Retirement Roadmap

The Truth About Social Security in Your Retirement Plan

• Mark Fricks • Season 3 • Episode 30

Share episode

Are you treating Social Security like an on/off switch instead of a key part of your retirement income plan? In this episode of Retirement Roadmap, Mark Fricks and Evan Fricks walk through how Social Security really works—and why the decision is about far more than just picking an age between 62 and 70. From misunderstood “full retirement age” rules to inflation, healthcare costs, and earned-income limits, they show how Social Security fits into the bigger picture of your retirement strategy.

Drawing on decades of retirement-planning and Social Security experience, Mark and Evan explain why the program was never designed to replace your full paycheck, how today’s disappearing pensions and rising healthcare costs widen your “income gap,” and what it really means when people say Social Security is “in trouble.” They’ll help you see how timing, taxes, Medicare, and spousal benefits all connect—and why one-size-fits-all advice from Google or the “water cooler” can be dangerous.

Visit masterplanretire.com to access our retirement checklists, podcasts, and schedule a complimentary consultation.
Call 770-980-9262 to speak directly with someone about your retirement planning needs.

https://masterplanretire.com/

Catch all episodes of our podcast at
https://www.masterplanyourretirement.com/resources/episodes

Listen to Mark Fricks on Saturdays at 12:00 p.m. on XTRA 106.3 FM WFOM.
Sign up for one of our upcoming events at
https://www.masterplanyourretirement.com/events

Purchase Mark’s book The Road Less Traveled: Turning Your Retirement Worries Into an Excursion of a Lifetime on Amazon:
https://a.co/d/4fx94Al

Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

Send us a text

Visit masterplanretire.com to access our retirement checklists, podcasts, and schedule a complimentary consultation.
Call 770-980-9262 to speak directly with someone about your retirement planning needs.

https://masterplanretire.com/

Catch all episodes of our podcast at https://www.masterplanyourretirement.com/resources/episodes

Listen to Mark Fricks on Saturdays at 12:00 p.m. on XTRA 106.3 FM WFOM.
Sign up for one of our upcoming events at https://www.masterplanyourretirement.com/events

Purchase Mark’s book, The Road Less Traveled: Turning Your Retirement Worries Into an Excursion of a Lifetime, on Amazon: https://a.co/d/4fx94Al

Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

SPEAKER_00:

All matters discussed during itself are for informational purposes of individual situation affairs. Materials presented are quite from reliable sources, and no representations can be made as to its doctors. All ideas and information should be discussed in detail with our qualified representatives prior to affiliate. Advisory services offered by Master Plan Retirement Consultants, a registered investment advisor in the state of Georgia. Mark Fricks and Master Plan Retirement Consultants are not affiliated with or endorsed by the Social Security Administration or any other government agency.

SPEAKER_03:

Do you have a Social Security strategy? Hey folks, welcome back and thank you for joining us. My name is Evan. With me, as always, retirement planner Mark Fricks, and welcome to Retirement Roadmap. For many retirees, income planning is a crucial first step in the retirement planning process. For many Americans, monthly Social Security checks play a large role in determining when they can retire. Today we'll review Social Security rules and how to incorporate Social Security into your comprehensive, holistic retirement strategy. And Mark, strategy is beyond just when do I take it? And we'll talk about that too. When are the optimum times to take it? Of course, you know it's a case-by-case basis. But the bigger question is how does it fit into your overall retirement plan?

SPEAKER_01:

Yeah, and it's probably always one of the first questions we get, you know, when people come in, when should I take Social Security? It's also probably one of the most misunderstood areas because we are always getting folks coming in saying, Well, I can't retire retire until I'm 67, because that's my full retirement age. 67 and eight months is the day I'm retiring. And so it's very misunderstood that that's that's almost like Social Security is dictating when you should retire, which of course is is uh not correct. Um so we don't necessarily take that into account. So part of what we'll talk about today is what are some of the other things you have to consider? And and it is a complex, you know, we're certified in Social Security planning.

