The Influential Advisor
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The Influential Advisor
077: Beyond Break Even: Mastering Social Security Strategies with Russ Gaiser and Mike Hoeflich
Episode Summary:
In today's episode, Russ and Mike unpack their insightful five-pillars framework for Social Security optimization and reveal strategies that could help maximize retirement benefits. With pensions disappearing and Social Security representing 30-50% of retirement income for many Americans, making the right claiming decision is crucial. The authors highlight a startling reality: 80% of men die married while 80% of women die single, yet most claiming strategies overlook this fact. Their approach moves beyond simple break-even analysis to consider timing, taxation, coordination, longevity, and legacy planning. They also discuss the hidden danger of "dollar cost ravaging" and share their "Solve for Zero" strategy to potentially eliminate federal taxes in retirement.
About the Guests:
- Mike Hoeflich is a career changer who worked as a systems analyst, then in human resources and trust plans administration before becoming a teacher. He's now in his 10th year as a certified Social Security claiming strategies specialist helping people with retirement income planning.
- Russ Gaiser spent nearly nine years on active duty in the Air Force as a surgical tech, then seven years as a healthcare administrator before transitioning to financial planning during COVID. He's in his fourth year specializing in retirement planning and social security optimization.
The Five Pillars of Social Security Optimization:
1. Timing: Considers survivor benefits, inflation protection, and integration with other retirement assets
2. Taxation: Examines how benefits are taxed federally and by state, and strategies to manage tax brackets
3. Coordination: Addresses spousal benefits and healthcare cost planning
4. Longevity: Mitigates inflation risk and market risk for long-term income security
5. Legacy: Focuses on increasing excess capital for charitable giving and passing wealth to heirs
Key Concepts Explained:
Dollar Cost Ravaging: Unlike dollar cost averaging during the accumulation phase, retirees face "sequence of returns risk" when they start withdrawing money. The order in which market returns occur matters significantly during retirement, and can ravage portfolios if withdrawals continue during market downturns.
Solve for Zero Strategy: A method to determine how much additional income (from part-time work, IRA distributions, dividends, etc.) you can have alongside Social Security benefits while still maintaining zero federal tax liability.
Client Success Story:
Russ shared a story about a 67-year-old client who discovered she was eligible for survivor benefits from her ex-spouse who had passed away. This revelation resulted in approximately $61,000 in benefits that she could pass on to her children as a legacy from their father.
Get the Book:
Readers can download a free ebook and audio version of "Beyond Break Even" at beyondbreakevenbook.com
Connect with the Authors:
For a complimentary retirement income stress test, call 1-888-280-PLAN.
Are you worried about making the wrong Social Security claiming decision? In today's episode of the Influential Advisor podcast, we're joined by Social Security Optimization experts Russ Geiser and Mike Hoflich, authors of the best-selling book Beyond Break Even. Here's a startling reality 80% of men die married, while 80% of women die single. Yet most claiming strategies completely overlook this crucial fact. With pensions vanishing and Social Security often representing 30-50% of your retirement income, your claiming strategy could mean the difference between comfort and hardship. Russ and Mike unpacked their insightful five pillars framework. Reveal how to shield yourself from the hidden danger of dollar cost ravaging, and share their solve for zero strategy that could help eliminate federal taxes in retirement. The claiming decisions you make today will impact your financial security for decades. So grab a pen and paper, because what you learn in the next half hour could be worth thousands in additional retirement benefits. Hey, Russ and Mike, how are you guys doing?
Speaker 3:Doing great. Thank you, paul. Good Paul Can't complain.
Speaker 1:I'm used to seeing the two of you in the same location, so this is a little bit strange for me to have you guys in separate locations. Is everything okay?
Speaker 2:I'm probably the more fortunate one. I'm down in our Florida office in the Jupiter Florida area.
Speaker 3:Yeah, and I'm freezing up in Buffalo. It's like 16 degrees here and it's been snowing since january 1st, so wow.
Speaker 1:But I hear west you'll be headed down to jupiter soon as well. So it'll, it'll get better for you soon it will, it will.
Speaker 1:I'm not complaining if the winter's not forever yeah, I'm excited to have both of you on the show today and I'm just really excited about your book and just recently when you launched it on Amazon, you guys hit bestseller status and typically when we work with clients to do that, usually we target get bestseller in one category and best three categories. That's like the best right Three categories. You guys hit bestseller status in four categories. That's awesome, congratulations.
