The Biggest Mistakes Dentists Make With Social Security

On this episode of The Dentist Money Show, Will, Taylor, and Powell discuss what dentists should know about Social Security as they plan for retirement. They break down when to claim benefits, the pros and cons of taking social security early or waiting, and how your income and business structure can affect your benefits. They also address common misconceptions about the future of social security, tune in to learn how social security fits into your overall retirement plan.

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Podcast Transcript

Will: Welcome back to the Dentist Money Show, where we help dentists make smart financial decisions. I’m Will, your host today, different host, but excited to be with you guys. And today I’m with Taylor, and we also have Powell with us. Powell, we’re excited to have this is his first podcast, right? First inaugural voyage on the podcast. Podcast Powell.

Powell Naylor: yeah. Fur long long time listener, first time contributor.

Taylor: Podcast debut.

Will: Yeah. Podcast P maybe is the new nickname.

Taylor: Ha ha.

Powell Naylor: We’re gonna we’re gonna workshop that a little bit more.

Will: Awesome.

Taylor: Yeah, we do. We do need to come up with a nickname for Pal at some point because we’ve got Will the Brain and

Will: Yeah, what’s your nickname?

Powell Naylor: Ha ha ha.

Taylor: mine is milk mustache. So apparently

Will: Okay.

Taylor: That’s what it’s that’s what we’re going with.

Powell Naylor: You know, these are these all need to maybe be workshopped a little bit. I’m

Taylor: Yeah.

Will: Yeah.

Powell Naylor: Not sure I’m c I’m convinced by any of

Will: Well good. Let’s have pal, why don’t you introduce yourself a little bit and give the listeners a little background into why we’re lucky to have you today.

Powell Naylor: Yeah. Well, thanks for having me. It’s great to be here. Like I said, longtime listener, first time contributor. So it feels like it’s been

Will: Love it.

Powell Naylor: A been a long time coming, but excited to be here. I started with Dentist Advisors in 2019. So I was actually sandwiched between Will and Taylor in terms of start. I

Will: Nice.

Powell Naylor: start after Will, before Taylor. But unlike these two, I took a little stint away from Dentist Advisors to be a financial advisor for primarily retirees outside of the firm and then found my way back just because Dentist Advisors they you know they bring you in and then they they don’t want you to leave for for good reason. It’s a great place to be, great people, great process. I believe heavily in the work that Dentist Advisors does and the process behind our business model. So it’s hard to stay away when when you’re working with a company that does business at such a high level. So excited to now be maybe continually contributing on the podcast. We’ll see we’ll see how this goes today, but good to be here.

Will: Yeah, we’ll see how it goes. This is the this is the trial

Taylor: Yeah, Pow

Will: run.

Taylor: Powell just learned something that Matt and I learned before him, which is it’s not always greener on the other side. So Matt and I

Powell Naylor: Yeah, I mean I started at DA when I was in school still. So I never ventured out. Like you guys had your your time away. You knew what it was like outside of Dentist Advisors. I had to kind of experience that. And Will’s just smarter than all of us and just started at DA and and trusted the process.

Will: Just lifelong. Yep. Trust the process. We’re doing a lot of seventy sixers.

Taylor: Well, Will Will knew Will knew like at his a young age that he was gonna be a dental specific financial advisor when he grew up and it took the rest of us a little bit longer.

Will: I did a little bit of work. I had to interview a bunch of financial advisors and Reese Reese, our founder, kind of had told me, Go see how the rest of the industry works so you can understand why we’re a little bit different. Which I thought was an interesting foray into my experience as a financial advisor. But anyways, yeah, that’s good. I look good. Yep.

Powell Naylor: Wisdom of Reese.

Taylor: Yeah. Yeah. Well, and I think honestly, just to like not to toot our own ho horn, I mean, all of us are drinking our own Kool-Aid right here. So it it’s you know, hard not to be self-serving. But coming from the background that I did being with another firm, I was really drawn to dentist advisors, not because they worked with dentists, but how they approach financial planning. Right. And I honestly believe that’s kind of ties into our subject today that we’re gonna get into, which is You know, we’re we’re gonna talk a lot about social security and when to take it. And this is kind of a hot button topic in financial content creation, right? If you’re a financial planner out there and you do content creation, there are a lot of hot takes around social security. And I just love Dentist Advisor’s approach, which we’re gonna kind of get into, which almost, you know, the nice thing about our job is our answer is always two words. And those two words are it depends.

Will: Yeah, I think

Powell Naylor: Yeah.

Will: It’s I think it’s perfect, Taylor, because I mean we’re lucky to have Pal with us on this podcast because he did coming from a background of working with mostly retirees, which the the to your point, it’s a it’s a very hot topic because it applies to every single person in this country for the most part, right? Like anyone who worked a job in this country is going to ask themselves the question at some point when should I take social security and why? what are the different like nuances to w how I choose this and so I mean it’s something that every it’s just like filing a tax. Everyone has to do it at some point. And so I think it caters to this slew of information, good or bad information. We’re not sure on all of it. But it ends up being really over gener generalized and really over like, I don’t know, maybe like under complicated. What’s the word I’m looking for? Like blankets, a lot of blanket statements, right? Where that don’t necessarily probably are not very helpful to just, you know, the regular person.

Powell Naylor: Yeah, and I think what’s kind of unique about personal finance, financial planning is you have these textbook topics, right? There’s a there’s a category or a core set of topics that are you’re taught when you do the CFP or other certifications of, you know, in general, this is the advice to give. But what it doesn’t take into account are all the different variables of somebody’s life that can tweak those. So what we do kind of our job is to distill these these textbook topics. And then adapt them to the unique situations that we work with. So that’s why we always say it depends. We could give you a textbook answer and you know it may hit, it may not. But when you take into account all the different variables of someone’s unique situation, that can really drive different answers, right? And especially when you look at Social Security or these other topics that you see often on social media, you know, the TikTok advice. They’re just taking those blanket statements. They’re not applying the unique situations. So that’s why it can be dangerous to, you know, follow blindly just something you see on a TikTok or in an Instagram post, because they’re probably just taking that that textbook answer and then projecting it out as fact when really they don’t they don’t know the context of their listeners. Right. And

Will: Right.

Powell Naylor: My life and Taylor’s life and Will’s life, you know, we’re pretty similar people, similar interests, but you know, we would all apply. the rule of social security differently in our lives and along with

Will: Yeah.

Powell Naylor: Multiple other different topics.

Will: Love it. Perfect. That’s a good intro. So without further ado, the the you know, a social security podcast, we’re gonna try to make it a little bit spicy for you and under, you know, so it’s not like we’re

Powell Naylor: It’s spicy.

Will: Just talking about something boring. I also think like we get I think there’s a lot of misconceptions about social security and and or misunderstandings. Like it’s not something they teach you in school, so it’s not, you know, it you hear these things about You know, social security is gonna dry up and all these like different topics around why social security is bad. And it’s also politically charged. So depending on what side of the political spectrum you’re on, maybe you believe certain things about social security that the others don’t. So we’re gonna try to kind of dissect it here. We’ll start basic and get into some more nuance. but Taylor, why don’t you why don’t take the wheel and tell us a little bit about Social Security from the start.

