Social Security: When You Should Start Receiving Retirement Benefits

Presented by Ricardo Rodriguez

Ricardo Rodriguez:Good morning, everyone. I hope everyone’s having a good morning, and thank you for coming. Just want to do a really quick mic check. If you could use your chat function and type in if you could hear me or not, I’d really appreciate that.

Okay, great, so you guys could hear me. Thank you so much. My name is Ricardo Rodriguez. I’m a financial advisor at the Credit Union of Southern California. Today’s seminar is called Social Security: When You Should Start Receiving Retirement Benefits. Many people assume that they should start receiving Social Security retirement benefits as soon as they retire and stop working, but that’s not the case. Retiring and claiming Social Security benefits are different. You have options, and learning about them will help you make a better, well-informed decision as to when to start receiving the benefits. At the end of the presentation, I’ll be glad to answer any questions that you might have. Let’s get started.

Again, I’m a financial advisor at the credit union. There’s a total of five financial advisors at the credit union. I have four other colleagues, Ryan Gallo, Tom Tan, Michael Gennawey, and Joseph De Maria, and we also have an assistant. Her name is Janet Maldonado. We’re pretty much spread out throughout the credit union branches. I’m based in the branch in Whittier on Greenleaf Avenue. If you’re ever in there, please feel free to come by and say hi to us. Again, if you have any questions specifically about your specific needs, you could always contact us, anyone in the group or me specifically. At the end of the presentation, I’ll provide our phone numbers.

All right, so let’s get started. When should you start receiving retirement benefits? As you approach retirement age, you’ll be able to claim Social Security benefits. Claiming your Social Security benefits is probably one of the biggest decisions that you’ll make. Should you begin receiving benefits at your full retirement age? Full retirement age is considered age 66 to 67, and depending on your birthrate, you could also start receiving Social Security benefits at an earlier age, which is 62, but the benefit amount that you’ll be receiving is a little bit less than if you waited till age 66 or 67. Or should you wait past your full retirement age and receive a larger monthly benefit? And that begins as late as age 70. Basically, what you want to consider here are three retirement ages to consider. There’s age 62, or your full retirement age at 66 to 67, or you could wait until age 70.

Why is this an important decision? It’s an important decision because one size does not fit every person. It’s a very personal decision. Again, it’s a very important decision that you’ll make. Once you start receiving the benefit, you can’t go back and cancel it and then start receiving it again at a later date. In other words, you can’t start at 62, then realize you made a mistake, then stop at 63, then wait until you’re 65 or 66 to start again. Once you start, you really can’t stop. It’s a really important decision and it’s all very personal based on your personal assets that you have, other retirement accounts, other bank accounts, and so forth.

I guess sometimes the answer isn’t simple as to when you should start receiving the benefits. You might have to start taking Social Security benefits as early as possible, and that’s because you might have day-to-day living expenses. If you’re 62, you might say, “Hey, I want to start receiving them right away,” and you really can’t wait. Some other factors to consider is maybe illness, disability, unemployment, but if that’s not the case, you might have to wait, or you should wait, until your full retirement age, which is usually 66 to 67.

First, when you take benefits could significantly affect your overall retirement income. With pensions disappearing, Social Security remains one of the major sources of guaranteed lifetime retirement income for most Americans. Once you apply, your retirement benefit is locked in for the remainder of your life in most circumstances, not counting annual inflation adjustments or recalculation to account for additional work. Taking the time to explore your options now can help you make sure that you’re making the right decision when you retire later.

The timing of the benefits can also affect your spouse, because he or she may be entitled to receive spousal retirement benefits and spousal survivor’s benefits based on the amount that you receive. Again, probably one of the most important takeaways here is that, once you start taking your benefit, you can’t go back and redo it. You can’t start at 62, realize that you made the wrong decision, stop at 63, and then restart at 65, 66, 67, or 70. It’s really important to, before you start receiving the benefit or elect to receive the benefit, really do a thorough analysis on what you have in other savings, retirement accounts, and so forth, and really do a deep analysis that we could help you out with at the credit union, or at the Social Security office, to help you determine what route or what age is the right age to elect to take the benefit.

But, again, the earliest age you could take it is 62, full retirement age is 66 to 67, and you could delay it up to age 70. Okay. Some things to consider is your full retirement age and benefit calculation, again, I just went over that; the amount of your future benefit; and the effects of early or delayed retirement, and I’ll get into that in a bit; how long you expect retirement to last based on your life expectancy. That’s a difficult one because we don’t know how long we’re going to live. Is it going to be a couple years after retirement, or some people are living up to 90 years or 100 years? It’s very difficult. That’s a difficult one to answer. Hopefully, everyone’s going to live a very long lifetime, 100 years old or so, but you just never know. This is a very difficult question to take into consideration because we really don’t want how long we’re going to live. Whether you plan to continue working, other sources of retirement income, income taxes, and finally, how your spouse might be affected.

