Social Security: Understanding the Numbers and What Happens When One of You Passes?

Early locks in that reduction forever. So let's inch forward a bit. Say Joe waits until age 70, which is his full retirement age, while Jane still claims early at 62. So Joe gets his full FRA 3000amonth, and then Jane sticks with the 1400amonth. That lifetime total is 1.248 million. That's about 48,000 more than the file now approach. But maybe they both play the long game and wait till 67. That bumps Jane's benefit to her full 2,000 and keeps Joe at 3,000. So together they're drawing about 5,000amonth. It takes longer for Jane to get started. She doesn't collect until 67, but that calculates to 1.3 million in lifetime benefits, which equates to about $108,000 more than starting early. Now let's say Joe holds out until age 70, while Jane also waits until her retirement age. Joe goes to 70, Jane waits to 67. That is 3,720 for Joe and 2,000 for Jane, totaling 5,720 per month. So over their retirement time frame there, that strategy nets them about 1 million 378 million. When you do the math, that's $172,000 more than the earlier approach. I know we're going through a lot of math. All these figures are going to be in our show notes for you to review later. But we'll just stick with the examples we're going through here. If they really wanted to squeeze the maximum from the system, they both wait until age 70. So Joe gets 3,720, Jane gets 2,480. And thanks to her own 8% per year delayed credit. So that's how that works. Every year you delay Social Security, it's an 8% credit up to age 70. Together they're pulling in about 6200amonth. So over that same 25 years, they've added $198,000 in lifetime benefits. I mean, that's not abstract. That's money in their pockets for waiting. And what they're really buying is more than just a higher number on a check. They're buying insur against longevity inflation, which isn't being considered in our math, but, and, but plus the survivor benefits. So let's pause here for a moment and consider this last point that I just brought up. If Joe dies, Jane inherits the larger of the two checks. If Joe had filed early, she gets 2,600. But if he held out to age 70, she'd get 3,720. So that's an extra 1100 bucks a month for the rest of her life. The survivor benefit isn't just a footnote when you're thinking about all this. It's a key component of your long term planning. And this is where strategy becomes married couples like Joe and Jane. Making the right decisions about when to claim benefits can mean the difference between leaving money on the table or maximizing a six figure payout over the retirement. The cleaning options you have are to retire early and take a haircut or delay and get a little boost. So let's say we're in 2025. Joe turned 65 and Jane turned 62. Joe's full retirement age, or what is known as the FRA benefit, is $3,000 a month and Jane's just $2,000 a month. For Joe and Jane, the landscape seems simple on the surface. But as you work through this, you can see how nuanced everything becomes as we look at the options. So let's walk through the major strategies they could pursue. Not only what they may file, but what it costs or gains them across the decades. Assuming they both live until we have to make an assumption. Joe turns 90, which gives us about a 25 year window. So first, the default path, the easy button. Both claim right away. In 2025, Joe would start drawing at age 65, Jane at 62. But here's the catch. Filing before your full retirement age means a permanent reduction. Joe gets 2,600amonth. Jane gets $1,400 a month. That's $1,400 a month total. Multiply that across 300 months and you land at about 1.2 million in lifetime benefit. Sounds like a lot, right? Until you realize it's the lowest paying strategy in the entire lineup. Filing early locks in that reduction forever. So let's inch forward a bit. Say Joe waits until age 70, which is his full retirement age, while Jane still claims early at 62. So Joe gets his full FRA 3000amonth, and then Jane sticks with the 1400amonth. That lifetime total is 1.248 million. That's about 48,000 more than the file now approach. But maybe they both play the long game and wait till 67. That bumps Jane's benefit to her full 2,000 and keeps Joe at 3,000. So together they're drawing about 5,000amonth. It takes longer for Jane to get started. She doesn't collect until 67, but that calculates to 1.3 million in lifetime benefits, which equates to about $108,000 more than starting early. Now, let's say Joe holds out until age 70, while Jane also waits until her retirement age. Joe goes to 70, Jane waits to 67. That is 3,720 for Joe in 2000 for Jane, totaling 5,720 per month. So over their retirement timeframe there, that strategy nets them about 1 million, 378 million. When you do the math, that's $172,000 more than the earlier approach. I know we're going through a lot of math. All these figures are going to be in our show notes for you to review later. But we'll just stick with the examples we're going through here. If they really wanted to squeeze the maximum from the system, they both wait until age 70. So Joe gets 3,720, Jane gets 2,480. And thanks to her own 8% per year delayed credit. So that's how that works. Every year you delay Social Security, it's an 8% credit up to age 70. Together they're pulling in about 6200amonth. So over that same 25 years, they've added $198,000 in lifetime benefits. I mean, that's not abstract. That's money in their pockets for waiting. And what they're really buying is more than just a higher number on a check. They're buying insurance against longevity infl, which isn't being considered in our math, but plus the survivor benefits. So let's pause here for a moment and consider this last point that I just brought up. If Joe dies, Jane inherits the larger of the two checks. If Joe had filed early, she gets 2,600. But if he held out to age 70, she'd get 3,720. So that's an extra 1100 bucks a month for the rest of her life. The survivor benefit isn't