462: Strategies to Maximize Your Social Security Benefits with Mary Beth Franklin

[INTRODUCTION]

Casey Weade: We all know Social Security can be a complex topic. Today, we're going to go deep into Social Security with one of my favorite guests on this very topic. We're going to be talking about Social Security changes that have happened over the last several years you need to be aware of. We're going to be discussing strategies and ways to elevate your benefits in retirement and, of course, the future of Social Security and its insolvency. My name is Casey Weade, and it is my mission to deliver clarity in your purpose and retirement and elevate your experience through both financial and non-financial conversations here on the show.

Today, we have an amazing guest. We have a guest coming back to us. We have Mary Beth Franklin. If you've been following our show for some time, you're probably familiar with that name, Mary Beth. Mary Beth has become our most downloaded, most watched YouTube video of all time over on the YouTube channel. So, if you're listening to us on the podcast, make sure you're checking out all the amazing resources you can find on our YouTube channel as well. Her video laid the foundation for this conversation today, talking about the foundational elements of Social Security already garnering around a million views and 7,000 likes. So, please be sure to go back and check out that episode.

I would encourage you to check out that episode and listen to that episode prior to really diving into this one. Our initial conversation really laid the foundation of what Social Security is, how it functions. Today, we're going to be taking that to the next level. If you're not sure who Mary Beth is, I'll just give you a quick refresher of Mary Beth's background. Mary is a CFP, a certified financial planner. She is also a nationally renowned Social Security specialist who teaches advisors and retirees how to maximize their benefits. She is the former contributing editor at Investment News, where she wrote extensively about Social Security, Medicare, and retirement income.

She's a former Capitol Hill reporter at United Press International, as well as a retirement and tax editor at Kiplinger Personal Finance. I also want to mention that Mary Beth has recently entered semi-retirement, so we might get a chance to talk a little bit about that experience that she has had and even her Social Security filing strategy that she's implemented for herself. Again, we had our initial conversation in 2019, so it's about five years later. That was episode number 85. Now, we're in episode around 500. And so, I'm really excited to get into the updates to her ebook that we talked about last time Mary Beth was on the show, that is Maximizing Social Security Retirement Benefits.

To get a free copy of that, we partnered up with Mary Beth to give away free e-books to our listeners who write an honest rating and review of the podcast over on iTunes. And then just shoot us a text. You can shoot us a text with the keyword 'BOOK' to 888-599-4491 or you can just check out the link in the show notes.

[INTERVIEW]

Casey Weade: Mary Beth, welcome back to the show.

Mary Beth Franklin: Casey, I'm delighted to be back, especially after you told me in my previous appearance on your program was the most popular ever. So, I'm incredibly flattered to you and to your listeners and can't wait to have another great conversation with you.

Casey Weade: Well, I think it just speaks to the complexity of Social Security and how big of a deal Social Security is in retirement, how important this decision is for retirees. They want to make the right decision. And in order to make the right decision, they have to be up to date on the latest benefit strategies, the changes to Social Security, how it continues to evolve. This isn't something that stays static, and neither are the strategies. When it comes to Social Security, those aren't staying static either, which is why you've had so many different editions of this e-book. It's now in its 10th edition. We're having this conversation five years later.

There's been a lot of changes. We get to cover those changes today and also answer a lot of the questions that our YouTube subscribers, our podcast subscribers, our Weekend Reading subscribers have sent over to us. I'm excited to get into a lot of those questions, but I think there are some preliminary things we need to cover prior to that. And first off, I go ten different editions. People are saying ten different editions of any book. That's a lot. Does this Social Security really change that much? And how many? Do we have that many changes that really garner the necessity of ten different editions of this book?

Mary Beth Franklin: Well, Social Security is a pretty complicated program. To give you an idea, there are more than 2,700 rules that govern your Social Security benefits. Now, no average consumer should worry themselves about all the details but they should know the very basics, things like Social Security benefits last the rest of your life no matter how long you live, and they are adjusted for inflation, and the age when you first claim benefits will determine the amount you receive for the rest of your life.

And that while many of the more creative claiming strategies have gone away as Congress had shut down what they considered claiming loopholes, the fact remains that someone who is entitled to their own retirement benefits on their own earnings record and who may be a survivor if their husband or wife died, or in some cases their ex-husband or wife died, they may also be entitled to survivor benefits. And Social Security retirement benefits and survivor benefits are essentially two separate pots of money. And depending on your age and your personal situation, it is possible that you might be able to claim one type of benefit first and switch to the larger benefit later for the rest of your life. And it's very important for both consumers and their financial advisors to be aware of those basic rules so they can make the most out of their Social Security benefits over their lifetime.

Casey Weade: When you look at the ten different editions of this book, what do you see as just the biggest change that you've seen with Social Security over the time of your career and your authoring of these different books?

Mary Beth Franklin: Well, when I started writing about Social Security back in about 2008, when I was still a retirement and tax editor at Kiplinger's magazine, that was really the first time the American public were encountering this idea that there were claiming strategies that a husband could claim one, find the wife the other, and then switch to a different benefit to really maximize their benefits over their lifetime. So, that was the basis of why I was writing these books of how to get the most out of your retirement benefits. Over a series of changes that began with the Budget Reduction Act of 2015, a lot of these clever maximizing strategies have disappeared.

And in fact, last year, 2023, was the last year that people who had been born before 1954 and if their husband or wife had claimed benefits, they could have claimed spousal benefits only and then switched to their maximum benefit at 70. Well, that last group of eligible people turned 70 last year. So, effectively, they've aged out of this strategy. Now, the important thing for people to remember is that each year, usually in early October, the Social Security Administration will announce what the cost of living adjustment will be for the following year. What will the cost of living be for 2025?

