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Visit Yamava.com/palms to discover more. Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now while building a plan for financial freedom in 10 years or less. Today we tackle the topic of Social Security.

My guest is Devin Carroll from the website SocialSecurityIntelligence.com. Devin, we're gonna start with how on earth did you get focused on this particular area of financial planning? - Well, it's a good question, Joshua. And first, thanks for having me. I've become a big fan of the Radical Personal Finance podcast and have listened to a number of those episodes while I'm out mowing my grass or doing something else like that.

But, you know, I realized back in 2011 through a conversation with a friend that after, at that point, nearly a decade of being a professional financial planner, I knew nothing about Social Security. And that was not a good place to be, but I suppose I took some comfort in the fact that none of my peers knew some of these things either.

(Joshua laughs) So, you know, I felt a little better, but at the same time, I realized that maybe along that 10-year period, I'd given some advice that wasn't the best it could be. So I stopped what I was doing in my practice at that time. Any marketing efforts I was doing, anything like that, and I slowed my entire practice down to a maintenance level, and I went back and I relearned everything that I thought I already knew about Social Security.

So I took this material with me on a family vacation. I would study it at home at night, and I still remember I was the scoutmaster of a Boy Scout troop, and I took it with me that year to Camp Orr, which is a beautiful camp up in the mountains of Northwest Arkansas, and I sat outside my tent and studied this material and trying to learn because to keep me motivated, you know, as some new runners will do, they'll schedule a 5K or a marathon.

I had scheduled my first workshop, and I was so worried that I was gonna be asked a question that I didn't know the answer to, so I poured myself into it. It's a similar experience to mine. I had been a financial advisor for a while, and Social Security is not something that is--it's not really covered on any of the CFP exam to any great degree at all.

I'm trying to remember if there's any questions on it. I don't think there was even anything on it, but maybe there's a couple, but not much, and I'd done various--studied different aspects of professional financial planning, but similar to you, we never really got much into Social Security, and I had almost the same wake-up call where I attended--my firm invited a Social Security expert in to give a seminar for our clients, and I went to the seminar, and I was sitting there, and the things that the presenter was saying, I just--my jaw dropped, and I said, "I don't know what I'm doing," and I made a couple of commitments.

I committed, number one, that I wasn't gonna give Social Security advice anymore because I just didn't know-- I didn't know what I didn't know, exactly like you, and I also got the-- I kind of committed that I'm gonna treat this more importantly because when you actually compare it on a financial planning perspective, Social Security can be such a valuable resource for your--for our clients, and so I've tried to do a little bit of work, but I'm especially interested to learn a little, but I'm especially interested in talking to you about it because this has also always been one of my backup plans, and I thought about different models of financial planning practices that I could do.

I realized that if I wanted to have a practice that didn't involve licensing, didn't involve any custodianship of assets, but yet was still incredibly financially valuable, that I could do Social Security consulting, and I became convinced as an advisor after studying it a little bit that I would send all of my clients to-- who were in that transitional phase to retirement to a Social Security expert to sit down and go through their options comprehensively, and I said, "Well, if I could send it to someone else, that's a good backup plan for me." So you do this professionally now?

You do a little bit of planning in this area? You do consulting? How do you work in this area? Yeah, so I have lots of free resources out there. I'm a big believer in giving lots of free stuff out there, and that alone will turn back into business for me sometimes, but what if it doesn't?

That's fine, but a lot of times after individuals will read my free resources or they'll attend one of my webinars or one of my workshops, they'll need to take a deeper dive, and when they do, I do offer my services on a consulting basis, and you can access those right on my website.

That's awesome. I love that business model just because it's something that I've thought about doing. So let's dig into it, and the way I want to conduct this interview is I want to start from the perspective of the most asked questions and topics that you get, and then we'll drill down to the ones that you think are most important but aren't asked about.

So to begin with, what is the question or topic that you get asked about the most? Well, so when we think about Social Security, I was actually taught when I came through with one of the big major broker-dealers early on to downplay the role of Social Security, and so I think that's the financial education that a lot of individuals have received is that Social Security isn't that important for things like, "Well, if Social Security is still there, when you retire, Mr.

Client, it'll just be icing on the cake. We've got a plan as if it's not going to be there." But the statistics are telling a different story. In fact, if you look at it, retirees on average are getting 38% of their retirement income from Social Security, and I mean, that's nearly 40%, but even that doesn't tell the full story because when you really boil it down, that includes the Warren Buffett types and some of the big income earners.

When you look at married couples, 52% of married couples get half of their income from Social Security, and if you're single, it's even more. It's 74% of your income comes from Social Security. So I think the first thing, if I could make people realize anything, is that Social Security is very important, and it's going to be a big part of your retirement income.