Speaker 3:Thank you. Thank you, yeah, we're stoked about that, but we really. That's to your credit for helping us plot a good path forward for that.
Speaker 1:I would say it redounds to you. You must have a lot of fans and clients that really appreciate the work you do, lot of fans and clients that really appreciate the work you do. And so in today's show we're going to get into your new book Beyond Breakeven and what that's about. But before we dive into the book itself, I'd love just to hear a little bit more about both of your personal journeys. How did you start your career and get to where you are today?
Speaker 2:And maybe we'll start with Mike and get to where you are today, and maybe we'll start with Mike. Sounds good, sounds good. I'm a career changer. I started my working career I guess my first real job as a systems analyst, and then I moved into human resources and trust plans administration and then I became a teacher, and so my career is certainly not the traditional entry into the financial advisory industry. I certainly wouldn't do it any other way. I think everything I ever did, every degree I've gotten, all the experiences I've ever had, have now led to this kind of skill set that I now have to help people and actually continue to educate people. And so I'm actually in my 10th year in this journey with a certified in social security claiming strategies, designation and helping people do retirement income planning. Interesting.
Speaker 2:Paul, I came into this, I guess, area, this very ever-changing area, back in the fall of 2015. And there were some significant changes going on with social security and some of the advanced strategies that were allowed, so I literally got a certification and then, month after month, for about four to six months, I was seeing 60 to 80 to up to upward of 100 people in workshops, all just scared to death wondering how will these changes impact my retirement? Mike, help us. What's going on here. So, literally, it's never really slowed down because every single year there are people turning 62 and that's the traditional eligibility age for social security claiming and I'll tell you what I love it every day even more and more, helping people and educating them, as I have now again in a 10th year.
Speaker 1:That's fantastic, Russ. How about you?
Speaker 3:So much. Like Mike, I'm also a career changer. I spent the first almost nine years of my career active duty Air Force, where I was a surgical tech basically the guy that hands the surgeon the instruments in the operating room and I was specialty trained in urology. I went to school, I got a business degree and healthcare administration degrees and got into management and leadership, and then I ended up for about seven more years becoming a healthcare administrator where I was helping health systems acquire physician practices and operationalize them and so doing all that work physician contracting and I'm in my fourth year of financial planning work and I changed careers Really.
Speaker 3:It was during COVID and when I was in my business school studies, I took an elective in financial planning and investment management and I thought to myself wow, I could really see myself liking to do this.
Speaker 3:This intrigues me and, as you know, in 2020, healthcare became very difficult for reasons I don't really want to go back into, of course, as we move forward now.
Speaker 3:But that's when I took the opportunity to say you know what I'm going to make the career change, and so I did that, and so I got licensed and so on and so forth, and then, a couple of years into that, most of the clients we were working with in the firm Mike and I working together really are between the ages of 55 and 65. So getting ready to retire, and a lot of people during that time they wanted to see hey, I'm done, I don't want to deal with this anymore, can I retire? So retirement income planning was really where I was focusing my practice and I realized I said, well, social security is such a big benefit and I really feel like I need more like more education in this. It's more important than just, yeah, take it, because you'll never get it all out and that's what you hear when the advice people generally get. And so I wanted to go beyond that and that's how I ended up specializing in becoming certified in social security, claiming strategies, and really spurred Mike and I's partnership.
Speaker 1:That was my next question. So the two of you are co-authors of this book. What's the story behind the two of you coming together and starting to partner or work closer together?
Speaker 2:I'd see Russ walking by my office window and I said, man, does that guy seem motivated, does he seem driven? Does he ever walk with purpose? And the types, paul, you can sort of spot them from a mile away. You see those around you, competent, but maybe not nearly as committed as some others. And I'll tell you what.
Speaker 2:I'm forever grateful to Russ for deciding that I could be a good partner and mentor to him, because everything we've now done in the past I'm going to say, geez, it's got to be about two and a half to three years it's all better because we collaborate and we are in lockstep with one another in our commitment to care, the commitment to take care of clients, the commitment to do the things that really matter. And, honestly, russ is not only a business partner. He's become a very good friend to me. I think that's what really motivated us to do something together, because what you can do alone is pretty special, but when you can do something with someone else and do it with such energy and enthusiasm, I'll tell you what it really brings out the best. And that's what it did for me. I think it did the same for us.
Speaker 1:I have to ask. So I heard Mike say that you saw you from his office window and you were walking with purpose. Did you like walk by and be like wow, this guy's really working hard.