SPEAKER_02:

Yeah.

SPEAKER_01:

And because it is such a major part of income planning, which is a very large part of retirement planning.

SPEAKER_03:

100 percent. And you've already mentioned a couple of things, but Social Security, what people know about Social Security seems like it's um the carryover of the water cooler conversation. My coworker told me this, my uncle told me this, my cousin said this, my best friend said this is when I should do this, is what I should do. Google told me this. Google told me this. This article uh online told me this. Um, and there are some very specific rules, and we see they apply very specifically to the individual circumstance. Um, but one of the first and maybe most important things to understand is social security was never meant to replace an entire paycheck to begin with.

SPEAKER_01:

That's correct. Um, mostly because when Social Security came out, there was this little thing called pensions. What happened to those? So most corporations, I I've I've told this story before, watching my uh my grandfather walk home from the mill every afternoon uh with the whistle going off, and and he had a nice pension. He didn't make a lot of money, but he had a great pension. And that together with Social Security, he retired in the early 70s, uh, was fitted them nicely, and it wasn't a big deal. But when you turn it on, he got his pension at 65. Social Security was full, retirement age is 65. Guess when he retired? 65. That's right. So uh so as those have gone away, it's become even less of a uh part of that stool of income that we talk about a lot.

SPEAKER_03:

Yeah. So we're we'll get to this later as well, um, and that's when we're gonna discuss the income gap that you have to fill in retirement. Um, and now people are living 10, 20, 30 years beyond retirement, maybe more with the advancement of health and medical advancements, things like that. Um your grandfather, he retired at 65, and how many years did he live?

SPEAKER_01:

I'd say within four or five years he passed away, and so it did not need to last forever. Of course, Social Security would have lasted forever, and the pension would have lasted forever, and I believe he had a cost of living increase, which the few pensions that are left, most of those don't have that. And so there was no such thing as an income gap. It was we're gonna live on what we got have coming in because we know it'd be there forever.

SPEAKER_03:

That's right, that's right. Let's talk about an income gap. So, first of all, Mark, what the heck is an income gap?

SPEAKER_01:

Um it is basically I don't have enough money each month. It's it's it's when you come together. And so folks have to understand this. When we talk about an income gap, um it means what's coming in guaranteed versus what we have to have every month to do the necessities of life. Um to turn on the light bulb, to to have a car payment if you have one, to get that haircut, to whatever it is that that is. I call it kind of the the the minimum floor of need. Um yeah, we want a vacation, but that's not a minimum floor of need. We can skip a vacation if we're short. So that income gap is our budget of our necessities uh versus what's coming in, and nowadays we have a broadening or a widening gap of what's guaranteed to come in. Now we certainly have savings to fill that gap, but that's that's something we could have a whole show about uh about the dangers of filling that gap with non-guaranteed money.

unknown:

Right.

SPEAKER_01:

So that's the income gap.

SPEAKER_03:

Something interesting about the you know, we mentioned your grandfather, my great grandfather, for those listening. Um the income gap for him was not a big deal because he started out, he he got his pension social security that covered his monthly budget for the first four years of his life. But there's a little thing, and I did mention longevity now and people living longer, there's a little thing called inflation. There's a little thing called cost of living increases. So the real uh danger um in retirement planning, one of the many, but one of the main ones you first have to cover is that of outliving your money. So maybe your income gap, your your budget and expenses, what's coming in and going out is right there. But as cost of living increases, quite often we see you mentioned already, pensions don't keep up with inflation. And the few that do have a cost of living increased are still below inflation. So long term, your what's coming in the door is being outpaced by what's needed. And we see the rule of 72, what is it, everyone?

SPEAKER_01:

Well, if you use the real inflation rate um closer to four close to four percent, four and a seventy-two is eighteen. So every eighteen years your need will double. Right. And if you live thirty-six years from retirement, it's gonna double twice.

