Early Retirement - Financial Freedom (Investing, Tax Planning, Retirement Strategy, Personal Finance)

Here's How To Plan For Social Security If You Retire Early

• Ari Taublieb, CFP®, MBA • Episode 265

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Too many people delay retirement just to boost their Social Security benefits, often at the cost of time, energy, and joy. But at Root, we believe retirement planning should be about more than just maximizing one metric. It should be about maximizing your life.

If you're working extra years simply to avoid gaps in your earnings history or to earn a slightly higher monthly benefit, it's worth rethinking the bigger picture. In many cases, the trade-off isn't worth the lost years of freedom and vitality.

A more holistic strategy might involve intentionally drawing from your portfolio early—when you're healthy and active—while allowing Social Security to grow in the background. And for those pursuing tax planning strategies like Roth conversions, delaying benefits can actually create opportunities for long-term savings.

The bottom line? Don’t let Social Security be the sole driver of your retirement timeline. Check your earnings record, run the numbers, and build a plan that aligns with your goals, health, and lifestyle. At Root, we help clients retire with confidence, not just by the numbers, but by what matters most.

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Advisory services are offered through Root Financial Partners, LLC, an SEC-registered investment adviser. This content is intended for informational and educational purposes only and should not be considered personalized investment, tax, or legal advice. Viewing this content does not create an advisory relationship. We do not provide tax preparation or legal services. Always consult an investment, tax or legal professional regarding your specific situation.

The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.

Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements

Participation in the Retirement Planning Academy or Early Retirement Academy does not create an advisory relationship with Root Financial. These programs are educational in nature and are not a substitute for personalized financial advice. Advisory services are offered only under a written agreement with Root Financial.

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.


Speaker 1:

I view a large part of my role in your life for however long you've listened to the podcast or watched on YouTube as giving you real insight that you can take away so that you worry less about your retirement, but that you also get very transparent guidance. I find a lot of you think, oh my gosh, I can't retire early, I haven't maxed out social security. I think it takes my 35 highest years of how much I've made and so because I've only worked for 30 years, I'm not going to retire. I'm going to tell you why that is not a healthy framework. I'm going to give you a real example today so that you can understand. How does social security actually work? Should you plan on it, how to configure it in your plan? I'm going to hopefully remove a lot of what I call head trash Now, before I do, I'm going to give you the example that I give all of my clients when I talk about social security. If I'm ever having a conversation, this is the really simple way I like to start, so I will tell people. Most people think one of two ways when it comes to social security. Number one they're thinking over here. They're going wow, okay, I've worked a really long time. I feel like I've saved and invested really well along the way.

Speaker 1:

Social Security yeah, people have been saying it's going away for a long time, but it's still here and I want to factor it into my plan and I'm not collecting until age 70, because I can collect anywhere from 62 to 70. I'm waiting till 70 because I'm going to max that thing out and I love the idea that if anything happens to me, my spouse, they're able to receive that benefit for the rest of their life. Okay, that's some people. That's let's call it people A, people B. I should probably say person a, but we're going to stick with people a. To keep it more fun here I'm trying to entertain you guys. Okay, stick with me here, because I know there's a lot. This is people A, not person A. Okay, now we're going to go people B, not person B. Person B is thinking you know, people have been saying social security is going to be here and I just I'm not seeing it. Less people are paying into it. I'm the one doing all the research. This is kind of my part-time job, because I really want to retire early. Social Security I think I'm going to collect early, as early as I can. I'm going to collect at 62 because I think if I collect my benefit even though I know I could delay I could actually invest and do even better, because I know people say it grows every time you wait. But I think I'm just a genius. So I'm going to collect Social Security early, at 62. And then, yeah, if something happens to me, my spouse, they're going to get that benefit, which would have been more. But I don't know how long I'm going to live. What if I pass away at 75? I would have regretted collecting at 70. That really would not have been effective and they would have been correct. So here is the short answer. Now, with all of this, please consult a financial professional. Do not take any of this as financial advice. I'm giving you insight on Social Security so that hopefully you can think really clearly for your strategy.

Speaker 1:

Now, if you're unaware, my name is Ari Talble. I'm a certified financial planner. I'm the host of this podcast, the Early Retirement Podcast. All of my videos go on YouTube as well as the podcast. So if you want to see me right now, you can just go to YouTube. If you want to listen on the podcast app, keep listening. I will find that a lot of my episodes because it records so much, they hit the podcast app first. So many of you are wondering I'm looking on YouTube. I don't see this episode here. If it's an urgent episode where I am going over a lot of numbers and a deep case study, I'll make sure the YouTube video goes out at the same time as the podcast. But sometimes I have so many YouTube videos queued up and I also love doing the podcast that I'll have the podcast app go out first. So right now, if you go on YouTube and you don't see this, keep listening on the podcast app. If you're watching on YouTube, it's definitely out on the podcast.

