Listen to John Kuykendall discuss what you need to know about Social Security so that you can make the most out of it.
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Peter: Welcome in to the program. This is Gulf Coast Financial with John Kuykendall, Founder and CEO of Gulf Coast Financial Services and Gulf Coast Tax Services, here as your resource for a common sense approach to planning for a more stable, secure and confident financial future. He is your resource and ours, ladies and gentlemen. John, welcome back in to the program.
John Kuykendall: Thank you, Peter. It’s great to be here. I wanted to start the show off this morning and give you just a few things before we get into the real subject of Social Security. We’re constantly looking for ways for clients and our prospects to save money, the people we work with, and as I think I told you last week, there was a study just done that the average American would have trouble paying cash for a $400 emergency. That’s pretty drastic, when you think about it – $400. If I had to replace my refrigerator, I would have to charge all of it; I don’t have any money to put down.
Peter: We’re going into debt.
John Kuykendall: Yeah, we’re going into debt big time, which is one of the problems with – because then we’re paying interest. It doesn’t take long. Even though you get that 5% or 2% or 3% credit card, it doesn’t take long for that to go up and really hurt you. One of the things that we can do this summer is thinking about ways to save. We’re moving. We’re changing our house and moving to another home. It’s something my wife wanted, and so we worked it out. I’m going through my closet and I’m finding clothes in there that are perfectly good clothes, but I haven’t worn them in a long time. I mean, it’s amazing the stuff that’s in my closet.
Peter: I’ve got a few of those outfits, yep.
John Kuykendall: You can turn around on Facebook or wherever and sell those and make $50 to $100, and that’s a great way to make a little extra cash this summer. The other thing is, when I was cleaning out the garage, I found out that I had three sanders, these orbital sanders that you use to sand when you’re painting and all. I only need one. The reason I have three is I didn’t know I had the other two. By cleaning out some of this stuff at your house that you’re not really looking at, we can turn that into cash, and then turn that into a savings account that will give us the money that we need for an emergency, so that we don’t have to go into debt.
Peter: John, my own father downsized recently and through that process he said, “You know, I realized that I didn’t own my stuff; my stuff ended up owning me, in large part.” He had a lot of stuff that he valued and had a use for at one point in time, but when he downsized, he really found a lot of freedom – personally and financially – from getting rid of a lot of it.
John Kuykendall: Oh, yeah, Peter, we save stuff. I found a paint sprayer that I haven’t used in 20 years. It was just sitting on a shelf, and I don’t know why I’m keeping it. I don’t paint anymore with my hand having carpal tunnel a little bit. I don’t really enjoy painting houses anymore. I used to enjoy that.
We save all this stuff. This morning when I left the house, the garbage pile out by the road, which the people will pick up this morning, looked like the Clampett’s lived there. I have never seen so much stuff in my life, that I’ve been keeping for 20 years while I’ve been in my home, that I really don’t need.
Peter: Garage sale time, right?
John Kuykendall: Garage sale, you’ve got, man. I’ll take all that good stuff and sell it.
Peter: Another way to build up some cash. Great tips here to start off the program, John. Of course, we want to make as much of each and every dollar possible, and where we can save a few dollars, that’s just the same as earning a couple extra dollars, right?
John Kuykendall: You want to have that money working for you. You don’t want you working for the money. Once we can get rid of some of these items, get rid of some of these clothes. If you haven’t worn a piece of clothing in a year, the experts say you really don’t need it. It’s better to go ahead and sell it and let somebody else use it, let somebody else have the benefit of it, and take that money, put it into an account and start saving.
Peter: Great tips, great tips. I know our topic of the day is another important financial and specifically retirement planning subject, and that is Social Security. I think this one is like that old saying goes, what we don’t know can hurt us, John.
John Kuykendall: Oh, yeah, Peter. The thing about it is, is that once I turned 66, I had no idea how I should file for my Social Security. There was nobody giving us advice. When I hit 62, there was nobody even talking about it, and there are some things that we needed to know, and, if I’d known better, if I’d have been coached, I would’ve done a much better job at making that decision.