Taylor: Yeah, so Social Security is a social program to help care for retirees, right? It’s to provide an income for people in retirement until they die, right? So think of it as a pension, think of it as a social program. Social Security is not an investment. it’s not money that you’re putting in sp expecting to get a return on investment, right? So I think that’s a lot of the times where The split becomes or starts to happen where people get upset by Social Security because they say, Well, look how much money I put into this, and it could have been this, and it’s a joke that they’re taking this money from me. And then it just spirals from there, right? So depending on what side you lean politically or your own personal takes, there’s a lot of different emotions and and ways that people feel about Social Security. But if we try to ignore all that, like, social Security is just a type of pension for retirees in the US. Right. Now, because it is a pension, how you manage that pension really matters, right? I mean, this was, I remember growing up, pensions were like a really big thing in the news because it was bankrupting a lot of companies. people mismanaging pension programs and people outliving their pensions was a big issue. And so there is a lot that goes into managing a program that is supposed to be for every single US citizen until they die. Right. So diving into the details and how it’s managed and how it’s funded, that’s where there can be a whole quagmire of lots of political tension and turmoil. But we’re gonna ignore that and just look at the facts. And one thing, Social Security, just how is this financed? Part of all people that pay payroll tax, right? Which is if you earn a wage, you pay a payroll tax, and part of your payroll tax is going to Social Security, right? And Social Security is financed on a pay as you go basis, meaning money coming in from workers is then going directly to the Social Security program to be paid out, right? Then if there is any extra, that gets held in a trust. Right. And that trust is invested and managed and then goes to pay out towards future benefits. Right. So at its core, that is what Social Security is. And that is kind of how it’s funded. Right. It’s

Will: Yeah.

Taylor: funded through tax and any excess goes into a trust. Right.

Will: Tell tell like a dentist business owner let’s go through like how what how a dentist business owner pays payroll taxes. You wanna start there? I think this is important to understand because I

Taylor: Yeah. That’s yeah.

Will: I I think like this is the question mark is like what am I even paying in payroll taxes, right? Like there’s this song in this dance of like what should my salary be? And how much am I paying in payroll tax, not only on my income, but on my employees’ income, all those things.

Taylor: Well, I would say that bringing up a dentist is specifically a dentist that is a business owner. This is probably someone who has as much reason to hate Social Security as anyone else, right? Because Social Security and payroll taxes are paid by both the employee and the employer,

Will: Mm.

Taylor: Right? So when you are an employer and you have employees, not only are you paying payroll taxes on your own income that you pay yourself, right? Now that really depends. And we’re getting into, you know, depending on how you pay yourself as a business owner, do you file as a sole proprietor? Are you an S-corp? Do you have a W-2 salary? Right. so let’s break that down first, then we can talk about more. But again, when it comes to being a business owner, you have two main choices when it comes to your income, right? You can either file as an S-corp, right? Where you basically split out your income into two buckets, W-2 wages, and business distributions, right? You only have to pay payroll taxes on that W-2 wage, right? So this is where it really depends on what you decide to pay yourself, right?

Will: Yeah. And this is I mean, we have this conversation with lots of clients around like, hey, what should I pay myself as from a salary perspective? And it it is a little bit of a tightrope walk because in theory, you want to reduce the amount of payroll taxes that you pay. So the higher you set your mo I would say, let me just I guess we’ll give a quick blanket statement here. Most practice owners that we work with end up doing some sort of an escort filing if it’s, you know, a sole sole owner doctor. What that means is you pay yourself a salary as like a worker in your business, an employee in your business. And then the rest of the income flows through to you from the business, but doesn’t you don’t have a payroll tax on it. So you kind of pick and choose as the business owner how much you want to pay yourself in salary. The the key here is, and you’ll want to work through this with your CPA, of course, because this is not advice from us necessarily, but. You have a lot of push and pull because you’re like, well, I want to pay myself ten dollars a a year in salary. So I minimize the amount of six point two percent payroll tax that I’m paying. Well, there’s a catch there. You have to pay yourself a reasonable compensation. The IRS, just like most things, they’re not gonna tell you what it is, but they’re gonna they’re gonna audit you at some point, maybe, and get mad at you if it’s not right. Right. They don’t give you the answers, but they’re gonna get mad at you if it’s not the right answer later. So the reasonable compensation for a dentist, what I mean. It’s gotta be something like pretty high, right? Like it’s gotta be in the six figure range.

Taylor: Let let’s just say, let’s just say you can take any position you want on your tax return. And at the end of the day, it only matters if you get audited. And would this hold up in an audit? And so you could pay yourself 30,000 as a dentist, but is that going to hold up in the event of an audit? If that is that considered a reasonable wage for a dentist, you’d have a really hard time arguing your case if you are working four days clinically at your practice. that thirty thousand is a reasonable wage, right?

Will: Right. You would you it wouldn’t work.

Powell Naylor: And if you tie it into kind of what we’re talking about here, you pay yourself a lower wage, you’re putting less into the social security benefit

Will: Right.

Powell Naylor: For yourself. And we’ll get into kind of the formula here, the calculation, but the less benefit you’re gonna get when you retire if you’re paying yourself

Will: Yeah,

Powell Naylor: less.

Will: Ex expound on that a little bit because again, I think it’s a one kind of a one sided decision. Like I I want to pay myself less in salary and therefore I will pay less in payroll tax. But what is that like what’s the backside of that decision?

Powell Naylor: Yeah, so d Taylor, you want me to dive into kind of the Amy calculation here? Do you wanna

Taylor: I want let’s let’s hold off on that. This is where social security, I mean, you can just get lost in the details real

Powell Naylor: Yeah.

Taylor: quick, right? And Amy is a very easy way to get lost in the details. So I want to dive into that, but let’s like again make sure that we’re fully explaining this well first. So again, we’ve mentioned a couple of numbers here. Will mentioned six point two percent. It depends on the salary. So let’s just talk about you know, Social Security, you pay up to a certain wage base. Social Security tax, right? And then past anything past that wage base, you actually don’t pay social security tax on, right? So the Social Security tax, as we’ll mention, is 6.2% for an employee and at 6.2% for the employer, right? So this is where, again, at 6.2 doubled, that’s 12.4, right? That’s a pretty decent tax savings to be had, right? Reducing your income as much as possible, which is why, again, as well mentioned, there is a pull to bring that number down as much as possible, because the lower your salary, the less you have to pay on that 12.4, right? But anything above that wage base, you’re paying no extra dollars in payroll tax. Right. So the just so that we’re all clear we know what it is, as of 2026, that wage base is $184,500 for the year. Right. So you’re paying 6.2% as an employee up to that 184. And then your employer’s matching that. Right.

Powell Naylor: And due to that cap there is it correlates to a maximum benefit cap as well down the road.

Taylor: Exactly. Right. Which I think now, pal, you can explain kind of depending on how much you pay up to that base, that affects the benefit later on, right?