Speaker 3:Well, so we work in an office at the Financial Guys where I'm a wealth manager and I do retirement income planning, social security optimization. Now, of course, I was just doing retirement planning at the time. The Financial Guys it's the one-stop financial shop, so we have specialists in the broad financial planning realm. We have different specialists and we all work as teams to help the clients that come in. I knew Mike, of course, and I knew Mike was certified in social security claiming strategies. I didn't really know what that meant when I first started with the firm.
Speaker 3:I think we had a conversation about three years ago. I was helping a client and I wanted to know hey, what's the best way to claim these benefits? How do we actually coordinate it in harmony with all their other assets? Here's what I'm thinking, but you're the expert in this, I need some help. And then we just had a really good conversation and I realized the significance of needing that. And then our relationship kind of blossomed from there in terms of taking it to another level through our own firm Retirement Income Headquarters, same broker dealer, same investment management firm but we just simply focus on doing workshops and retirement income planning around social security. So it's all the work we do with the financial guys, but we're doing it and taking it to another level across the country, nationally.
Speaker 1:You just said something that struck me is at that initial point, mike was the specialist and you were starting to think about, as a wealth manager yourself, what's the best way to do this and what is the average or typical wealth managers approach to it. That doesn't have the specialty In my experience a lot of wealth managers do. Their clients are typically retirees and they're looking at retirement income planning. But just that difference in, let's say, your average wealth manager versus someone who has the expertise that you do. I just listened to your audio book yesterday and I was blown away by all the different ways that you guys talked about in terms of being able to really maximize the benefits. It's not as simple as hey, I'm going to start taking the social security at whatever age. There's a lot of thought that you guys that goes into this.
Speaker 3:I was just going to say. I think that what we hear from prospective clients and then people that actually then become clients is that if they work with someone their advisors just doesn't know, and so they defer them or refer them, I should say, to social security to get the answers that they need. To me, that's just not, I don't know. I just feel like we have a bigger responsibility than that, especially when we're talking about someone's retirement and trying to help them stave off the risks that are inherent in retirement inflation, taxes, longevity so it's really critical that and, by the way, this is likely their biggest guaranteed retirement income source, with the fact that pensions are becoming far and few between. So I think it's really that it's you hear. Go talk to Social Security. You have to get the information from them, them, or it's an emotional decision.
Speaker 1:Well, it might not be there in 10 years. You better just get it now. That's my sense, is that most people know this is my. I could be wrong, but it's just. I better get it before it goes away, and that's about the extent of the strategy that goes into it. I realized, though, that I am putting the cart in front of the horse, as they say. So let me back up a little bit, and I want to just pivot and just kind of start with the book itself, beyond Break Even, and tell me what that title means. What does that title stand for? What does that mean? Beyond Break Even?
Speaker 3:Yeah, so the title, it's the social security claiming decisions should not be made in a vacuum you just kind of alluded to it or in a silo. I like to say so it requires much more careful planning than a simplistic break-even analysis. Most people and this goes back to your question about what we hear that most advisors do well, how long do I have to live to make it make sense to claim it later to break even? And it's really a short-sighted way of doing it because of all of the other benefits nuances that can be applicable to that family.
Speaker 3:In regards to the benefit, now don't get me wrong. There are some scenarios where you might just have to take it right away because you have no other assets, right, if you've saved in your 401k plans and you don't have a pension and you really need to make a decision of, or maybe you don't think you saved enough. How do we use the benefit? How does this all tie in together and what's the right claiming decision for that person, specifically, when they want to retire, how much money they want to spend, how long they think they'll live, what is their tolerance for risk, how much have they saved? What is their feeling about taxes and taxation and their goals, their legacy goals.
Speaker 3:And then bringing that all together to give them the best advice around when they should be claiming as part of their retirement income plan.
Speaker 1:And just in listening to the audio book and we'll get into more detail, but it also. What I learned is that it really depends on things such as if you're a married couple, are you the man or the woman? What's the age difference? There's an interesting statistic in the book, which is 80% of men die married, while 80% of women die single.