just a footnote when you're thinking about all this. It's a key component of your long term planning. And this is where strategy becomes very personal. If cash flow is tight today, maybe it makes sense for one spouse to file early while the other waits, like Jane claiming at 62. While Joe delaying to age 70 can strike a balance, she provides some immediate income and he builds a larger survivor benefit. You know, that kind of approach gains them about $112,000 more than filing immediately without both spouses having to wait. Every scenario has trade offs. Waiting requires having other sources of income to bridge the gap. And that is definitely a consideration and is a conversation for another show because there's just way too many details for us to cover all of this in this one show right now. But the bottom line is waiting produces a higher payout for life and potentially for your surviving spouse, too. But let's be clear. The entire analysis is stripped down. We're looking at raw numbers just on Social Security. No taxes, no inflation, no Medicare premiums, no discounting for present value. In the real world, those things are going to matter a lot. But if you're trying to understand the pure, uncut impact of Social Security and when you file, these are the numbers that tell the story. So for Joe and Jane, the difference between worst and best strategy is nearly 200,000. And that's not a rounding error. That's real money. But here's the point. Social Security really shouldn't be a guessing game. It's a system with many rules and formulas and options. And when you know how the pieces fit together, you can begin to form and shape your desired outcome. And so for a married couple especially, it does pay to coordinate. My suggestion to you is not just to grab the earliest check when it's available. Really need to think through this stuff and figure out what makes sense over the long haul. So Joan and Jane have six distinct choices in front of them, and each one shapes their future in a very measurable way. The strategy they pick will say a lot about what they value, whether that's immediate income, long term security, or maximizing what's left behind. But here's the bottom line. Your Social Security strategy can add or subtract six figures from your retirement. The decision deserves more than just guesswork and does require having a well thought out plan. And yes, this can get very complicated. And what we're going to do next just adds another layer of complexity on top of your planning. But it is the point what I'm trying to make in this show today. So when people think about retirement, they often think about the point in time when retirement occurs and income begins. But that isn't the end of your planning. In fact, in my opinion, it really is just the beginning. Retirement isn't just about building up enough money. It's about making that money last. Adapt and respond to life, things that life throws your way. And one of the most underestimated curveballs is what happens when one spouse passes away. Let's not sugarcoat it. The loss of a spouse is brutal. But as unfair as it sounds, grief comes with a lot of paperwork. It comes with taxes, and it comes with a radically different financial reality. And if you're not prepared. That second wave of loss, the financial kind, can hit the surviving spouse very hard. And I'm being honest with you here. I have seen many clients go through this, and I have seen the challenges that follow a death of a spouse in retirement. To get a clear picture of how this works, let's continue with Joe and Jane here. Joe receives 3,000 per month in Social Security. Jane's collecting 2,000amonth. They're also drawing 4,000amonth from retirement accounts in their IRAs, money they saved and invested over decades of work. That's about $48,000 a year in IRA withdrawals that are taxed at ordinary income. Together, they're bringing in about 108,000 a year. 60 from Social Security, 48 from IRA. It's not a lavish lifestyle, but it's solid. They can travel, help the grandkids enjoy their retirement life. But what happens when Joe passes away? Suddenly, that Social Security income drops. Jane keeps Joe's $3,000 a month because it's higher than hers, but her benefit of $2,000, that goes away. The IRA income may be increased depending on available resources and planning needs. But for this scenario, we're assuming it remains the same at $48,000 a year. So now she's working with $84,000 in gross, and that's an immediate $24,000 reduction in income. With this new scenario, you would think the tax burden would lighten accordingly, right? Less income should mean less taxes. Well, no, that's not how our tax system works. And it's where many people fall short in their tax planning and their idea around how all this comes together. Filing status is a major consideration when a spouse passes away. Because the surviving spouse becomes a single taxpayer the next year, her standard deduction is cut in half. The tax brackets shift against her. Despite making less, she's actually paying more in tax. So let's walk through the math. While both were alive and filing jointly, the provisional income, which is used to determine how much of their Social Security is taxed, was 78,000. That's half of the Social Security plus the full 48,000 from the IRA. Because that number is above 44,000, which is the threshold for a couple of years, 85% of their Social Security is taxed in dollars. That came out to be about $34,900 in taxable Social Security. That adds $48,000 in IRA withdrawals. And their adjusted gross income was around $82,900 with a 2025 standard deduction of $30,000 for married filing jointly, their taxable income came to about $52,900. That put them squarely in the 12% tax bracket. Their total federal tax around 5,800. Net income after tax around 102. Now let's flip the scenario. Joe's gone and Jane is filing as a single taxpayer. Her provisional income is 66,000. That's half of her new 36,000 Social Security plus the 48,000 from the IRA. Again, she