Speaker 1:

Now, with the logistics out of the way, we're going to go through an example. I hope this one example at the beginning hopefully makes you worry about a million times less. Okay, ready for this. So I created an example so that I could illustrate to you guys why some of you don't need to worry nearly as much as you may have been worrying. So the way it works with social security is it is based off your 35 highest years of earnings. So if there are any years where you have a zero of income, that impacts how much social security will give you in the future. Okay. So a lot of you will go I need to max it out. I've been maxing out my 401k, been maxing out my Roth IRA. I got to max out my social security. So even if financially you're in a good position to retire at 60, a lot of you will work until 63 or 64 because you're like I want to max out my social security. Don't make that mistake. That is head trash. You know what that feels like. To me that's like golden handcuffs.

Speaker 1:

Imagine you were in a great spot to retire and your employer said hey, you know, jeff, I think you can retire. And I know you're excited. And you told me that a year ago you were going to retire in a year. And here we are. But you're just doing such a great job at the company. I want to give you $300,000 this year.

Speaker 1:

Now Jeff is ready to retire. Emotionally he's excited. His spouse is ready for him to have more time together and kids. But $300,000, I mean I would have loved young Jeff would have done anything to make 300,000. He's a human, he's not a robot. I'm not upset at Jeff, but I would want Jeff to be very clear. Are you working because you want to or because you have to, because if Jeff were to look at his plan and go, I knew I'm in a good spot. You don't need to keep working Now. Maybe Jeff goes. Hey, honey, I can work one more year at $300,000. That means we can take like five more trips. Maybe the spouse goes. That's awesome, jeff. If you're not miserable, do it. Maybe they go. We already have six trips planned. I don't want five more trips anyway.

Speaker 1:

So all of this to say, there's always going to be a question. If you're a good, naturally good person, healthy person, who's not too arrogant, and you're naturally a down to earth person who's going to think to themselves, what if I don't have enough? I'm still going to worry. Oh my gosh, what if there's something I miss and I retire and I get unlucky because markets go down? What if Social Security is cut? There's so many things out of your control. You can only plan on what you can plan for. But what you can plan for on social security is the following Okay, so I gave an example of someone who retire who starts working at 20 and then they stop working at 50, and someone who starts working at 20 and stops working at 55.

Speaker 1:

And the way social security works. Many of you are aware of this, but there's a wage index each year. So social security takes your 35 highest years of earnings, even if it's not consecutive so it could be zero, and then 100K, and then zero and 100K versus 50K over four years. It's looking at each year. So the goal if you wanna truly optimize Social Security is you don't need to make 100,000 a year. What you need to do is you need to make something so that Social Security knows that you're paying into it.

Speaker 1:

Okay, I'm not going to go through all the specifics because you will fall asleep on me. Here's the example. So, with 30 years of earnings I gave an example Imagine that you made $50,000 a year for 30 years, which you wouldn't. You would have gotten raises along the way. Okay, but the way it works, if you really want to know, is you take 35 years. You divide that by 420 months, so over 30 years, you make 50,000 a year. That's 1.5 million of what are called total indexed earnings. If you divide that by 420, you have what's called 3,571, adjusted for inflation earnings. Okay, don't worry about what that means. Okay. Now, if we're taking 2025 Social Security estimates, here's how it works you receive for Social Security in terms of points 90% of your first $1,174 you earn and then 32% from 1,174 to 7,078.

Speaker 1:

So if you are retiring, hypothetically, at 50 years old, your full retirement age benefit would be $1,822 per month. Okay, now some of you are thinking well, that's at 50. If I work at, start working at 20, stop working at 50, I could start collecting 1,822 at full retirement age. That's correct. You couldn't start collecting it immediately. You'd start collecting it at full retirement age. So you still have a long time. It would still keep growing. I'm just using $20, $25 to illustrate my point here. So I want you to think about this number $1,800 a month. Let's keep it real simple here. Okay, you start working at 20, you stop working at 50, you made 50,000 a year. Every year you would start collecting at full retirement age $1,800 a month.

