Episode 41: How to make smart Social Security decisions

Oscarlyn Elder: Nobody wants to leave money on the table. And yet, when it comes to Social Security, misunderstanding the rules or relying on incomplete advice can mean missing out on benefits that may be important to you or your loved ones. Today, we're going to help you avoid that situation. I'm Oscarlyn Elder, Head of Investment Management at Truist Wealth. And this is I've Been Meaning to Do That, a podcast from Truist Wealth, a purpose-driven financial services organization. We appreciate you listening.

Today, we're welcoming back to the podcast my colleague, Tony Bryan, a wealth and planning strategist here at Truist. Tony has detailed knowledge when it comes to navigating the complicated world of Social Security. He's helped clients demystify Social Security myths over the years. Tony, thanks for being here. It's great to have you back.

Tony Bryan: Great to be back. Thanks for having me.

Oscarlyn Elder: Well, Tony, let's jump in. There's one widespread belief about Social Security that I think we should tackle right away, and that's the belief that it's going bankrupt. That belief might really be discouraging people from even engaging with this topic at all if they think that the system won't be around for them. Is Social Security going bankrupt?

Tony Bryan: I get some version of this question all the time, and honestly, I get why, but let's clear this up right out of the gate. No, Social Security is not going bankrupt. That word gets thrown around way too loosely. Even if the trust fund runs dry sometime around 2032 or 2033, and that's assuming Congress just shrugs and does absolutely nothing, payroll taxes don't suddenly evaporate into thin air. People will still be working, money will still be coming in, and Social Security will still be able to pay about 75 to 80% of benefits. The checks don't stop. Nobody flips a switch and turns Social Security off.

Now, I hear people say, “Tony, I'm filing at 62 just to get something before it goes bankrupt.” And every time I hear that, I cringe a little. Filing at 62 locks in roughly a 30% permanent haircut on your benefit. Permanent, as in forever. So, if benefits were ever reduced down the road, congratulations, you've just combined a hypothetical future cut with a guaranteed self-inflicted one. That's not exactly what I'd call a savvy strategy.

And just to be clear, filing at 62 can make total sense in the right situation. There are plenty of good, legitimate reasons to do it. Fear just shouldn't be one of them. Social Security decisions shouldn't be made in a panic or based on headlines. It should be part of a bigger, well-thought-out retirement income plan.

Oscarlyn Elder: That's really well said, Tony. We want folks to be strategic and proactive and not in a situation of being reactive to limited information. Let's continue on and talk about, in our practice here at Truist Wealth, it's not unusual for us to be working with clients of significant wealth.

And often for those clients, Social Security is usually a relatively small portion of their expected future income or cash flows. But we also know that claiming Social Security benefits is a priority to-do item for our clients. Everyone has paid their taxes in over the years. So Tony, what have you experienced in working with our clients and how they are thinking about and approaching Social Security?

Tony Bryan: Early in my career, I was doing comprehensive planning for a very wealthy client. And I'll be honest. I was way too casual about when he and his wife should file for Social Security. I was basically treating it like, "Eh, it's Social Security, you'll be fine." At one point, he literally puts his finger in my face and says, "Just because I'm wealthy doesn't mean I don't care about Social Security."

And in that moment, I knew I had chosen very poorly. That comment stuck with me, and I have never made that mistake again, because what I've learned since then is that many, not all, of course, but many high-net-worth families don't think of Social Security just as income. They think of it as insurance, longevity insurance, survivor insurance. The real risk for most affluent families isn't claiming too early or too late. It's acting like Social Security doesn't matter at all.

Oscarlyn Elder: It's interesting your observation that often for individuals or couples of wealth, Social Security plays a different role in the financial plan than it may for other folks. Are there any additional observations that you have around that? I'm interested in the uniqueness about how they may view it as part of their longevity planning. We've talked about longevity planning several times on the podcast.

Tony Bryan: A lot of times it depends on the goals they have for their Social Security. Sometimes their main goal is strictly creating the highest survivor benefit possible for their spouse. So, they'll wait as long as possible to file, so they'll delay it till 70. Other times, it's they want to make sure they coordinate their claiming strategy with their total retirement income plan. So, it could be different things, but having a plan is the optimal thing.

Oscarlyn Elder: And Tony, a lot of people default to asking the Social Security Administration agent what they should do, assuming that they are the experts. From your perspective, is that a reasonable strategy?

