Don’t Miss Out On Social Security Benefits And Tax Advantages During Retirement

Mark Elliot: Glad you’re with us today for The Retirement Income Show with Troy Sharp, the CEO and founder of Oak Harvest Financial Group. Again, you can always go to the website to find out more oakharvestfinancialgroup.com, office located at 920 Memorial City way right off I-10 in Bunker Hill. We always encourage you to go to the YouTube channel, check out the 200 plus videos that Troy and the team have there for you.

Financial Social Security, retirement questions, there’s a lot of answers on the YouTube channel. You have questions? You might be able to find the exact topic that you’re concerned about just by searching Troy Sharp and Oak Harvest. If you have questions, you just want to talk with the team, you want to come in and sit down and start planning your retirement, 800-822-6434, no cost for this. The team doesn’t even know if they can help you, so they’re not going to charge you for this. They’re here to help, but you need to reach out 800-822-6434.

All right, you’re talking Social Security and taxes. I’m 62, and Troy Sharp said, “No, Mark, you don’t have enough money. You need to let that Social Security grow. You’re not going to start it at 62, which is what I hit last November of 2021.” We used to talk about year 66 is your full retirement age for Social Security.

If you take it at 62, it’s a 25% reduction from that full retirement age of 66. Well, now everybody that’s turning 62 this year falls under the 67 as their full retirement age for Social Security. If somebody turns 62 this year and they go, “You know what? I’m going to start it because it might not be there longer I live,” it’s no longer a 25% reduction in your full retirement Social Security, it’s now a 30% reduction. Do people realize that?
Troy Sharpe: 30%, that’s a big reduction and it’s not just 30% one year, that’s every year, you’re getting 30% less income from Social Security. If your spouse did not work, there’s a 50% reduction already due to the spousal benefit rules, but if the spouse takes Social Security early, it’s then reduced roughly another 30% as well. That’s essentially a massive reduction in Social Security benefits.

The flip side of that is because, full retirement age now, for many people who are younger than 63 is age 67. That’s the full retirement age. There’s only three years that you can defer it before you reach age 70. When you were 66, you had to defer it for four years, but you also get an 8% simple interest increase every year. It’s a guaranteed 8% simple interest. From 67 to 70, your Social Security benefit could increase another 24%.
That’s an annual income that will be deposited every single month. No, I’m not worried about Social Security being insolvent and you not getting your Social Security check. Maybe if you have X amount of assets, if you’re in that $5, $10, $15 million range, I could possibly see some type of progressive push towards means-testing either based on assets or income to reduce Social Security Benefits for those evil wealthy people.
Other than that, I’m not concerned about Social Security going away, so just keep that in mind, a 24% increase up till age 70 from your age 67 benefit. You’re right, a 30% reduction if you take it at 62.
Mark: That’s a big one. Now here’s the other one. You’re talking about, you’ve got $100,000 in income because you waited till 70. Both were pretty good income earners during their working years. They could actually end up with $100,000 with the cost of living adjustments and so forth at 73, 74,75, be over $100,000 in Social Security and you’re talking no taxes.

That’s a strategy, certainly, that you would have to sit down with you and your team to figure that out, but the numbers from Social Security say if you are single or head of household, that up to 50% taxable is on $25,000 a year in modified adjusted gross income up to 85% taxable at $34,000. If you’re married, filing jointly, up to 50%, taxable happens at $32,000 and up to 85% taxable at $44,000 modified adjusted gross income.
That’s way different than $100,000. To me, it’s surprising how low those numbers are where they can start taxing my Social Security.

Troy: Yes, good point. This is why I did the YouTube video. I’m going to go through is high level and answer your question because I know people are in their cars and driving and I don’t want to cause any crashes with going through boring tax law calculations on the radio here. High level, I do want to point out because that’s a very valid question, Troy. Let me repeat. I said, in the previous segment, I did a YouTube video where I showed husband and wife, so married in this scenario, could have $100,000 of only Social Security Income and pay zero taxes. Now, it’s different if you’re single. You’re never getting to $100,000 of Social Security income if you’re single because you’re just not going to happen.

Two checks, if you both defer to age 70, the maximum is somewhere around $4,000 per month. That’s $8,000 combined. Times 12 months is $96,000. You’re right at $100,000 a year in Social Security there if both spouses defer. The Social Security, if you Google how is Social Security taxed? You’ll read exactly what you just read and if you’re married filing jointly and have what they call modified adjusted gross income between $32,000 and $44,000, it says up to 85% of your benefit may be taxable. Two key words there ‘up to’ and ‘maybe taxable at that 85% threshold’.

This is why I did the video, and this is why I contrasted having just Social Security income and deferring it as part of an income and tax strategy versus what many people do just take it at 63 or 65 and then start taking IRA distributions or whatever the other income sources may be. When you start to introduce other sources of income, think about– what’s a good metaphor here?

Think of it as maybe a magnet. Ultimately, other income draws more of your Social Security into being taxed. When you take $1 sometimes out of your retirement account, a Social Security dollar that was tax-free previously, all of a sudden, like a magnet, it pulls it into the income tax bracket. Now you’re paying tax on that Social Security where if you just left that money in the IRA, that Social Security benefit would’ve been tax-free.
There is a point we call the Social Security tax torpedo where you can maybe be in like the 15% effective rate, but that next dollar you pull out all of a sudden causes that Social Security benefit to be taxed. I think it goes up to 100% for a very, very small window of dollars there.