Peter: Well, we’re going to talk about some of the unknowns today, some of the aspects of Social Security that are valuable and important for you to know, ladies and gentlemen, because the more you can make from Social Security, the less reliance, the less strain and stress you’ll place on your personal assets, maybe even the less you need to have saved to support yourself through retirement. We’ll talk about many of the different aspects, from timing, to taxes, to penalties, to spousal and survivor benefits of Social Security, some of the things that you need to know in order to make a well-thought through informed decision because Social Security obviously is one of those decisions that has permanent lifelong implications and even implications and ripple effects, potentially, after your own lifetime.
If you’ve got any questions or concerns about Social Security, or you would like to run an analysis and get a report on your optimal claiming strategies, pick up the phone and give Gulf Coast Financial Services a call, 386-755-9018, 386-755-9018.
John, Social Security is a cornerstone of the foundation of retirement, but, really, we can’t think of Social Security in a vacuum. It must be incorporated into the rest of our comprehensive retirement plan, correct?
John Kuykendall: That’s right, Peter. Social Security is a valuable part for most people’s retirement. We like to talk about a stool. If it’s not balanced, one leg is cut off, then you won’t be able to sit on that stool. Social Security is one leg that’s really important because for a lot of people it’s the only paycheck that you know you’re going to get every month, and that’s why it so important.
Peter: I think I’ve read studies that for something like 35 to 40% of Americans, Social Security is their only support system in retirement. We don’t want that to be the case, but for some that unfortunately is the case. However, even for those, John, it’s even that much more important to make good decisions with Social Security.
John Kuykendall: That’s right, because you’ve got to understand that this is the only money that they’re going to have guaranteed by the government to come to them every month. With the decline of the defined-benefit plans and the onslaught of the 401(k)s, where we’re self-retiring ourselves, Social Security has become a really important part. But the thing we’ve got to understand is that Social Security was not meant to be 100% of your retirement, it is meant to only be a segment of your retirement, and we have to plan so that we can make up the difference.
As you said, 40% of all Americans, according to the last study, Social Security is the main source or the only source of their income, makes up 100% of their income. Now, the average check today is a little less than $2,000, so you’ve got to figure these people are living on less than $24,000 a year.
Peter: For the rest of us that have saved, even if we’ve saved well and built a significant amount, Social Security is a tool that, when used effectively, can help us protect the rest of our personal net worth and our assets. We can’t reach into Social Security and pull out of it if we want to move, or if we want to do some of the extra things in life, or if we have an emergency, and it doesn’t get passed on as part of our legacy, so let’s use it as effectively as possible to preserve and protect those assets that do account for that and help us address those additional needs. Timing of when we claim and collect that benefit, John, is a big part of making a correct decision or an optimal decision with Social Security.
John Kuykendall: That’s right. In the Unites States, we’re able to draw Social Security at age 62, but, the thing is, not everybody should draw at 62. There are some cases where drawing at 62 is just as good as waiting, such as if you had a spouse who had a smaller benefit amount, and they were married to a spouse that had a larger benefit. When that spouse dies, they’re going to pass up to the larger benefit, so there’s not much reason for them to wait.
We can go ahead and get some extra income coming in now, and then save that income and be okay. There are certain conditions with taking it early, and that’s the penalty for taking it early, which is about 27.5% now, if you drew it at 62, based upon where your full benefit age would be.
Peter: And you stop the future potential growth of that benefit, would you have deferred.
John Kuykendall: Right, that’s true. Everything stops, and that’s your amount, and that’s what you’ll get for life.
Peter: There’s a second kind of penalty with Social Security, as well, correct, John? Where if we are claiming and collecting early and then trying to “double-dip” in the government’s eyes and work at the same time before full-retirement age, before we’re entitled fully to that benefit, they don’t really like that. They penalize and take some of that benefit back, correct?