Tony Bryan: No, this is not a good strategy. I see this frequently, especially with survivor benefits when clients get incorrect information from the Social Security Administration. And look, there are a lot of really good people who work at the Social Security Administration. This isn't a knock on them, but they are not financial planners. They are not trained to, nor are they allowed to strategize with you.

So, what often happens is they give clients half the story, and unfortunately, half the story is usually the half that costs people thousands or tens of thousands of dollars in lost benefits. That's why my rule is simple. Do not treat anything a Social Security agent tells you as gospel. Run it by your advisor first.

Oscarlyn Elder: Tony, that's very helpful perspective. We want folks to understand that the Social Security agents have a limited scope of work, and that does not include providing customized financial planning advice. So, it's really important that folks pull together their advisor team, their team of trained professionals to help them with the tax, and financial planning decisions that they need to make to optimize Social Security for their own situation.

Tony Bryan: Absolutely.

Oscarlyn Elder: I'd like to take a second, and let's go over some language for folks. You just mentioned the words survivor's benefits. Can you explain to us what you mean by that? Assume we don't know anything about Social Security.

Tony Bryan: Sure. So, a survivor benefit is when you are married and your spouse has passed away, or it could be you were married for 10 years and divorced, and you are not remarried, or you were remarried after age 60. That would make you eligible for a survivor benefit as well. And that is a much higher benefit than, say, a spousal benefit. So, it's much, much different and much higher.

Oscarlyn Elder: So, help us also understand just the term spousal benefits. What does that mean? How should folks think about that specifically at a high level?

Tony Bryan: So, a spousal benefit, the most that it can be is 50% of the higher earning spouse's full retirement age amount. So, if you have a married couple and the higher earning spouses, let's say their full retirement age amount is $3,000 at their full retirement age, then the most the spousal benefit can be is $1,500 a month. That's the most.

And then as I mentioned, the survivor benefit, let's say that higher earning spouse passes away, then the low earning spouse can bump up to that $3,000. The survivor benefit can bump up to 100% of that higher earning spouse's, either the full retirement age amount or whatever amount they were eligible to collect.

Oscarlyn Elder: Let me ask you this question, because you were just talking about Social Security agents who are doing a critically important job. They're not allowed to give strategic advice. They're not financial planners.

Part of the risk, it seems, is that what a person is told at one point by a Social Security agent may actually change later because the laws or the rules may change. Have you ever seen that happen?

Tony Bryan: Yes. I'll give you a really, really good example of this, and it just happened recently. It's something called the Government Pension Offset, or the GPO. And for years, this rule affected government workers who earned a pension from a job that didn't pay into Social Security, but who also qualified for spousal or survivor Social Security benefits. And here's the important part. That rule was repealed in 2024 with the Social Security Fairness Act.

Now, I'll try not to get too far into the weeds. I could talk about this for an hour, but I won't. In a nutshell, I've spoken with many widows and widowers over the years who were told they were not eligible for benefits because of this rule. And very often, they were told that for the wrong reasons. What's heartbreaking is that now with this rule gone, many of those same people still don't know they are eligible. And that can mean thousands and thousands of dollars in Social Security benefits that are simply going unclaimed. And honestly, it is very, very sad.

Oscarlyn Elder: So, if someone is listening today and either themselves or a loved one and their family might be in this situation, let's define the situation clearly and the call to action that you would encourage them to take.

Tony Bryan: Sure. I would say if you know somebody or if you are somebody that worked for the government, you didn't pay into Social Security, you're getting a pension, or you're eligible to get a pension and you have a spouse that did pay into Social Security, or you had a spouse that has passed away and you're not getting a survivor benefit because you think you're not eligible to get one because of that GPO rule, please call the Social Security Administration. Call them and talk to them about it. Or if you have a financial advisor, please talk to your financial advisor about this, because that rule has been repealed as of 2024, and you would be eligible for retroactive benefits as well.

Oscarlyn Elder: And we know there are lots of folks listening in who could be in this situation, so reach out to your advisor. It's important that you take action and investigate whether or not this could apply to you.

So Tony, we have myth busted for a few minutes together and we've gotten off to a quick start. So, when we come back in a minute, let's talk about how to think strategically about Social Security benefits.

Tony, we've established that Social Security matters to everyone who has retired or plans to retire, even if they have assets to rely on for their income. You've brought up that there's confusion that can surround survivor benefits.