Okay. Again, you basically have three retirement ages that you could start taking Social Security. These ages or these milestones or markers are probably the most important ones. You could first start retirement benefits at 62, but it’s a lower amount, or you could start at 66 to 67, and that’s considered your full retirement age, or you could wait until age 70 and receive a higher amount.

How your benefits are calculated. Okay. Social Security retirement benefit is based on the number of years that you’ve been working and your earnings over those years. To qualify for Social Security retirement benefits, you must have worked at least 10 years in a Social Security-covered employer, meaning that you’ve been working for a company and part of your paycheck goes to pay Social Security benefits. At least you should have worked 10 years in a company like that, which I’m sure all of us have.

When you become eligible for benefits, again at age 62, the Social Security Administration calculates your full retirement benefit. Your highest 35 years of earnings are indexed to inflation. Then they are averaged. Finally, a formula is applied to determine what’s called your full retirement benefit. You may also hear your full retirement benefit referred to as your basic benefit or primary insurance amount.

At your full retirement age, you will receive a hundred percent of this amount. Again, full retirement age is 66 to 67. But if you begin receiving your retirement benefits early, say, 62 or anytime before your full retirement age, again, your full retirement age is 66 to 67, but you could start at 62, 63, 64, and 65. If you elect anything between 62 to 65 or 66, you’ll receive a lower amount than your full retirement benefit. Again, it’s going to be a reduced amount. I’ll go over that. That’s the next slide.

How much will you receive by taking the benefit early? Again, the baseline is your full retirement benefit is age 66 to 67, but you could start at 62. In this example here, someone’s full retirement benefit at 66 is $1,800, but if they start receiving it at age 62, their monthly benefit is $1,350. Again, if you take it any time before 66 or 67, which is considered your full retirement age, you do receive less in terms of your monthly benefit.

Okay. Let’s move forward. Okay. In terms of percentages, if you take your Social Security at age 62 versus 66, it’s about a 33% less benefit. The difference between your full retirement benefit of $1,800 and $1,350 is roughly that percentage reduction. You could also elect to take the benefit later, at age 70. Again, here the baseline is full retirement age, anywhere between 66 to 67. You could start receiving benefits at 62, but at a reduced amount, or you could delay it up to age 70 and receive a much larger amount. Again, the big difference is about from age 70 to 66, you’ll receive about 33% more, and the difference between receiving it at 62 to 66, again, is about a 33% difference.

All right. This is the full spectrum of comparing the monthly benefits from age 62 to your full retirement age at 66 to delaying the retirement at age 70. Again, the baseline is full retirement age, anywhere between 66 to 67. You could start receiving benefits at 62, but at a reduced amount, or you could delay it until age 70 and receive a higher amount. Again, the big difference is about from age 70 to 66, you’ll receive about a 33% more, and the difference between receiving it at 62 to 66, again, is about a 33% difference.

One big difference between delaying the benefit from age 62 to 67, or age 70, is not only the monthly amount, but if you start taking at age 70, and if you add up all the payments during that time up until you reach age 70, the amount of money or benefits that you receive over that time should be about $129,000. But, again, it’s all a very personal decision and it really depends on where you’re at in your life. Some people like to continue to work, they like their job. Some people have other retirement benefits, they have income property, they have a 401k pension, they have savings accounts. It’s really all a personal decision and where you are in your life, and maybe you don’t like your job and you want to retire at 62; probably you want to retire a lot earlier than that, but really, it’s a very personal decision. It’s something that you guys should consider before you retire.

And, again, here at the credit union, we could go through all the different scenarios that are available for you with benefits. We could look at your retirement benefits that you have for your job, maybe it’s a pension or 401(k) or 403(b). We take into account other savings accounts that you have, and we look at everything.

One thing that this slide doesn’t show that I’ve seen quite a bit of is a lot of people come to me, a lot of members of the credit union, and they want to retire at age 62, so right when they’re eligible for Social Security benefits. The big dilemma that they have is that Medicare doesn’t start until age 65. If they’re not covered by any other kind of medical plan, so say, if they stop working at age 62, then obviously they’re not going to be able to be covered by their employer’s medical plan, so that’s not available. And if their spouse doesn’t have medical insurance or if they’ve already retired, then they’re not covered by their medical plan either.

Just as an example, say, if I’m single, I’m 62, I quit my job or I retire, I no longer have medical insurance, and then Medicare doesn’t kick in until age 65. That’s a three-year gap there. I often talk to people and they say, “Well, I want to retire right when I hit 62,” but then I ask them, “Well, what are you going to do for medical insurance?” and they say, “Medicare,” not realizing that Medicare doesn’t kick in until age 65. This is a big dilemma if you don’t have another form of medical insurance, again, through your spouse or some other means. What happens in this case is if you don’t have medical insurance, then you have to go out and buy it through a medical insurance exchange like Obamacare. The only problem with that is that medical insurance is very expensive.