At this point, we're assuming the cost of living adjustment will be smaller than it has been for perhaps the last four years, maybe about 2.5%, reflecting slower inflation over the previous few months. But then again, it is still helping retirees maintain their buying power. It also means people who continue to work and pay their FICA payroll taxes will be paying more taxes if they're higher-earning workers because the amount of the taxable wage base that is subject to these FICA taxes goes up each year. This year it's 168,600. 2025 could see it go up even further.

Casey Weade: And what I hear you saying is some of those big changes are cost of living adjustments, spousal benefits. We'll get into some more of those details here in just a minute. But before we get into all this, I think it's really important. Obviously, people see this as a big decision and something they want to learn about but I don't know that they... I think it's really hard to grasp the gravity of this decision until you really place a value on Social Security. When you are trying to explain the value of the benefit, maybe looking at it as if it's an asset on your balance sheet, how do you value the benefit? What kind of value would you place on the average benefit the average American is going to receive? And what's the cost of a potential mistake?

Mary Beth Franklin: Well, for the average American, their lifetime benefits can be well over $100,000, and it could be twice that much for a married couple. So, you really want to make sure you're making the most of this benefit, particularly if you are among so many Americans who no longer have a pension. And Social Security can be that base of your retirement income plan, that you have a certain amount of money guaranteed to come in every month. And as someone who is semi-retired and who is actually collecting Social Security, I cannot tell you how comforting it is to look in your bank account and say, "Woah, there's another check. There's a basic amount of income that is covering a certain amount of my monthly living expenses, and that's money I don't have to take out of my retirement savings. It's already come in."

It really helps people understand the concept of guaranteed income in retirement for people who don't have a pension and whose Social Security benefits alone may not be enough to cover their basic living expenses. Some people may want to think about taking some of their retirement savings and buying themselves some additional guaranteed income in the form of annuity. Some people who have their own corporate pension and Social Security probably don't need that added income. But everybody understands the idea that I have a Social Security benefit, it directly deposited into my checking account each month, and it's money I can count on.

A friend of mine talks about Social Security is the gateway drug in a good way of talking about overall financial planning. If you can understand that concept of taking an asset and converting it into guaranteed income for the rest of your life, that is the essence of retirement income planning.

Casey Weade: That's a really important thing to emphasize. And when a lot of the families that we work with as we run these Social Security analyses say, especially for a married couple, will often see lifetime benefits that they're going to collect that are in the seven figures and they could easily be making a six-figure mistake if they don't understand all of these things that you know just so well. And when we know the value of the benefit and many might already really understand the value of their benefit, maybe they've already ran some of these numbers and they see that the system that they've ran it through says they should delay that benefit until later but then they read in the news about the insolvency of Social Security.

They get concerned. They're not sure now what to do. Do I listen to the software or do I listen to the headlines? Should I really obsess over these insolvency concerns that others have and now I have myself? You know, the Social Security trust fund reserves are projected to become insolvent around 2035. At this point, retirees would receive about 80% of their full benefits. How has insolvency changed since the last edition of your book or since our last conversation over the last five years?

Mary Beth Franklin: Well, certainly the Social Security combined trust funds, the Retirement Survivor and Disability Trust Funds are inching closer to insolvency. As you said, roughly around 2035 is the latest estimate. So, first, let's define what does insolvency mean. We have to go back to 1983, the last time we had major Social Security reform. And at that point, if Congress had not stepped in in 1983 for the first time, Social Security would have been unable to pay all the promised benefits. But Congress did step in and made several changes on the sides of both additional tax revenue, payroll tax revenue, taxing Social Security benefits, changing some of the benefit formulas, all of which extended the lifeline of Social Security for decades.

But it was always known back then it wouldn't be a permanent fix. One of the smart things the Congress and the bipartisan commission on Social Security did back then was look ahead. Now, remember, this is 1983, more than 40 years ago. They said, "We're going to have this huge baby boomer population retiring starting around 2010. And we're going to need a lot of money to pay all those benefits. So, let's collect more Social Security FICA payroll tax revenues, which is the main source of funding Social Security benefits. Let's collect more tax revenues than we need right now in the 80s and stockpile that money." And that is what we refer to as the trust funds.

Now, the initial theory was, "And nobody's going to touch these trust funds. They're going to be in this lockbox." Well, Congress really couldn't keep its hands off that money. But even though the federal government does borrow from these trust funds, it pays that money back with interest, which is yet another source of funding of Social Security benefits. Well, around 2010, these trust funds had been growing to more than $3 trillion. And the money is invested in special interest government bonds that only Social Security can invest in. But frankly, it doesn't yield a whole lot. It's about 2.5%. Around 2010 was the first time, a couple of things happened.

The first wave of baby boomers started to retire and we're also at the end of a great financial recession there, 2008, 2009, 2010, where a lot of people lost their jobs. And when you're not working, you're not paying FICA payroll taxes and neither is your employer. So, we had less money going into the system and more money coming out because people were starting to retire. So, that was the first time that FICA tax revenue alone was not sufficient to pay all of the promised Social Security benefits. So, for the first time in 2010, we started tapping the interest that these trust funds had been earning as a source of funding the benefits. And that worked great until about 2021. What else happened? We were still in the COVID pandemic.

Millions of people had lost their jobs and even more baby boomers had started to retire, often because they were afraid to go back to work during COVID so they retired early. So, now in 2021, the FICA taxes and the interest on the trust fund alone was not enough to pay promised benefits. So, in 2021, we started drawing down the principal of the actual trust funds, and that is where we are today. And we will continue drawing down those trust funds until they're gone, which would be around 2035. At that point, there would be enough ongoing tax revenues from those FICA taxes we pay each week in our paycheck to pay about 80% of promised benefits. Doesn't mean you'll get zero but, frankly, no one is going to be satisfied with 80% of promised benefits.