So let's dig into that. I don't disagree, but I'm not so sure that that data implies the actual causal factor because most people would look at Social Security and say, "Yeah, but the Social Security payment is only $1,200 a month. I'm not going to live on $1,200 a month.

That's not going to be a big factor of my income," and if you're working at a big brokerdealer, you're trying to paint a picture and work with clients who are going to have millions of dollars, and so for clients who have millions of dollars invested, it is correct that their Social Security income will not be the major contributing factor to their lifestyle.

However, my understanding of the data, and again, feel free to contradict me, however, it's important to note that most people don't have money when they get old, and so for the majority of people who don't have any money, they have very few assets, their Social Security is the biggest factor in their retirement, and as you said, 52% get half of their income from Social Security, but it's not because Social Security is so great, it's just because they don't have any more money saved.

Is that accurate? Well, that's certainly part of it, but what's taking a lot of people by surprise is how much money it takes to create a stream of income. So, you know, if you go all the way back to 1975, back then, 84% of private companies offered a pension.

You know, so the good things about a pension, right, is income for life, and then it leaves some benefits for your spouse if you passed away before they did. But now, today, the last number from the Department of Labor, I believe, was 2012, but it was 11% of private companies offer a pension.

So that burden of providing an income for life has been shifted right onto the shoulders of the worker. And so now workers are retiring with $200,000, $300,000, $500,000 in their 401(k)s, and they're rolling that over to their financial advisor, and they're saying, "Okay, I need to get X number of dollars in income," and it's an unrealistic number.

So to recreate what the average couple is receiving in Social Security, say about $3,000 a month, that's taking an enormous amount of assets to do that. And so relative to the retirement account savings that a lot of people have, it takes a lot to replace that, and that's one of the reasons I say it's so important.

Okay. Yeah, I do think it's an important point, and I think that it would be unwise to downplay it too much because the data does indicate-- I think in most of our professional experience working with clients, for most clients, that stream of income, that steady, consistent, reliable stream of income is important, if not financially, at least psychologically.

It gives them a tremendous confidence in some level of income. So it's definitely--I'll agree-- it's definitely important to plan. So what next? What's the next topic that is most discussed or most requested of you? You know, in all--I think I've done somewhere around 18 workshops on Social Security. We've had hundreds of people come through these now, and the website is still growing, so lots of people consume the material that we're creating.

And one of the questions that I'm always asked is, "Devin, is there really any use in planning for Social Security? Don't you think it's going to be bankrupt anyway and we're not going to get any of it?" And so here's the thing. You know, as it relates to the future of Social Security, as long as people are working, Social Security is going to always have money.

The issue is, I don't know that people like us are going to be able to get the benefits that we're being promised right now, but because of the way that Social Security works, there's always going to be some money flowing through. So I think if you're mid-50s or older, there's not going to be any problem, but if you're younger than that, you can probably start to prepare for some change.

So let's dig into that a little bit. When you answer that question, what data or sources or resources do you go to to give that answer that you just gave? You know, a long time ago, well, it wasn't a long time ago. It was 2007, I believe. It seems like a long time ago.

The Boston College for Retirement Research published a paper, and I'm trying to recall the name of it, but it deals with the future of Social Security. And even though there's been some time elapsed since they published that paper, the responses that they gave in there, I think, are still some of the best that I've seen.

So that's where I form some of my early thoughts about the future of Social Security, and still, you know, I use that and couple that with some of the new stuff that comes out and some of the new proposals. Now, we've heard some stuff come out since then about means testing and things like that, but some of the stuff that has been around for years is still being mentioned.

Okay, so I'll take the, and we can pretend I'm playing devil's advocate here, and you take the very strong pro-Social Security position. I'll take the very pessimistic view. Yeah. Because without being devil's advocate, I can't stand the Social Security system. When I'm working, if I'm working for a client, it's my obligation to look through their eyes, and so I can wholeheartedly agree with you that Social Security is important.

It's an important asset, and it deserves good planning. But personally, if I could opt out, I'd opt out in a second, and I consider the whole system to be immoral because it's theft from some people at the point of a gun in order to pay other people, and so I just consider that entire structure immoral.

So it's not hard for me to move over into the pessimistic world. So when I look at Social Security, my personal opinion, kind of the hardcore downer on it, is that Social Security will always be there in some form or another, but that it will entirely default because in order to keep it there, the people who are in charge of directing the numbers will have to completely adjust the system in order to keep it going.

And so Social Security has been bankrupt, what, four or five times already? Completely insolvent and had to be readjusted systematically, and so along the way, it always is there, because politically, it's politically impossible for a politician to remove the program. You have this massive voting block of older people who are systematically going to vote in their own best interest of receiving money, and so to attack that, as George W.