I recently spoke with someone who is paying $800 per month. If you take that into consideration, so if you have to buy your own medical insurance for three years until you hit 65, assuming that you retire at 62, that’s $800 a month. If your monthly benefit from Social Security is $1,350, you back out $800, then you’re left with $550. That’s not enough to live off. You really want to take into consideration your medical insurance that you’ll have if you retire at age 62, 63, or 64, because medical insurance through Medicare, you’re not eligible until you hit age 65. That’s a huge consideration that people just don’t really take into consideration.

But then, during those years, you obviously want medical insurance, which is expensive. If you don’t have medical insurance and you have some kind of an accident, then you have to go through Medi-Cal, and if you go through Medi-Cal, what they’ll look at is your other assets. If you have other savings and accounts, you might have $100,000 saved up, Medi-Cal really looks at that, and you may not be eligible for Medi-Cal, so you’ll have to pay out of pocket, and that’s going to be very painful. Again, probably one of the biggest things that I look at, when people are looking to retire and they want to retire early, is the Medicare issue. Again, Medicare is 65. You’re not eligible to receive Medicare benefits until 65. Again, one of the things I didn’t cover earlier on is, if you’re a husband and wife and you’re planning on retiring, and you say, “Well, my spouse is still working and I’m just going to go on their employer-sponsored insurance plan,” you might want to check into that too, because oftentimes, if you add a person to their insurance plan, you have to pay an extra monthly fee for that, and sometimes it could be as much as $400 that your spouse is going to have to pay.

If your spouse is maybe paying $400 for her insurance, or their insurance, by adding you, they might have to pay another $400 to $500. It negates the reason of retiring because you’re going to have to pay more, or if you don’t have any medical insurance that’s going to be available for you, then you’re going to have to buy medical insurance through a program like maybe an insurance exchange like through Obamacare, and that might be very expensive.

Again, I just talked to a member recently and they’re paying $800 a month. If you’re going to take early retirement benefit at 62 and the benefit’s, like I said, $1,350 per month, but you’re paying $800 in medical insurance, it doesn’t make too much sense because you’re only going to net maybe $550 in Social Security benefits. Again, what I’m finding out is more and more people are really waiting until they turn 65 or waiting until they turn their full retirement benefit age, which is 66 to 67, to really start looking at Social Security, the benefits that they’ll receive.

I see a question here. It says, “Can a person apply online?” I think a lot of people are being encouraged to apply online now, but again, before you make any decisions and apply online, I would speak to someone. Maybe make an appointment at the Social Security benefit office or speak with a financial advisor. You can apply online, but once you make the application and you make the decision to go for it, that decision is not reversible. It’s a big decision you’re going to make and it’s going to affect your entire retirement years. If you’re 62 and the life expectancy is 85, 90, 100 years old, it’s a decision that’s going to impact maybe a third of your life. Your spousal benefits are going to be impacted.

Take time, talk to people, talk to us, talk to your accountant, talk to your other advisors, most importantly, talk to the Social Security Administration office and they could really help walk you through it. Can you apply for it online? Absolutely. But before you do that, talk to someone. Talk to us.

Another question I see, “Covered California can help with medical insurance?” They can. I did see a commercial this morning coincidentally, where I think someone in LA County or people that live in LA County that are eligible can receive medical benefits or medical insurance for $1. I don’t know what the financial requirements are for that. Maybe it’s for very, very low-income people. Maybe if you’re receiving Social Security benefits, that knocks you out automatically. I’m not too sure. That’s one consideration, but I think a lot of it works like Medi-Cal.

Medi-Cal is for people that are with low, low-income benefits. The problem with Medi-Cal is that, if you apply for it and you have savings accounts, they’ll look at that and they take that into consideration. And say you have $50,000 or $100,000 saved in your savings account or you have other assets, Medi-Cal takes that into consideration. And if they see a large balance in your checking, savings, or money market accounts, they’ll say, “Hey, why aren’t you using those funds to pay for your medical expenses?” And that becomes a big dilemma. You don’t want to be in a position where you retire at 62, take early benefits at 62, not have medical insurance, and be chancing it during that three-year period until you reach age 65 when Medicare kicks in.

What you don’t want to do is get into a position where you retire at 62, take early benefits at 62, and then don’t have medical insurance, and you have an accident and have to pay a large medical bill. You don’t want to find yourself in that situation. Again, Covered California is an option, but I’ve seen those premiums quite high. I’ve priced it out with some clients, and it could be anywhere between $600 to $800 per month. Just to give you an example, that can be quite burdensome if you’re not able to supplement your income from different sources.

