Social Security Webinar Transcript

This transcript is taken from the Wednesday, October 27, 2021 Social Security Webinar put on by Oswego Wealth Advisors.

Today we will address 9 things you need to know in order to make the most of Social Security benefits for your retirement.

Welcome everyone – My name is Craig Childress and I’ll be your speaker this evening. I’m going to start out with a few disclosures – I am not affiliated with or endorsed by SSA or any government agency. I am a financial planner with a desire to help people better understand Social Security and the many benefits that are available to them.


In today’s presentation, we’ll cover some Social Security basics, considerations for couples, considerations for divorced individuals and for widows. We’ll wrap it up with a discussion of Social Security’s unique taxation and coordinating with other income streams.

Basic Information

As we begin today, it’s really important to consider the current interest rate environment. This chart is based on Data from the US treasury website for long term real rates. This is basically the expected return over and above inflation that you can get with government backing via Treasury Inflation Protected Securities. It used to be that you could expect over 4% yield on top of inflation. Now you can expect almost nothing and for some time, this yield has actually been negative.

Social Security is particularly valuable right now because other safe options simply don’t offer the return they used to offer.

But is Social Security safe? That is the number one concern we hear from clients.

This graph represents the Social Security trust fund. This chart is from the 2020 trustees report. It came out in March of 2020, so it was before the pandemic, but the principles remain true, and we’ll address that on the next slide. We are now in a stage where we are spending from the trust fund principal, and the most recent trustees report suggests we’ll exhaust the fund by 2034. This assumes no changes are made to the system. But even then, current taxes would still be able to cover about 76 cents of every promised benefit dollar. So it’s not like one day in 2035 checks would just stop.

When you consider the impact of the pandemic, a slightly different picture emerges.

A variety of academic sources have evaluated the impact of the pandemic on the trust fund and though they all estimate some impact, even the most pessimistic outlook still suggests that 69% of benefits would continue to be paid even if the trust fund were to be fully depleted, and the soonest estimate of depletion is 2029.

“And while the effects of the COVID-19 pandemic are not incorporated in the Report, even such a dramatic event is unlikely to fundamentally alter the long-term financial status of the program.”
This is a quote from Boston College’s Alicia Munnell – one of the most respected academics on Social Security. Ultimately, we know that changes are necessary, but what form those changes take is certainly up for debate.

There are a variety of changes that are likely and have been proposed in many different variations over the years. The first is increasing the payroll tax. It is currently 6.2% on you and 6.2% on your employer. Self employed people pay both parts. That would need to increase by 1.6% to you and to your employer to fully fund the system.

A second change could be to increase the full retirement age. This is a form of cut that was first done in the 1983 amendments. At that time, FRA was 65. The 1983 amendments phased in an increase to age 67 for those born in 1960 or later. We’ll see on a later slide why this is actually a benefit cut.

A third change would be to increase the earnings cap. That amount is currently $142,800. If the cap were removed and no other changes were made, the system would be fully solvent.

Note that none of these changes represents a benefit cut to people who are already receiving or are close to receiving benefits. Historically most changes have been phased in over time to minimize the impact on current retirees.

One change that would impact current retirees is a shift to Chained CPI.

Currently, Social Security benefits are increased annually based on any increases in the CPI-U, which is the consumer price index for urban consumers. This slide shows the impact of Chained CPI since its inception. Basically, it reduces the amount your benefit will go up over time. At the same time, even with Chained CPI, Social Security provides an excellent hedge against rising prices. Particularly in this economic environment.

Setting aside what changes may happen in the future for a minute, the current benefit structure provides a significant increase for delaying benefits.

For the age group 1943 to 54, these are the dollar amounts represented for someone with a full retirement age benefit of $1,500 per month between early retirement, FRA, and delayed retirement. Claiming early at 62 represents a 25% reduction for a monthly benefit of $1125 rather than $1500. Claiming at Full Retirement Age gets the full $1500 and delaying to age 70 represents a 32% increase, to $1,980 per month.

Overall, delay represents a 76% increase in monthly benefits.

For someone born after 1960, the full retirement age has increased to age 67 – it is phased in for each birth year between 1954 and 1960.