Bush found, is one of the biggest challenges that there's ever going to be. So I expect the politicians to work around the edges, and you don't have to stop sending out checks in order to default on payments. All you do is you make certain amounts subject to taxation, you reduce the amounts based upon earnings, you adjust it, you means test it, you move the retirement dates later, and these things help to keep you fees on an accounting basis solvent, but in reality, you're systematically defaulting on the obligation.

So I think that's accurate. I think that's correct. What say you? Well, I tend to agree with you, Joshua. I mean, the promise that we have now of that, at our full retirement age, which currently for, as I said, at 67, you know, we understand that by the time that gets here, that full retirement age will most likely be higher than that.

So I agree with that. Will there be some type of means testing then? Probably so, but Social Security as a system will be here. Yeah, and I tend to take a cautious approach when I'm planning for someone that's in their 30s, 40s, and I think if you're in your 50s and up, it's time to start planning and to get very strategic about how you do it too.

Agreed. So do you go in personal planning? And again, that's where I kind of went straight to the political argument, but with the practical financial planner speak, do you go with 100% of current estimates for clients age 50 and above, 75% for clients age X through X? How do you approach it?

Yeah, so typically it's, you know, a lot of my clients that are less than 50 will have a strong preference for not including it at all. And if that's their preference, that's fine. Because one thing we know about a retirement plan if you're less than 50 is how much it's likely to change.

So if they want to exclude that and increase their savings, that's fine. If they're over their mid-50s though, I do tend to have some real conversations with them unless they have enough financial assets to where it's not an issue, you know, to meet their income goals. At that point, if they want to exclude it, that's fine.

But once they hit that retirement age, then we're using real numbers at that point and not the hypothetical stuff. But for your-- let's say that I were your client and I said to you, "Hey, I'm totally in favor of Social Security, but I'm 35 years old. Would you recommend that I include it at a 50% level of current benefits?" You know, I think I would certainly have a reduction factor applied to that simply because most of the people who are in here doing financial planning at 30, they're going to have some substantial means when they get to retirement age, and I do think that we're going to have some form of means testing.

Yeah, and to me, just from a practical planning perspective, I think it's valuable to plan there. When I was working with clients in that situation, I would-- many people-- and it seems like now even the majority answer that I experience is people say, "Oh, I'm not counting on Social Security.

It's not going to be there." Which, back to the political perspective, I think that's going to make a big difference in future years as the demographics change and we go from however many workers there are right now to a much smaller number. I don't have the data at my fingertips.

Do you know the number? You know what? I don't have that in front of me either, but I've seen it before and it's a shocking number. Yeah, I'll try to look it up in a moment and see if I can find it while you're responding. But the data of the number of workers-- So Social Security-- and again, Devin, you correct me if anything I say is factually incorrect.

I'm not an expert in this area. But people talk about something called the Social Security Trust Fund. It doesn't exist. There's no money set aside for Social Security. Social Security, the trust fund is full of IOUs. So there's not actually any money sitting aside. Social Security is a pay-as-you-go system, even though there are IOUs because the rest of the government has borrowed from the Social Security funding from times in the past when it was solvent.

But under the current world, it's not like there's money sitting there to pay it out in the future like a pension fund has to have its obligations funded on an actuarial basis. Social Security is not that way. It's funded based upon the contributions of current workers to the elderly workers.

Well, that has worked relatively okay. But when it started, there was a very high number of workers-- excuse me, a very high number of workers to retirees. And as demographics have adjusted, people having many fewer babies, many of the baby boomers going through old age, that number has changed dramatically.

And in the future, it's projected to be even worse. And so as the baby boomers die off and as the voting bloc changes, the voting power is going to go towards the younger generation. And I think that has the possibility-- I'm being foolish to predict politics decades in the future.

But I think that has a dramatic possibility of the younger generation simply saying, "We don't care what you were promised. We grew up thinking there was going to be no promise, so you deal with it, and we're just going to vote some of these benefits out." I think that's possible that it will happen something like that in the future.

Who knows? My point is just simply that the younger generation generally thinks that it's not going to be there. Back to the practical planning aspect before I got off track. I had many, many people say to me, "Let's plan as though Social Security is not going to be there." But they didn't have any money.

And so what I did practically was I said, "Okay, tell you what. Let's start with planning with Social Security there, and let's get you on track, saving enough so that your financial plan-- the charts at the end are going to look green and not red for shortfall, green for yes, we think you're going to be there.

And then systematically let's go ahead and start pulling the benefits back a little bit. So if you want to go from 100% to 75%, you increase your savings for a year, a couple years, and then we'll go back to 50%, and you'll increase your savings. And if after a while you're saving enough money to where you're actually going to be there, we want to get rid of Social Security, then we'll do it.

But this idea that you're going to be able to do this without any Social Security and you're not planning right now is--it's a dream. It's not reality. Yeah, yeah. We'll have to see what happens down the road, but I absolutely think Social Security is going to be a part of most of our retirement incomes.