Okay. There’s another question that says, “Can your wishes for benefit distribution be added to your living trust?” That’s a very good question. I would say a living trust encompasses quite a few things. Typically, when you talk about Social Security benefits, you’re really talking about your spouse or your children. Minor children are covered up until they turn 18. Your spouse is definitely covered. A living trust encompasses quite a few things. It could encompass adult children who wouldn’t be eligible for Social Security benefits. It could encompass maybe the beneficiaries on a living trust could be charities. The quick answer to that is really it depends on who the beneficiary is named in the living trust, and I would say a quick answer would be that the benefit distribution into a living trust probably isn’t allowed. I’m not a Social Security expert, so I would really defer that to maybe the Social Security Administration. But the quick answer to that would be no. It’s really the only beneficiaries that would be covered here would be a surviving spouse, an ex-wife, or your minor children. It’s very personal decision that you make there.

Okay. Again, the first step is to contact the Social Security Administration office, get a benefit estimate, get a copy of your Social Security statement. You can also log on online in that socialsecurity.gov, and that way, you could guesstimate or estimate how much you’ll receive in benefits, how much you’ve paid into the system. Contact your Social Security administration office and discuss all your options at least three months before you reach age 62 or before you plan on retiring. Again, this is three months. I would recommend, given what’s happened with COVID and the closure of government offices and the delays with everything, I wouldn’t recommend three months, I would actually recommend nine to 12 months beforehand. A lot of offices have been closed. There’s a big backlog.

You could also apply online, by phone, or in person. You could do that. I think applying online means actually applying for the benefit and starting to receive the benefit. Before you do that, before you make any decisions that really are irreversible, talk to people. Talk to us, talk to the Social Security Administration, really figure out all your options, whether it’s medical, other assets that you have, other savings, other pensions. Again, the biggest thing is it’s not a reversible decision. If you start at 62, you can’t stop it at 63 or 64 and realize that you’ve made a wrong decision and restart it later on. Once you start, you can’t stop. That’s a very important decision. It affects your life, it affects your income, and affects your spouse, so be very careful with this.

And, again, my real-life example is my dad, he elected to take benefits at 62. He died maybe 15 years after his retirement and my mom was left, again, the age difference between my mom and my dad is about nine years, so her so her benefit amount now that she’s receiving is a lot less than she would’ve received if my dad waited his full retirement age. $1,000 doesn’t take you too far. Luckily, she has other resources. She owns her property, she doesn’t have to pay rent or mortgage, but I can’t imagine living on $1,000 a month. It’s a very difficult thing. Again, given where inflation is now, a $1,000 a month today is buying you a lot less than what it bought even just at the beginning of this year. Again, inflation’s 6 to 7%, probably a lot higher, so again, a very important decision that you guys have to make.

Before you make any decisions, again, a year before you want to retire, talk to people. Talk to us at the credit union, talk to the Social Security Administration office. And, again, one of the benefits of … hopefully you guys all live in Whittier, but there’s a very close Social Security Administration office in Whittier. It’s actually right up the street from our Greenleaf office, just a couple blocks away. The address there is 6700 Greenleaf Avenue. Again, that’s the office to the Social Security Administration office. They make appointments, they take appointments. Again, think a couple of months in advance to make the appointment. But, again, if you live in Whittier, that’s the most convenient office. Again, it’s located on at 6700 Greenleaf Avenue, and if you’re familiar with our office on Greenleaf Avenue, it’s about two blocks away.

That’s the conclusion of the seminar today. Thank you so much. Again, retirement can be an exciting time, very financially challenging. Before you make the dive and take the benefit, again, consider everything on the table, your age, how long you’re going to live, which, again, is a very difficult thing to estimate, your spouse, your children, your medical care, if you’ll have medical insurance after you retire. Those are very, very important decisions. And, again, think about it maybe nine months, 12 months, before you retire.

But thank you so much and I welcome the opportunity to meet with each and every one of you to address your specific questions or concerns that you might have. I’m available at the Greenleaf office. You could always stop by there, or you could contact one of our colleagues at the office. And thank you so much. I appreciate your time this morning and please stick around. There’s the next seminar, and I think the next seminar is … the topic will be buying a home.

Please stick around, and again, thank you for the opportunity to allow us to meet with you. And, if you do want to meet with us, I’ll give you our phone number. My phone number is area code (562) 365-1899. Again, it’s (562) 365-1899. And again, I’m located at the Whittier Greenleaf office. We could sit down, and it’s a very personal decision that you’ll make, and we could sit down and review all your assets, medical insurance, everything soup to nuts, to make sure that you’re making the right decision for you and your family. Thank you so much, and you guys have a good morning.