crosses the threshold where 85% of the Social Security gets taxed, meaning 30,600 of her Social Security is subject to federal income tax. So her adjusted gross income becomes $78,600. But as a single filer, Jane only gets a $15,000 standard deduction. Her taxable income, $63,600. And now she's straddling the 22% tax bracket. Her tax bill jumps $8,900 even though her income dropped by 24,000. That's not just a line on a return. That's nearly 3,100 more in tax, with 24,000 less to cover it. So Jane's after tax income falls from $102,000 to 75. That's a $27,000 drop in spendable cash. And this is why tax planning is so critical. People plan for retirement with spreadsheets and investment calculators, but if you're not running survival scenarios, you're only seeing half the picture. The final cost of losing a spouse is real, and it happens at the worst possible moment. If you're not ready, it can really blindside you. This is where smart planning really does make a difference. One strategy, of course, is Roth conversions. During the years you're both alive and filing jointly, converting some of your traditional IRA to a Roth can mean paying taxes now at a lower rate later. The surviving spouse can access the Roth income tax free. It's about front loading the tax burden while rates are lower and minimizing future taxable income when it really matters. Now, I've done many shows around this topic and how to help mitigate some of those liabilities around conversion tax. I've outlined strategies you can deploy to help with working through the conversions. I'm not going to get into any of that today on the show, but you can certainly jump out and reference some of those other shows to complement this one. Another option is life insurance. This isn't something many people think about, and they don't think that they need it once they retire. They kind of have this mindset of being self insured. Because they have assets. But I believe that that mindset is mostly because of poor advice, mostly given from financial entertainers who don't really do planning, they just theorize about things and who often don't consider anything other than both spouses retiring, but they're leaving out protecting the income. So a well structured life insurance policy can provide a tax free lump sum benefit that can help fill that Social Security gap and help overcome some of those tax burdens that come into play. It basically it buys flexibility, it buys time, and it does provide some security. And maybe the most important step here is run the numbers. Don't wait until one of you is gone to find out what's left or have a big surprise model what survivor income looks like, what's needed. I see this a lot too, and I'll just throw this in here. It's not part of the topic. But with pensions, many people don't understand their pension. They elect benefits, but they don't know if it has a survivor benefit. If it's a single life benefit, it's a reduced benefit. All this stuff matters and then we can see what the tax hit would be. And then you need to know what expenses will stay and which ones will go. This kind of planning really isn't just about money. It's about having confidence and having a sense of security about the future. So running the numbers, looking at the insurance, looking at the conversions, looking at the details of your plan, it's going to provide that sense of confidence. And that's what we're looking for. Knowing when life changes, what your lifestyle doesn't have to, if you're throwing a curve ball, if there's proper planning in place. Joe and Jane's story, unfortunately it's not rare. In fact, it really is the norm. Working in this industry for as long as I have and just seeing people retire and life kind of unfolding and it really is the norm. One spouse almost always outlives the other, and when that happens, income drops, tax rates can rise, and the surviving spouse is just sitting there left to figure it all out alone. So we don't want to do that. Retirement plans that ignore this reality in my book are incomplete. They look great on paper, all the Monte Carlo simulations and all the probability analysis. And it's all great until life rewrites that. So you can't predict everything, but you can prepare. And the time to do that is while you both are still living and you have time and Runway to get some things in place. I know it's more exciting to talk about asset allocation and growth of your money. But you just simply can't skip the tax planning and these end of life discussions. So here's the bottom line. If your retirement income plan doesn't account for the shift from we to me, then it's not really a plan. It's just guesswork. And you deserve, and I know you want better than that for yourself. So plan smart. Act early. Make sure your retirement income isn't built on assumptions, but on sound strategy. So having a plan that works when life doesn't go according to plan is key. So now you've kind of heard and seen what a few strategic decisions can do to your retirement income and how the loss of a spouse can turn your financial world upside down if you're not ready. The numbers are real, the stakes are high, but here's the good news. You can plan for it, and you should. And as always, my team is here to help you work through these decisions. Like I've already said, after three decades, we've seen a lot of different scenarios and have experience navigating these situations. But we'd much rather help you on the front end instead of the back end. But we certainly can help in either scenario. We can help you see the blind spots and assist in building a plan that accounts for all these curve balls. All right, so that concludes today's show. I am Brian Scribonia and thank you for listening to the Common Sense Financial Podcast. Thanks for listening to today's show. If you liked what you heard, be sure to subscribe on YouTube and Spotify so that you can receive notifications when we release new episodes. I'm Brian Scribonia and this is the Common Sense Financial Podcast.