And, you know, Joshua, I want to go back for a moment to something you said about opting out. We've seen some of the talk among candidates throughout this election cycle that we've been in here in 2016, and we've seen the proposal lightly floated about Americans should have the opportunity to opt out of Social Security.

So let me cover that just for a moment simply because you mentioned it. You know, most of us think about a monthly check in retirement when we think about Social Security. But the truth about that is is that it really offers a whole lot more than just retirement benefits.

So there's benefits if you become disabled, survivor benefits if you die, and then certainly the benefits that will provide some medical care through the Medicare system. But I think all of those offer some really valuable safety nets for risks that could occur decades before you retire. So give you a couple of statistics here.

Twenty percent of all Social Security beneficiaries are below retirement age. And if you want to look at some of the stats on children receiving benefits because of a deceased parent, one of the biggest categories, kids between the ages of 10 and 14. Last year, there were 467,000 children in that age group receiving a Social Security survivor benefit because one of their parents was deceased.

If you add them all up, there's more than 3.3 million kids receiving benefits. So it provides a lot more than just a retirement benefit. There's those risks that it covers as you move up to retirement as well. Correct. And by the way, I didn't mean to get into this like political debate.

It's fun to have and so I don't mind it. And I don't think my audience minds it, but I do want to get back to some of the practical stuff in a few minutes. But I'll just and I know you're not you're not here. You're not representing the Social Security administration.

You're just a financial advisor. But I'm pretty hardcore on this. I don't think I've talked much about it on on the show, but my issue and when I've looked at it, I have no legal option to opt out and not pay Social Security, not pay my Social Security taxes on earned income.

So I could at some point I could choose to become a tax protester and not pay those taxes. But I haven't made that choice thus far. But I do intentionally structure my income in such a way and I intend to do it more and more. I intend to structure my income into income streams of income that are not subject to Social Security taxation.

So whether that's royalties on intellectual property, whether that's rents, things like that where I can avoid Social Security taxes because financially I considered it's a total it's a total losing game because every one of those benefits that could be provided. I can provide those for myself for a much less cost on a much less costly basis in the private insurance market.

And so it's very easy for me to have life insurance to provide for my kids. Very inexpensive to do that. It's very easy for me to buy disability income insurance in case I become disabled. It's very easy for me to save and invest money. And yes, it's always possible that I might not achieve those things, but I'll take the risk.

And the whole idea of me going to my neighbor with a gun and saying, "You must pay for my children if I die," it's theft. And so I'm opposed to it on a moral basis. And yes, it doesn't matter whether the gun is removed from me by a couple of million voters and going through a governmental system and a police officer there is – they're going to put them in jail if they don't pay their taxes.

The point is it's still the same thing. It's about personal responsibility. I'm responsible for me. So whether you look at it financially and just simply say, "Yes, those things are there," or whether you look at it morally, it's not – I'm opposed to the entire system. Now, I'm in the – I don't know what percentage of Americans agree with me.

I would say it's well under 10 percent, probably a very much smaller – I'm just making these numbers up. So I don't expect my position to be influential, but when I come at it for me, I take a hardcore position. And although I haven't come to the place where I say, "OK, I'm going to do like some do and not pay my taxes," I certainly don't approach Social Security as a primary wealth-creation machine.

STEPHAN KINSELLA: Sure. Well, and I don't think that it should be. But I do think that it gives a safety net. And in principle, Joshua, I agree with you though. Being forced to participate in something like that, yeah, it kind of rubs me the wrong way as well. Here's some numbers though that I ran, and I know you're wanting to move on from this topic.

But I had a minister ask me. So ministers are one of the occupation groups that can opt out of Social Security. And so he came to me. He was a young minister just out of seminary, and he said, "So Devin, should I opt out?" And so we ran some of these numbers.

Now, there's some out there who have some radio shows and things like that who say, "Absolutely, it's a scam. You need to get out of it." So we ran some numbers. So here's what we found at the bottom of that. So for the average couple to replace Social Security and the Medicare that comes with that tax, you would have to buy life insurance.

You'd have to buy disability insurance. You'd have to save a ton for your retirement income and save a lot to pay for Medicare in retirement, which is still available even if you didn't pay the tax. You just have to pay full price for it. So it's somewhere around – for the average couple, you'd have to pay for life insurance, pay for disability insurance, and save around a million bucks.

That's just to replace what Social Security pays. Correct, but how much – so take that same person. And to me, we should disconnect the arguments because my argument is a moral argument. If that person was a minister, the Bible says, "Thou shalt not steal." So it doesn't matter whether I go personally to my neighbor, point a gun in their face, and steal their money or whether I go through the use of a majority vote to my neighbor and point a gun in their face and say, "You need to pay for me." We're still dealing with the moral question.