Speaker 2:I think the interesting thing and I'm going to generalize a little bit and I don't want this to sound stereotypical but if 80% of men die married and they are often the biggest breadwinner and they are often the one who is making the financial decisions they may have the stronger interest in watching investments. I'm not saying they're really good at it. All I'm saying is they're more inclined to do that than maybe their wife, Maybe the wife's more concerned with the children and maybe even their parents the wife's parents and the husband's parents and caretaking, because that's what women do. They're wonderful at that. So you put all this together that the man is going to try to make the decisions. The man's thinking about his own life. Unfortunately, he's not really putting all these pieces together and he's not thinking beyond both of them being around. And so when 80% of married men are dying married, that means 80% of women are dying single. It's a really unfortunate situation and these are probably the most profoundly impacting situations for Russ and I to encounter, whether it's at workshops or actually right in our office. What I think people need to do, they need to know these strategies are. They're great for single people or those that were divorced, or even widows, but for married couples, we can really come up with some of the most, I guess, the strongest plans, the plans that really will last the test of time, not only for the husband's life but also the wife's life, and so it's just super important to us to not just think in terms of your own breakeven analysis. So, for instance, if someone said, Mike, I did the numbers, and this happens all the time, Paul, all the time I did the numbers, and if I don't claim at 62, if I waited until 66, I won't get the same amount of money out of the trust fund until age 78. And I say good for you, that's the number I come up with every time. I do that Excel spreadsheet too. And we could do that same thing for every age difference, right From 62 to 70,.
Speaker 2:How long would you have to live? And we're not interested in hearing when do you think you're going to die? Calculator answer. We want to know what is your life like, who are you as people? What are you trying to accomplish? Tell us more about you, Be part of a process where we can keep revisiting these things with you and your spouse. And, unfortunately and it happens longer as I'm in this business longer and longer, there will inevitably be people getting widowed. If we can look at a widow and say it is heartbreaking to have gone through this loss, but how grateful are we that we can now help you. And if there's a woman who is the surviving spouse, it's highly likely they may live another 15 years after the husband has died. So we have to secure that widow's retirement alone.
Speaker 1:And just to build off of that, I think you alluded to a earlier and you talk about extensively in the book, but for most people, social Security really is the cornerstone of the retirement income plan. Tell me more about that, and just in this context of the widow, why is this so important, given Social Security's unique position when it comes to retirement income?
Speaker 3:So I think one of the biggest concerns is that pensions are becoming far and few between Social Security is going to be their largest guaranteed income source and, with that in mind, when you have a couple and you have both of them claiming a Social Security benefit, there might be a spousal benefit number one.
Speaker 3:But when there's a sole survivor situation, the higher of the two benefits stay in the household, and so the impact on a widow, based on whatever the claiming decision is and how their retirement ended up playing out, which is really the lottery ticket. We have no idea how the market will sequence right through retirement, but think about it this way, because we've seen this happen If you have two or you have a couple, and they both file at 62, the earliest that they can, they're putting much more pressure on their portfolio for longer. And if they spend more money than they thought, or the markets didn't do well in that earlier period of their retirement in particular, or they invested, or whatever the case might be, and they're depleting their wealth more rapidly than they thought because they just predicted good markets or just looked at average returns, or whatever the case might be. Widow situation happens Now the widow has the bigger of the two, but it's almost 30% reduced benefit that they would have taken at that point, and so they have way less guaranteed income and now a depleted, maybe an empty, nest egg, and widow poverty climbs fivefold in that situation.
Speaker 3:So, and it provides social security, provides a big majority of their specific income. So let's flip that though, that scenario. This is why it's so important If we figure out the claiming decision we're looking at what the widower survivor benefit is before retirement starts and if we can outline what the widower benefits look like up front, we can mitigate that issue from ever happening, because you can't just squeeze blood from a stone if it is that former case that I had talked about. So that's the importance of the claiming strategy when it comes to how can we improve the life of a widow.
Speaker 2:That will inevitably happen. One of the things that's so rewarding to Russ and me is that we sometimes uncover these things for people and it comes down to people don't know what they don't know, that you can read all you want and get as much info as you want, but you might not uncover it all and unfortunately, even if you do, you might misinterpret. This. Comes down to the generalist advisor, the generalist who claims to be able to do it all. They can plan, they can help you with every single financial decision, they can help you budget, they can even manage your money. They can do it. All these generalists. When they're faced with these questions, hey, I'll be retiring. I know I have Social Security benefits coming, what should I do? And unfortunately, the generalists will often, as Russ said, defer to Social Security. Well, it's in their Programmer Operations Manual system, poms, that they're not supposed to give guidance to anyone claiming benefits, which literally means don't give advice to these people. So advisors that don't know enough defer to the group who isn't even supposed to give advice. The next thing is this If you have an advisor who's helping with financial planning and they're managing someone's money, they get paid in many cases under an asset, under management fee basis. So one of the last things that advisors want people to do is start taking distributions right. They don't want you to take money out of the accounts. They want to have more money put in, because that's their lifeblood, that's how they get paid, that's how they make a living.