I'm sure that gets even more complicated when you add in factors like blended families or one spouse earning much more than the other spouse. What are affluent families often overlooking in these situations?

Tony Bryan: That's a great question. In my experience, one of the biggest things that I've seen affluent individuals miss when it comes to Social Security are benefits tied to prior marriages, especially when a former spouse has passed away. This happens a lot with widows or widowers who was the higher earner and remarried after age 60.

Most of the time, they're not even thinking about a survivor benefit from a deceased lower earning spouse, but they might be eligible for one. And here's the fun part. They could potentially collect that survivor benefit while letting their own benefit continue to grow. That's basically getting paid to wait, which by the way, is my favorite kind of waiting.

I also see this with people who were married for at least 10 years, later divorced, and either never remarried or remarried after age 60, where the ex-spouse has since passed away. And let's be honest, how many people wake up in the morning thinking, "Gosh, I wonder if my ex left me a Social Security survivor benefit today?"

Probably not many. For emotional reasons, totally fair. But that's exactly why it gets missed, and that's why it's incredibly common for people in these situations to unknowingly leave tens of thousands of dollars in Social Security benefits on the table.

Oscarlyn Elder: For a person who believes they may fit into one of these categories, help me understand what they need to do.

Tony Bryan: I would say it would be best to make an appointment first with the Social Security Administration, either over the phone or with their local Social Security office, and they're going to have to have some documentation that's going to prove that they were married to this individual. If they were divorced, they're going to have to have a divorce decree.

And I think it's definitely worth it, because potentially, you can get retroactive benefits up to six months. So, you could walk out of there potentially with, I would say, 20 plus thousand dollars coming in a lump sum and then potentially 3,000 plus a month ongoing. So, it's definitely worthwhile.

Usually, if there's children involved, I'll ask the client, I'll say, "If something happens to them, are you going to know about it?" And sometimes they'll say, "Yes, we have children, so I'll know." If I get the answer, "I don't know if they're alive or not," and, "I may know or I may not know," I say, "Well, look, don't stalk them, but try your best to keep tabs on them, because if something does happen, then in regards to Social Security benefits, that would be a game changer for the client."

Oscarlyn Elder: Just like most things pertaining to money and finances and wealth, taxes play a role here. We won't get into any specific tax advice today, Tony, but people should talk to their qualified tax advisor about their own situation. But what we know is that coordinating that tax planning with your Social Security strategy has to be important. How do you think about it?

Tony Bryan: Yes, it's very important. And now, this is a quick disclaimer. This is not tax advice. I like to call it tax awareness. Here's the key point. Once you start collecting Social Security, up to 85% of your benefits may be subject to tax. And the reason this catches so many people is the income thresholds used in the calculation haven't been indexed for inflation ever. So, more retirees get pulled into it over time.

And just to be clear, the tax law on Social Security benefits has not changed. Benefits can still be taxable. Now, you may have heard about the One Big Beautiful Bill Act. It did create an additional deduction of $6,000 for individuals or 12,000 for married couples if you're 65 or older, and there's income limits, if you're within those income limits, but that deduction is not specifically tied to Social Security. It's separate and it expires in 2028.

And then let me make one last point here, and this one's really important. There's a crucial window of time that doesn't really get talked about nearly enough. It's the period after someone retires, but before they reach RMD or required minimum distribution age. And if there's one thing I'd strongly recommend and it's this, use this time wisely because you only get this window one time.

During these years, you're coordinating your Social Security claiming strategy, your overall retirement income plan, and your tax strategy. They're all working together. This is also a time that you may be able to mitigate some future tax risk. You may be thinking about doing some strategic Roth conversions, some qualified charitable contributions, maybe some tax loss harvesting, and other planning strategies you can explore with your tax advisor.

The key point I want to make is once this window closes, you don't get it back, so don't let it pass you by, be intentional because it affects so many things. It affects their Medicare premiums also, so that's why I bring it up. In the time before RMD age, even before Medicare hits, it's a great time to start working through this.

Oscarlyn Elder: So, you're talking about before age 65?

Tony Bryan: If possible.

Oscarlyn Elder: If possible. Perhaps best practice is to at least start understanding your Social Security statement, maybe in your mid 50s, but certainly as you approach 60, it is important that you start to understand Medicare and implications there when you turn 65.