Notice how at age 62, the benefit is reduced by 30% from Full Retirement Age, rather than by 25% for someone born prior to 1954. The full benefit is received at 67, and at 70, this individual would receive $1,860. You should be able to see from these last two charts how increasing Full Retirement Age acts as a benefit cut.

What’s important to notice is that the relationship between claiming early and delaying is basically the same. It’s a 77% increase for delaying from 62 to 70.

Let’s bring this all back together. We know that Social Security will change in one way or another. The most likely outcome is some blend of different changes to bring the system back into balance. Let’s look at what happens if our government simply can’t come to an agreement and no changes are passed, and the system is allowed to completely exhaust the trust funds with no change.

This example is a 62 year old non smoking female in average health, and the article modeled two scenarios, one with a 24% benefit cut in 2029, which was the earliest projection for trust fund insolvency, and one in 2035. The totals are the lifetime value of benefits received based on claim ages of 62 and 70.

Regardless of the cut scenario, our hypothetical retiree is still better off, by a significant margin by delaying to age 70 if she survives to 85. And she has a 64% chance of doing so!

Each year of survival beyond age 65 further improves the impact of the decision to delay. The point is this – even if we did see benefit cuts, claiming early is not the best choice for the majority of people.

Each year, an estimate of your benefits is prepared for you and is available by registering for a My Social Security account at

When you evaluate your statement, it’s really important to understand the assumptions it makes. Many of these assumptions are unlikely to hold.

First, no COLAs applied. 2010 and 2011 were the first time in history we went 2 years with no raise. Historically, COLAs happen far more often than not.

Second, no Average wage indexing (AWI) changes applied – 2009-2010 was the only year in the 75 year history that AWI has declined, though it is likely that it will in 2020. Those figures will be released in October of 2021.

Third, it assumes you work until the date on the statement and that you earn approximately what you did last year until then.

Fourth, it is for benefits on your record only. It does not include spousal, divorce or widow benefits that may apply in your case.

Which brings us to an important point. Everything we’ve discussed so far is about your own retirement benefit only, but there are actually three categories of retirement benefits.

The first category is retirement benefits – I’ve got that in green because that is the benefit that sticks out to most people on their green and white benefit statement from social security.

I’ve got these next two in yellow because these benefits are not as well known and often may not be considered in your claiming strategy. If you are married or divorced, you may be able to access a spousal benefit, which can be up to 50% of your spouse or ex-spouses full retirement age benefit

And upon the first death, the survivor, or even a divorced surviving spouse may be able to access a survivor’s benefit, which is generally the higher of your own or the benefit of the deceased.

In short, good social Security strategies look to make the most of all three benefits.

You’ve probably heard of the idea of a break-even analysis. We know that claiming early gets you a smaller retirement benefit, but for a longer period of time and that delaying benefits gets you a larger benefit, but for a shorter period of time. The break-even point is the age to which you need to live in order for delay to be worth it. We went through a similar exercise when we evaluated the impact of benefit cuts earlier in the presentation.

For single people, this approach can make sense, but for married couples, the break-even analysis breaks down.

Considerations for Married Couples

I’m sure you are asking – why doesn’t break-even work for married couples?

The reason is because married couples have far more election options. Think about this – in terms of whole year election options, a single person has 9 options – 62, 63, 64 etc.

The basic election options for a married couple total 81 – 62/62 62/63 etc. We’ll spend the bulk of the rest of the workshop talking about the options available to married couples.

81 combinations of claiming ages for the married couple. More complex in the number of options. Second, married couples have both spousal benefits and survivor benefits available to them. Where those options are not available to singles

Social Security was created in a time when many wives stayed at home to raise children. That was a Socially Desirable situation. So the system was built to avoid penalizing a stay at home spouse. In result, a spouse is entitled to the higher of, his or her own benefit or 50 percent of their spouses benefit.

Those two additional benefit possibilities being us into the next section – considerations for married couples.

We’ll go out of order and talk first about planning for the survivor. This is critically important. At the death of the first member of a couple, the survivor generally receives the higher of her benefit or the benefit of the deceased. So if you are the higher wage earner, claiming early reduces not only your own benefit, but also the survivor benefit.