But from a financial question, how much – so as a financial advisor, that same person to that person on the radio who gives the advice, if you took the same contributions that that person would be making towards Social Security, would you not feel more confident that you as a financial advisor, if they took all your advice, they could produce a better outcome on the other end?

So I don't know. Right. And I'll tell you why. I ran the numbers and I have those numbers in an article that I wrote. But I'm wanting to say that the return that we would have had to have achieved to break even was 5.9 percent. That's to break even, right?

So if you would have taken those same dollars and paid for life insurance and paid for disability and invested the rest and we could have attained 5.9 percent, you would have broke even. So how much is that risk worth? And I think that's what's difficult. Now, I may be a little off on that number.

I'd have to go back and find all the data for that article that I wrote. But it's somewhere around there. And I would – it wouldn't surprise me. So – and I'll link to the article in the show notes if you send it over after the interview. And we'll jump to the practical.

But to me, the major problem – and if we look at things through a utilitarian viewpoint, meaning what's the best system for us to involve in, then that's where the financial arguments hold weight. That's where you say, "OK, well, look. You're better off participating in the system over here." But I personally reject utilitarian philosophy as an appropriate philosophy.

And so with the social security system, it's not my job to compel the government agents to care for the widow next door. It's my job to care for the widow next door. It's not my job to compel the government agents and through the other people to care for my children.

It's my job to care for my children. And so when you start putting those things together, to me, the compelling moral argument that didn't take place under the system of when social security was put in place, it just came down to, "Hey, you'll get yours." But we've seen that that will eventually break.

I did find – by the way, real quick, Devin. I did find a few statistics and I'm just quoting. I found several charts but I'll just read a few paragraphs here from one short article here from the Cato Institute. So Cato Institute, Libertarian Leaning Think Tank, filter that. First, the current social security system is what is known as a pay-as-you-go system.

It is not a savings or investment system but a simple transfer from workers to retirees. The payroll taxes from each generation of workers are not saved or invested for that generation's retirement but are used to pay benefits for those already retired. The current generation of workers must then hope that when their retirement comes, the next generation of workers will pay the taxes to support their benefits and so on.

Obviously, a pay-as-you-go system is very sensitive to the number of people paying in versus the number of people collecting benefits. In other words, the ratio of workers to retirees is crucial to the financing of the current system. The current worker to retiree demographics in the United States spell trouble for social security and its ability to keep up with its promised benefits.

People are having smaller families resulting in fewer new workers paying taxes into social security and seniors are living longer and collecting benefits for many more years. Add to this the fact that the baby boom generation is about to retire and you end up with far, far fewer workers than retirees than when social security started.

In 1950, there were 16 workers paying taxes into the system for every retiree who was taking benefits out of it. Today, there are a little more than three. By the time the baby boomers retire, there will be just two workers who will have to pay all the taxes to support every one retiree.

Fewer workers for more retirees mean each worker bears an increasing financial burden to pay the benefit that social security has promised. The original social security tax was just 2% on the first $3,000 that a worker earned, a maximum tax of $60 per year. By 1960, payroll taxes had risen to 6%.

Today's workers pay a payroll tax of 12.4%. It's going to get much worse. In order to continue funding retiree benefits, the payroll tax will have to be raised to more than 18%. That's nearly a 50% increase. So that's just one article that I found. That's actually a 10-year-old article that was talking about the demographics.

I'll find something better and link to it in the show notes illustrating the demographic problem. And to bring this back in, Devin, to the financial calculation is you can go based upon the current system, but we know that there's a problem. If you were to reduce those benefits by 50% for that minister who actually had the option to opt out, now what?

Now what rate of return does it get to be? And I guess I have very little confidence in the actions of a voting bloc as compared to my own actions. Yeah. So go ahead. Give me your response. I'm going to go back and try to be polite, and feel free to just say frankly what you think.

Well, I'm always polite, but I'll tell you this. One of the reasons that I may not take too deep of a dive into the future of Social Security and really get into the weeds on that is that most of my day-to-day consulting is with people who are getting really close to filing or have already filed and have problems.

And so most of my expertise lies directly in the thousands of rules that relate to filing and prior marriages and things like that. So that's where I really bring the value. Frankly, I don't plan for that many 30-, 40-year-old retirements. Right, right. So I agree with you. So let's jump off this political thing.

To those who love this kind of conversation in the audience, Merry Christmas. I hope you enjoy it. And to those who can't stand it, let's jump into the practical because I thought this – I did intend to start to make today's show primarily practical. Devin, what's the biggest practical question that you get?

My guess would be the age. What age should I take it? What's the biggest practical question that you get though? Oh, yeah. You certainly hear that, what age. But the other thing that you hear a lot about is the earnings limitation. There's so much confusion about that, and it's relatively simple.

So I'll never forget I gave a presentation to a human resources group, and this lady was in the back, and she was in her 70s at that point. But she said that she filed for Social Security at 62. Her full retirement age was 65. But she didn't know about the earnings limitation.