John Kuykendall: That’s right. It’s based on earnings, Peter. If you’re under full-retirement age, that’s whatever Social Security says, 66 plus now, and it gets a little more every year, by months, you’ll now deduct one dollar for every two dollars you make over $17,040. That’s the reason we say a lot of people shouldn’t draw out at 62, but if you’re not working, your spouse stays at home, or if you make less than that amount, then you can draw Social Security and supplement your income.
Peter: John, we’re hearing a lot of people say, hey, this house is on fire; get it while the getting is good, claim it as soon as you turn 62, the day that you turn 612, but, again, that is maybe generic advice, hearsay, and not truly appropriate for everyone, given what you’re saying.
John Kuykendall: A lot of people come into the office and they say, “I’m 62, I want to draw my Social Security while it’s still there,” before it’s gone, you know? “I want to get mine now.” While there’s a little bit of not knowing what, really, Social Security is doing, the last report I read showed that if Social Security, in 2034, runs out of money, as such, and not able to pay 100 cents on every dollar, there’s enough money to pay 77 cents of every dollar. We’re going to take a 23% haircut, but we’ll still get a check.
Peter: Okay.
John Kuykendall: Which, if I took it at 62, I’m going to get a 27.5% haircut and I’m going to be penalized if I work too much. Really, even if we ran out of money, that penalty’s better, if Social Security ran out funding, than if you took it early.
Peter: If we took it early, we’ve got the individual haircut, because we chose to do that, and the 27% reduction or so, and then, if there are problems in the future, another 23% reduction, we’ve cut our potential benefit with the systematic problems, systemic problems and our own individual decision by as much as 50%.
John Kuykendall: Yeah. Let’s say we’ve got a 50% cut in our Social Security because of bad timing, bad decision-making. Because inflation is costing more, Social Security is not going to keep up with inflation, and you can see that my purchasing power in 10 to 15 years is going to be 25 or 30% of that 50%. It’s a formula for disaster.
Peter: Obviously, just the generic advice of “take it at 62” is not right for everyone. Timing is going to be critical and important in this. John, do you sit down with clients, and with savers and investors, and pre-retirees, pre-claimants of Social Security and help educate them and arrive at a conclusion of what strategies they should consider? I know there’s a lot of combinations there.
John Kuykendall: Oh, yeah, there’s too many to really name. What we do is we sit down with our clients, we get their Social Security statement. We have a software that we use which maximizes their Social Security. It’ll show them what he maximum amount is, if we waited until full-retirement, and then where the maximum combination – taking it now, taking it at 70, or waiting a couple of years – and then it will also tell us how each person should file. It’ll say Jane should file at 68, and Charlie should file at 70, and this gives them the most benefit.
Peter: The difference that this could make – a poor decision or an informed decision with Social Security – is several hundreds of thousands of dollars?
John Kuykendall: Three or four-hundred thousand over the period of time. We’ve seen it as high as $450,000 difference by taking the formula the way they came up with it, and as low as, in some cases, only $100,000; but $100,000 is $100,000.
Peter: And that’s more money that we would’ve had to save personally, more money that we’ll have to withdrawal from our personal accounts.
John Kuykendall: That’s right. That’s true. It’s certainly something that I think everybody should take advantage of; we offer that complimentary. It’s just a way for us to sit down, get to know you, you get to know us, and us kind of correspond back and forth and work up a formula that suits your needs. Sometimes, the software is right on, but then because of individual circumstances – things that we don’t know and the paper can’t tell us –
Peter: Life expectancy, that kind of stuff?
John Kuykendall: Yeah. Maybe they’ve been diagnosed with a disease and they know they’re not going to live that long, then we work it back for them and come up with where we think they should file.
Peter: Given the difference and the impact that it can make on the amount that we do need to have saved, and the protection of those personal retirement assets, ladies and gentlemen, if you have not had this conversation in your planning for retirement and your financial future, I think you owe it to yourself to find out a little bit more. Sit down with John Kuykendall and the team at Gulf Coast Financial Services. Crunch those numbers, run those scenarios, get that report and analysis so that you can make a more well-though through and informed decision.
Again, they offer that as a service on a complimentary basis for listeners of this program. Call 386-755-9018, if you would like to take them up on that offer. Again, that number, 386-755-9018, 386-755-9018.