The most common mistake I see is this:

A husband who is the higher wage earner and is also a few years older than the wife. He claims benefits early because he is not sure how long he will live. If he claims at 62, he will have reduced his wife’s survivor benefit by 17.5% relative to waiting to 66 and 44% relative to waiting to 70.

Keep in mind – 98% of survivors’ benefits are paid to women and 80% of women survive their husbands on average for 14 years. That’s a long time to have to live on a dramatically reduced benefit.

Next, let’s discuss spousal benefits. Social Security was created in a time when many wives stayed at home to raise children. That was a Socially Desirable situation. So the system was built to avoid penalizing a stay-at-home spouse. As a result, a spouse is entitled to the higher of, his or her own benefit or 50 percent of their spouses’ benefit.

To this day, spouses still receive the higher of the benefit on their own earnings record, or 50% of the benefit on the higher earner’s record, if elected at full retirement age.

Social Security is also completely gender-neutral, which means that although this benefit was originally intended for wives (in fact it was called a wives benefit) – it can be used by either spouse.

There are some substantial differences between Spousal benefits and benefits on your own record. Spousal Benefits are reduced on a faster schedule than benefits on your own earning record if you elect early. For example, for someone whose FRA is 66, If you take your own benefit at 62, you get 75% of your Full benefit.

If you take a spousal benefit at 62, you get only 70% of your full benefit.

Spousal benefits also don’t get delayed credits – remember – on your own record, you get an additional 8% for each year of delay past full retirement age? That doesn’t happen with a spousal benefit.

Let’s look at a case study. We’ve got John and Jane. John is a higher wage earner born in 1958 and we’re planning for a life expectancy of 87. Jane is a moderate wage earner and we’re planning for age 91.

Here’s the value difference for John and Jane at life expectancy. The difference between claiming early and following a claiming strategy is over $200,000. This is a present value number, so it’s comparable to adding that amount to your account balance today.

What were the suggested claim ages? John files at 70, receiving $3,166 per month and Jane delays to 69 for a benefit of $2,088 per month.

What to ask you financial advisor

One of the biggest questions we are asked is what If we don’t die on time? In other words, how can I be sure the recommended strategy makes sense across all the possibilities of how long I might live?

That’s a terrific question and it is one we answer in every analysis. This is a chart that shows every possible combination of death ages between 70 and 100 for each member of a married couple. Again – this is just an example and it looks different for each case, but you can see that claiming early only makes sense in this case if Both members of the couple die young.

If even one member of the couple lives to average life expectancy, they would be better off with the recommended strategy.

Which brings us to another common question – what if you need some cash flow from Social Security to come in sooner? Perhaps you have liquidity challenges or are concerned about the health of one member of the couple? Maybe you’re just not comfortable with both members of the household delaying benefits?

If you need cashflow sooner, it can often make sense to do what we might call a “Split Strategy” in which one claims early and one claims late. In this case, the split strategy captures much of the value of the suggested strategy we discussed initially, but gets some cashflow started to the household sooner.

Here’s what the split strategy entails. John files at age 70, receiving the maximum possible benefit while Jane files at 62, receiving a reduced benefit. There are three major advantages to this strategy. The most significant advantage is that upon the death of the first member of the couple, the larger benefit continues to the survivor. That survivor benefit accounts for much of the difference in value between claiming early and the alternate strategy. The second major benefit is that Jane’s cash flow is coming into the household sooner, reducing the strain on other retirement assets. The third advantage is also related to the survivor and that is that on the first death, the smaller benefit stops, and since Jane’s benefit is as small as possible, the impact on the household cash flow is minimized.

We can see that the split strategy works well for this couple if either member of the household dies early, but the suggested strategy works better if both live to or beyond life expectancy.

Considerations for Widows

Next, let’s talk about some of the unique considerations for widows.

In order to qualify for widows benefits, you must be a widow or widower at least 60 years old. You can’t be married, unless you remarried after age 60 and you have to have been married at least 9 months prior to your spouse’s death.

Widow benefits are unique in that they are based not just on when the survivor files, but also on when the deceased filed.