So, the big question is, what is Congress going to do about it and when are they going to act? There was a recent survey by the National Institute on Retirement Security that found the vast majority of Americans, nearly 90%, were demanding that Congress act now to fix Social Security, not ten years from now when the trust funds have run dry. And this sentiment was across gender, age, political spectrum. It didn't matter. People want Congress to step in and fix it now. The political reality is I don't see any fix in the near future, certainly not until after our presidential election in November.

I don't think it matters who wins the election in November as far as Republicans or Democrats as to having an immediate fix for Social Security because no one's really talking about it. They just keep kicking this down the road. But when you think about the percentage of older voters and how they do tend to vote in higher percentage, and these are your typical Social Security beneficiaries, I don't think Congress really wants to tick off 70 million senior voters. And they're going to have to grapple with this and come up with a solution before the trust funds run dry. I tell people, if you're currently receiving Social Security, if you're near to receiving Social Security, maybe you're 60 plus, I really don't foresee Congress cutting benefits of existing or near-retirees.

I think if you're younger, okay, let's stress test your retirement income plan. Let's say worst case scenario, your future Social Security benefits are cut by 20%, not your total retirement income, but the portion of your income that's represented by Social Security. If you work with your financial advisor, what would that do to your future financial plan? And if it would create problems, what can you do now in your 40s and 50s to start saving more to make up for any possible cut in future benefits?

Casey Weade: Yeah. We meet so many individuals. I can't. It's almost everyone that we visit with they have this concern and I would say many of them, they say, "I'm just going to file today because I'm not sure what Congress is going to do. I'm not sure if they're going to fill that gap. I want to go ahead and file as soon as I possibly can because I know they're not going to have the money in the future." Do you feel that that is an irrational fear? And how should advisors be addressing this?

Mary Beth Franklin: Well, I think it's a growing fear. I've seen it more and more with each year where there's the trustees report showing we're getting closer to trust fund exhaustion. And you can understand why people are saying, "Hey, I'm just going to grab it now while I can because I don't know what the future would be like." I think that is so unfortunate. And I really blame our lawmakers for not at least saying, "Hey, we don't have an answer yet, but we're talking about it. We're going to fix it," because people are often claiming benefits before their full retirement age.

Now, if you're born in 1960 or later, your full retirement age is 67. Yes, you can claim your benefits as early as 62, but that's five years before your full retirement age. And you know what that means? You are going to take a 30% cut in your benefits for the rest of your life. That is huge. And if you're before full retirement age when you claim Social Security and you continue to work, not only are you going to take a reduction for claiming benefits early, but now you're subject to earnings restrictions, which in 2024, about $23,000 a year, you earn more than that and you potentially are going to lose some or maybe all of your Social Security benefits, at least temporarily, because you make too much money.

Now, once you get to your full retirement age, any benefits you lost due to excess earnings get restored in the form of larger monthly benefits going forward. But really it's an accounting nightmare. I always tell people if you plan to keep working, simply don't claim benefits before your full retirement age. But I understand why people are scared and they say they want to get it now. What I tell people is there are good reasons to claim benefits early. You need the money. You lost your job. You're in poor health. Those are all good reasons to claim Social Security benefits early. But if you are claiming benefits early merely out of fear about what might happen down the road, to me, that's like selling your stock portfolio in a down market. The only thing you have guaranteed is you have locked in a loss and that's a big loss for the rest of your life.

Casey Weade: So, it sounds like as individuals are running these projections, if they're at or near retirement, you recommend that they're assuming full benefits that they'll be receiving in the future. There have to be a few different assumptions that we make when we start running our Social Security projections. One of those is, of course, insolvency. Is it going to be there or not? And then you also, how long am I going to live? You know, but another one of those big assumptions are the COLAs or cost of living adjustments. And as you mentioned, that 8.7% COLA hike that was received by Social Security beneficiaries, biggest inflation adjustment since 1981. Now, we haven't seen what that's going to be next year.

You mentioned it's probably going to be in that 2.5% range for 2025 and that's where I think some Social Security beneficiaries are going to go, "Wait a second." I mean, this has been described as the only thing that gives you a perfect hedge for inflation. I feel like I've experienced more than 2.5% in inflation, say, over the last year. You know, how does this COLA work? Is it really a perfect inflation hedge? What kind of inflation number should we be assuming?

Mary Beth Franklin: Well, nothing is perfect but I want to reassure people the cost of living adjustment is not a political decision. You often hear people say, "It's the White House's fault. It's Congress's fault." No, it's simply a mathematical formula where they look at the consumer price index for the third quarter of this year, so that would be July, August, September and they average that consumer price index and they compare that average to the third quarter of the previous year. At this point, it looks like this year's average third-quarter CPI would be about 2.5% larger than last year's, and that is what the COLA is based on.

Now, it may not seem like enough because we have had a lot of inflation over the previous year. Just go to the gas station, to the grocery store, and you know how much more you're paying. But keep in mind that earlier cost of living adjustments, like you mentioned, that 8.7 a few years ago were reflecting inflation at the time. Here's another important thing for people to understand. For every year you are eligible for Social Security, starting at age 62 up until the time you actually claim your benefits, whether it's your full retirement age or up until age 70, every cost of living adjustment that has been awarded from the time you're 62 to the time you claim is baked into your future benefit. You don't have to claim Social Security to get the benefit of that year's COLA.