Let me keep this high level. A couple of things. Social Security, the way it’s taxed is based on what we call provisional income. If you have $60,000 of Social Security income, they only count one-half of that $30,000 towards the calculation. Then you’re in that threshold. Let me increase that so I can put this into the Social Security thresholds. Let’s say you had $70,000 of Social Security income and nothing else. That’s $70,000. The provisional one-half of that is $35,000.

Now you’re in between that $32,000 to $44,000 bracket that you’ve just quoted right there, but it’s the excess above so you subtract that $35,000 from the $32,000 which gets you $3,000, but then also people forget about the standard deduction. If you’re married filing jointly, you have a standard deduction of around $24,000, or $25,000. It’s possibly higher depending on your age. Then you take that taxable part which is that threshold, you subtract out the standard deduction and you’re at zero taxable income. If we have other income, it changes the calculation entirely.

I go through an example on the YouTube video where I show $48,000, I believe, in Social Security income and then $50,000 withdrawal from the IRA. Roughly $100,000 of income as well, but that creates a tax liability of, I think it was $6,500, maybe $7,000. I go through the exact calculation. I just went through there for you in the YouTube video, we show it to you, we go through it, to convey now–
I guess the point I want to convey now and the most important part here is understand that Social Security through proper planning does have significant tax advantages, but most people never take advantage of them because their guy at firm X or firm Y or firm Z doesn’t understand these rules because they’re not retirement specialists and that’s just as simple as I can put it.

We do this every single day, helping people figure out, do you have enough? Can you retire? How do you pay less tax? Where do you take your income from? How does Social Security incorporate into that, and putting a plan together that focuses on managing risk, generating income, multiple streams of income, paying less tax, looking at healthcare, the estate plan, all of that, tying it together in one comprehensive plan. 1-800-822-6434, that’s the phone number to reach out to us if you want to have a conversation, if you want to have this analysis done for you and your family. Then you can always go to YouTube. I think the video’s titled Amazing Facts About Social Security taxation You Didn’t Know or something along those lines. Go to YouTube, search Oak Financial Group. Maybe type in that Amazing Facts You Didn’t Know About Social Security or just Google Oak Social Security.
You’ll probably find it there on the YouTube channels, but check it out. Lot of powerful information.

Mark: Obviously, you can call the team. If you want to sit down and talk about your situation, 800-822-6434, 800-822-6434. You spend a lot of time talking about the new Secure Act. That’s past the house in the Senate. You think there’ll be some compromises made, but there’s a lot of changes maybe headed our way. Will that be probably a topic of future YouTube videos, I would imagine?

Troy: Yes. The purpose of the YouTube channel is just to communicate to as many people as we possibly can. I encourage you to go to it and subscribe. There’s no cost. If you hit that little bell icon, I believe that creates notifications on your phone whenever we post a new video. There’s no cost, our job is to keep you more connected to your money. We do this through the YouTube channel by educating you, empowering you, whether you do this yourself, or you’re thinking about doing it yourself, or you actually just want to get to know us before you give us a call and come talk to us.

We want to keep it topical. Once the final piece of legislation passes, we’ll have a final video out going through the nuances to help you understand how it impacts you and your family, and then everything else. We did it on the coronavirus, we did it with what’s going on with Ukraine and Russia. It’s just a great way to have a common-sense approach to what’s going on in the world, along with various retirement planning, strategies, tax strategies, income strategies.

We’re trying to help you, whether you work with us or not, become more educated about retirement so you can make better decisions.
Mark: Hey, you also talked about Chris Perras. He’s your chief investment officer, the one that graduated Summa Cum Laude from Georgia Tech and has his MBA from Harvard. He’s got a lot of market information there, but Jessica also is going to come out with some YouTubes on women in retirement. When are those coming?

Troy: April, I believe is when. They should be coming out now. While you’re listening to the show, now they may even be out there. Time flies, man, geez. The Jessica’s, she’s going to kill it. She’s going to do a great job because she communicates. I think I have a decent ability to communicate complex retirement topics in a way that most people can understand. Man, she blows me out of the water when it comes to her ability to communicate some of these topics in a way that women understand, in a way that people who aren’t very financially savvy understand.

Chris Perras, now, if you think about Chris, he’s managed institutional money, highly successful, the number one mutual fund in the country, the number two fund over both three and five years, Harvard MBA. He puts out our chief investment officer, stock talk videos and in market videos, which you, if you haven’t seen them, you got to check them out, but she’s going to do a series called, This is What He Said or That’s What He said, where she’s going to play a clip of Chris saying something and then she’s going to stop it and then actually communicate what in the world that just meant and how it affects you and your retirement.
Cool stuff. Go to the YouTube channel search Oak Harvest, subscribe to the channel, no cost. Let us help keep you more connected to your money.

Mark: Absolutely. You can always call the team as well, 800-822-6434. Enjoy the rest of the weekend, have a great week. Troy and I’ll be back next week with more of the Retirement Income Show.
Troy: Thanks, Mark.

Mark: Investment advisory services offered through Oak Harvests Financial Group LLC. Oak Harvest Financial Group is an independent financial services firm that helps people create retirement strategies using a variety of insurance and investment products. Investing involves risk, including the loss of principal, any references to protection benefits, or lifetime income generally referred to fixed insurance products, never securities or investment products.

Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Oak Financial Group LLC is not permitted to offer and no statement made during this show shall constitute tax or legal advice. You should speak to a qualified professional before making any decisions about your personal situation. We’re not affiliated with the US government or any governmental agency. This radio show is a paid placement.