SPEAKER_03:

That sounds crazy when you hear it. That's it sounds like no way. But then you look back at history and say, oh no, that yes way, that's true, that's what's happening. So when you combine that with living longer, what's coming in the door, eventually, even if you start to reti you retire and you're starting out with no income gap, we see that inflation outpaces what's coming in guaranteed.

SPEAKER_01:

Very few cases you don't see that, especially as you as you age because of health care expenses. Because inflation on health care is above six percent. And so you start throwing that. I mean, look at look at the cost of just health insurance. Um Medicare and uh, you know, Part B goes up every year, the the um supplements go up every year, and so uh and then if you start needing more care, out of pocket is increasing. And of course, we haven't even gotten into assisted living, home health care, things like that as well. So uh if you don't have a gap now, which most people do, you will most likely have a gap before your life's over with.

SPEAKER_03:

Well, we're already seeing it in 2026 recently announced was the cost of living rate for 2026 for Social Security, and you just mentioned real real inflation rate is closer to four percent, and that's not including groceries and power and gas and things like that. They announced 2.8 percent for 2026 increase in cost of living. So already we're seeing a disparity a disparity.

SPEAKER_01:

Disparity, thank you. And I actually in Social Security classes I used to teach the formula that they figured the cost of living increases with. And it was built not to keep up with inflation.

SPEAKER_02:

Right.

SPEAKER_01:

And so it's not ever going to keep up with inflation. In fact, to think about tinkering with that formula again, um, but then also there's something else. Guess how much Medicare Part B is going up next year? A little over one percent. So now that 2.8 or whatever it is this year is really 1.8 when you when you you know put that against it. So it it's it's maybe figure half. You know, when we run report reports, we normally use 1.5 percent cost of living on Social Security because of that formula and because again, of that part B going up virtually every year.

SPEAKER_03:

Mm-hmm. That's good. So before we move on to okay, so what do we do about it? Let's uh address the elephant in the room. Is social security in trouble?

SPEAKER_02:

Yes.

SPEAKER_01:

Yeah. All right, tune in next time, folks. But let's talk about what kind of trouble it's in, because uh so many people have the uh misinformation that it's going away or going to explode, okay? So let's talk about that for just a moment because I think it's really critical. Uh we want to take the fear out of some of this. All right. So understand this. First of all, Social Security is funded three different ways. Way one is folks that are currently working. They pay this little thing called FICA. The business chips in as well. And so that is helping to fund. The problem is 25 years ago there were 16 workers to every one retiree. Now there's about two and a half workers to every retiree. So that's certainly not enough coming in. Secondly, it is being funded by uh the savings account. It's called the Trust Fund. Uh basically, for many years, there was more money coming in than was needed. What do you do with it? Well, they put it in a trust fund where we can can earn some interest, not much. It's like treasury interest rates, right? Um, but it was growing, growing, growing until they had to start dipping into it back in the, I think it was right around the 70s, late 70s. And so now they're having to use that to help fund payments going out. So that is what is beginning to disappear. So they um estimate by the year 2033 the trust fund would be gone. And so that is funding 27%, I believe, of those payments going out. So if that trust fund does dissolve, if they don't fix it, then each check going out will get a 27% decrease. So it's not going away, the checks won't stop, you still have people working. By the way, the third leg is funded by folks paying Social Security taxes on what they're getting in Social Security. So that's why they couldn't cut those uh tax rates on Social Security. They did find a way around it, but that's a third funding mechanism. So those three legs are what keep it from tippling uh tipping over. And so again, it's not going away. Don't let fear say I'm gonna turn this on to 62 because it's going away. It's not according to today's numbers, but it could be cut. Now, certainly we are hoping uh that uh today's politicians that they get their act together, that they come together and they fix this. It can it's gonna have to be taxes cuts, uh prolonged retirement, things of that nature. And I don't mean folks my age, I mean folks that are maybe your age, under 40 or whatever. You may have to wait till 70 for full retirement age. I I went through that. It was 65, now for me it's 67.

SPEAKER_03:

I'm sure that will at be the least that happens, to be honest. The way things are looking right now with our with our national debt and everything else.