Powell Naylor: Yeah, right. So I’ll try to simplify this as much as possible. Tell me if I’m I’m being confusing here. But so basically there’s there’s a formula, right, to help you calculate what your benefit amount will be. And there’s an input into that formula. It’s called Amy, A I E, which stands for average index monthly earnings. I got that right, right? Average index monthly earnings. So basically

Will: Yeah, that’s good. Very good.

Powell Naylor: What that does is it takes your highest thirty-five years and averages them out. And so you have to, I guess go back a little bit. You have to work for at least 10 years in putting into the system to be eligible. And then it takes your highest 35 earning years, averages it together as an input into this formula. Now if you don’t work 35 years, there’s a zero and that zero does get included into the calculation. So each additional year that you work as a higher earner, you know, it helps the zero fall off and it also increases What that AME amount is. So you put that AME input into the formula, and what comes out is your PIA or your primary insurance amount. And that’s ultimately what your benefit is. And then once you have your benefit amount, there’s something called bend points. And tell me if I’m getting too much into the weeds here, but the bend points basically it’s a progressive system to benefit lower income people more directly. Right. So

Will: Yeah.

Powell Naylor: It’s I have my pen points here.

Will: I think I mean maybe we just summarize this at a high level is like the the your the l lower your income is, the more credit you get towards your social security benefit. So like the the cap is one hundred eighty four, like Taylor said. There’s like we don’t need to get the exact numbers, but the first like half of but you know, between zero and sixty grand or whatever, do you know the like the real numbers? Do you have it up for sure?

Powell Naylor: Yeah, so the first 1286, so 1286, you get 90% of that towards your benefit.

Will: Right.

Powell Naylor: Then 1286 to 6,500, you get 32% of that. And then above 6,500, you get 15% of that.

Will: Yeah. So basically it’s saying people who make more money actually don’t end up getting a proportionately larger benefit. It’s helping lower income people maintain their income and not really helping higher income people make the same income that they were before again because the benefit caps at some point. So it’s not this is where dentists may say, like it’s not really fair if you’re talking about how this would be fair because you guys as higher income earners don’t end up getting the proportionately it’s not apples to apples from a benefit perspective, right?

Taylor: Yeah. It’s not like, it’s not like if you put in, so let’s say it’s 184, right? And let’s say for your career you were half that, right? So you were making like what is that? $92,000 for your career. It doesn’t

Powell Naylor: Good math.

Taylor: Necessarily mean that you get half of the max social security benefit, right?

Will: Yeah, most of it. Yeah.

Taylor: You’ll get 70% of that main benefit if you’re there, right? And

Will: Right.

Taylor: that’s just so that again, there’s more income replacement, right? And It’s just helping care for retirees in retirement, right?

Will: Right.

Taylor: But it’s important to understand kind of at a base level what Powell just described, because I think a lot of times when people think of Social Security as a pension, they think of how other pensions work, which a lot of other pensions, right? If you to look at like a teacher’s pension or someone that works for a state program, whatever it may be, a lot of times they just take the average of your highest five years of salary, right? And so there’s this misconception that, like, okay, I can just keep my income really low and then I’ll have five years towards the end for profit sharing and other things where I increase that base income, pay a lot into the system, and I’ll still get a really high benefit. Right. And it doesn’t work that way. Right. Each year of that 35 year window that they look is weighted the same, right? And so you can’t just pay yourself a high income for five years and expect to get full benefit. That makes

Will: Yeah. Yeah, it’s interesting because you think of like a dentist where maybe you get out of school a little later and may you know, maybe your true income earning years are a little delayed, but then dentists also have the ability to accelerate their retirement timeline because income kind of jumps up pretty quickly. And a lot of dentists want to retire early. Like we have lots of clients who are like, I want to be done before I’m 60, or I want to be done at s age 60, right? So if you’ve only worked 20 or 25 years of that 35 year period, pal said it your the you know the other 10 or 15 years that you didn’t have income for just get tagged as a zero for that average calculation. Now that’s not to say that like you have to work 35 years to like we don’t we don’t want that to be the blanket advice is like, hey, 35 years are not are you know you you can’t get social security. That’s not the right advice. The the right advice is, you know, make sure you’ve run a retirement projection to say that you guys are, you know, good to retire and you know maybe do some math on what your social security benefit is gonna be. But it is a small consideration, right? To say have the right salary for the right amount of years that you’re working so that you can theoretically maximize your social security benefit. Otherwise, you know, you’re kind of wasting some money on the back end.

Powell Naylor: Yeah. And if you think about the the Dentist Advisor tagline of help you make work optional sooner, right? Like if that’s our truly our goal for our clients, considering Social Security and what goes into that is a big part of that equation. Right. And so having these zero zeros drag down your benefit amount is basically the government saying, Hey, you can retire early, but if you’re retiring early, it’s probably because you’ve been successful and you can take care of yourself. So figure it out. Right. And so that’s kind of A big part of where we come in is hey, how can we help you figure it out? So when you do want to make work optional sooner, if that’s at, you know, only thirty years of working history, twenty five years of working history, we’re helping fund that gap that you’re getting now a reduced benefit. But we’ll make up that difference in, you know, the way that we structure your your retirement plan.

Taylor: So one thing I’d also like to mention with this, you know, we’re the the problem with this is we’re talking about a program that affects everybody. And as we mentioned at the top, everybody is so different and what they do is different, right? And so there’s just a lot of considerations to keep in mind when it comes to your social security and how to take it. You know, we’ve talked about some niche people who like try to have their pay be lower to reduce payroll taxes, and that can affect their social security fit benefit down the road. But I mean, in practice, Will, between you and I, we’ve worked with hundreds of dentists. We’ve seen a lot of salaries that people pay themselves S Corp. In your experience, what do you typically see dentists select or you end up using for their reasonable wage when you kind of review

Will: Yeah.

Taylor: PLs?

Will: It’s a good question, right? Like I I I usually think that the right answer should be like what is a fair wage for an associate dentist in your area? So like and maybe the lower end of a fair associate wage in your area would be where you would want to like index to. you know, you’ll have I I think it’s gotta be above a hundred and twenty for sure. And I think, you know, then you go up from there, right? And based on where you live or how saturated the dental market is or you know how how many days a week you’re working, maybe, you again, lots of nuance that goes into this. But I I some CPAs probably listening to that would cringe at 120 grand, right? and there’ll be CPAs who will push you to go up and up and up and hire reasonable compensation because again, the IRS technically is gonna want to see what reasonable compensation is. So I don’t know, what do you think, Taylor? What what would be your answer on that?

Taylor: I mean, I again I it’s hard for me to have an opinion because again, I’m not a CPA, I don’t file taxes. But in my experience, what I’ve seen working with hundreds of dentists across the country, they usually fall somewhere between one fifty and two hundred. Right? That’s pretty common. Now, again, as you said, a lot of it depends. You know, I’ve seen a lot of startup dentists paying themselves a lot less because it’s a startup, but I’ve also seen a lot of later career dentists for other factors such as profit sharing. Go a lot higher than 200,000,

Will: Higher

Taylor: right? So what I would say here is it is not uncommon for the average dentist who’s going to be a practice owner andor the average dentist who’s an associate dentist that they’re going to be at this 184 close to it or

Will: Wage based. Yeah.

