When to Start Drawing from Social Security

"I'm 52 and looking to retire in the next 5ish years. My wife is 61, but I'm the higher earner. What should we think about on when to draw Social Security for each of us?" We'll walk you through that question and more in today's Q&A episode! Jump start your journey with our FREE financial resources Reach your goals faster with our products Take the relationship to the next level: become a client Subscribe on YouTube for early access and go beyond the podcast Connect with us on social media for more content Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life. Learn more about your ad choices. Visit megaphone.fm/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Welcome to the 50th Hunger Games.

• 0:01Speaker 01

  Witness the beginning of the revolution.

• 0:04Speaker 02

  Hey Mitch, you've been trying to take down these games from the start.

• 0:07Speaker 01

  Filmed for IMAX.

• 0:08Speaker 02

  Make them remember you.

• 0:11Speaker 01

  The Hunger Games: Sunrise on the Reaping, November 20th, rated PG-13.

• 0:15Speaker 03

  LinkedIn is pretty amazing at helping you grow your small business. We cannot stop your new clients from emailing you at 3 a.m.

• 0:24Speaker 03

  We can help you sell, market, and hire in one place. We cannot help you be in three places at once.

• 0:32Speaker 03

  And while we can't help you organize your calendar, LinkedIn can help you land more clients so you have a calendar to organize. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness.

• 0:51Speaker 04

  All right, this one is from Aaron H. Aaron said- Is that two As? Uh, yes, two As, A-Aron. Uh, said, "Most brokerages provide SIPC insurance up to $500,000. When your account exceeds that, should anything over $500,000 be moved to another brokerage firm?" And I think a lot of people have this- No. Okay, great, yep, no, next question. If you would like to- Yeah, I'll let you tell. Why is the answer no? So a lot of people have this question, because we know that FDIC insurance covers cash deposits, like what you have in a checking account or savings account, up to $250,000 for individuals, or $500,000 for households or for couples.

• 1:36Speaker 04

  Well, when it comes to investment assets, not cash assets, there's a different type of coverage that exists, and that's called SIPC coverage. It's different than FDIC, which covers cash, but this now covers brokerage assets, if the broker that you're using or the company you're using were to become insolvent. But those limits also go up to $500,000. Well, you can imagine, as you're saving and investing, as you're trying to build to $750,000, a million, $2 million, $3 million, $5 million, there's a really good chance that you're gonna have accounts, maybe even multiple accounts- That exceed that $500,000 threshold. So as an investor, Brian, how can someone have confidence

• 2:16Speaker 04

  knowing they don't have to go open 15 different accounts in order to house all of their retirement portfolio in less than half a million dollar chunks?

• 2:25Brian Preston?

  And look, don't skip out on doing your own homework on this, but most of the custodians, the big ones, if you think about, I know this is the case with both Fidelity and Charles Schwab. I'm sure it's that way with Vanguard, but just go do the research because I don't think I've ever gone and actually looked it up for Vanguard. But Fidelity has what's called excess insurance. They go and buy an additional policy. And if you go read the disclosure, it's actually pretty interesting to read. Like they even take your cash protection. I think it's a million or so.

• 2:52Speaker 04

  Something like that, right?

• 2:53Brian Preston?

  They take, and then it's limitless, or maybe is it 10 million?

• 2:58Speaker 04

  I think it's a billion dollar excess SIPC coverage.

• 3:01Brian Preston?

  It's a huge number on the excess insurance. I always have this visual when I read those type of things. I always think of these, you remember back in the day, I'm older, so maybe everybody my age will know I'm talking, Lloyds of London had all these insurance policies where they'd like insure Cindy Crawford's legs. And I always think like you're walking through the halls of Lloyds of London and then they have like, you know, all these celebrities' key things that they're insuring. And then they got Brian Preston's excess policy for his retirement account.

• 3:27Speaker 04

  There it is. It's right there on the hall of Lloyds of London.

• 3:31Brian Preston?

  I'm sure Fidelity is buying Lloyds of London, you know, type of insurance for my excess insurance. That's how I visualize it. But yes, they typically have additional insurance protection. But go do your research. Make sure you check on that. Don't take our word on it. But they've thought about that because they know a lot of people, they want you to have peace of mind that your assets are okay. And what I like about when you work with these big custodians, it's just like my granddad used to drive to every bank to, you know, to try to protect them. He'd try to get the best CD rates, but he was also trying to just move money around because of these FDIC and so forth. A lot of times with these, these big brokerages and so forth, you can go buy CDs from these banks into one big brokerage

• 4:12Brian Preston?

  account and get a lot of the protections and save yourself from driving all over town and also save your beneficiaries a lot. A lot of hassle of having to track down where the heck are all those assets at?