SPEAKER_01:

And I think they'll fully start taxing Social Security right now. It's only taxable between zero and eighty-five percent. I think everybody will pay 100 percent taxes on Social Security because again, that's another funding leg of that uh of that stool. So I think a lot of changes are coming. I just the sooner the better.

SPEAKER_03:

Yeah. And you know, you mentioned about not being able to get rid of taxes on your social security payments. You know, a lot of people, I think now people are starting to realize that that's not what actually happened with the one big beautiful bill act. Um, but in fact, rather than um reducing or doing away with the taxes on social security, rather there's an additional deduction that you can take when you file your taxes age 65 and up. And that's whether you're taking social security or not.

SPEAKER_01:

Right. But it is also based on income as well. That's right. So have to be careful with that. Income includes Roth conversions, withdrawals from IRAs, things of that nature as well. I want to take a quick break, a couple of things. First of all, um masterplanretire.com is our website. It's a treasure trove of resources, of checklist, of uh uh YouTube videos of our radio show, things of that nature, uh links to our podcast, uh, but also there's a little green button that says schedule a meeting. So the biggest takeaway today is two things. Number one is by listening today, you are eligible to receive a complimentary consultation. This is a one-on-one time of kind of discovery. Hey, what's what's going on with your retirement? How do you feel about it? What are your fears? What are you what are you excited about? What are you not excited about? And then we run a series of reports to show where the weaknesses are and address those concerns. That's all complimentary. We also are offering a um a flow chart. This is really a cool thing. This is another resource. This you'll have to contact us to receive. This is not the end all be all. Don't let this be your social security planning. But it is kind of cool. It says if this is you, then go follow this direction, then follow this direction, so forth and so on. It's a good start. But again, you need to sit down with the fiduciary, discuss it in more detail. If you're married, there's another complication that comes in as well. But that is something we will give you a complimentary PDF of that. If you'll just ask, we'll email that to you. Just email us at info at masterplanretire.com. We'll put the sheet up on that you can see as well during the YouTube feed. Um, but again, info at masterplanretire.com, phone number 770-980-9262, and finally, once again, masterplanretire.com. Did I cover everything?

SPEAKER_03:

Uh I hope so. Yeah, I think we're out of time now.

SPEAKER_01:

So we'll see you next week.

SPEAKER_03:

Uh but one before we move on from the one big beautiful bill, uh, Social Security deduction. Uh it is good to know we've covered this. There's actually an episode uh from a couple months ago where we covered a lot more on the act and what it actually did and the changes, and we did cover some of the Social Security stuff on there. But 65 or older, um, you have a deduction up to$6,000. Now that is the maximum deduction you could get. Per person. And the income limit begins to chip away at that$6,000 at$75,000 a year. For a single person. Well, it's the same. It's just double. It's just double that for a married couple, right? Um so Mark mentioned, and we'll talk a little bit uh later how Social Security fits into your overall retirement plan. But we've talked about this a million times. Uh when you're looking at the holistic, comprehensive retirement plan, if you make a change in one area, inevitably you've got to see how it's going to affect the other areas. If you're starting to push into that deduction area, planning Roth conversions, your withdrawals, the majority of retirees today, most of their money's coming from tax-deferred accounts. Every withdrawal counts towards your income. That's going to start chip away at your deductions for Social Security, how much you're able to do. It's going to chip away at Irma if you're taking Social Security or excuse me, Medicare. Thank you. Um these things have to work together. You know, um, that's one of the things that keeps us so busy. And everyone's got a different plan, everyone has a different approach, everyone has a different life situation.

SPEAKER_01:

And everyone has a different level of pain.

unknown:

Yeah.

SPEAKER_03:

Pain threshold. Yeah.

SPEAKER_01:

How much are they willing to pay in taxes today so that in retirement they pay much less or maybe none? Uh some of our clients are like taking all the pain they can take.

SPEAKER_02:

Yeah.