If the deceased did not file for benefits before he passed then you would be eligible for either the full retirement age benefit plus any delayed retirement credits he may have been eligible for if he would have claimed on the date of death.

If he had filed, you are limited to the higher of what the deceased was actually receiving or 82.5% of the deceased Full Retirement Age benefit.

The most important thing to know about widow benefits is this final bullet – you have the ability to switch between widow benefits and benefits you’ve earned based on your own work record.

The best way to explore widow benefits is with a case study. For simplicity’s sake, we’ll say John and Jane were both born in 1960, which makes full Retirement Age for their own benefits age 67. John would have received $2000 per month at age 67.

Jane will be eligible for a benefit of $1,200 per month based on her own work at age 62.

File without thinking – $1,430 a month for 30 years, which totals about $515,000 of lifetime value

With any luck, when she files for Medicare at age 65, which you do with the Social Security Administration, they will switch her over to her retirement benefit, which will pay her Medicare part B premium but just barely. She’ll probably feel really good about it, but only because she doesn’t know what she’s really missing out on.

If she followed an intentional strategy, she wouldn’t switch over to her own benefit until age 70. That would get her about $2125 per month from age 70 to 90. The lifetime value of this strategy is over $681,000

A second intentional strategy would have her claim her own benefit at 62 and switch to her widow benefit at 66 and 8 months. That seems quirky – right? 66 and 8 months is her Full Retirement Age for widow benefits, which you notice is different from her full retirement age for her own retirement benefit. The lifetime value of this strategy would be $627,200.

Depending on Jane’s life expectancy, age and employment situation, both intentional strategies would net Jane significantly more than doing what most people do.

Considerations for Divorced People

Now, let’s talk a bit about considerations for divorced people. First is the divorced spouse benefit.

To qualify you’d have to have been married for 10+ years, not currently married, and the benefit amount you’d receive works the same as a spousal benefit. Your ex can be remarried but in order for you to qualify for this benefit you must not have remarried.

The main difference when filing for divorced spouse benefit is if you were divorced less than 2 years you’d have to wait until the ex files in order for you to receive a benefit. If you are divorced for 2+ years you are considered “independently entitled”, meaning you could file whether the ex filed or not. The ex does need to be at least 62 years old.

The surviving divorced spouse benefit amounts are the same as the benefits available to a widow. If you remarry prior to age 60, you will not qualify for this benefit.

Your election of a divorced spouse or a surviving divorced spouse benefit will not be affected by their current spouse or any dependents and they will not know about it either…unless you tell them.

The last piece of this puzzle is fitting Social Security into your overall retirement income strategy. This is a chart of the cash flows coming in under the “both claim early” strategy – you can see it’s pretty level and it’s pretty easy to see that a level withdrawal from other assets will be needed to bring the total income up to the red line, which is the desired income.

When you implement a Social Security strategy, you see a pretty different pattern of cash flows hitting the household. In this case, there’s a gap at the front end, then a much smaller gap during the client’s lifetime and a considerably smaller gap for the survivor than in the claim early strategy.

Advisors who have worked with this sort of planning are much better equipped to understand the appropriate retirement products to help you build that retirement income.

Now we are going to talk a little bit about the taxation of social security benefits because it is common among advisors to say 85 percent of benefits are going to be taxable. For middle upper income and for the upper income folks 85 percent is often taxable and 15 percent is tax free. But it’s based on a formula called the provisional income formula. That formula has thresholds based on whether you’re single or married.

Your “provisional income” includes 1/2 of your Social Security benefits, plus all other taxable income, including dividends, realized interest, and realized capital gains, plus non-taxable interest earnings, such as from municipal bonds.

For single people, the first threshold is $25,000. Each dollar of provisional income over that $25,000 generates 50 cents of taxable Social Security. Each dollar over the second threshold creates 85 cents of taxable Social Security. You can see the thresholds for married couples as well.

You may think there’s no way you can stay under those amounts, so you might think that 85% of your Social Security will be taxable. The important thing to remember is that these are not “cliffs” – it’s not as though once you exceed the thresholds your entire benefit shifts to taxable at 50% or 85%. Only the provisional income dollars that exceed the thresholds create taxable benefits.