• 4:23Speaker 04

  Your beneficiaries, your accountant every year when you do your taxes. It's, you said it best, you said, as a consumer, make sure that it's buyer beware. You understand what you're doing and where you're putting money, especially in the world in which we live, where there are all these startup fintech companies that will say, hey, if you open an account with us, we'll give you an extra $500 or whatever the thing is. You just want to make sure that whoever you are using as your brokerage institution or as your custodian, you verify that they do carry these additional insurances so that you are protected. Because by this way, when things get scary, when they get really unnerving, and we saw this during the financial crisis in 2008, 2009, you really begin to start asking these questions, am I protected?

• 5:08Speaker 04

  Have I done what I needed to do? And if you've done the due diligence to make sure that the custodians you're using do carry these policies, you can at least have some peace of mind knowing that you've done all that you can do to protect yourself. Now, Aaron, that was a great question. If you would like a Tumblr koozie koozie Tumblr, you can write [email protected].

• 5:31Speaker 04

  All right, let's see, next question, this one, Brian, is from Caitlin. Caitlin has a question. I work for the state and I'm trying to retire early. Since I have access to a traditional 457, can I use that in lieu of a brokerage account? Oh, I love it, Brian.

• 5:52Brian Preston?

  That's a great question.

• 5:53Speaker 04

  Why don't you tell them a little bit about what a 457 is? And why maybe it's a little unique or different than a 401K or 403B or something like that?

• 6:02Brian Preston?

  Well, I do like, you know, when people talk about retirement accounts, employer provided retirement accounts, the easy answer most people think of is that 401K.

• 6:09Speaker 04

  Most common type.

• 6:10Brian Preston?

  Because that's the most common type. And then you think about the teachers and the hospitals that have the 403Bs, and those are very similar to the 401Ks. But then right after that, as you get into 457s, and these are, they have the same funding limits as 401Ks, 403Bs.

• 6:30Brian Preston?

  But because this is typically for public servants and other like you think about police officers, you think about firefighters, other people who work in that type-

• 6:41Speaker 04

  Work for the state.

• 6:41Brian Preston?

  The state and that type of service, these have a very cool benefit is that they don't have that 59 and a half provision or 55 for like 401k. Retirement accounts in general, it's 59 and a half to get access or otherwise you have to pay early withdrawal penalties. 401ks and other qualified retirement plans do provided by your employer do allow if you retire 55 and greater, you get access to those assets penalty free as well. But 457s don't have the early withdrawal restriction. And I think they were designed on purpose because it's not uncommon that you go work as a police officer at 18 years of age, you work for 30 years, you're going to need access

• 7:23Brian Preston?

  to that money pre all these dates, pre even before 50 potentially. So they designed these products to where you could actually get right to them without penalty. Now you will pay income taxes unless it's a Roth from 457. So that's why it then falls into, yes, you have access to this money pre all the other people who are working traditional jobs and different account types, but now you've got to do, don't skip leg day, you actually have to now do the cash flow planning. You know, is this money, is it better to get access to my bridge account, which is my taxable brokerage account, or is it this account because I'm in a low tax rate? You've got to do the work and figure out from a cash flow perspective and from a planning

• 8:04Brian Preston?

  perspective, which is the best count and what's the order of operations to use those assets.

• 8:09Speaker 04

  Yeah, so I would say that it's not necessarily something you would use in lieu of a brokerage account, but perhaps it's something that serves as a complement where you're building both because you understand where you are in your financial journey. Brian, can you hold the thing up right now? That's why we have the nine steps tried and true that you can work through. So if you are in step five, coming into step six, it may make sense to begin maxing out that traditional 457 and then once you do that, then you begin building up that brokerage account. That you have those bridge assets. By the way, if you'd like to know even more about the financial order of operations, right now it is on a never before seen sale.

• 8:48Speaker 04

  You can go to learn dot money guy.com to check that out and get an amazing deal on that. And I think, uh, I think that was a great question. Now there is one. Well, I'm not going to go there. There, I think there's one little unique, uh, thing about Roth.

• 9:02Brian Preston?

  You know what people love about broadcasting is when somebody says, you know what?

• 9:05Speaker 04

  No, no, I'm not going to do that. I don't want to get too squarely with this because Roth 457s operate a little bit, because a lot of people ask this, there are 457s that do have Roth provisions in them. But the Roth provision of a 457 operates a little bit differently than the traditional 457 provision when it comes to early withdrawals and what you can have access to. So you want to make sure that if you're going to participate in your plan, you read the summary plan description. You understand exactly what is allowable and permissible in the plan in which you are participating, because not all of them are created equal.

• 9:36Brian Preston?