Taylor: more for most of their career. And probably a big majority of dentists will have a pretty close to maxed out benefit by the time they retire.

Will: Right. Yeah, which is good. And we run these to kind of what Powell said, like we want to make sure your retirement is secure either way. So when we run like our firm duh do we do these Monte Carlo projections where we’ll run, you know, your all of your numbers through this fancy software that tells us different inputs that we can toggle on and off to tell you ha like if things happen, you know, there’s different things that could happen between now and when you die. And how likely it is that you’ll run out of money before you die. One of those big toggles that we can turn on and off is social security, right? So we’ll go through this with clients and it’s funny because every time you go through it and you’re like, well, this is the bar that shows how much you get from Social Security and this is the bar that shows how much you need to withdraw from your portfolio. Almost every single time we’ll have the client be like, well, turn the Social Security bar off because that’s that’s probably g not going to be around and I don’t want to bank on that. And you know, I don’t I don’t want that to be part of my projection. So I think we could we should dive into that a little bit more because I know that’s there are lots of people listening to this podcast that are thinking the same thing. So why don’t why don’t you guys give me a little color on that?

Powell Naylor: Yeah, so you’re you’re referencing the social security running out. We’re not we’re not we’re not gonna have it anymore, right? Yeah.

Will: Right. And and yes, yeah, exactly. And you know, to to be fair, it has been announced that it is running out, right? So, you know, yeah, tell us about that.

Powell Naylor: Yeah, twenty

Taylor: Yeah.

Powell Naylor: Thirty two, the world will stop. Everyone receiving benefits will no longer receive them. No, that is it’s not the case. And it is it’s a concern. Yeah,

Will: You just caused a couple of heart attacks, so be careful.

Powell Naylor: Yeah. Sorry, you gonna clip that.

Will: Ha ha

Powell Naylor: Get me cancelled here, but no, it there is going to be an effect, right? If nothing is done. So by they say by twenty thirty two the the trust will not be able to pay out one hundred percent of benefits. So they’re the reserve.

Will: The reserve, right? And that’s the kinda what Taylor said is they’re funded through income and it’s a pay z go basis. So it’s not like I’m saving for my social security right now with the taxes I’m paying. I’m paying into the people who are collecting right now.

Taylor: You’re you’re paying into the social program that provides for retirees.

Will: For other for other people, yes.

Taylor: Yes.

Will: What that means is though, there there is all so that the ta the active tax pays a portion of it, but then the reserve pays a portion of it and the reserve is what’s drying up. And we’re not actually it seems like we’re not adding to the reserve, right?

Powell Naylor: Right. So this situation where a hundred percent of benefits could get reduced down to eighty percent of benefits, right? Is potentially what we’re looking at. And and what we were kind of talking about a little bit before this is there was a a similar situation back in the eighties with President Reagan where they were running into the same issue. And since it is a social program that affects everybody, it is a bipartisan issue, right? So if we take politics kind of out of it. It seems to be something that that both sides of the aisle can align on and say, hey, we need to figure this out. And so like what they did in the 80s, there is or there are things happening right now in the government to try to fix this. And kind of a a quick snapshot of what they did in the 80s was, you know, they reduced some of the benefits. They changed so the full retirement age changed from 65 to 67, which is currently what it’s at right now they adjusted some of the other factors going into it, like the cola, which is the cola is the cost of living adjustment, which happens to your benefit every year. It gets adjusted for there’s a kind of a set rate by the government for what that cost of living adjustment is. They increase the early claiming penalty, and then they did some revenue increases. So basically, how can we get more money into the reserve? And then keep people out of the reserve a little bit longer or a little bit more. So similar things are being proposed right now. And obviously we don’t know what that’s going to look like. That’s to say this is an issue that everybody wants to solve. And so to say by 2032 it’s going to look exactly the same as it does today wouldn’t be accurate. Hopefully it’s for the better and not for the worse. But, you know, the government is doing things to get that benefit amount back up to a hundred percent rather than eighty percent or

Will: Yeah.

Powell Naylor: Lower.

Will: Right. Taylor.

Taylor: Yeah. And I just want to highlight some of these things that we’re going over just to like bring them to attention. What’s the most important factors here? Number one, again, Social Security is paid through two different places, right? From current revenue coming in and then reserves if there are any, right? So when people say Social Security is running out, they’re talking to they’re talking about the reserves, right? There will always be the revenue,

Will: Mm-hmm. Not the active yeah.

Taylor: Right? Because the revenue is always going to be there ongoing, because that’s from workers, unless as a country, we all decide to stop working, right?

Will: We stop working. Yeah.

Taylor: So as long as there are workers, there will be some type of social security, right?

Will: And Powell said the number, eighty percent, right? Like the the current income, the current revenue covers eighty percent of the of the second. Right.

Taylor: Seven 75 to 80%, you know, just depends on kind of how you split hairs there. But three quarters of the benefit at least is going to be there in perpetuity under our current structure. Right. So I again, who knows? Things could change. But when someone says Social Security is going to run out and it’s not going to be there anymore, they’re either misinformed, they don’t fully understand, or they don’t understand, like they don’t have the full picture, right? So there will always be some type of social security. You know, if you look at retirees right now, the majority of retirees’ sole income in social in retirement is Social Security. This can’t just disappear. There’s way too many tens of millions of Americans that depend on this solely, right? But as Pal mentioned, there are a lot of things that we can do as we’ve done in the past to resolve this. To either number one, we could do nothing and just have the benefit reduced. That’s an option, right? And it would just mean

Will: Yeah, and you just

Taylor: Social Security is 75% of what it was. Right. But what’s more than likely is going to happen is there’s going to be some type of policy changes where we increase that wage base instead of on up to 184,000, it’s higher, right? Or instead of 6.2%, it’s 6.5%. We can actually raise the tax, right? So you could lower the benefit, you can increase the wage base, you can increase the taxes. You can change the age at when you get it. And there’s even immigration things that can factor into that. Right. Now again, we’re not going to talk about anything political on this, but just know that there are a lot of levers that can be pulled, if that makes sense.

Will: Levers. Love.

Powell Naylor: Yeah, and they’re they’re actively being explored ’cause everybody wants a solution. Like Taylor said, you can’t just take the benefit out. Like that just would be catastrophic. So something

Will: Yeah.

Powell Naylor: will be done.

Will: And I think even eight the the seventy five to eighty percent benefit would also theoretically be catastrophic just because, like Taylor said, everyone like most Americans are living off of Social Security solely. it would ca it would cause a lot of issues just from a perspective of covering basic needs as inflation continues to rise and if income gets chopped twenty percent, it would it would be a big issue. So th I think they’re gonna solve it and You know, maybe it means there’s a little bit increased taxes or delays or things like that, but I I I think it is something that needs to be fixed. And so to to the point to summarize all of this, it is misinformation to say that Social Security is going to dry up. It’s just not. I mean, it’s going to be there in some way, shape, or form in perpetuity, as long as Americans keep working jobs, right? So, okay, that’s good. I think we could tie a bow on that. Any other thoughts from you guys on that section?