Well, thank you for listening to the Forbes top 10 rated common sense Financial Podcast. Before you go, I want to encourage you to jump over to Brian Scribonia.com to access the full archive of blogs and podcasts. And if you want to be the first in line to get new content, you can sign up for free on the Brian Scribonia website as well. If you're not following Brian on all the social channels, we'd love to have you join in on the conversation. Instagram, Twitter, Facebook, LinkedIn, Twitter. He's there. Lastly, if you've enjoyed listening to today's podcast, or if you have found value in any of our content, help spread the word by sharing our videos, podcasts and posts wherever you get them. We greatly appreciate it and are glad that you took the time to join us today. Securities offered only by Duly registered individuals through Madison Avenue securities, llc Member FINRA and sipc. Advisory services offered only by dually registered individuals through Scribonia Wealth Management, a registered investment advisor. Tax services offered only through Scribonia Tax Consulting Mass does not offer billed banking or tax advice. Scribonia Financial Group LLC Scribonia Wealth Management LLC Scribonia Insurance Services, llc, Scribonia Tax Consulting and Build Banking are not affiliated with mas. Scribonia Wealth Management LLC is a registered investment advisor. Advisory services are only offered to clients and prospective clients where Scribonia Wealth Management LLC and its representatives are properly licensed or exempt from licensure. Investing involves risk including the potential loss of principal. Any references to protection, safety or lifetime income generally referred to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying ability of the issuing carrier. This podcast is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual situation. BILD Banking is a DBA of Scribonia Insurance Services, llc. Benefits and guarantees are based on the claims paying ability of the insurance company, not FDIC Insured results may vary. Any descriptions involving life insurance policies and its use as an alternative form of financing or risk management techniques are provided for illustration purposes only, will not apply in all situations, may not be fully indicative of any present or future investments and may be changed at the discretion of the insurance carrier, general partner and or manager and are not intended to reflect guarantees on securities performance. The term build banking, private banking alternatives or specially designed life insurance contracts are not meant to insinuate that the issuer is creating a real bank for its clients or communicating that life insurance companies are the same as traditional banking institutions. This material is educational in nature and should not be deemed as a solicitation of any specific product or service. Build Banking is offered by Scribonia Insurance Services, LLC only and is not offered by Madison Avenue securities, llc. Our firm is not permitted to offer and no statement made during this show shall constitute tax or legal advice. Our firm is not affiliated with or endorsed by the US Government or any governmental agency. The information and opinions contained herein provided by the third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by our firm. References to Build banking, private banking alternatives, or specially designed life insurance contracts are not meant to insinuate that the issuer is creating a real bank for its clients or communicating that life insurance companies are the same as traditional banking institutions. This material is informational in nature and should not be deemed as a solicitation of any specific product or service. Build Banking is not FDIC insured. Build Banking is offered by Scribonia Insurance Services LLC only and is not offered by Madison Avenue Securities LLC nor Scribonia Wealth Management llc.

The content of this video is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. Investments and or investment strategies involve risk, including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. This presentation does not take into account your particular investment objectives, financial situation or risk tolerance and may not be suitable for all investors. Information provided is not intended as tax or legal advice and should not be relied on as such. Before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it is suitable for your specific situation.