If you're at least 62 at the time, it is baked into your future benefit. So, there's no need to rush to claim Social Security just so you can take advantage of that COLA. Now, other people are saying, "Well, I'm only 61." Well, that's true. If you're not at least age 62 when a COLA is assigned, then that's not going to be baked into your future formula. But then your benefit formula is also reflecting index earnings and those indexes go up each year. So, what you're not making up in the COLA, your basic benefit formula on the index wages will be baked into your future benefit.

Casey Weade: So, when individuals are running these projections for themselves, I think, and correct me if I'm wrong, I think the long-term average of inflation adjustments is close to 4%. The short-term is closer to 2%. What should they be using? I mean, there's a big difference in the results you're going to get from those projections if you use 1% or 2% versus 4% or 5%.

Mary Beth Franklin: Well, over the last 20 years, the average has been about 2.6% cost of living adjustment but with the wide swings. I think 2.5. The Federal Reserve Board always aims at a 3% inflation rate as a healthy gauge of the economy. 3% could be a good estimate. And so, keep in mind that when you look at your estimated benefits statement online and I want to talk about that for a minute, that does not include your cost of living adjustments. So, when it says, "Here's your benefit at age 67," it's actually going to be larger than that estimated benefit amount because your cost of living adjustments will also be baked in.

The other thing I wanted to mention is I always encourage people to set up their online Social Security account by going to SSA.gov. That stands for Social Security Administration dot government. And you go to SSA.gov/myaccount. Well, here's a news flash. People have been setting up these accounts for years and we all used to get paper statements in the mail, usually about three months before our birthday that says, "Hey, if you're not collecting Social Security yet, here is what your future benefits would look like at age 62, at your full retirement in age 70. Well, once you set up an online account, you're not going to get those paper statements in the mail anymore.

But it means 24/7 you can go into your own personal account and see what those estimated benefits will be, what would happen if you die, what sort of survivor benefits your family will get. And you can also see how much you have paid in FICA taxes every year since you started working at age 18 and you can add up all those FICA taxes that you have paid. And if that's not a good incentive to get the most out of your Social Security benefits, I don't know what is, but there is a change coming. Social Security is changing the way people sign onto those accounts to make them more secure. So, essentially, if you set up an account before about September 2021, you are going to have to go back into your account and just follow the prompts that will show you how to sign on with a more secure ID. ID.me, there's a couple other secure methods, but it is not a scam.

If you see an email come into your box that says, "Sign on to your Social Security account to create a more secure ID," it is not a scam. It's for real. And you should do it because at some point, people with these old addresses and passwords won't be able to access their accounts. So, you want to make sure you update them preferably before the end of this year, 2024.

Casey Weade: Now, you've seeded some of the different ways here about how Social Security is being calculated, but I think it is very important for us to understand how our benefit is calculated in order for us to really strategize on how we're going to maximize that benefit. And so, I want to jump to one of our subscriber questions that were submitted by Victor, and I think you can really answer Victor's question. And in answering Victor's question, I think it'll answer for many more the details around how this calculation works and how they can leverage the calculation to maximize their benefits.

So, Victor says he has a very short working career history in the U.S., only six years. He's not yet eligible to collect Social Security. He currently has 27 credits out of the 40 needed. His plan is to retire when he has 40 required credits or more to guarantee Social Security, Medicare. "Given this situation, could you explain how much Social Security I will collect given my particular case? How is this estimate collected based on my Social Security contributions?" So, I think that question's going to lack some detail in order for you to really estimate what Victor's benefits are going to be but I think the most valuable thing for someone like that is to have a better clear understanding of how the calculation works.

Mary Beth Franklin: Right. There are two parts to Social Security. One, you have to work long enough and pay into the system long enough to be eligible for Social Security benefits. And then the second part is your average lifetime earnings, which create the basis for your actual benefit amount. So, let's go to how do you become eligible. You have to work and pay FICA taxes to earn the minimum of 40 credits that your reader mentioned. You can earn up to four credits per year. So, essentially, that means you have to work at least ten years in covered employment, paying FICA taxes to be eligible for Social Security.

Once you have your 40 credits, you're always going to be eligible for Social Security once you reach retirement age. That does not tell you how much you'll get. That calculation is based on your average lifetime earnings. And Social Security defines lifetime earnings as your top 35 years of earnings. Let's say you work 40 years where they're going to knock out the five lowest earning years when you were flipping burgers at McDonald's and delivering newspapers. Remember that concept? Those are going to go away and they'll use your top 35 years of earnings, add up to the maximum wage base each year. For example, this year in 2024, you pay FICA taxes on the first $168,600 you earn.

If you earn $500,000, you're still only paying taxes up to that taxable wage base, 168,600. Each year there is a taxable wage base. You would pay taxes up to that amount if you're a high earner, and that is the basis for your future Social Security benefit. You're not going to get a benefit based on your $500,000 of wages. It's going to be based up to the taxable wage base. They take the 35 years, they add them out to create an average, they average it out to get a monthly average indexed monthly amount, and then they apply a formula to that.

So, to your readers’ case, yes, you would have to work at least 10 years to be eligible for Social Security. But Social Security is always going to divide by 35, which means he’s going to have 25 years of zeros in his calculations. And when they add that up, it’s going to come out to a relatively small average lifetime income and the benefit will be applied to that amount. So, I can’t tell him what his benefit amount would be if he goes to his estimated benefits statement. Once he has his minimum of 40 quarters, he can see with the estimate of his benefit would be depending on his claiming age.