So you can only earn up to a certain amount of wages and file for Social Security before the Social Security Administration starts to withhold your benefit amount. So she didn't know about that, and she filed because all of her friends at her weekly bridge club meeting said that she should file as early as possible.

Well, they weren't working. She was. And she filed for Social Security and went down to the car dealership and brought her a brand new Cadillac. And she was going to make that payment with that Social Security payment. So sure enough, the first couple of months ticked by just fine.

She received that benefit check, no problems. But then the Social Security Administration kind of caught up to it, and they said, "Wait a minute. You still have earnings reported here. We're going to start to withhold your benefit amount." So she had no idea, and there's people still quite often that I've run into that just don't really understand the Social Security earnings limit.

But it's not that difficult. If you file for benefits before your full retirement age, which is for those born between 1943 and 1954 is 66. And if you're born after 1954, it increases by two months for every year up to 1960, at which point it's 67. That's a lot of numbers I just spit out there.

But if you file before that age, you can only earn up to $15,720 for the biggest part of that. And if you earn more than that, the Social Security Administration will start to withhold benefits. So understanding that, you can't often just keep working at your job and file for benefits.

It doesn't work that way. And I think that is important because many people aren't aware of that. And it definitely does matter as you demonstrated with your example. And so the key data point is that's only applicable for those who file before their normal retirement age, correct? That's absolutely right.

After your full retirement age, there is no limit on the amount of earnings that you can have as it applies to the earnings limitation. Right. So that's the important data. If you're going to file early, don't file early. One of the things, it's a good joke to say, "Hey, you should take Social Security as early as you can." I've made it myself just to kind of say joking, but it's not good financial advice.

It's not good practical financial advice. If you're looking to maximize your benefit from the Social Security system, don't just take it as early as possible, especially if you're still working. Devin, do you know when Social Security was originally instituted, was there a reduction of benefits based upon earnings? Or was that one of the patches that was put onto the system when it became insolvent in the past?

I'm pretty sure that that earnings limit was applied later. It's not meant to be – and Social Security never was started out to be an individual's sole source of income in retirement. It's a safety net. There was a generation of people who were living in retirement completely destitute. So Social Security came about and I believe that earnings limitation came on later, although I can't say that with authority.

Right, and I was trying to verify that myself and I also can't – to my impression as well, I do know that the taxation of benefits, which is separate from the reduction of benefits, but the taxation of Social Security benefits was added as a patch. I think that one came in under Reagan.

Is that right? Do you know that to be a case? Yeah, so it was the – I'm not sure what year the taxation was added in, but I do know that that was added in later. And it's been changed since too. At first, it was just a 50 percent and then there was another band added to that.

Right, and so these would be some of the important things that you need to calculate as far as the total taxation of your earnings and whether or not there will be a reduction based upon your other earned income when you're calculating when to take it. What other advice do you have for somebody when you're meeting with them?

They're 60 years old. They've got plenty of options. How do you advise them to go through the thought process of deciding when to take Social Security? So first of all, we throw away the old when question, right, and we discuss more how. Now up until April of this year, we had some pretty compelling switching options and creative filing strategies that we could use.

But those are gone now, but just because those are gone doesn't necessarily mean that we don't need to be strategic with the way we file Social Security. One of the examples I like to use is we have an IRS office here, and I would never dream of just loading up all of my stuff for the year up into a big box and taking it up there and dropping it off and saying, okay, you guys call me and let me know what I owe.

There's no way I would do that, but that's the same direction that a lot of people take with the Social Security benefits they receive. They just go on the word of what they hear from the Social Security office, and I think that it's important when you're getting ready to retire to have a very strategic plan.

You know, just because you have a bucket of income available doesn't mean that you need to pull income out of it. There was an example that I ran for one of the workshops that I did, and I had a CPA come in and audit these numbers for me because it didn't quite look right to me, but it turned out to be accurate.

It was two couples that had identical income. The only difference is is that up front, one couple pulled out more in their 401(k) and deferred their Social Security filing decision. And then so later, they turned their Social Security on and they were able to pull out less from their retirement accounts.

The other couple just started their Social Security when they could, started pulling out retirement accounts, but for both couples, their income was identical throughout the course of their retirement. They just came from different buckets. And what was interesting is that the couple that was strategic with their filing plan paid $32,000 less in taxes throughout the course of their retirement, and they took $43,000 less out of their 401(k).

So it goes back to those buckets of income and being very careful about how you're tapping those to make sure that you understand the implications of doing that. Given that example you said, was the optimal strategy to pull more from the 401(k) in the early years and to defer the retirement or was it the other way around?

No, so in this case, the optimal strategy was taking more from the 401(k) or these retirement accounts early on and deferring Social Security until later. And here's why. The American College aptly names this the Social Security tax torpedo. It's because of the way that your income moves your Social Security through the taxation brackets.