Speaker 2:In our opinion, we've got to do the fiduciary responsibility for people, and one of the biggest ones is how are we going to tackle the decision making on what might be? In many cases, when you have a married couple, might be all they need. Everything they might need might come from social security income, and that means everything they've ever saved is then excess capital. In some cases, if it's 30, 40 to 50% of their income streams in retirement, that's huge. It's a monumental amount of income that they'll get to meet their retirement income goals.
Speaker 2:So to us, the scenario you painted where your wife walks out on you these are obviously emotional moments. These are life-changing moments. You need a specialist at these moments. You need someone who can help you with the things you probably just never thought could happen and never knew the rules about, and I think that's what we do, and I think we laid out a lot of real life scenarios in the book to help people and enlighten them to the idea that this could happen to you. We have people who this did happen to and they thought one thing and we guided them in a different direction to come out with a favorable outcome.
Speaker 1:That leads me to one more question about scenarios, which is what if someone, before they heard, before they read the book, before they hear this interview, maybe they're in their sixties and they just decided, hey, social security is running out of money, I need to start now. And they got it at 62, without thinking through all the different scenarios that you're talking about. Is there a do-over? Is there the option to be like okay, I want to change what I just did and go back? Is that possible?
Speaker 3:Yeah, it is. You have one year from the point in which you file for benefits to basically rescind your application. However, you will owe the money. If you've collected any, you owe it all back, and you can only do that one time. While not ideal, you would have ideally had your strategy done first, or maybe you listened to us after you filed, but you filed the claim three months from now and have it start, so you haven't received a payment yet. That'd be the easiest way to go, the easiest scam to pull off. You can do it one time within the first 12 months of filing. If you really think you got it. You got it wrong.
Speaker 1:There's a couple concepts specifically from the book that I want to ask you guys about. One of them is what you guys describe as the five pillars of social security optimizations. Can you walk us?
Speaker 3:through what these five pillars are. The five are timing, taxation, coordination, longevity and legacy. Why do they all matter? When we refer to timing, it's really all about survivor benefit considerations, which we spent some time talking about. Inflation protection that factors into that. Integration with other retirement assets, portfolio withdrawal strategies, those types of things.
Speaker 3:Taxation, specifically how are benefits taxed? How will your benefits be taxed? Because the answer is it depends. And that's for federal and state, depending on what state you live in. Of course, federally applies to anyone in the US. How to manage tax brackets maybe we're doing spend-down strategies, roth conversions. When I say spend-down strategies, maybe there's a bunch of tax-deferred wealth in a 401k plan and we're deferring Social Security while we're spending down some of that 401k to minimize the impact of required minimum distributions later. And even so, the same idea with Roth conversion strategies. Coordination that's what spousal benefits that might be available. Cost planning around healthcare perhaps. And then really long-term income security we mentioned earlier, the higher the two benefits stay in the household. Longevity is the idea of the three biggest risks any retirees will face is inflation, taxes and longevity. And so inflation risk, survivor benefits, market risk mitigation, all those things. The longer you live, the more heavily weighted your portfolio, or the more heavily your portfolio relies on markets, the more risk there is. Retirement income planning becomes really risk mitigation essentially.
Speaker 1:And it's just the idea that you guys are dealing with the one thing that none of us actually know, which is when are you going to die? It's how do you plan for this huge uncertainty? Maybe it's at 60, maybe it's at 70, maybe it's at 80, maybe it's at 90, maybe it's at 100. I don't know and I don't want to run out of money.
Speaker 3:Correct.
Speaker 1:How the heck do you plan for that?
Speaker 3:You have to essentially plan for the best, or the best case scenario is just living long.
Speaker 3:I've had people do this they come in and say oh my parents died in their 50s or their 60s and I'm not going to live long enough. How do you actually know that? And if you're going to severely be a detriment to yourself if you end up living in your 80s or even your 90s or your spouse, it not just you, it's you and your spouse. You would probably rather not be poor and elderly. If you die with too much money, it doesn't matter, you don't need it anymore. The idea is we have to balance these things. So some people may firmly believe they won't live that long. Maybe they have a health condition or something, but their spouse may have longevity. So we have to look at those scenarios, at least be aware of them and it's.