So, the good news for people like this, who often have worked earlier in their life in another country or may be a stay-at-home mom that stayed home and took care of the kids, she didn’t have works outside the home that, let’s say maybe I stayed home and took care of my kids for 20 years. I worked for 15. I’m using 35-year calculations. I’ve got 20 years of zeros. That’s a lot of zeros. I’m going to have a small benefit. But each year that I continue to work regardless of my age or even if I’m already claiming Social Security benefit, it is going to automatically add to my work history and could automatically increase my future Social Security benefits. So, the good news is people who have a sporadic work history can continue to grow their benefit by continuing to work even if they’re into older ages.

Casey Weade: Let’s take this a step further and talk a little bit more specifically about that statement with a question we received from Kevin. Kevin said, “I retired in late 2023 about the time I turned 65. My original plan was to claim Social Security when I turned 70. The most recent statement seems to indicate quite a significant increase in benefits if I do wait until 70. However, I think the current statement assumes I am going to continue to work and will do so until I reach 70. That’s not the case. Is my statement overstating my Social Security benefit at age 70?”

Mary Beth Franklin: The Social Security benefits statement assumes that you will continue to work and earn approximately your current wages up to your full retirement age. So, if your full retirement age is 67, it’s assuming you’re working and earning through 67. Now, if you retire at 62, that’s five years earlier. Your assumed average lifetime earnings and the benefit formula that is applied to that may not be the same. Maybe your benefits are a little less.

The big bump that he’s talking about, wow, look what would happen at 70. For every year you postpone claiming your Social Security benefits beyond your full retirement age, up until age 70, you earn an additional 8% per year in delayed retirement credits. So, if your full retirement age is 67 and you wait till 70, that’s an additional three years at 8% a year, your benefit at 70 is going to be 24% higher, nearly a quarter higher than it would have been at your full retirement age.

Here’s the stark difference I want people to understand. The difference between claiming my benefit age 62, five years early, I’m taking a 30% haircut, I’m only going to get 70% of my full retirement age benefit if I claim at 62 versus waiting till 70 when I would get 124% of my full retirement age benefit. The difference between claiming at 62 and 70 represents a 77% increase in my monthly Social Security benefits for the rest of my life. As a certified financial planner, there is no investment I can suggest to you that is virtually guaranteed to increase a 77% increase in monthly income essentially over an eight-year period, delaying your benefits from 62 to 70. That’s a pretty substantial increase.

Casey Weade: Well, then I’d say you’ve probably answered Dave’s question here. And if you’re listening and you have questions, just drop them in the comments section. We’ll be committed to answering each and every one of those questions. And if you want to have the opportunity to bring in your own questions, like many of our Weekend Reading subscribers have, all you have to do is subscribe to our Weekend Reading email at HowardBailey.com. So, Dave’s question, I think you just answered it, but let’s go ahead and take this step for Dave. Dave says, “What’s the biggest regret you see from Social Security recipients? Is it claiming too early or claiming too late?”

Mary Beth Franklin: I think most people, it’s claiming too early because, it’s funny, they used to do all these polls of when do you expect to claim benefits? And when people were, say, in their 50s or even early 60, before 62, many people would say, “Oh, I’ll wait till full retirement age or later” because they’re not eligible yet. And it’s a theoretical decision sometime in the future. But once they get to 62 and actually are able to claim a lot of claim, people claim early because, hey, suddenly, it’s reality. I can grab it while I can. I might get hit by a bus tomorrow.

What I try to say, particularly to married couples is think about your Social Security claiming decision as a household decision rather than two individual people. For example, the typical American couple, the husband is often a couple of years older. He’s often the bigger breadwinner and actuarially, he’s likely to die first. It makes sense for this typical American married couple to have the person with the bigger Social Security benefit who, in this example, is the husband to wait as long as possible, up until age 70 to claim the biggest retirement benefit possible. And should he die first, that bigger benefit now becomes the basis of his widow’s survivor benefit, and her smaller benefit goes away.

Having said that, let’s say the wife has her own Social Security retirement benefit and she’s not working at the moment, and she’s 62, she may want to go ahead and claim her own Social Security retirement benefit early. And even though it permanently reduced because she’s claimed it early, it brings some cash flow into the household and takes away a bit of the sting of having the husband wait until age 70 to collect the biggest benefit possible. And here’s one of the things that few people understand. Even though by collecting her retirement benefit early, the wife’s retirement benefit will be reduced for the rest of her life. It would have no impact on her survivor benefit if she is at least full retirement at the time. So, it’s a really great coordinated claiming strategy for married couples.

Casey Weade: Well, that speaks directly to Mark’s question. He asked that question specifically. So, thanks for answering that ahead of that question. One of the things that I think we’ve been doing so far is we’ve been talking about Social Security in a vacuum. And this decision shouldn’t necessarily be made in a vacuum. There’s other things to take into consideration, Medicare, tax planning, the investment strategy that you have, your investable assets, the legacy you want to leave behind.

So, I really honor Marvin for asking a question that speaks directly to that. Marvin says, “I’m confused, like many are.” He says, “I’m confused. I know how to maximize my Social Security benefits. That is, wait until age 70 to claim. But how do I calculate whether to drawdown my retirement funds while I wait until age 70? Should I keep my funds growing while I live on Social Security funds and spend Social Security money now? Which is better? I would like to leave something for my kids after I’m gone.”

Mary Beth Franklin: Well, there is one philosophy of, gee, if I wait until age 70 to get the biggest Social Security benefit possible, what I do for income in between, if I’m like so many people who say, “Well, I’m going to keep working,” problem solved. You’ve got income from a job. But a lot of people would actually like to retire at 62 or 66 and still postpone claiming Social Security to max out that benefit. For those people, it may make sense in some cases for them to start drawing down their retirement savings, their IRAs, their 401(k)s as basically a source of income that buys them a bridge to a bigger Social Security benefit later.

