John, so good to see you today. We are talking about claiming Social Security at 62, what you're really giving up. Claiming your benefits early sounds appealing, but the trade-offs can be bigger than people expect, especially for high earners. A lot of people say, "All right, well, I'm just going to claim it early and then I'm going to invest those checks." Why doesn't that strategy work?

You know, I was just actually having this conversation with a marketing firm, as a matter of fact. Yeah, in reality, or on paper, it sounds like it'll work. In reality, I have never met anybody that actually takes their Social Security check and invests it. I mean, just from a psychological purpose, they're taking the check to spend the money. And why this doesn't actually even work out on paper is you're replacing an 8% increase on your income every year that you delay.

So, this is especially pertinent to claiming early. You're taking an 8% haircut on your Social Security income every year you claim before full retirement age. Now, some say, "Well, we can make that up." That's a pretty high standard to give yourself to be able to invest that. And again, you have to take into consideration taxes. But, as I said, you're taking something that's guaranteed, the 8% increase to income every year, and you're replacing it with the hope that you're going to make that return net of taxes.

Right. And then you have to remember, Social Security is an income stream. Income in retirement is an expensive asset. So then, how are you going to turn that income stream into, or those assets into, the income stream that you would have gotten from delaying Social Security? So, lots to consider there.

Right. And we're going to get more into the numbers of what you're giving up. But I do want to ask you first about the earnings test, because I think this one catches a lot of people off guard. How does the $1 for every $2 rule affect someone who is still working while claiming Social Security?

Yeah, so the earned income credits test, this only applies if you are claiming Social Security early. So, let's get this out of the way. If you are at full retirement age, you can work and claim Social Security. That's not a big deal. However, if you're claiming early, this is when the earned income credits come into play. And if you are making over $24,480 in income and collecting Social Security, you are going to forfeit $1 for every $2 earned above that limit.

So, basically a 50% forfeit. Now, in the year you actually turn full retirement age, that goes up. So, you have more of a buffer for full retirement age, but this becomes an issue. Now, by forfeiting it, you're not never going to get that money back.

However, what they do is they take that forfeited amount and they pay it back to you over an amortized schedule. So, you know, you're giving up, you're talking about returns, you're giving up the ability to use and even grow that money if you were going to invest it. So, the rule of thumb is, if you're not at full retirement age, don't claim Social Security. Let that Social Security germinate, grow at that 8% growth, use that income that you're getting from your job in retirement, and let everything be at least until full retirement age. Right, right.

So, now let's circle back to what you're giving up if you claim early. So, just walk me through these numbers. What's the real cost of claiming at 62 versus full retirement age versus 70?

Yeah, well, as I said, every year you claim early, you're basically taking almost an 8% reduction. So, you know, that's you're going to be looking at close to, you know, a 28% to 30% reduction if you claim at 62. Why do most people claim at 62, Erin? Because they're listening to bad advice, right?

Social Security's going to go bankrupt, get it while the getting's good, or they just want that monthly paycheck. They're making more emotionally charged decisions, in my experience. The software, one time we've talked about this in past videos, one time in 12 years have I, based on the numbers of the top Social Security planning softwares, have we told a client to claim early, and that was based on a spousal situation and income. So, do not take that money early. And there's a lot of benefit to not doing that, right? You know, taxes can come into it, increased income, and what we'll talk about here in a little bit, increased survivorship income.

So, my rule of thumb, generally speaking, right, and again, Social Security depends a lot on your financial and your health situation. But generally speaking, I tell people try to at least get to full retirement age. From there, then you can really decide if you want the boost to your income.

You mentioned survivor benefits. I'm glad you brought that up because figuring out the most optimal time to claim Social Security is one thing, but if you are married, that calculation becomes even more important. Can you explain why, if you're married, this decision is—you really need to spend your time and be thoughtful about it?

Yes. Simply put, because when you're married and you now become a widow, one of those benefits goes away. So, to be able to maximize the income for the surviving spouse becomes huge.

And again, we talk a lot in our other videos about the widow tax and the tax situation for widows, right? You get to file married filing jointly in the year of your spouse's death, but after that, you're a single filer for Medicare, ordinary taxes, and your tax rates typically, you can see, have a dramatic increase.

So, we have to remember that for every dollar of IRA money you take out, 100% of that dollar is taxable. However, if you're in the highest provisional tax bracket, which formulates the taxation of Social Security, at its worst, 85 cents for every dollar is subject to taxation. So, that's really important, right?

You're taking out a dollar of Social Security, you're being taxed on 85 cents of that dollar. So, if we're looking at an apples-to-apples comparison, the Social Security income also has a tax benefit. So, you know, and then there's other tax—building the bridge of spending down from your IRA could help with future taxation for required minimum distributions and even survivorship taxation. So, a lot goes into it, a lot of moving parts.

Absolutely. Now, and I'm glad you brought up so many people who do claim at 62. I mean, there's a reason it's called panic claiming. Generally, it's people who do it without having a strategy behind it. But when this is one of our only guaranteed sources of income in retirement, you want to make the best choice. So, I know this is what you specialize in, John. If somebody would like to sit down with you, talk about claiming Social Security and retirement income and how it all fits together, what's the best way to reach you?

Yeah, visit our website, www.gosecurus.com. We have tons of Social Security videos. It's one of the best videos that is one of the most watched videos in our library. And while you're pulling up those videos, it's going to take you to YouTube, subscribe and like our channel because we are starting to put out more and more content that's not always going to be sent out to our email subscribers. So, you want to be able to see all of our videos. And when you're done looking at those videos, you can go over to the "Contact Us" tab, and if you have any general questions, you can schedule a 20-minute phone call where we'll go ahead and answer those questions for you. And if you want us to guide your retirement, you can go ahead and schedule a complimentary vision and clarity consultation.

Great. John, thank you so much for your time today. I appreciate it.

Thank you, Erin.