And so if you can get most of your income from Social Security, which only half of is counted, you're usually much better off. Interesting. This is where paper goes much better than a podcast to get into the details, the numbers and the scenarios of A versus B. We'll just wrap that one up with a meaning simply to say that it's a good example of a strategy that needs to be considered.

And a major cost for most retirees, one of the major costs in retirement is going to be taxes. And so doing good tax planning, figuring out which buckets of money to draw, when to draw them from is going to be a major point of optimization where you want to get good financial advice or you want to work through it carefully in your specific situation.

Absolutely. And let me tell you, based on that, we did write an article that covers that in detail. And I'd be happy to send you a link to that for your readers. Yeah, do that. What's the biggest mistake that you see people making when it comes to their filing decision?

I think it goes back to just going down and filing, not taking into account spousal benefits and not checking for other benefits, especially with women. So here's the deal with Social Security benefits and women. There is a bit of a gender bias here. Social Security is more important for women than it is for men.

Why? Well, there's a couple of things. According to the Social Security Administration, in 2014, the average male Social Security benefit was $16,398. For a female, that's $12,520. So they get quite a bit less in benefits. Now, that's because they didn't have the earnings history in most cases and they didn't pay in as much.

But in addition to having that lower Social Security benefit, most females depend on Social Security for a greater percentage of their living expense. This, again, it's that same report by Social Security. It says that most men count on Social Security, and this is among single individuals here, for 35.9% of their total income, but women count on Social Security for 52% of their total income.

So it's important for everyone, but I think it's especially important for women and especially important for women who've been divorced, widowed, or remarried. They need to know their options inside and out because there's case after case after case of someone going down, especially if they've had more than one marriage, and not getting benefits that they're entitled to.

So explain what the rules are with regard to a divorced woman being able to draw on the earnings benefits of her ex-husband. Sure. You know, the length of marriage rules is nine months, one year, 10 years. So for survivor benefits, if you're currently married and you're currently married for nine months, you'll be eligible for survivor benefits.

If you're talking spousal benefits, it's one year, but if you're divorced, you could be eligible for either survivor benefits or spousal benefits if you meet all of the conditions. But to do so, you had to have been married to that spouse for 10 years. So as long as you were married for 10 years and you're not currently married, you can go back, and let's say that you had three marriages.

If all of those marriages have ended and you met the length of marriage rule, you can go back and pick the highest benefit from those three prior spouses. But you're only entitled to draw on one of those benefit records. Just simply you can choose the highest one. That's right.

That's absolutely right. You know, I still remember Linda. She lived in an apartment complex not far from my office. And years ago, I remember these apartments. They were pretty nice. But time and I suppose the management of these apartments hasn't been kind to them. And now it's not quite the environment that Linda would like to have.

It's not exactly safe. If she goes in after dark, she had to go in with somebody to walk her in the door and just not really a good situation. But the problem was she couldn't afford to move where she wanted to move. But that was all a bit of a side story.

She heard about my Social Security consulting and she came in to see me. And we sat down and she was drawing benefits off of her immediate prior husband who was deceased. So she was getting the survivor benefit from that husband. They were married when he passed away and the Social Security Administration looked at her benefit.

They looked at her survivor benefit and determined that her survivor benefit would be more. So that's what she started to receive. What they didn't do was go back and look at the work history and the benefit amount available to her from her first marriage. And when I talked to them about this, they said, "Listen, we will go back and look at prior marriages if the claimant requests us to.

But otherwise, we're going to look at the immediate prior marriage and that's it." So she was able to go back and look at that prior marriage and see her benefit increase by $300 a month, which was enough to allow her to move to that new gated apartment complex that she lives in today.

So for her, it was pretty important. Now she has a little bit more peace of mind than she had before. And it was just because she found out one of the roles. And that to me is the biggest thing that I learned studying a little bit of Social Security myself, never practicing it to the point of expertise and paying attention to in some seminars that I went to.

There are so many little rules which might not apply to other people but might apply to you if you find it, whether which ex-spouse are you drawing on the earnings record? Are you drawing off of a spousal record and deferring your own or are you deferring, pulling off of your own record?

How long did your marriage last? All these little things and they can make a major difference in some situations. And yet you cannot get -- you can't get the advice from a Social Security administrator for a couple of things. Number one, they might or might not be capable of giving you the best advice.

But my understanding is they are not legally permitted to give you the advice. And there are even some options that you can ask if this can work or can I, for example, can I pull on my -- what is my spouse's, ex-spouse's earnings record? What is their normal -- what is their primary insurance amount?

You can ask some specific questions but they can't volunteer the information. And so you've got to go to an independent advisor or an independent expert or you've got to read the books yourself and learn the strategies in order to be able to get the good advice. That's right. You know, they're going down the same road that the IRS is going down.