  Why wouldn't you want to share that? That just shows that life gets complicated and this is maybe when, hey, man, I don't know what I don't know. So maybe I need to talk to somebody.

• 9:46Speaker 04

  I did. That's what we did right there.

• 9:48Brian Preston?

  I'm proud of you. I, I think you weren't going to do it if I didn't bully you though.

• 9:51Speaker 04

  That's a lot, a lot of things that, a lot of things I wouldn't have done around here if I wouldn't have gotten bullied into, you know?

• 9:56Brian Preston?

  By the way, is anybody, anybody talking about the, how much better look you, better looking you are today?

• 10:00Speaker 04

  No, everyone said, oh my goodness, who's, who's this guy up here? I don't even recognize them anymore is what they said. But here's what happened. We had some really exciting stuff that we were doing, uh, in this past week.

• 10:09Brian Preston?

  I wish the poll, if I, if I was controlling the control panel, Bo, the, the poll wouldn't have been about, because you told me there's something about your facial hair on there. I would, I would have had a poll halfway through saying, did you even notice Bo shaved?

• 10:23Speaker 04

  Oh, sick burn. Sick burn.

• 10:26Brian Preston?

  But I'm not in charge of the poll.

• 10:27Speaker 04

  You know what I love though? Have you noticed how many mustaches have popped up around the money guy and abound wealth enterprises over these past few weeks? I think it's pretty awesome.

• 10:37Brian Preston?

  It's like an invasive species, you know, you, you, you hear about these things that come into a, a community and an ecology and you're like, who was the person that brought over on the boat? That thing that is now destroyed what was awesome. And Bo, you, you, yes, you planted kudzu in the middle of abound wealth in the money guy show. Congratulations.

• 10:59Speaker 04

  You are welcome. Oh, all right. Let's do another question.

• 11:03Brian Preston?

  You know what's sad though? They all grew facial hair much faster than you.

• 11:07Speaker 04

  Okay, here we go. Just flipping the tape. Oh, that got audible laughs from the production team.

• 11:14Brian Preston?

  Oh, I'm so proud of myself. So proud of myself. Look at, we should have a camera on you guys. All of you, we should have, they would all immediately leave, but it would be great.

• 11:24Speaker 04

  All right, this next question is from Jason B. Jason says, "I'm 52 and I'm looking to retire in five-ish years."

• 11:31Brian Preston?

  Now, he didn't grow up, his dad wasn't a Methodist pastor, was he? Because I grew up down the street from a Jason B.

• 11:37Speaker 04

  From a Jason B who would be about 52 years old?

• 11:39Brian Preston?

  Yeah, that's what I mean. This could be my old, long-lost neighbor, Jason B.

• 11:44Speaker 04

  Well, did that Jason B marry a lady who is now 61 and a higher earner?

• 11:49Brian Preston?

  I wouldn't know that part. I wouldn't know that. Jason, because you know, I don't know if you know this about Methodist pastors. Back in the 80s and 90s, they actually moved every seven years. So, Jason B got moved away sadly.

• 12:00Speaker 04

  Well, if Jason B were here, this is the question he'd want to ask. He'd want to say, "What should we think about and when to draw social security for each of us?" Again, I want to remind you, I, Jason B, am 52, my wife is 61, and she is the higher earner. So, it's likely she has paid more. Did I do that wrong? I'm 52, oh, but I'm the higher earner. So, she's 61, she is older but the lower-earning spouse. He's younger but the higher-earning spouse. When it comes to social security, is there a strategy that might make the most sense for them? Or maybe, why don't you just talk in general, so it's not specific advice? What are the different ways that people approach social security and things you can think about as you get there?

• 12:40Brian Preston?

  By the way, Jason, this is a great question, and it is, it's kind of a unique thing about social security is that social security, you do have household maximums, but in a lot of ways, the government still looks at your credits and your earnings history as your own. So, that creates some unique planning opportunities, and it's not uncommon that you will look at the spouse, I'm trying to word this correctly, the spouse that has not earned as much as the higher-earning spouse, and you can potentially turn that on and they use their benefit. Benefit for a number of years. Meanwhile, the higher earner defers their social security for a while and then they eventually

• 13:21Brian Preston?

  turn theirs on and you take, kind of take that household maximum at that point. You're gonna get, you're gonna, you're gonna technify this much more than I did, so I'll let you. I just wanted to set you up so you could go ahead and then show how smart you are.

• 13:34Speaker 04

  No, no, no. There's a few, there are a few things to think about when it comes to drawing social security. I mean, all of us, we have the option. We can begin drawing as early as age 62 or we can draw at our full retirement age, which for most folks at this stage is around 67 years old. Well, if you begin drawing early, your benefit amount, amount will be reduced because you're drawing it over a longer period of time. So, there's a significant decrease. Also, if you begin drawing early while you're still working and earning an income, there's a chance that your benefit could even be reduced further because you get penalized for earning income if you begin drawing before full retirement age. So that's one of the things that you may want to take into consideration as to when do I begin drawing between age 62 and 67.