One of the advantages of that is what are you going to pay in income taxes in retirement and Medicare premiums which are tied to your income in retirement? So, one philosophy is, if I am drawing down my retirement savings, say, between 62 and 70, and then I’m getting this big Social Security benefit starting at 70, now, maybe I don’t have to draw down as much of my savings as I was in the earlier years. It’s also reducing my future required minimum distributions, which now start at 73.

And once those RMDs start, you’ve pretty much locked in your income. And if you’re at a certain threshold, you might be paying these high income surcharge or Medicare premiums called income-related monthly adjustment amount or IRMA, and IRMA can be a hurricane for your health care and retirement. So, the idea of drawing down your personal savings first to reduce future required minimum distributions could have a big impact on your future income taxes and your Medicare premiums. So, it can be a smart strategy.

Casey Weade: Well, it just sounds like we need to take everything into consideration when we’re making this decision. And I assume you did that for yourself. From what I understand, you didn’t take the general advice that’s given to wait until age 70 to file. You filed a bit earlier to that, I believe that your full retirement age. So, let’s speak to your strategy. How did you come to the conclusion to file when you filed?

Mary Beth Franklin: Well, there was in the past some creative claiming strategies. One of which was available to people born before 1954. Well, I was out of luck. I was born in December 1954. And I sometimes think that’s the year that Social Security picked because I’m such a thorn in their side. But my husband was born in 1952, which meant he could use this creative claiming strategy.

And what was involved was when I reached my full retirement age, which was 66, because I was born in 1954, the last year that the full retirement age was 66. And that’s when earnings restrictions go away. There’s no more earnings cap once you reach your full retirement age. So, even though I was still working, I claimed Social Security at my full retirement age of 66 because that would trigger a spousal benefit for my husband. A spousal benefit is worth up to half of my full retirement age benefit. And if my full retirement age benefit at 66 was $3,000, in theory, his spousal benefit would be half of that, $1,500.

And because he was among this age group that could use this fancy claiming strategy, once I claimed my Social Security, he then could file for spousal benefits only, collect the equivalent of half of my full retirement age benefit, and allow his own benefits to continue to grow by 8% a year. And when he turned 70, he then switched to his maximum benefit. From a couples claiming standpoint, he now has a much larger benefit than mine because he waited until age 70 and he’s a few years older than I am. Should he die first, I would then step up to 100% of what he is collecting as my survivor benefit, and my smaller retirement benefit would go away. This was a great claiming strategy for people who were born before 1954.

Unfortunately, as I mentioned at the top of this program, that cohort of retirees had basically aged out of this strategy. The last eligible person to be able to do this turned 70 last year, 2023. So, effectively, this strategy is gone. The other thing I want to emphasize is 70 is the year where you maximize your Social Security benefit. It does not make sense to delay claiming Social Security beyond age 70 because those very valuable delay retirement credits of 8% a year stop at age 70.

Casey Weade: Now, you talk about this loophole being closed for those that were born after 1954, but there are still some opportunities here for some outliers. There are some nuances to this for those that are divorced, widowed. Can you speak to those strategies that those that maybe are not married couples should still be looking at?

Mary Beth Franklin: Very good point. So, first of all, I mentioned the strategy for married couples, and to be considered an eligible married couple, you only need to be married at least nine months and at time of death. Okay? For people who are divorced, you must have been married at least 10 years before divorcing. And if you are currently single, you may be able to claim Social Security benefits on your ex’s earnings record if your benefit as an ex-spouse is larger than your own benefit.

So, let’s throw out some numbers. Let’s say your ex-spouse’s benefit is $3,000 a month. He’s still alive. You’re single. Your own benefit at your full retirement age is $1,000 a month. Well, in that case, your spousal benefit is going to be the larger amount because the spousal benefit at your full retirement age is worth half of his full retirement age benefit. If he’s getting $3,000 a month, you would be entitled to $1,500 a month. So, when you filed for benefits, you would get the larger of your two benefits.

But frankly, because so many women are in the workforce, it is more typical these days for women to be collecting retirement benefits on their own earnings record rather than as a spouse. A lot of that has gone away in the past. So, let’s say my own benefit is $2,000 a month. My ex’s benefit is $3,000 a month. My own retirement benefit is larger than it would been as a spouse. So, when I claim, I get only my own benefit, I don’t get a spousal benefit. It basically goes to waste.

But what happens if my ex dies? We talked about more than 2,700 rules governing Social Security benefits. Well, there’s a whole lot of exceptions, and a whole lot of the exceptions apply to divorced spouses. So, we go back to the basic rule. You must have been married at least 10 years before divorcing to be possibly eligible to collect Social Security on your ex’s record. And I also told you, you have to be currently single in order to collect on an ex. Doesn’t matter if he remarried. It matters if you are going to collect as an ex, you’ve got to be single.

But here’s another exception. If you wait till age 60 or later to remarry, you still can’t collect on a living ex. But if your ex dies, you can collect survivor benefits even if you’re married to someone else at the time. So, here’s a refresher course. Your spousal benefit while your ex is alive is worth up to half of his full retirement age benefit. Your survivor benefit after he dies is worth 100% of what he’s collecting. So, your ex is worth twice as much dead than alive, but most divorcees know that anyway.

Casey Weade: There are some ex-spouses trembling at that thought. There used to be some talk about the opportunity to file against multiple spouses. If you had more than one ex-spouse, there would be some strategies that you could use. Are those opportunities still available with some of the changes we’ve seen on Social Security? And if so, what does that look like?