Another maybe misinformation piece or something people don’t really know is the taxability of their benefits. John, the Social Security is taken out of our paycheck while we’re working and earning money. We feel like it’s a tax, and then they start to give it back to us, and they tax that income again.
John Kuykendall: Yeah, a lot of people feel like Social Security is tax-free, but if you reach certain income levels, it’s not. What you need to realize is that if you’re married, filing jointly – if you make over $32,000 – then 50% of your Social Security is going to be taxed. As we move up in that scale, up to $44,000, then anything over that is 85% tax.
What that means is we’re not taking 85% of what they gave you; it means that 85% of that amount figures into your total tax computation. If you’re in the 15% tax range, then 85% of it is going to be taxed at 15%. Yes, there are certain limitations where we do get taxed, but the thing about it is it’s such a great benefit and it helps so many people that I don’t think the taxes are a hindrance.
Peter: Still, those are pretty low thresholds, so many of our listeners are probably going to surpass that in the amount of income that they have in their household. Where we may have overlooked this important fact, again, less money coming in from Social Security, more money that’s required for us to meet our expenses from our personal accounts, so we’ll have to make extra withdrawals, and those could be taxable too.
John Kuykendall: That’s right, they are. We do taxes here now, Peter, and one of the things we like to do is take the tax returns, look at their tax return, and then, if they’re going to draw Social Security, we like to go ahead and add that back in when they’re going to draw it so we can show them how much of that is going to be taxed and what the tax amount is going to be.
Peter: I think that, again, this is a valuable service, ladies and gentlemen; not just the Social Security report and analysis and an understanding an optimal strategies for you to consider, but also the total implications, the comprehensive planning of what that’s going to mean when incorporated with the rest of your income plan. If you’d like to sit down and see those numbers, crunch those numbers, find strategies that are optimal for you, pick up the phone and give a call, 386-755-9018, 386-755-9018.
John, if there’s a household and a married couple, the combination of benefits, how they’re coordinated is going to be important. Even if somebody hasn’t been in the workforce, they’re still entitled to receive something from Social Security?
John Kuykendall: Oh, they’ll get a spousal benefit. If you haven’t been in the workforce, you’re entitled to a spousal Social Security benefit, which can be up to half of what your husband’s or your spouse’s was.
Peter: Even if we’re divorced – because that’s more common these days – there can be some entitlements there, as well, without any harm to the ex-spouse or the other, correct?
John Kuykendall: Yeah, a lot of people don’t realize that, Peter, that they are eligible for a benefit of off their ex-spouse, provided they were married for ten years. If I was married to an individual for 10 years, and then got remarried, and then was single again, I could go back to that first spouse, if they were of Social Security age, and I could draw a spousal benefit off of them.
Peter: Again, things that might get commonly overlooked that you can help educate people on. Let’s say we are still together, happily married and have been for a good long time, but one was a wage-earner and one was a homemaker and raised the kids. Still, that spousal benefit – something that we’re entitled to – is something that can add a good bit of extra income into the household each and every month?
John Kuykendall: Oh, yeah, it really makes a difference in our planning, when we’re doing our financial planning – income planning, as we like to call it – for people, which is income for life. What we’re trying to do is make sure that when one’s spouse passes away, we have enough money to keep the other spouse going, so that they don’t become on Medicare or poverty, so their spousal benefit makes a big difference.
When one spouse passes away, we get the option of stepping up to his or her Social Security or keeping ours. If my Social Security check is $3,000 and my wife’s check is $1,500, then she’ll step up to my check when I pass away and get the $3,000.
Peter: Correct me if I’m wrong here, John. If we’ve got a dual income earning household, where both have been sort of maximum wage-earners, each spouse collects their own Social Security, the impact, potentially, on the surviving spouse is going to be that much more significant because they could lose 50% of their total Social Security income. Whereas, if the spouses have unequal amounts, they’ll just lose the lower one, maybe not as quite as big of an impact.
