How are My Social Security Benefits Taxed? Your Tax Infested IRA!

Speaker: Welcome back to The Retirement Income Show with Troy Sharpe, the CEO and founder of Oak Harvest Financial located at I-10 in Bunker Hill. You can always go to the website to find out more oakharvestfinancialgroup.com. Great website, all about all the teams that Troy has created. They’ve added a lot of service to the team. There’s CPAs. There’s attorneys. There’s all kinds of things going on because retirement can get really complicated. You need the income strategy, investment strategies, tax-efficient strategies, healthcare, long-term care, legacy, and estate planning. What about Social Security? It’s in the income part. What about Medicare? It’s in the healthcare part.

It’s the Oak Harvest Retirement Process that Troy walks the clients through and remember, it is about you. You’re the CEO, it’s your retirement, your hopes, and dreams, your bucket list items, but Troy and the team look at them as your CFO, your chief financial officer to help guide you. You’re the pilot, they’re the copilot kind of a thing. 800-822-6434, if you’d like to talk with a team about any concerns that you may have. 800-822-6434, or you just want to have a plan. Hey, I think I’m doing okay. I think I’m going to be okay, but I don’t really know. What a great time to talk with the team at Oak Harvest. This is what they do, day in and day out. Again, you can always go to the YouTube channel, search for Troy Sharpe and Oak Harvest. Troy, I know you have some new videos out, taxation on Social Security, right?

Troy Sharpe: Yes, Social Security is a huge stream of retirement income, and for many people, it’s their only stream of retirement income. That’s simply a result of not saving enough to have multiple streams of income, which again, huge proponents of multiple streams of income. There is nothing more secure in retirement than knowing come heck or high water, next month you’re going to have X amount of dollars deposited into your account, and if that monthly, recurring paycheck meets all of your needs, man, that’s a secure feeling. Even if you have zero savings, but you have, let’s say 5,000 a month or 10,000 a month or whatever that number is, being deposited every single month, that’s a pretty secure feeling in retirement. I think a lot of people don’t consider how valuable that recurring income is later in life, for one reason or another. Maybe it’s because we’re younger and we just don’t look at it that way or society has molded us to think we need to have X amount of dollars in our retirement account.

The only reason you need that money in your retirement account is so you can provide yourself an income in retirement. There is no retirement without income, and that’s why this is called The Retirement Income Show. Social Security is a huge part of that, and one of the videos we did recently that had lot of great feedback, and for those of you who don’t know, we have a YouTube channel that I think we just crossed over 4 million views, I think maybe up to 4.5. I think it was 4.3 a few weeks ago. Let’s call it 4.5 million views on the YouTube channel. Many of those people are reaching out to us and becoming clients, but what I’m more proud about is the people that aren’t reaching out to us, that are taking that information and applying it to their own situation.

Whatever boat you may be in, if you’re a DIYer and you do it yourself, and we all know CPAs are great at taking what you earned last year or what’s your 1099, those documents you receive every January or February and putting them in the tax return to send to the IRS, but not many CPAs, and we’ve worked with dozens and dozens over the years, do the type of tax planning we do for clients in retirement. This is what our process is about. Investment planning, risk management, income planning, tax planning, healthcare and estate planning. That’s our process.

The video, what I did is I simply showed various levels of Social Security income, what the taxation for that Social Security income is, and then did a contrast where we had X amount of Social Security along with other sources of income, such as maybe real estate or a pension or IRA distributions. To boil it down, you could have over a $100,000. If it’s just Social Security income, you could have a $100,000 of income and yes, it is possible to have that much from Social Security, I’ll explain how in a second, and pay zero income taxes. Some of the comments said we were kidding. People were just confused as to how it’s possible, you could have a $100,000 of Social Security income and not pay any taxes. 80,000 of course, no taxes there as well.

The maximum Social Security check right now is around $3,100, $3,200 at your full retirement age, but your Social Security increases 8% per year up until age 70. You could have a Social Security check of around 4,000, 4,100, 4,200 at age 70 as your maximum benefit, somewhere in that range. The cost of living adjustment to Social Security, so if you start out, let’s say 4,000, 4,000, husband and wife, that’s 8,000 a month, that’s 96,000 a year. Then your cost of living adjustments over time is you get to be 72, 73, 74. You could easily, if both spouses worked and you don’t need 200,000 a year for 30 years to have the highest amount of Social Security income. Most people who worked a decent middle class job for 35 plus years, will qualify for darn near close to, if not at the very maximum in Social Security benefits.

At that point, once you’ve put the work in, it’s time to plan. Now, when someone comes to see us, for example, one of the things we’re going to do of course, is inventory the assets. We’re going to look at where the income is coming from, what the goals are. We call this the subjective and the objective data. The vision, how can we help you live your best life? Turn your assets into various streams of income that give you security, make sure you don’t run out. We call these the big questions. People come to see us because they want to know, “Hey, do I have enough? Can I retire? How long will my money last? If something happens to me, will my family be okay, and how do I pay less tax?” Those are the questions that we answer every single day here at Oak Harvest Financial Group.