Mary Beth Franklin: Yes. Again, you go back to the basic rule for divorced spouse. I must be married at least 10 years before divorcing and currently single. Maybe I was married three times, 10 years each, and I’m currently single. If my benefit as a spouse is larger than mine, I can collect the largest benefit to which I’m entitled on any one of those three ex-spouses. Let’s assume they’re all alive and my biggest benefit is going to be as an ex-spouse half of my ex’s full retirement age benefit. Maybe I’m collecting on spouse number one. And then ex-spouse number two dies, and his survivor benefit for me is going to be bigger than the benefit of collecting as an ex-spouse on number one, I can switch to the survivor benefit on my ex-spouse number two. I am always entitled to the larger benefit to which I am entitled, even if that’s a moving target.

And remember, I’ve got to be single to collect on a living ex. But if I wait till 60 or later, I can collect survivor benefits on a dead ex even if I’m married to someone else at the time. Now, any time you’re entitled to more than one Social Security benefit, you can’t collect more than one at a time, but you are always entitled to collect the biggest one.

Casey Weade: I can already feel people’s head spinning and we can see just how complex this decision is, why we need an expert. You spoke to divorcees. Now, let’s move on to widows. What about widows, widowers? What kinds of unique opportunities or strategies should they be thinking about?

Mary Beth Franklin: Right. You should think of Social Security retirement benefits and Social Security survivor benefits as two different pots of money. And retirement benefits are available as early as age 62, but they’re reduced if you claim early. Survivor benefits are available as early as age 60, but are further reduced if you claim early.

So, let me give you two scenarios. Let’s say we have a young widow. She’s 62. She has her own retirement benefit and she is not working. And now, she is also entitled to a survivor benefit. What should she do? The survivor benefit in this case is going to be the biggest benefit. So, we want to hold off to get that bigger benefit later in life. And so, this widow may want to claim her own reduced retirement benefits at 62. And even though her retirement benefits are permanently reduced, once she gets to her full retirement age, she can now switch to survivor benefits and get 100% of her survivor benefits for the rest of your life.

And you always want to think the bigger the benefit I have, each year when there’s a cost of living adjustment, that percentage increase is applied to my bigger benefit base, meaning my increase each year is going to be a little bit bigger. So, this young widow would want to collect her reduced retirement benefit first. And again, that’s assuming she’s not working because if she’s working and below full retirement age, she’s subject to earnings restrictions. But then the maximum survivor benefit is, if she claims it at her full retirement age, survivor benefits do not continue to grow by 8% a year once you reach full retirement age. That only applies to a worker’s retirement benefit. So, this young widow could collect reduced retirement benefits first, wait till full retirement age, switch to her maximum survivor benefit.

Now, let’s flip it around and say we have a business executive. He’s got a big benefit in the future. His wife died of breast cancer in her 40s. He’s entitled to a survivor benefit, but it’s probably going to be a lot smaller than his retirement benefit. I would suggest that he wait until his full retirement age when earnings restrictions go away. He’s still working, and a survivor benefit is worth the maximum amount if he collects it at his full retirement age. But in the meantime, his own retirement benefit continues to grow by 8% a year. And then, at age 70, he would switch to his maximum Social Security retirement benefit.

So, you can see it’s really complicated. There was a report from the Government Accountability Office several years ago saying that in more than 80% of the cases, Social Security reps had not informed potential beneficiaries of this choice between getting retirement benefits at one point and survivor benefits later. So, you really want to make sure you’re dealing with a financial advisor that at least understands these milestones that retirement benefits and survivor benefits are two different pots of money and that your survivor benefits are worth the maximum amount at your full retirement age. I’ve spoken to so many financial advisors that said, “Well, I told my widowed client to wait till 70 to get the biggest survivor benefits possible.” And unfortunately, that’s bad advice because a survivor benefit is worth its maximum amount at your full retirement age.

Casey Weade: And what you’re really referring to is known as the deemed filing rule here that couples, they fall into that scenario where they’re deemed to file for all available benefits that are available to them, where a widower in this case or a widow would have the optionality to select which benefit they want to file.

Mary Beth Franklin: Correct.

Casey Weade: Yeah, well, that is something I think so many are going to find really valuable. And now, we had a couple of kind of general or maybe even unusual questions or off-the-wall questions didn’t necessarily fit into anything specific here. But I think there’s still something that will add value to those that are listening. And this first one has to do with a do-over strategy. So, when it comes to the do-over strategy, Brad asks, “Is there a time limitation on doing a do over? So, if you draw age 62 and after two years, you pay it all back, then you draw at age 65, the payment will have gone up roughly 5% to 8% per year?” So, I think in answering this question, let’s just kind of talk about what these do-over opportunities are and when it might make sense in how they function.

Mary Beth Franklin: Right. Well, anyone has the right when they claim Social Security to change their mind. But there’s a time limit. It must be within the first 12 months of claiming benefits. So, he couldn’t claim at 62 and two years later, changed his mind. You get 12 months to change your mind. And there’s a catch. You have to pay back any benefits you have received.

And if anybody else is collecting on your records, such as a spouse or a minor child, you had to pay those benefits back too? Why would you want to do it? It wipes the slate clean as if you have never claimed Social Security. So, at a later date, when you’re an older age, you can claim at, like for the first time, and it will be a bigger amount. That’s the essential do-over strategy.

Now, there’s another opportunity. A lot of people don’t like the idea of having to pay that money back. So, the second opportunity is you can suspend your benefits. You don’t have to pay anything back. But to do so, you have to wait until your full retirement age or later. So, let’s say I started collecting my benefits at 62. My full retirement age is 66. I did that four years early. I took a 25% haircut across the board. I wait until my full retirement age of 66 and saying, “Maybe that wasn’t such a good decision. I’m going to suspend my benefits.” That means the nice checks are beginning every month stop.