And my workshops I'll often ask people, how many of you have called the IRS recently for tax help? And occasionally I'll get some people that will raise their hand and I can still remember I tried that when I was much younger and it was awful. You know, they want to direct you to their website, which is understandable.

I get it. They don't want to take the risk of giving you personal advice. Here's the problem with their website. Between ssa.gov and socialsecurity.gov, there's more than 110,000 web pages. It's drinking from a fire hose and you'll find stuff that seems to conflict with other stuff and it's just complicated.

It's awful. Right, right. Even just learning the lingo. Okay, my primary insurance amount but the spousal benefit but wait a second, what is, you know, all these benefits. Most people, my experience has been that many people are not even aware that social security has a survivor benefit. And so I always used to show these in financial plans for life insurance.

And my financial planning software would make it easy to automatically include the social security survivor benefit for minor children. And so I'd always demonstrate that benefit and people would ask me, wait a second, huh? What are you talking about? And I was like, yeah, this is the social security survivor benefit that you can plan.

This is the social security benefit that you're pretty safe to plan on. Like this is not controversial. If there's a death certificate for the earnings, for the earner and for the wage earner, then these minor children receive benefits. Here's how the benefits work per person up to this maximum monthly amount regardless of the number of children.

Here's how it works. And many people had no idea that they were even getting that benefit. So there's just a total lack of great knowledge. And even if people want to get the good knowledge, it's very hard to wade through the documents without all of the – even the vocabulary.

Right. You're absolutely right. So, Devin, I feel like we had a great conversation but we almost barely scratched the surface of where somebody should go for good information. So when you set out to become an expert on this, how did you do so? What did you read? Because a lot of members of my audience are do-it-yourselfers, and they just want to know what to read, what to do.

What did you go to and what resources have you found to be the most helpful in your education? So just browsing online, I found lots and lots of material that allowed me to just get a very broad knowledge of what I thought. Again, I already knew. I really think though for me when I learned most of it was when I started taking questions, and I would have to do some deep dives.

The information is there if you know what to look for. So for the do-it-yourselfer, there's a lot of great websites out there that cover Social Security. There's mine, Social Security Intelligence, but Financial Ducks in a Row, Jim Blankenship is another one that I go to quite often and read his material.

There's a lot of people that write some really good stuff about Social Security. Do you have any books that you'd recommend? For example, I've recommended Social Security Strategies by – I'm blanking on the author's name. But the Social Security Strategies book was extremely helpful to me studying it as far as my master's degree.

Do you have any other books that you think are extremely helpful? So yeah, there was one recently that was released, and this is funny for me to recommend a book that I'm just now starting to work on. But the reason I'm confident in recommending this book is I've read her other material, and it's Emily Guy-Burken's Social Security Guide.

And she – it's Making Social Security Work for You, I believe. And I'm going to feel awful if I give it the wrong name, but it is her most recent book, and I have started reading that. And it's an informative read that breaks it down and makes it really simple.

Yeah, it's called Making Social Security Work for You. So I haven't read that. I know, Emily, but I haven't read that. I'll have to ask her for a copy. Maybe I'll have to do a review of it. Awesome, Devin. I appreciate you coming on, and I think it's a good exposure for people to the subject.

Go ahead and share with us more. You have your website, socialsecurityintelligence.com. You have articles on all these different topics there. Do you have any other media materials, and you also – and tell us about your personal consulting services as well, please. Yeah, thank you. So socialsecurityintelligence.com, lots of articles that's on there.

There's also a webinar coming up. This will be August 30th, I believe, that is a deeper dive into social security for women. And we're going to be talking about women that have been married before, widowed, divorced, whatever the case. And making sure that you're receiving all of the benefits that you're entitled to.

So that's going to be coming up, and I believe there's a way right on the front page of that website to sign up for that webinar. As far as my personal consulting services, that is right there in the top right-hand corner of the website. You can click on that to get more information, and it'll tell you how to get in touch with me if you've read through the website and you need a little bit more information there.

So – Devin, if I made you king of – emperor of the world, and I said you've got to fix social security, what would you do? Well, we may be going back to the political conversation here. That's okay. If you – so here's the thing. We know that once you boil everything down, there's only two ways to fix it.

There's either a benefit decrease or a tax increase. One of those two things and probably a combination of those two are going to happen. So I don't – how I would fix it, I'm just not going to go there. Okay. Yeah, you've got to practice to maintain – you can't anger everybody like I can.

That's right. Very good. Very politically astute of you. Devin, thanks for coming on. I really appreciate it. Joshua, thank you for interviewing me today. Thank you for listening to this episode of Radical Personal Finance. If you're interested in building financial freedom for yourself and your family, please subscribe to the podcast with our free mobile app so you don't miss a single episode.

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