Speaker 1:

Now let's pretend you work from 20 to 55, okay, five more years of working because you want to maximize Social Security. Once again, that happens at 35 years, which you would be at. How much more do you think you would have? That's the question here, because many of you are thinking well, if it's $1,800 a month that I get from Social Security. But if I work five more years, it would be like $3,000 a month. Well, that's something to consider. Maybe it's worth it. It would be $2,015 a month. Okay, it's about a $200 a month difference. That's 2,400 bucks a year. It's significant. But if we're taking $2,400 times 30 years, that's $72,000, okay. So if you retire at 50 and work till 80, hypothetically and you start collecting Social Security at full retirement age and you end up passing away at 90, just hypothetical here $72,000. That is the difference over 30 years once you start collecting Social Security. So a better example here would be if you start collecting at 67 and you pass away at 97.

Speaker 1:

The question for you to ask yourself would it have been worth it to work five more years for an extra $200 a month? For some of you yes, it is. For many of you you'd go wait a second. I could just work like one more year. The idea of that I'm still working just to collect or quote unquote max out my social security benefit, that's not too logical, it's not. So that is hopefully what you're taking away, guys. Don't keep working just to max out social security.

Speaker 1:

Now here's a big mistake I see a lot of people make. People will go. I'm going to retire early and I'm not going to spend too much money. I don't have social security yet. It's all up to my portfolio. I'm not going to spend too much money. But at the same time, they're thinking, hey, aren't these the years that I have my energy, that I have my health? Shouldn't I be enjoying this money? Well, the reality is, most people will look at their situation and they will not understand the reality, which is I want you to spend more money when you have your energy and your health. Yes, you don't have social security yet, so spend from the portfolio that you work so hard to accumulate. And then, when you're in your 70s or 80s, you're not going to need as much from your portfolio because you have Social Security. That's now helping you out. So here are some just important stats to know about Social Security as I round out this episode.

Speaker 1:

Now, I love Social Security optimization. You can go into the software tool that we use for our clients that you can get access to in the Early Retirement Academy in the description of the episode. You can go play around and see. It will tell you, based off all your assumptions, when is optimal to collect. So if you don't want to do any analysis. You can go in there, click a bunch of buttons and you'll see it's going to say for you it makes sense to collect at this age based on passing away at this age and yada, yada. Now that's really cool. What social security will never be able to do is it does not know how long you're going to live. So you can play around with different assumptions, but the idea of trying to optimize or max out to the nth degree that causes a lot of stress. So don't let social security be the driver of the decision.

Speaker 1:

Another thing to consider and this is a pro tip that I was just thinking in my head maybe I shouldn't mention this because it's a little advanced, but let's pretend that you want to retire early and you've heard my other episodes where you're ready to do Roth conversions and you understand the value of paying a little bit in taxes now from your 401k to move it to a Roth IRA where you'll pay no more taxes for the rest of your life. Okay, let's pretend you're on board with that concept. If that's the case, should you turn on Social Security More often than not? The answer is no, because if you turn on Social Security earlier. That's more income that you're creating, which leads us less room to fill out optimal tax brackets. For example, let's pretend that you want to do a $40,000 Roth conversion and you have no income. Now, if we were to convert at the 10% and 12% levels, you wouldn't pay much in taxes to move a good amount of money $40,000 from your 401k to your Roth, so it's never taxed, ever again. Let's pretend you turn on Social Security, though, and you have $40,000 coming in. We don't get to convert at 10%. We're now at 12%, and even at 12%, you've already filled up a lot of that bracket, so now we're almost closer to paying at let's call it 22% or 24% with today's brackets.

Speaker 1:

So don't let Social Security interrupt your tax strategy. At the same time, don't marry your Social Security strategy. What if it turns out you're 67 and you're planning to delay until 70 and a big health care event occurs? You might go. I'm turning on Social Security now because I don't know how long I'm going to live. Great, stay dynamic with it. I tell people, be a retirement boxer, be dynamic.

Speaker 1:

Okay, here's some other stats to just be aware of. You can, of course, retire early and claim Social Security. Claiming early before your full retirement age reduces your benefit by up to 30% if you claim at age 62. Now an important stat to know is delaying to age 70 gives you 8% per year up to 70. So what the heck does that mean in English? If you were to delay Social Security every single year, every year you delay from 62 to 63, you're receiving basically a guaranteed rate of about 6.5%. So people will say you know the stock market does 10% per year.