Powell Naylor: I mean we could get into the whole Elon Musk universal basic income if

Will: Yeah.

Powell Naylor: We want to take a tangent down here. Who needs

Taylor: AI. Well, we know the the whole world the whole world

Will: Part that’s part two.

Taylor: For human human world is all done in ten years. So again, who cares? Twenty thirty-two is plenty. We’re getting us there. So

Will: That’s true. That’s true. That’s true. Good point. Good point. Yeah, good.

Powell Naylor: Yeah. Yeah, who needs social security when Amazon, Apple, Tesla are gonna just send us paychecks every month?

Will: Yeah. What’s the the conglomerate company from Parks and Rec? T

Powell Naylor: Uh-huh.

Will: Taco Bell Chipotle something.

Powell Naylor: Yeah.

Will: Anyways. Okay, that sounds good. I think we’re gonna jump now to I I I mean, I think most listeners are also like the meat of the question. We’ve explained what Social Security is is, we’ve debunked the myth that it’s drying up. Now I think I wanna spend some time on like when should you take social security and we can kinda call it good at that.

Taylor: And this this is where the hot button comes into play, right? Everything

Will: Right.

Powell Naylor: This is where we get spicy, for those waiting.

Taylor: we’ve talked about are just here are the facts, right? But there is a choice now, right? And that choice is when are you gonna take Social Security, right?

Will: So lay the lay the groundwork for us. Yeah, like tell us kinda how what options we have first and foremost.

Taylor: So we mentioned, you know, full like, you know, Pal mentioned that it used to be 65 and now it’s 67. And it’s like, well, what does that mean? Right? Isn’t Social Security just a pension? I’m getting an income. Well, there’s a whole lot that goes into it, but basically your benefit in order to get your full benefit, whatever that ends up being, right? You get that if you take Social Security again. It depends. If you’re listening to this and you’re older, it depends on your birth year. But if it’s anybody that has yet to start taking benefits, it’s going to be 67, right?

Will: That’s full retirement age. As it currently stands, it could change based on the things we just talked about, right? Yeah.

Taylor: Could change, could be different. We don’t know, right? But for now, it’s 67, meaning if you wait till 67 to start taking your benefit, you get full benefit. However, you can take a benefit at 62, right? But that benefit is a reduced benefit, right? Or if you want, you can actually delay taking it, and that is an increased benefit. Right. And this is where people have a lot of opinions, right? As to do I take it early and get the reduced benefit? Do I wait till full retirement age, or do I delay until I’m 70, which is the latest you can delay? At 70, you just have to start taking it. But it’s now increased, right? And again, you can watch a lot of TikTok, a lot of YouTube, a lot of different like talking heads in the financial planning world have some really, really strong opinions as to what’s right and what’s wrong. Right but just to kind of give some background as to that reduced benefit or that delayed benefit, if you take it at 62, you’re getting 70% of whatever your full benefit is. And this is not super hard to calculate. You can actually go to Social Security, like the Social Security website, I

Powell Naylor: SSA.gov

Taylor: don’t SSA.gov, and you can see what your benefit or what you’re tracking to be. So you can see, okay, that’s my full benefit. 70% of that is what you would get at 62.

Powell Naylor: It it’ll show

Taylor: And then

Powell Naylor: you each year. If you take it at sixty two, that’s what you’re getting currently. Cause obviously every year you work, we’ll adjust that so you look annually, but it’ll show you sixty two to seventy, what your exact benefit looks like.

Taylor: And it basically the way he looks at it is basically goes up at by 5%, and then it goes up by six and then seven. And then the last three years you delayed actually goes up by eight percent every year that you delay. Right. And you can get all the way up to age 70, you get 124% of that benefit. Right. So that’s the background of, you know, do I take it early or do I wait? Right.

Will: Yeah. I like it. Pal, give us a little color as to how you, you know, when you were at your previous firm with lots of retirees, you you said something that this came up in almost every single conversation you had with clients. tell us about that and what kind of what decisions you were making.

Powell Naylor: Yeah, so it’s definitely a very important factor. And we worked with, you know, all different kinds of clients, all different types of income ranges. You had the people that Social Security was their income in retirement, right? Like that’s what was funding everything. And then you had other people that it was just a sweetener on top, right? So the decision gets very different based on the situation. And I think the simplest way to distill down how to make that decision. I say is longevity and need are two big factors. So do I take it at 62, 67, 70, whatever the age is? It’s gonna depend on how long do you expect to live. And obviously that’s a loaded question. We don’t know when we’re gonna die. If we do, that’s a little spooky. But if you have history of longevity, you most likely want to delay that. And we’ll kind of get into why. But if you think you know you have disease or history of disease in your family, claiming early might might be a factor. And then need. So like the people that they need their social security income to survive, they’re going to need to take that as early as possible. Whereas people that maybe are working still or have a large enough retirement portfolio to where they don’t need to take it out, they can delay and that you know doesn’t affect their day-to-day life. So there’s a lot of layers inside of that that we can go here. But in general, it looks at longevity and need. And the way we approach need is I was telling them we we looked at their mug. So mug being mortgage utility groceries. And we liked to have a fixed income or a guaranteed income source to cover those three things. So if you’re so Right.

Taylor: Richard is basically your basic need, right? If you can get your mortgage, your utilities and your groceries, you’re covering the basic needs that you need to continue your lifestyle, right?

Powell Naylor: Right. So if you have a pension or an annuity, that would be combined with social security to figure out what your guaranteed income is. If you don’t have those, then you know, textbook answer, like I said, we would say, let’s get your social security to the point where it covers those three things. Once it does, you can claim from there and technically be safe. Right. There’s like I said, a lot of layers to that, but in general, it’s hey, let’s get to that point. And then we can appropriately fund fund your basic needs. And then everything else on top of that can be funded by your portfolio or other income sources.

Will: A lot of times with clients, we will kind of marry a income strategy like a bond ladder to the social security benefit and try to, like you said, almost like guarantee their income for a certain period of time so that they have those basic needs covered. And, you know, the the we we try to make it so that we don’t need to be like liquidating stocks every year to fund retirement just so that we’re not beholden to the way the market is moving at that point. So

Powell Naylor: Yeah, it’s a a bucket investing strategy. Have, you know, the fixed income assets available to fund a certain amount of years.

Taylor: So I love that you put it that way, pal. Like there’s really two main risks, like well, two main considerations, which is longevity risk, like how long am I gonna live? And then there’s also just needs, right? What do I need? And funny enough, there’s also like two main schools of thoughts as to how you should approach calculating what you should take or when you should take Social Security. So for the longevity portion, there’s what’s called break-even analysis, right? And then there is the take your take your benefit and invest the benefit, right? So taking it early and investing versus looking at a breakeven analysis. So it’s basically what could I do with the money that I’m getting? What are the what’s the opportunity cost? Right. So I think it’s worth diving into both, right? And kind of discussing both the pros and cons of those approaches. and then bring in the considerations that you should also keep in play. Right. But just going to longevity risk and bringing some real numbers to this. Do you guys know the life expectancy in the US right now?