John Kuykendall: Well, that’s true. We were working with a couple the other day, Peter, which – this is even more prominent because he’s retiring – he took his life only on his pension plan, so whenever he dies, she loses that income. On top of that, she loses her Social Security because she’ll step up to his. In that particular case, she was losing 80% of the income needed to support the household.
Peter: Wow. John, I feel like, human nature, we’re sort of a little shortsighted sometimes with our decision-making, especially financial decision-making, and especially with incomplete information. If we’re considering this at 62 or 65, or 66, and we don’t realize the effects that that decision might have, 20, 25 years later – 82, 85, or even beyond our own lifetime – that’s a pretty serious missing piece of the puzzle there.
John Kuykendall: Yeah, it is. You know, the thing of it is that there’s really no excuse for it these days. The software and the planning materials that we have today are so much better than they were five years ago that we can sit down with someone, give them all the examples of when they should file for Social Security – what will happen when and how we work it out – and also do this income planning, which I really think is something that everybody needs to do.
There’s no reason that we can’t educate ourselves before we make these decisions. This is too important just to say I’m going to draw my Social Security because it’s now. Every year I wait after my full-retirement year, I’m getting eight percent. They’re giving me eight percent compounded on my benefit. If I don’t need the income at full-retirement age, why do I want to draw it before 70?
Peter: John, you’ve talked often on this program about how the foundation for financial security throughout retirement is this income allocation component of the structure of the plan. Where does Social Security fit into formulating that income allocation?
John Kuykendall: It’s a major part of that. What we like to do here is we like to have Social Security. We like to have the private pensions I’ve talked about, using annuities and life insurance, things like that, to make sure that we’ve got that covered, and then our investment accounts. Then we need to make sure that as we take the distribution out, we’re taking the maximum distribution effect so that we are not paying anymore taxes than we have to.
It’s a complete canopy of coverage that we try to do for our clients and prospects, so that we give them the longest life they can have, that’s based upon how well they want to live their life, with the least amount of stress, and also make sure that the survivors and the children and everybody get taken care of.
Peter: Social Security, obviously, is complex with many different aspects that you need to consider – the survivorship income, the spousal benefits, potential penalties, taxes, the timing of that benefit. – many more combinations and choices and options than most people really realize, and that’s why it’s such a valuable service that they offer there at Gulf Coast Financial Services to sit down with you and help you review and evaluate your Social Security options, run that report an analysis. If you’d like to them up on that, pick up the phone and give a call, 386-755-9018, that’s 386-755-9018.
Additionally, John, that service is so valuable because down there at the Social Security Administration office, they’re job is to file the paperwork on the day that you show up, not tell you if that’s the best day to show up to file the paperwork, correct?
John Kuykendall: Yeah, they’re not there to give you advice; they’re there to take your order, whatever you want. I have a brief story. I have a client in Tallahassee, Florida, who is single, married for 20 or 25 years, got divorced. She doesn’t have a pension, doesn’t have a defined benefit plan, so I wanted to make sure we got the most amount of Social Security we could get. She had a good job when she was working, and so she had built up a nice Social Security benefit. I explained to her that she could go file on her ex-husband because they had been married over 10 years. She went down to the Social Security office. They told her, “No, you don’t want to do that because his benefit is going to be a lot less than your benefit.” If she had not come back and called me, it would’ve cost her $1,500 a month when she gets to age 70, and she was at 66 ½ then. We only had to wait three and a half years to get that much more money.
Peter: Comprehensive planning for your financial future, taking those variables, those aspects that could affect us into account when putting together your retirement projections. Pick up the phone and give a call. Run that report and analysis. Get those scenarios for optimal claiming strategies. Make the most of that benefit that you are entitled to, to help protect as much of your personal assets and net worth as possible. Pick up the phone and give Gulf Coast Financial Services a call, 386-755-9018, 386-755-9018.
John Kuykendall, Founder and CEO of Gulf Coast Financial Services, is our resource for this important information, a common sense approach to planning. John, we always appreciate you being here and the guidance that you provide.
John Kuykendall: Thank you, Peter. It was great to be here this week, and I hope that you have a good week.
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