SPEAKER_01:

And then hoping, uh, you know, thankfully the uh the tax cuts were extended uh permanently, which means until somebody changes them, of course. Um so that does give us a window, but if you're 65 or older, like you mentioned, actually 63 or 64 and older, because they do look back a couple of years. Yeah, right. Um but part B does does make a difference. Are you willing to pay more Part B premiums for a couple of years to get more money tax-free, and how much more are you willing to pay as well? So, you know, if you're sitting down with someone that doesn't understand all this, and I'll tell you right now, there's a lot of advisors that don't understand hardly any of this. Okay, they understand maybe how to put some money in a managed account, you know, and things like that. Uh, you start asking some of these questions, then they'll look at you kind of sideways. That's why it's got to be somebody that's fully trained, it's a retirement consultant, that understands every level of this to make sure that you don't get bit somewhere else when April 15th rows around, uh, that you're not aware of it and that you're not prepared for it, and that you have the right level of how much we can convert this year, next year, and beyond from that standpoint.

SPEAKER_03:

Well, you know, you mentioned the advisor is not covering it. We have clients now whose previous advisors have told them straight up I don't do that kind of planning, um, which is fine, but you have to know what kind of relationship you're getting into with that advisor for sure. Um so a little bit about social security planning, timing. When do I take social security?

SPEAKER_01:

Sometime between 62 and 70.

SPEAKER_03:

That's it. That's what you do, folks.

SPEAKER_01:

So uh, you know, we start with software, um, but we end with conversations and we end with um uh talking to the client again about, you know, okay, to maximize your social security, we want this spouse to take it at 70, this one because her spouse would have taken 67, or whatever it may be, uh that's the perfect plan. This is the most money. And then the client looks at us uh at us and says, I don't want to wait till 70, I want to at least start by 67. Okay, let's do that. I'm just telling you that's the best way. But there's so many factors that come into play. Another example would be this. If you've got a lot of IRA money, which most people, that's where their retirement assets are, um, we want to spend that down some before taxes go up. So maybe we delay Social Security and let some of our IRA money replace Social Security until a later age because right now Social Security is less taxable.

SPEAKER_02:

Right.

SPEAKER_01:

So again, as you mentioned earlier, just another layer of things coming together. I just picture a 500-piece puzzle.

SPEAKER_03:

Oh, yeah.

SPEAKER_01:

And and you start building the frame, and then you start filling it in, and and you have to have to make sure that every piece fits. If one doesn't fit, you've messed up another place and maybe another place. And so that it's just it's so deep, and it's just uh that's why it takes us a series of meetings uh to meet uh to begin working with a client. And even then we want to meet with them once, twice, three times during the year as well to keep up with this.

SPEAKER_03:

Yeah, there's so many preliminary conversations. Uh how long do you expect to live? And I know we can't predict the future by any means, but if you have a family history of good health and longevity, then odds are you might want to wait as long as you can so you get that biggest maximum check for the longest time period. But if if your health isn't so great or you have a rough family history, you might consider taking it earlier. Um also you might just need it. You might just need to turn it on. Um when there are two spouses involved, there's also a little bit of um what happens after you lose a spouse kind of conversation, too. Take one, let the other one grow so that the uh you know when you're the survivor benefit is much larger for sure. There's so many so many angles to the conversation.

SPEAKER_01:

And then there's the earned income equation.

SPEAKER_03:

And I was just about to get that. Exactly. Are you retiring? Well, how are you going to work part-time in retirement? Is are you retiring before or after your your full retirement age? You can only make so much per year and receive Social Security without having to pay some of that back.

SPEAKER_01:

That's right. Or not get any of it at all. Might as well have waited if you're making enough part-time money. You won't get any Social Security check. You could have waited, let it grow between six and seven percent. I'm sorry, between six and eight percent a year.

SPEAKER_03:

And that's something that's really important to tell the IRS too. And we've said this before, but so-and-so retires. They do their bucket list the first couple of years, and they're I'm I'm bored, let's go pick up a part-time job. Well, maybe they didn't tell uh the social offices of the social security that they were working again, and then after they file their taxes, their tax return, all of a sudden they get a letter in the message.