• 14:18Speaker 04

  Well, there is even a benefit. If you wait from 67 all the way out until age 70, which is the latest you can defer social security.

• 14:26Brian Preston?

  8%.

• 14:27Speaker 04

  You get an 8% embedded annualized rate of return on your social security, social security increase. So, there's a lot of benefit for folks in waiting till age 70. Well, when you're married and when your spouses, a lot of people don't recognize that for lower earning spouses, their benefit is equal to either the benefit on their own earnings record or half of their spouse's full retirement age benefit. So, in the strategy that Brian was describing, sometimes it makes sense for the lower earning spouse, lower benefit spouse to begin drawing at age 62 on their own record. And then, when the higher earning spouse gets to full retirement age and begins drawing theirs, the lower earning spouse would automatically be increased up to 50% of their benefit.

• 15:11Speaker 04

  So it's a really unique strategy that's available for some people to take advantage of. Again, this is where personal finance becomes incredibly personal. And what makes sense for one couple or one individual might not be the exact thing that Makes sense for another couple or another individual. And what's wild is the decisions you make around social security can have huge impacts on the longevity in life of your financial plan. So this is one of those areas where as you are getting into these ages, thinking about claiming strategies, thinking about how you're going to go into this next phase of life. This might be a perfect time to consider taking the relationship to the next level. And working with someone has actually navigated hundreds of people entering into social security age.

• 15:55Speaker 04

  To make sure that you're making the absolute best, most optimized decision for your unique circumstance.

• 16:00Brian Preston?

  The thing I was thinking about, because usually I love modeling this. We have some software that we use for modeling social security strategies. Because everything, because the layout with him being the higher earner versus her income. It seems like it's a classic example of yes, let's go ahead and implement her, exercise hers on her own earnings. And then turning it where she gets half, you know, later when he executes. But the age difference creates a unique thing there. That I don't feel comfortable completely saying it's a no brainer. Because I just want to model it to see if, because maybe she needs to defer. And I can't remember, was she still working?

• 16:42Brian Preston?

  Because it's back to that point that do not take social security at 62 to whatever your full retirement. If you are out there still working, because I've sadly had people come work for me. Or I've seen people working where you're completely caught off guard by how just penalizing it is. What they do to your benefits and the taxes. If you take any type of earned income, once you execute social security between 62 and full retirement age.

• 17:10Speaker 04

  We didn't even talk about the taxability of social security. Because even that is something that's a little unique, again, based on your income. How much of your social security gets taxed plays into the equation. It's a super, super nuanced part of the financial planning equation. Jason, that was a great question. If you, well, one, if you want to think about having someone help you guys navigate this, I'd encourage you to go check out the work with us at moneyguy.com or aboundwealth.com. Or you could just write [email protected] and we'd love to send you a Tumblr as you begin to do your own analysis on this.

• 17:43Brian Preston?

  Wouldn't it be something if from this show, a long-lost Jason B. reaches out, you know, who moved away from the parsonage and we reconnected?

• 17:53Speaker 04

  It would be wild.

• 17:54Brian Preston?

  You never know. Money Guy has done some crazy things.

• 17:56Speaker 04

  We've seen crazier.

• 17:57Speaker 06

  The Money Guy Show is hosted by Brian Preston. Abound Wealth Management is a registered investment advisory firm regulated by the Securities and Exchange Commission in accordance and compliance with the securities laws and regulations. Abound Wealth Management does not render or offer to render personalized investment or tax advice through the Money Guy Show. The information provided is for informational purposes only and does not constitute financial, tax, investment, or legal advice.

• 18:24Speaker 00

  Welcome to the 50th Hunger Games.

• 18:27Speaker 01

  Witness the beginning of the revolution.

• 18:29Speaker 02

  Hey Mitch, you've been trying to take down these games from Star.

• 18:32Speaker 01

  Film for IMAX.

• 18:34Speaker 02

  Make them remember you.

• 18:35Speaker 01

  The Hunger Games: Sunrise on the Reaping, November 20th, rated PG-13.

• 18:40Speaker 03

  LinkedIn is pretty amazing at helping you grow your small business. We cannot stop your new clients from emailing you at 3 a.m. We can help you sell, market, and hire in one place. We cannot help you be in three places at once. And while we can't help you organize your calendar, LinkedIn can help you land more clients so you have a calendar to organize. Grow your small business on LinkedIn. Learn more at LinkedIn.com/smallbusiness.