The Truths About Social Security Part II

When should you claim your Social Security benefits? What do benefits look like for teachers who contribute to Teacher Retirement Systems? What is the survivor step-up strategy? In this episode of Retirement Made Easy, we’ll dive into some of the more complex areas of Social Security that people need to know about but are rarely told. 

You will want to hear this episode if you are interested in…

  • [1:48] Check out our website for some FREE resources
  • [2:27] Should you claim sooner or later?
  • [6:19] The way Social Security is taxed
  • [8:51] The GPO or WEP rules for survivor benefits
  • [12:17] The survivor step-up strategy
  • [19:34] Cost-of-living adjustments
  • [24:03] How the spousal benefit works

The way Social Security is taxed

Up to 85% of your Social Security benefits are subject to Federal Income tax. At least 15% of your Social Security benefit will be tax-free. It may be more depending on your provisional income. If half of your combined social security for the year plus your modified adjusted gross income is over $44,000, 85% of your check is taxed. This provision was created 40 years ago and has never been adjusted for inflation. There is a way to strategically pay less. HSA and Roth IRA withdrawals are not included in the taxable income calculation.

The GPO or WEP rules 

There are teachers under Teacher Retirement Systems who do not pay into Social Security in 13 different states. Because of The Government Pension Offset (GPO) or Windfall Elimination Provision (WEP), many retired teachers who are receiving a teacher’s retirement pension may not be entitled to their entire spousal benefit.

I had a client whose husband waited to claim his benefit until he was 70 so if something happened to him, his wife would have a large spousal benefit. Unfortunately, if something does happen to him, her survivor benefit will be greatly reduced because she’s receiving a Teacher’s Retirement Pension. 

If there were any years you weren’t paying into social security you need to be aware of how these provisions impact you.

The survivor step-up strategy

If one spouse passes away, what happens to their benefit? If the higher-income earning spouse passes away and the surviving spouse is at full retirement age, it will get stepped up to the benefit that the deceased spouse was receiving. That’s only if they’re at full retirement age or older.

I make sure people have life insurance in place until they reach age 60 because the survivor benefit doesn’t kick in until then. The wife can wait to claim the survivor benefit until full retirement age so it will grow. She could also take the reduced benefit until she turns 70 and then claim her own benefit that should have been growing. 

According to, “Widows Move Forward on Their Own – But Not Alone,” 80% of men die married. 80% of women die single. 50% of women who are widowed after age 65 will outlive their husbands by 15 years. 36.5% of these women get 90% of their income from Social Security. Maximizing the Social Security check could transform their lives.

Cost-of-living adjustments

Your Social Security check is indexed with inflation. Let’s say your full benefit at full retirement age is $1,000. If you claimed benefits at 62, you’d only receive $700. If you waited to claim benefits until 70, the benefit would be $1,240. That’s a 76% increase. 

Secondly, they adjust Social Security benefits with inflation. Let’s say inflation is out of control at 10%. They should hypothetically adjust your benefit check by 10%. We don’t know how much the cost-of-living adjustment will be throughout your retirement. 

What else needs to be taken into consideration? Listen to learn the ins and outs of Social Security.

 

Resources & People Mentioned

Connect With Gregg Gonzalez

Subscribe to Retirement Made Easy
On Apple Podcasts, Spotify, Google Podcasts

Connect With Gregg Gonzalez

Subscribe to Retirement Made Easy