Social Security is a big part of that. When we’re sitting down, and someone comes to see us, and we’re going through this analysis, and all of our advisors do this, they’re all trained. They understand the importance of planning. When we recruit advisors from these other firms, it takes sometimes five, six, seven months for them to simply learn everything that we do here that they didn’t do with their other firm. They’re mind blown a lot of times just because they had no idea how much they had been missing out on the planning side at their previous firm and how much value they actually weren’t providing because their firm either wouldn’t allow them to, or they just simply didn’t implement those planning techniques.

When we have this conversation, we start to do income mapping, we do asset mapping, we’re looking at all of these things, we extrapolate out into the future. We’re trying to essentially answer those big questions for you, but most people who come to see us, it’s about optimizing. It’s not about maximizing, it’s about optimizing. If you have 800,000 saved for retirement, you’re probably not going to have $2 million when you die, unless you just simply don’t spend anything and all you need is an investment plan. One of the cool things about Social Security is the tax advantage nature of it. For a lot of people, we’ll build income plans where we’re getting money out of that tax-infested retirement account so we don’t have a huge tax problem come required, minimum distribution time, but we’re providing enough security today to live comfortably, to meet the goals.

A lot of times, we’ll do what we call a GoGo income plan, where we’re spending more in the first 5 years or 10 years with the intention of tapering that back when we’re a little less healthy, or maybe a little older. We’ll have this conversation with you and show you the tax benefit of deferring Social Security. A lot of times people come see us and they say, “Troy, I’m 63, I’m retiring, I’m taking Social Security.” Then once we go through the analysis, and we look at various tax scenarios, we look at various income scenarios, and we look at what provides the most security, a lot of times they leave saying, “You know what, I think we definitely want to defer Social Security until at least 66, 67, 68, maybe all the way till 70.”

A lot of times what I’ll do is, the husband sometimes will be adamant, “Okay, I’ve worked, I deserve this money, it may not be there when I’m gone. I may drop dead tomorrow,” and I get it, those are valid emotions. Once we go through the various income and tax planning scenarios, and then we say, “Okay, look, if we defer, and we implement this tax planning strategy over the next five years because if we defer Social Security, we have less income now,” so that gives us more room to do Roth conversions. When we go through this, and we say, “If you do it your way, this is what your income will look like today and in 15 years, estimates, of course, and this is what your tax will look like. Okay, what if taxes are higher? This is what it will look like, but then if you consider the way we do it, the way we’re recommending you do it, this is what your income will look like today, your taxes today, but here’s what your income and taxes will look like in 10 years, in 15 years, in 20 years,” and that’s an eye-opener.

A lot of times, what we’ll do is we’ll just simply ask the wife how she feels, so we require your wife to be part of the process here. If your wife is not going to be part of the process, simply don’t call us because 80% of the men in this country pass away before their wife does, so eventually, we’re going to be her primary advisor, so we have to have that relationship and she has to approve of us. It’s our rule here. We’ll look over and we say, “Well, how does that make you feel?” Then she says, “Troy, I love it because I know if I have $10,000 a month, and I’m paying zero taxes, I know I’m in a pretty good situation. I could live comfortably on that.”

We don’t tell you what to do. What we do, our job is to use our resources, our experience, our skill, our expertise, to do this planning, to show you the contrast of doing it, what we call, the conventional wisdom way, which is probably if you’re not working with us, how most of you are doing it or, if you’re younger and not retired, probably how you will end up doing it versus how we help people plan for retirement. The difference is, most of the time, 85% to 90%, there could not be a more stark contrast between the old, I don’t know what was it, Robert Frost, the two forks in the road, you have to choose which direction you’re going to go. While most of the industry is telling you to go down this road to the left, for years and years, we’ve been telling people to go down this road to the right, and then we mathematically show you why that gives you more income, why that put you in a position to pay less tax.
Go to YouTube, watch the videos, we put them out there. You don’t have to even give us a call and sit down for a consultation right now. If you want to do this yourself, go for it. I don’t advise it, simply because it is tremendously complex and it’s a dynamic, fluid environment where laws are changing and planning techniques evolve, but if that’s you, and that’s who you are, that’s what the YouTube channel is for but if this lightbulb moment is starting to come on, and you say, “Hey, you know what, maybe I could use some professional guidance and expertise here,” give us a call. The phone number is 1-800-822-6434, but even you, if you want our help, I encourage you to go to the YouTube channel first, take your time, get to know us.

If you’re ready to sit down and start to be proactive about your planning, give us a call. Let’s have a conversation. You’re going to leave a message. We’ll call you back on Monday and we’re just going to get to know you and see if we’re a good fit for each other, and if so, Frank, who’s been with me for over 10 years, I think almost 12 years now, is going to set an appointment to talk with one of our retirement specialists. 1-800-822-6434, Oak Harvest Financial Group, go to YouTube, search it, learn on your own time.

Speaker: Oak Harvest Investment Services is a registered, investment advisory firm. Troy Sharpe is an investment advisor representative and insurance professional. Investing involves risk, including the potential loss of principal.