But now, my benefits are going to start growing by 8% a year up until age 70. So, I would get a bigger benefit at that point. The math would work like this. If my full retirement age benefit at 66 was $2,000 a month, I claimed four years early. At 62, I took a 25% haircut so I didn’t get $2,000 a month. I got $1,500 a month. I did that for four years till I got to 66. Now, I suspend my benefits, my checks stop. They’re starting to grow by 8% a year. At four years, that’s 32%. If I multiply this 75% reduced benefit I got at 62 and I multiply it by 1.32, that’s the four years of delay retirement credits, I come out with 99%. So, I’ve effectively restored my full retirement age benefit if I resume those benefits at age 70.

So, the two different do-over strategies are within the first 12 months of first claiming benefits, I can change my mind, withdraw my applications for benefits. You file form 521 and you must pay back any benefits you have received. Your second opportunity is if you miss that 12-month window, now you have to wait until at least your full retirement age or later. But at your full retirement age, you could then suspend your benefits. So, the checks you’ve been receiving stop. You don’t have to pay anything back and now, your benefits will automatically start earning delayed retirement credits worth 8% per year up until age 70.

Let me give you an example of who might do that. Let’s say we have a husband who claimed his retirement benefit age 62. He knew he was taking a reduction. He was okay with that. But it occurred to him later that, wow, if I took a reduced retirement benefit and I die, my widow is going to get a smaller survivor benefit because her survivor benefit is worth up to 100% of what I was collecting when I was alive. But I collected a smaller benefit, I die, she’s going to get a smaller benefit.

So, maybe what I want to do is wait until my full retirement age and now, suspend might benefit, my checks stop, but now, my benefit is earning delayed retirement credits. They turn them on again at 70. I’ve got this bigger benefit and if I die at this point, my widow is going to be able to collect that larger benefit as a survivor benefit.

Casey Weade: Well, I’m sure many, after listening to this conversation, they’re going, oh, I want to do over. So, I’m sure some will take advantage of all that knowledge that you just dropped on them. We covered a lot of different topics today, but we couldn’t close this conversation without talking about your retirement takeaways as you’ve recently entered what you refer to as semi-retirement.

Your husband, I understand, also was retired quite a bit sooner than you, maybe a decade prior to you stepping into your semi-retirement here. I’m just curious, what would be your number one piece of advice or insight that you would like to give the audience, for those that are thinking about transitioning to retirement, they’re getting close to retirement when it comes to the non-financial side of their lives?

Mary Beth Franklin: Well, I would say two things. You want to retire to something instead of retiring from something? To something, for me, is my husband and I love to play pickleball. We do that several times a week. I have lots of friends, social activities, lots of hobbies, so there’s lots of things to fill my day. So, one is having your purpose in retirement, and the other is to maintain flexibility. As I discovered the hard way, one of the things I wanted to do this first year in semi-retirement, I love to ski and I had three ski trips planned for January and February. The only problem was on ski trip number one, I fell and broke my leg. That was not in my plan, but it was okay, this is what I’m dealt with. I’m going to spend a couple months recovering. I will say I had a great caretaker. My husband really helped me out.

And we got ready to go on a big European trip, which we did with some friends in May. And what I had not counted on was my purse would get stolen on a train from Budapest to Vienna, and suddenly, I had no passport, no credit cards, no iPhone with all my contacts and financial information on it. And it’s okay.

Another time for plan B. What do I do now? I could look at my iPad that I had with me, my backup device. I could tell you the address of where my stolen iPhone was, but it didn’t help me because I was on a train leaving one city to go to another. By the time I got off that train, which had very good Wi-Fi, by the way, I had filled out the paperwork for my emergency passport. I had canceled my credit card and my debit card. I had applied for a replacement driver’s license. I had applied for a replacement global entry card.

So, I was prepared and that I had photocopies of all my critical documents, my passport, my driver’s license, my credit cards, my medical cards, so then when I had to fill out paperwork to get them replaced, it was fairly seamless. I also want to give hats off to the American consulate in Vienna. I found out the hard way that if you are an emergency situation as an American abroad and you lose your passport, if you get to their offices when they open at 8 o’clock in the morning, you will most likely have a replacement passport by later that afternoon. But it certainly helped that I had all the important numbers and evidence to fill in the paperwork. So, I would tell everybody, as you plan your retirement travels, have a great time, have lots of fun, make sure you have copies of all your documents, and keep them close.

Casey Weade: Well, what I hear you saying is we need to seek adventure and embrace the unexpected. That sounds like it’s exactly what you did. As you listen to this conversation, you go, hey, I want to take this a step further, I want to advance my knowledge, I want to make a good Social Security decision, then get a copy of Mary Beth’s e-book we’re giving away right now. Again, to get a free copy of Mary Beth’s e-book, Maximizing Social Security Retirement Benefits, all you have to do is write us an honest rating and review over on iTunes and shoot us a text with the keyword Book, B-O-O-K, to 888-599-4491. Mary, it’s been a wonderful conversation. I can’t wait to have another conversation with you in five years when Social Security is changed again.

Mary Beth Franklin: Hey, Casey, it has been a great conversation. Thank you so much. I also want to alert people that I do have a one-hour special on public television that may be playing in your market. It’s called Social Security & You with Mary Beth Franklin. And you can also go to my website MaryBethFranklin.com that has lots of free articles about Social Security claiming strategy. So, I hope you found this useful and you can always contact me with questions.

Casey Weade: Yes. And we will drop a link to that in the show notes or check it out there.

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