Will: Mm mm.

Powell Naylor: Man. Tickets in increasing

Taylor: So I looked it up before.

Powell Naylor: rapidly.

Taylor: Let’s see how close

Will: Night.

Taylor: You guys get. Will, what’s your guess?

Will: Mm eighty nine.

Powell Naylor: Take the under there. I’ll

Taylor: Powell.

Powell Naylor: go eighty seven.

Taylor: So average life expectancy in the US is seventy nine years. Right?

Will: my gosh.

Powell Naylor: Wow.

Taylor: so gender does matter quite a bit.

Powell Naylor: That’s crazy.

Taylor: So do you think men or women live longer typically?

Will: Women.

Powell Naylor: Yeah, it’s gotta be.

Taylor: Yeah. So women eighty one point four, males seventy-six point five. Right? So that’s your life expectancy.

Powell Naylor: Which is that’s a that’s a factor in the social security conversation that we’ll talk about. The men men dying earlier is a is a variable.

Taylor: Big thing.

Powell Naylor: So sorry, not to tangent. We’ll get there.

Taylor: Right. now I will say that that that age seventy-nine that you hear, it’s affected by people dying early in their lives. Right. So if you actually make it to 60, your life expectancy is not actually 79, it’s longer than that because you

Will: What is it?

Taylor: have made it past that, right? So for that, it’s actually for women that increases to eighty-five or eighty-four point nine. And for men, it increases to 81.7. Right. So it does get closer to what you both estimated. And that’s just again, if you’re going to make it past infant mortality rates and, you know, premature deaths along the way, which really affect that and bring that average down, it actually adds almost five years to the back end. Right. So if you’re already into, you know, in your 50s or 60s and you’re considering Social Security. Just know if you look up life expectancy in the US, that 80 number may not actually be super accurate for you. Right. it’s probably closer to 85 for women and 80, what did I just say, two-ish for men. Right. Now, who cares what the average is? what’s more important is, well, what’s your own family history? Right. And it, you know, it’s not really fun to think about those things, but it should be a factor into your decision. Did your mom or dad live a long time, right? Or did you guys have a history of disease? And have you had any long-term chronic diseases? Like those are all important considerations that you should take into account. Not that you should spend a lot of time thinking about when you’re gonna die, but it is a consideration that you should think about when we are deciding whether or not we should take our Social Security early or not, right?

Will: Yeah, I mean that’s the main lens the for the breakeven calculation, in my opinion. Like that I every time we talk about this with a client, you kind of have to I I ask the question, you know, like what are we thinking as far as life expectancy? And you have to you have to be able to answer it. You kind of have to come to terms with your mortality a little bit and realize, like, are we living into our nineties or are we not? And if we’re not, then we start you s start doing the math on the break even. Like that really is where. It takes a lot of the guesswork out of it and you just say, When if I take it early. So I mean, do you want to just do some quick numbers real quick? Are you good with like throwing out some numbers? We’ll do a little bit of math. I

Taylor: Yeah. Yeah, let’s start some numbers.

Will: I mean, I think the easiest way to think about this would just say, do we want to take it for most of our clients? I think it’s gonna be a decision on taking it at full retirement age or delaying it until age seventy. So do we take it at sixty seven or do we wait and get that eight percent every year and take it at seventy? Because again, most of our clients are

Taylor: W and wh and why would you why would you say that, Will?

Will: Because I think most of our clients and dentists in general are going to have some semblance of financial stability just from being either high income earners throughout their life or working with us to be prepared for retirement. And so they have either the ability to earn income or they’ve got retirement assets set aside that they can dip into and wait until they hit their full retirement age. Or they’re still working. And I I mean, we have the stat that we always say that the average dentist retires later than the average American. So maybe they’re working later into their Life.

Taylor: Yeah. When is that? What age is that? Pal, do you know we’re gonna put you on the spot. You left us and came back.

Powell Naylor: Dentist retirement age sixty eight point seven. I’ll give you the the decimal point. Yeah.

Will: Dang, the decimal. So there you go. I mean, the ADA did a study and it showed that the average dentist stops renewing their license, which take that as you will. It could mean that there are some optional, like, I just want to keep working people there. but that to this point for the social security discussion, the aver like the mo the average dentist stops renewing their license at age, what, 68, 69, right? And so for that to that point, then most likely we’re in this window of Do we d do we take it at sixty seven or seventy?

Taylor: Yeah. Well and and you know, you’re you’re saying some things here, Will, that I want to not jump over because you have knowledge that other people may not have, which is so

Will: Okay, hit it. Hit it.

Powell Naylor: He is he is the brain.

Taylor: Why why not just keep working until you’re going to keep working but still take the benefit of sixty two? Why wouldn’t you just do that?

Will: There’s a reduced benefit or they withhold it. R w reduced

Taylor: Yeah.

Will: and withheld.

Taylor: So I pal, do you know more do you know a lot or or do you know the details of this? I think this is an important distinction to make because I don’t know if a lot of people know about this.

Powell Naylor: Yeah, so obviously we said if you take it under your full retirement age of sixty seven, it you’re getting seventy percent of your benefit. But if you are still working, still employed, still working, still putting into the system, they reduce your benefit. I believe it’s a dollar for every two dollars.

Taylor: Two da yeah, so they reduce your benefit for every by a dollar for every two dollars you earn over about twenty five thousand.

Powell Naylor: Right. Yep. So you’re getting the reduced and the withheld, like Will said, it it becomes a deferral, right? So once you do start taking your social security, they kind of true that up, but you’re getting less of the benefit due to your working status.

Taylor: Yeah. So

Will: And why would you ever like if you’re earning income and covering your living expenses, like in what world are you ever gonna start Social Security? Do you just don’t need it? You

Taylor: Yeah.

Will: Why would you take

Powell Naylor: Well

Will: a reduced benefit?

Powell Naylor: Yeah, and the

Taylor: Exactly.

Powell Naylor: the argument is take it and invest it, right? How many people do you think are taking it and actually investing that whole benefit? Like there’s a whole behavioral analysis play here of I doubt people have an automatic draft of their social security going straight into an investment account. Like you’re probably just gonna end up spending at least some of it, maybe all of it. So then at that point, why?

Taylor: And and just no one does that. Like, like if you think about that, $25,000, it starts getting reduced to you know, a dollar by every two dollars that you make past that, right? And I think it’s worth mentioning the max benefit that you can get is $4,000, right? But the average benefit’s around two. So basically, if you make $75,000, you’re basically not gonna see any benefit at that point. Because if you make $50,000 over $25,000 you’ve reduced that 20 that $25,000 or $2,000 a month benefit to zero. So even you thinking, which is again the hot topic, you know, a lot of people say, take i early and invest it. It’s like, you won’t actually get it because you’re working, right? So if you’re working, and that’s why I wanted to just quickly highlight this will, which

Will: Yeah, that’s good.