The best way to show you how much of an impact this can have is with an example. Here we have two cases with a married couple. In both cases, we have $60,000 of total household income. The difference is in the composition of the income.

In our first example, we have $20k of Social Security and $40k of IRA withdrawals. We take 50% of the Social Security income plus the IRA withdrawal to get our provisional income of $50,000. Then we apply the thresholds. We see that we are $18,000 over the first threshold, generating $9,000 of taxable Social Security benefits. Then we apply the second threshold. We’re multiplying by 35% there because we already picked up the first 50% in the calculation of the first threshold. That generates another $2100 of taxable social security. In this case we have total taxable Social Security of $11,100 or 55% of our total benefit. That means $8,900 came through completely tax free.

Now let’s flip this scenario on its head. We’ll do $40,000 of Social Security with a $20k IRA withdrawal. Same $60k hitting the household, but a different blend of incomes. We take half the Social security benefit and add it to the IRA withdrawal to get provisional income of $40,000. When we apply the thresholds we’re $8000 over the first threshold, generating $4,000 of taxable Social Security and we stayed under the second threshold. In this case, only $4,000 of the total Social Security benefit was taxable. $36,000 came through completely tax free!

Social Security carries a substantial tax advantage over other forms of income, so delaying benefits in order to build a larger Social security benefit can have a greater positive tax impact than most people realize.
For a few of you in the audience who were born on or before January 1, 1954, you may have access to a unique option called a Restricted Application. A restricted application allows you to file for only a spousal benefit while allowing your retirement benefit to grow with delayed retirement credits.

It’s very similar to the case we discussed with widow benefits, but applies to Spousal, divorced spousal, and retirement benefits.

Here are a few examples. If you are married, and your spouse has already filed for their own retirement benefit, you can claim your spousal benefit – then later switch over to your own, which would have been growing by 8% per year.

If you are divorced, you have many of the same options, but your ex has to be at least 62, but doesn’t have to have filed if you’ve been divorced for at least two years.

The restricted application can help you collect some benefit while allowing another benefit to build, but it isn’t beginner stuff, and you want to be sure you are eligible and you do it right.

Here is an example of a married couple born in 1949 and 1953. He was a high wage earner and she was a below average wage earner. This example assumes he lives to 85 and she lives to 90.

Claiming at 62 would have netted this couple about $996,000.

Good Social Security strategy would net them over $1.1 million.

There is a big difference in when and how you take your benefits.

Jane files at age 63, because that is her age when John reaches his Full Retirement Age of 66. John files for only his spousal benefit at 66 and switches over to his own retirement benefit at age 70. The spousal benefit John claims allows him to collect over $36,000 over four years while still growing his own benefit until it reaches $3,751 at age 70.

The Bi-partisan Budget Act of 2015 made significant changes to Social Security claiming strategies.

If you read up on the “restricted Application” strategy, you’ll also read about the File and Suspend. That strategy is no longer available. By 2024, everyone who would have been eligible to use a restricted application strategy will have reached age 70 and this option will no longer be available.

You may have heard of a strategy that some referred to as an interest free loan – the idea was to take benefits at 62, then repay them at 70, with no interest, claim a tax credit or deduction for any taxes you paid on those benefits and restart as if you had never taken them in the first place.

In 2010, SSA eliminated that provision. Now, you only have 12 months from the date of your initial election to use the form 521 to retroactively fix a mistake.

Now you’ve got a good idea of what should go into a Social Security claiming decision – you might be asking why not just go to Social Security? And it’s a good question.

It’s a question of perspective. Financial Advisors are looking to organize your overall assets to get the most from them over your lifetime or if you are married, the joint lives of you and your spouse. SSA personnel are trying to get you the highest monthly benefit they can get you on the day you come into the office. A very different perspective gets you very different results.

Social Security personnel are actually precluded by their rules from giving advice

They can’t ask you about outside assets. Obviously, how you take social security impacts how you use your other assets, so missing this piece doesn’t get you where you need to go.

This is what we do. We help our clients get more from Social Security as part of your overall retirement income strategy and help you use your assets appropriately to create an overall retirement income strategy.

Thank you so much for joining today. I’ll now open up the line for questions.