good today, then the S&P500 is down 20%, essentially, for the year 8% growth is looking fantastic. And, you know, there’s all kinds of advantages that fit into that, but one of the others is that because you don’t take it and your security is growing and growing and growing, when you do finally take it future cost of living increases will be based on that bigger number. And so it adds up to more dollars. So the caveats, though, obviously not taking it, you’re not getting it and you could have gotten it. And you could have saved it or invested it or done something and you know, how does that work? And so there are ways to take a look at that there are calculators where we can put in, hey, let’s say you save it and got a six or 8% rate of return. How does that compare? Let’s say you know how, let’s say you just start to spend it because you need it. And don’t want to spend these other assets? What’s the breakeven age? If you do wait, we can figure that out? What assets would you withdraw from? Right? If you’re not taking Social Security at full retirement age and you’re delaying? You’re living off of something? What is it? That’s part of the retirement plan, and that’s where we can kind of go in and do Social Security Maximization inside of a retirement plan. Because that allows us to be able to see where we’re going to get that money from, how much tax are we, you know, having to pay to get that money, potentially? And then what are we losing in terms of rate of return by taking that money out? versus, you know, what, what, what we could get from Social Security.
So it’s delayed, retirement credits are really important, I think they’re super interesting to look at. And look at that dynamic. It’s called Social Security Maximization in my world, right? Where we’re trying to maximize the possibility of income from Social Security, based on expected life expectancy, where are you going to withdraw the money from how much you’re going to get from the government and growth? And all these pieces, it’s actually fairly complex. And one of the problems that people have is there’s nowhere to go to get the answers to this, the CIO security department really isn’t gonna answer your questions. They shouldn’t honestly, because in order to answer your questions accurately, they need to know everything about you, which is what we end up having to do right before we give a recommendation. And they they’re not going to do that. They’re not going to sit down there and whip out, you know, the financial planning program or Social Security Maximization, gather all of your information, all of your other income sources, that’s not going to happen. There’s nowhere else to go to get this information. And I’ve run into a lot of people that tried to do it themselves. And very few people get all of the pieces in there that needs to be in there to really calculate it correctly. So this is one of the things that we help people with right here is trying to figure out how to maximize Social Security. So anyway, that’s a that’s a it’s a really fascinating The area love the question