SPEAKER_01:

But eighteen months later, a little letter we owe us eighteen thousand dollars. What is it? It's uh you lose a dollar for every two dollars over twenty-three thousand five hundred, it changes a little bit every year, but right around twenty-three. And that be be careful to understand that is earned income. So it's not pension money, it's not social security money. But if you go out and get a job, if it's ten ninety-nine money, if it's W-2 money or whatever, um that's going to count against that penalty. But again, if you're if you're full retirement age, which most of you listening now are 67 or older, then you're okay. But under 67, it uh it will bite you.

SPEAKER_03:

Yeah, that's good. So and keep in mind you can still work if you're under your retirement age. Mark mentioned it really really briefly. 23,000 or 25,000 now. I can say that.

SPEAKER_01:

It's 23 something right now. I think it hits 24 maybe in 2026. Yeah.

SPEAKER_03:

So everything can there's a we can make general statements, but uh blanket statements don't work for individuals.

SPEAKER_01:

I love folks that come up to us and say, yeah, I read an article on on Google that uh everybody should take it to 62. I said that's funny. The client last week said everybody should take it at 70 based on the article they read.

SPEAKER_02:

Right.

SPEAKER_01:

And anything that says everybody, throw it out the window. It's like saying everybody should take high blood pressure medicine.

SPEAKER_02:

Yeah.

SPEAKER_01:

Everybody. Uh or or high cholesterol medicine or whatever. I'd like to know if I have a problem first.

SPEAKER_03:

Yeah. Right.

SPEAKER_01:

So need to have a plan of care.

SPEAKER_03:

So as you can see, we've given so many different examples from so many different situations. How you fit your social security into your income plan differs from every person that walks into our office. Every conversation we have is a is a different strategy. And okay, when, how, what do we need to do to fill our income gap? Do we have an income gap? At what point do we and so you can see this is just one element. Income planning, growth in income is one piece of the pie chart of retirement planning. Um, and like I said, it's all got to work in together comprehensively.

SPEAKER_01:

Yeah, just picture all these different circles connected. Uh every circle, and it's probably there could be up to 15 to 18 different circles uh of of retirement uh areas that need a strategy. Not everyone may apply to you individually, um, but there are about that many areas that could need some work. And if they're all connected and overlapped, uh like Evan has said a couple of times, you make a change there, it's gonna ripple. You know, almost like almost like a pebble in a pond. And so what do you do about the ripples and how do you uh you know make sure those line back up with what you were doing? It's not like a pool that automatically just fills back in. Right. Now you've got permanent gaps that you've got to go back and address. And and I don't know how folks in today's world with the complexities of retirement and taxes and everything else going on and our long lives can retire without a retirement planner. I really don't. You need help. Now, you know, if you if you have no money, actually we have people come see us that have no money and we help them as well. But you know, I think the more money, the more heirs, the more uh different kinds of incre income streams you have, the it just becomes more complicated. But it's complicated for folks that we have to come see us that are that have a hundred thousand dollars and fifty thousand or two hundred because I I tell you what, you've got to squeeze that money, you've got to squeeze every dime out of that money to make sure you don't run out of money. And so we've done great plans for folks with a hundred, two hundred, three hundred thousand as well. So don't don't say, hey, I don't have enough money for a plan. That's like saying I don't have enough stuff for a will. You better have a will anyway, you know, no matter how much stuff you have. So kind of the same thing with this, whether you've got$100,000 or$100 million, you need a plan if you want to maximize uh your legacy, maximize your life.

SPEAKER_03:

Yeah. And folks, I do want to remind you, check out masterplanretire.com. There you can schedule your complimentary consultation. We'll do that via Zoom. Come visit us in our uh Marietta office face to face. We'll buy you a cup of coffee.

SPEAKER_01:

Glad you joined us until we see each other again. Remember, plan well and prosper.