Taylor: is like you mentioned like most people are just gonna sometime between 67 and 70. Well, that’s because they’re working, right? And for the most part, if you are working and you’re making a decent income, Right. Anything north of twenty five thousand, know that this whole like take your benefit early and invest it just isn’t a good strategy because you’re not actually gonna get the money and you won’t be able to invest it, right?

Powell Naylor: Yeah, and when you’re bringing in large sums, the fifteen hundred dollars you may be getting, you know, that you don’t even notice that. It’s coming in and going right back out.

Taylor: Sorry. So that was a tangent, Will, but I wanted to like really highlight

Will: No, it’s good.

Taylor: that before you kept going with what you were saying here.

Will: Good. And and I think that matters too. I mean, you so the again, we let’s go back to the break even just numbers conversation. So, like, let’s do some hypotheticals here. You get the max benefit, which is like four we’ll just use even numbers here. Age sixty-seven, if you worked for thirty-five years and kind of maxed out social security and your calculation came back and it spit out, you get forty one hundred bucks. But we’re just gonna call it four grand for the purposes of this exercise. So age sixty seven, full retirement age, four grand. If you started at age 62, you get three grand, let’s call it. Okay. And if so that’s taking the reduced benefit earlier, you get three grand. If you waited till 70, you get five grand. Okay. So earliest you can take it is three grand. Full retirement age is four grand. 70 is five grand, right? With me so far. You get a thousand dollars more between, you know, you take it at 62 to 67, and then another thousand for age 70, because as Taylor mentioned, the benefit increases as you get older, the percentage benefit. So I mean again, so let’s just start with like age 67 to age 70. $4,000 a month for a year is $50,000, $48,000, $50, $50,000, right? Let’s

Taylor: Call fifty grand.

Will: Call it $50 grand. And let’s say you’re taking that for three years you get $50,000 before the other person starting at age 70 would have any money, right? So you now have

Taylor: It’s a single dollar, right? You you get

Will: A hundred and fifty grand that you wouldn’t have had had you delayed it, right? Well, when you started now now we’re at age seventy and you’re getting four thousand dollars in perpetuity, this other person’s getting five thousand dollars in perpetuity. What’s the break even on an extra thousand dollars when you’re already a hundred and fifty thousand dollars ahead?

Taylor: It’s about twelve to fourteen years.

Will: Right, which is actually kind of a pretty significant amount because if you’re age seventy and you’re not living past age eighty two or eighty five, then you don’t even break even if you wait. So you you have to you’re gonna need to push past eighty five in order to see the fruits of waiting till age seventy to take it. Does that make sense?

Taylor: Yeah.

Powell Naylor: Yeah.

Taylor: Yeah. And what I will

Will: Yeah.

Taylor: Say here, like you should obviously calculate your break-even yourself and not just do back the napkin with Will and I, like what we’re what we’re saying here. But if you look at most of the break-even, even 62 to 70, they all come in your early 80s, right? Meaning if you’re not gonna make it past your early 80s, you’re better off taking it early, right?

Will: You should probably take it early. Even at sixty two if you’re not working at that point.

Powell Naylor: Now, where I’d say there’s a bit of a change to that strategy is is if you are married. The reason being

Will: Yeah, good one.

Powell Naylor: For that is a spouse will have their own benefit or so the higher of their own benefit or 50% of your full retirement age benefit. So, like we just heard, women live longer than men. If we say that the man in this relationship made more money, right, they’re gonna want to delay that benefit longer. So that their spouse when they pass will get their higher benefit amount. If they didn’t work at all, they’re maybe they were stay home, they’re not getting any benefit. So you want your benefit to be as high as possible so that when you pass, they’re inheriting fifty percent of your benefit, which is

Taylor: Yeah. So let’s clarify that. Like what happens here is if you have a set of spouses, right, as Pal just mentioned, regardless of who it is, you know, whoever lives longer, the highest spousal benefit is going to be inherited. Right. So whether or not so you as a spouse are entitled to your own benefit or 50% of your spouse’s benefit, right? Whatever’s greater. Right, while both of you are alive. But right.

Powell Naylor: Yeah, I think I may mix that mix that up. The the living and and postpartum or post post postpartum. Post death.

Taylor: So when when both both spouses are alive, it’s both

Will: it was fired.

Taylor: when both parties are alive, right? You as a spouse are entitled to your own benefit or half spousal benefit, right? And again, if your benefit’s greater, that’s awesome than the half benefit. But even if it’s half, like in Will’s example, if it’s 4,000, that’s an extra 2,000 bucks while you’re both living, right? But if the higher income Earner passes away that has four and you had two, you now get four, right? So you don’t, you,

Powell Naylor: Yeah, the entirety of their benefit.

Taylor: you don’t get six, right? But you get their benefit, whatever that is, right?

Will: Yeah.

Taylor: Right. And so there’s a lot of like timing logistics here, but it’s whatever they took it, whatever the highest spousal earner. Even if you decide to take your benefit early or delayed or whatever it may be, right? Whatever the highest benefit is, is taken and maintained at that. age. Right. So to pal’s point, when you’re married and you’re thinking of longevity, you now not only need to think of your own longevity, you need to think of your spouse’s longevity.

Will: Especially if there’s a age discrepancy in the couple. Like I’ve got a client who’s ten years older than his wife and that will be a big decision, you know, a big top of conversation when we get into social security with him because of that, right? Where we’ll probably want to delay it so that she will have a higher benefit once he passes away, assuming that he’ll pass away earlier. So

Powell Naylor: Yeah, and kind of a a general rule of thumb that you’ll hear pretty commonly is the lower earning spouse take as early as possible, the higher earning spouse delay as long as possible. That way you’re starting to get some cash flow from the Social Security as soon as possible, but then you’re also increasing that benefit for the the survivor benefit as well.

Taylor: Well that’s the thing about this in the way that it works, Powell, is the lower benefit, whatever that is, delaying it, number one, if you delay your full retirement benefit, you can get more past age 67. But if you delay a spousal benefit, it actually doesn’t increase past the full age 67.

Powell Naylor: Right.

Taylor: So if you delay a spousal benefit to 68, 69, 70, you’re not actually increasing. You’re not getting that eight percent increase, right? And the other thing here with the spousal benefit is that’s only exists while there’s two spouses. If either spouse passes away, the spousal benefit goes away. So that one for those unique reasons, it’s just more often than not, you want to take the spousal benefit sooner rather than later. Right. Or and when I say spousal benefit, I mean the lower of the two benefits. Right. so again, just give some real Numbers here. Do you guys know when you’re working with a couple, what are the odds that one of them will live into their nineties?

Powell Naylor: Don’t I I I s have seen this. It sounds familiar.

Taylor: We’ll we’ll see who wins. We’ll see who wins. Will, what’s your guess?

Will: as a percentage?

Taylor: Tip percentage.