Speaker 1:

Why don't I collect early and invest? Well, you know why people say not to do that? Because most people collect and they don't invest it, they spend it. So it would have been better for them to let it stay in social security's hands so that by the time they collect it it's a larger amount. Now, from full retirement age until age 70, you get an 8% bump, not six and a half, which is more attractive. Now I will say it's very rare, but sometimes I'll see Social Security have earnings inputted incorrectly. So you can go to SSAgov make sure your earnings record is accurate. If you're close to retirement in the next five years, please just do a gut check. I've had one client who saw a zero in a year. They knew they worked, had a tax return and we got that adjusted. It seems like not a big deal, but it does make a big difference. That's about $50 to $75 a month every month that they otherwise would not have had if they did not check for about five seconds. So when it comes to Social Security, here's another example I'll give to finalize the episode today.

Speaker 1:

So there's a true story. I went to a doctor and I told the doc you did a great job explaining that. I think you did a good job. I think you think you did a good job. I just didn't fully understand it. You explained it great but I'm sorry, I just didn't get the takeaway.

Speaker 1:

I'm not trying to be difficult here. I know I need to take a pill, but I'm not going to take it blindly. And your explanation there, although you thought was good and it sounded good, I just I need more. And I said it just like that because I'm a very transparent person. And then he said oh, I'm sorry, let me explain again. So he starts explaining to me the lab where the pills are made that he wants to give me. And I said respectfully, doc, I don't care about the lab, I want to know why I'm taking this pill or why I'm not taking this pill and once again, I'm not taking it blindly. I feel bad and I don't want to be difficult. I know you have lots of clients. I just want a clear answer. And he said, oh okay, I get it. So then he explained it again and he did great and I took away what I needed to take the pill and I said I'm really, I'm really proud of you, like, thank you for doing this, because I know it's annoying when people like me ask further questions. But now that you've explained that perfectly, I do want to go into the lab a little bit to further understand it, but not everything, just this portion.

Speaker 1:

Then he did that. He did that brilliantly. Now I'm a very happy camper. I was unclear. He explained it really well. He went into so much depth that I wanted to learn more. I learned even more and now I sleep well at night, knowing exactly why I'm taking a certain supplement.

Speaker 1:

Beautiful, that is how I would want you to work with your advisor. I would want you to say okay, advisor, I know that was great and you think you did a great job explaining Social Security, but I'm still not clear on why I'm collecting at 62 versus 67. I know you made a very convincing argument and the numbers and graph look green instead of red, and I know green is good, but I'm still not clear and I'm sorry, but try again. And that advisor should go. Oh, I'm sorry. Yeah, let me give you another example. Did that help and you might go? That really helped, but now let's run it again. If my spouse predeceases me and vice versa, okay, let's do that. You should be working with someone who's optimizing and willing and excited. Not, you're a burden. You're asking more questions. No, this is your money. You've worked really hard. It's time for it to work as hard as you have.

Speaker 1:

So this is one example of all the types of things we do at Root Umbrella insurance, estate planning, managing the portfolio, tax strategy. We love to do this. If this is the type of service you're looking for guidance on, once again I've said it a million times this is what we do here at Root. If you go to our website, rootfinancialcom, in the upper right, you'll see a button that says see if you're a fit. If you click on that, fill out a few questions. Then we'll be in touch to be able to potentially work together. You'll receive an answer immediately and see prompts for next steps.

Speaker 1:

If you're just watching this episode and you're going, I just want to optimize social security, what the heck do I do? You can use a tool like the one in the early retirement Academy, and the benefit of doing this is you can go instantly and start playing around with different projections to see, okay, what if I were to collect at this age versus this age and start to really get dialed in and optimal. That is available in the description below. There's no one-on-one advice. You're not getting a recommendation directly from me on that but you're able to go and run figures and kind of be your own advisor. So some people use this in conjunction to their existing advisory relationship because it's a completely separate software and it's awesome for good planning. So that's it for this episode. I'll see you guys next time.

Speaker 1:

Thank you all, as always, for listening to the early retirement podcast. I love getting to host these shows and make different content for you guys every single week. I've not missed a single week in years and that is because I love getting to do this. Now, please be smart about this, before you actually execute any strategy that you see me talk about or hear me talk about? Should I say Please talk to your financial advisor, your tax preparer, your estate attorney. Please be smart about this. None of this should be construed as financial advice. This is for fun, educational, informational purposes only. Once again, just quick disclaimer here. Guys, please be smart about this. Appreciate you listening, as always, and you can, of course, submit a question on my website, earlyretirementpodcastcom. If you, of course, want me to address a specific case study or topic. I will not promise I can get to it, but I respond to every single person and if I find it will be helpful for a lot of people, I will absolutely make an episode on it, at the very least give you some insight. That's it, thanks, guys.