So, there's this window where being very strategic about your buckets, and understanding Social Security, understanding what flexibility you might have with your qualified accounts, so 401ks, as well as traditional IRAs, what might be the benefit of converting those qualified assets into a Roth bucket, through a Roth conversion. That's what you're wanting folks to make sure that they're exploring as they're in these magic years, if you will?

Tony Bryan: Right. If they do convert some of that qualified money to Roth, then they won't be required to take a required minimum distribution on that money when they do turn 73, and so their tax bill won't be as high.

And you said the perfect word, you said flexibility. So, as they age, as they get closer to that required minimum distribution age, as they get closer to that age 73, flexibility starts to diminish. And so, that's why this time period is so important.

Oscarlyn Elder: There are enough decision points around Social Security that I'm sure mistakes can happen, that someone will make a non-optimal decision about one of these questions that we've talked about today. Are there ever any do-overs, or if you make a choice at some point, are you completely locked in for the future?

Tony Bryan: There are do-overs, and to be exact, there are two, actually. The first one is called a withdrawal of application, and let's be honest, it's not exactly a catchy name. Here's how that one works. It can only be done within 12 months of when you first filed, and you only get to do it once.

You fill out the withdrawal form, send it into the Social Security Administration, and then here's the important part. You pay back any benefits you've already received. Once that's done, it's like you never filed in the first place, clean slate.

Oscarlyn Elder: So, let me ask a question. So if for some reason someone turns age 67 and they file for their benefits, and they find out in that year that their cash flows were actually better than they expected without Social Security, and they now understand and have the confidence that perhaps they can make it to age 70 without filing, without needing Social Security, you're saying that there is a 12-month window where they can put in this withdrawal of application, payback the benefits they've received, and it is as if they never filed at age 67. Am I understanding that?

Tony Bryan: Yes. You are understanding correctly, but you have actually presented me with a scenario where I think the second do over would be better. So, the second do-over is called a voluntary suspension, and this one can only happen when you reach full retirement age. Let's say someone's been collecting benefits for more than a year and they decide, “You know what? I'd actually like a higher check.”

Once they hit full retirement age, they can simply call the SSA, and yes, it's just a phone call, believe it or not, and tell them that they want to voluntarily suspend their benefit. At that point, the checks stop and their benefit starts earning delayed retirement credits, and that amounts to two-thirds of 1% per month. So, in other words, their benefit is going up by this amount every month they delay. Now, one important thing to keep in mind, any benefits tied to that benefit, like a spousal benefit that's being paid off of that benefit, that would also be suspended.

Oscarlyn Elder: Ah, okay.

Tony Bryan: Okay. Now, if they never call back to turn it on, which I have had a client do that, forget to call back to turn it on, it's okay because the Social Security Administration will automatically restart it at age 70. So, even if the original claiming decision wasn't perfect, there still is room to adjust as long as you know the rules.

So Oscarlyn, in your scenario, at 67, you could call the Social Security Administration and do a voluntary suspend instead of doing the withdrawal of application, and then you wouldn't have to pay back any benefits that you'd already received.

Oscarlyn Elder: So, when have you seen people put in your first do-over? The withdrawal of application, give us an example, help us understand when the withdrawal of application might be appropriate.

Tony Bryan: So, when COVID hit, there were a lot of clients that filed for Social Security because they lost their jobs and they went into crisis. And so, a lot of them filed, but then they went back to work. A lot of them went back to work within 12 months.

And so, I had talked to several clients who would speak to me and said, "Is there anything I can do? Can I turn off Social Security?" Well, they were under full retirement age, so they can't do the voluntary suspend, but they could do the withdrawal of application if it was within 12 months. And so, for a lot of them, it was. And so, that's what they did.

Oscarlyn Elder: And Tony, a number of our clients are business owners. Let's take a moment and talk about business owners specifically. We know that advice really does need to be specific to the client and to the situation, but if we have business owners listening, or spouses of business owners, what might be the one or two items that you would call their attention to that could be unique for them, perhaps?

Tony Bryan: I get a lot of questions from business owners that want to put their spouse on the payroll to give them a Social Security benefit or increase their Social Security benefit. And without going into detail or we're not giving out tax advice, which is tax awareness, but it is so expensive to do that. And the benefit that they get out of doing that, or the Social Security benefit they would get out of doing that, is so minimal.