Will: Forty percent.

Powell Naylor: I’ll say I’ll take your over this time. I’ll take fifty percent.

Taylor: Pal is Pal’s a betting man. He’s won twice today. We’ve let Will set the line and Pal’s taking the right side.

Will: We gotta Yeah, we gotta get Pal to Vegas.

Powell Naylor: Yeah.

Taylor: So it’s over a 50% odds that one, if you’re working with a sp with a couple, right, set of spouses, that one of them is going to live to their 90s. Right. So it’s greater than 50% chance that one of you is going to live into your 90s. That’s again, now you need to look at your own health history and other things, but if we’re just looking at the general populace, right? And when Will. pal and I are giving advice to clients and we don’t know necessarily health histories, right? More than half of our couples that we work with, they’re gonna have somebody living in their 90s, right? Which is why a lot of times delaying delaying that bigger benefit can be really helpful from a longevity risk perspective.

Will: Love it. Love it. I mean, I think we we covered as much as we could probably in a one hour podcast. And to those that are still confused, I think you’re probably not alone. I think we did our best to simplify it. But but I think just d by nature social security is a confusing subject. And it helps to have someone in your corner kind of translating it to you and understanding all of the nuances. We s opened the podcast by saying it depends. And then we proceeded to give a bunch of like kind of advice on this. But our core like tenant here still is it depends. Right. And we’re gonna want to like talk with you about this and tackle this decision with you and your wife and your spouse and your husband and your family and make sure that we get this right for your family and your specific situation. And

Powell Naylor: Yeah, I would I would say just quickly, like there’s companies whose entire business model is around social security income timing, when to take it. You know, they’ve built out these softwares. So when you see blanket advice from these personalities on the internet, whoever they may be,

Will: Shout out Dave Ramsey.

Powell Naylor: way oversimplifying a s a a question that literally has companies whose entire business model is breaking down the complexity of when to take it. So you can’t

Taylor: Yeah.

Powell Naylor: oversimplify a concept that has so much nuance.

Taylor: And just to add to this, like a lot of people, you know, as Will mentioned earlier, is, well, let’s just not think about Social Security. Let’s not manage it. Let’s let like whatever. Let’s just pretend like it doesn’t exist. But let’s think about this like realistically. If you are getting $4,000 a year at that max benefit and your spouse is getting at least half that or more, that’s $6,000 a month in income. Do you know how much money you would have to have in a portfolio to replace that?

Will: Mm, six thousand a month.

Powell Naylor: You’re doing like a a four

Taylor: Using the four percent rule.

Powell Naylor: percent rule it’s gotta be like one point two,

Will: Yeah.

Powell Naylor: one point three.

Taylor: So I did it based off the actual max benefit, which is a little bit higher, which is that 41.52 per month, and then doing the half spousal benefit. And this is not the delay, because again, that 41.52 is if you take it at 67. It’s not

Will: Yeah.

Taylor: even considering if you delay it, right? But let’s just say you get that like 6300 bucks or whatever it is, right? In order to replace that in an investment portfolio using the 4% withdrawal rule. You need $1.8 million.

Powell Naylor: Sure.

Taylor: Right? So Social Security, while it may not be everything and every piece of your retirement, it’s potentially a $1.8 million asset on your books from age 60 to age 90. Right. Now, the difference here is there is no terminal value, you know, in a portfolio, which is why a portfolio is better. That 1.8 million is there and you can pass it on as a legacy to your heirs andor charities, right? And that’s what people hate about social security. They’re like, well, I paid into it and I should have got this money back. And if I had it my own, great. Well, the argument, if you look at the odds, most people don’t save money and don’t have anything left over, anyways. So social security was an amazing thing for you, right? But regardless, you are managing an asset that’s potentially worth one point eight million give or take on either side. Right. And the decisions you make around that are huge. And massive and can literally mean the difference of tens of thousands to hundreds of thousands of dollars different over the course of the rest of your life. Right. So, long story short, don’t just watch a single YouTube video or listen to a couple TikToks and be like, yeah, okay, this guy that I have listened to for years really likes taking it early. So I should do that. Right. Think about those considerations, right? Think about When do you need the money? Are you still working? Are you married? What is your benefit? What’s your spousal benefit? How long do you anticipate you’re gonna work? Right. And we didn’t even get to like talk about investing the difference and Roth conversions, which is a whole nother podcast in and of itself. But just know that there are a ton of considerations to keep in mind when you’re trying to make a decision like this.

Will: Should do should we do a ten part series on this?

Powell Naylor: I was gonna say the people are itching for a a series of so s social security.

Will: For part two, three, four, and five.

Taylor: the funny thing is is like I would honestly love to do that because I like

Will: That’d cool.

Taylor: because Pal and I like Pal and Pal got into those numbers. I was like, man, it’d be really fun to dive into those, but I know we’re losing half

Will: Yeah.

Taylor: of our listeners. Right.

Powell Naylor: Yeah. Yeah, apologies for the the detail digging we did.

Will: No, it’s helpful. I think it’s helpful. I think it’s good. I think it illustrates the complexity. And again, the kind of the point here is let’s get this decision right. It may not like to Taylor’s point, it is a big decision. It may not necessarily for a lot of you listening like make or break your retirement, but it it’s definitely going to be an important piece of it. And it doesn’t it makes these decisions very relevant in the grand scheme of things. So I think let’s close by what can you do now? Like what for those that have made it this far, like what what’s a little tangible takeaway that you could do now?

Taylor: Well, I would say the the the people who are younger were thinking about this and like, this doesn’t apply to me, it doesn’t matter. I would say that S-Corp election and your income that you choose does really matter.

Will: Get that right. Yeah.

Taylor: Right. Because we can poo-poo it all we want and be like, well, you know, I’d rather just pay less and put the money in my own hand. Well, just make sure that you actually have, as Pal mentioned, direct, you know, whatever tax savings you’re actually realizing by paying yourself less in payroll taxes, you’re putting into an investment account. Right. Because if not, your benefit, like the if you’re only paying yourself a sixty thousand dollar salary as a dentist, you might only be getting eighteen hundred a month instead of four thousand a month in retirement. And if you’re married, that eighteen hundred might only be three thousand instead of six. Right. And so that decision, like more than like what tax savings you can have as an S-corp election and what you put as your salary. can have some major ramifications on your social security down the road, which that affects everyone, regardless. I mean anybody that’s within 35 years of retirement, that affects, right?

Will: Yeah. Love it.

Powell Naylor: Yeah. And I would say if you are a little bit older, go to SSA.gov, pull your numbers, start looking at what it looks like, start getting an idea of the potential so you can start making a plan.

Will: Love it. Love it guys. That was awesome. we’ll call it a day and get excited for part two here coming up pretty soon.

Powell Naylor: Mm-hmm.

Will: Thank you both. it was a pleasure and we’ll talk again soon.

Powell Naylor: Thanks. See ya.

Keywords: social security, retirement planning, financial advice, social security benefits, social security funding, retirement income, social security myths

Finance 101, Retirement Plans