I would say not in all cases, but in most cases, it doesn't make sense to do that because the spouse still gets... They're still eligible for that spousal benefit, up to 50% of the higher earning spouse's full retirement age amount. And so putting them on the payroll and paying all those payroll taxes just to try to get them eligible for their own Social Security benefit just doesn't make sense.

Oscarlyn Elder: I think that's helpful insight for folks. Hopefully if we have someone listening who is exploring different scenarios, your insight there would be look harder at that decision, make sure you have the numbers, because often it may not be a cost-effective route to go.

Well, this really goes to show how important getting the right advice about your situation is. We'll wrap up with some thoughts about that in just a moment. Tony, you've worked with so many retirees and pre-retirees on all of these questions about Social Security. What's the biggest mistake that you see people make?

Tony Bryan: One of the biggest mistakes I see with Social Security is that people really don't think through their claiming decision, and it could show up in a lot of different ways. Believe it or not, I've seen couples that they've never really sat down and talked about when each person wants to claim, or they really don't know how their decision's going to affect each other. In other cases, they may have an adult child with a disability. That brings a whole different layer of rules into the picture.

The reality is, Social Security is more complicated than most people expect, and small decisions can have a meaningful impact over time. So, instead of making this choice in isolation, claiming should really be part of a broader conversation, one that looks at overall retirement income spending needs and long-term goals with an advisor, if possible. When you take that bigger picture approach, Social Security becomes a much more intentional and much more effective part of their retirement income plan.

Oscarlyn Elder: Tony, that was very powerful. I am taking in all that you've shared there, and the reality that decisions that may seem small to folks are actually quite important and can be complex. And what you're asking folks to do is be proactive, be in front of the decision, start thinking about it early, gathering advice from folks who truly know what they're talking about.

I think in our world today, there's lots of social media advice, and you have to be careful around that, but you really need to pull in your tax advisor, your financial advisor, people that you trust to be proactive in building the strategy and executing it. Don't make an impromptu decision on incomplete information.

Tony Bryan: Very well said.

Oscarlyn Elder: Tony, you have given us so much to think about. It's why I wanted you back on the podcast. You always give us great advice. And before we wrap up, as you know, because you've been on I've Been Meaning to Do That before, we have a tradition of asking our guest, what's the one thing that you've been meaning to do that you haven't done yet and that you're willing to commit to do now with our audience listening?

And I remember, I think your very first I've Been Meaning to Do That because you made me laugh that day, I think you made a comment about your nutrition was like that of a 10-year-old, and you really wanted to improve that part of your daily life.

Tony Bryan: Well, I was hoping you wouldn't remember that, but I can honestly say that I have been eating healthier. So, I have cut the weekly donuts from about 20 to maybe 5.

Oscarlyn Elder: That's fantastic.

Tony Bryan: So, it's gotten much better. And so, that's an improvement, and I'm hopefully cut it to 0 maybe in 10 years or so. I'm going to need some help with that. But what I've been meaning to do is something new, this is what I've been meaning to do, is sign up to be a volunteer. I found an organization. It's a nonprofit organization; it's called Wings for Widows.

It helps widows and widowers navigate all the financial complexities that they face when they lose a spouse. And you have to be a certified financial planner to do it. It's a really great organization, so I'm going to volunteer for that. And the time commitment is you have to do, I think, a minimum of 16 hours for the year, which I could definitely do. So, I'm going to sign up for that.

Oscarlyn Elder: Well, Tony, that sounds like perfect alignment with your experience and your know-how and your passion. Thank you for coming on the podcast today. Our hope is that the information that you've shared, the insight will touch people, and will move them to action to hopefully improve their situation. So, thank you again so much for being part of this very important conversation.

Tony Bryan: Well, thank you again for having me.

Oscarlyn Elder: And listeners, I want to thank you as well. If you liked this episode, please be sure to subscribe, rate, and review the podcast, and tell friends and family about it. I also invite you to listen to the new podcast from Truist Securities, Navigating Beyond the Expected at truist.com/beyondpodcast.

If you have a question for me or a suggestion for this podcast, email me at dothat@truist.com. I'll be back soon for another episode of I've Been Meaning to Do That, the podcast that gets you moving toward fulfilling your purpose and achieving your financial goals. Talk to you soon.

Speaker 3: Oscarlyn Elder is an investment advisor representative, Truist Advisory Services Incorporated. Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.