Speaker 1:it's really interesting just to underscore that point. If you're married, it's not about just you, it's about the spouse, and it plays heavily into their long-term income security, for sure.
Speaker 3:And we often find too, with proper planning, because a lot of people will come to us and there's a stat we talk about in our workshops and in the book Most people I believe it's 77% of people in a recent survey believe that they're not on pace to meet their savings target. That's meaning they don't think they've saved enough.
Speaker 2:And if they're in that scenario.
Speaker 3:They like to shortchange their retirement efforts and they think only what they can afford. But with credible science and claiming strategies we can often get them to live where they want to not shortchange themselves and on the back 40, last third of their lives, potentially but also resurrect the idea of legacy leaving something to your kids, to your grandkids. When we talk about legacy, that's the last pillar increasing excess capital, which is the wealth you don't need to fund your retirement lifestyle goal, your income plan. So we reduce the overall cost of the retirement and then that leads to enabling charitable giving goals, if those are something that of interest. Passing on tax-free wealth through Roth conversions or maybe just leaving your traditional IRAs, whatever the case, would be being intentional with passing that on to the next generation.
Speaker 1:With the many couples that you've worked with and this is just out of pure morbid curiosity do you find that most people are like legacy minded, where they want to leave money to their children or causes, or they're like, hey, I just want to spend this down and enjoy life while I'm still here.
Speaker 3:I feel like it's usually they're either on one end of the spectrum or the other, meaning oh, we really want to maximize what we give to our kids or no, they're good, we want to maximize our lifestyle. But ultimately it's in the middle, like let's make sure you're taken care of. And when they say maximize our lifestyle, they want to make sure that they can do what they want to do and they just don't think there's enough leftover. If we show them a way to do that, how much truly an excess capital they do have, then that can become a consideration for them. But yeah, usually it's like both ends of the spectrum, it seems.
Speaker 1:Now, in my case and again, I'm just using this as an excuse to get free advice here, but in my case I don't have children, I have a dog. What is the legacy strategy for me? Any suggestions?
Speaker 2:I think, to answer that question, it's always going to be unique to you and your wife. It's unique to what people wish to do. One thing I think they mostly would want to do is, as they near or are at that precipice of full-time work into retirement years, the last thing you want to do is think you need to now scale back on what you've done in life, scale back on activities, on fulfilling travel, on gifting, on the things you want to do to enjoy not only yourself but each other. And I think that that's often the case. People will be super hesitant as they enter retirement and they'll give up on experiences, thinking that's not for us. We're not working now and we've got to squeeze as much out of every penny that we've ever accumulated. And they do this. I think it's natural. You're used to living on what you've made while you're working. You're not used to the use of your own wealth. You're used to maybe preserving or just accumulating wealth.
Speaker 2:But I think we often and Russ alluded to this we kind of resurrect the idea of legacy. A lot of people have given up on it. They think we've been told we're poor savers, we've been told we didn't do enough. We are now facing inflation. We're facing taxability. There's no retiree taxation, it's taxability. It's the same tax code for those who work and those who are retired, but they don't know how to navigate through it. I think what we can do is we can really clearly paint a very vivid picture of what their retirement might look like. And if we can reduce people's anxiety and stress as they enter retirement and then, year after year, they can live to their fullest, that's a victory.
Speaker 2:And if you do end up finding out you're terminally ill hopefully you don't. But if it's early 70s, mid 70s, I think the last thing you're going to do is worry about what your claiming decision was, or that you claimed a little bit too late. I think you're going to be looking at it and saying, boy, what a great number of years I did have, because I planned it outright, as Russ said, with intent. I did the right thing, not only for myself, but for my spouse. I think what we have to do and this is all part of the planning is hey, first let's determine how much of your capital do you need for income? How much, then, is excess capital Meaning extra? It's for discretionary use, it's for legacy, right out of the gates. We don't have to wait 10 or 12 years to know if you have extra money for legacy. We'll know right away and then we can employ other things. I call it pivoting to other strategies like the qualified charitable deductions or Roth conversion strategies or gifting.
Speaker 1:Digging a little bit deeper in the book you mentioned that there's nearly 3,000 filing rules and 500 ways for married couples to claim social security benefits. Let me say it again 500 ways. He also said that if you go to the social security office and say, knock, knock, which one should I do that they are, I guess, by law, instructed not to give you any advice. Thank goodness you wrote this book To the end. Can you give us an example of how this complexity has played out? Just maybe give us a case study or a client story that could help illustrate this.
Speaker 2:I think Ross and I both have some really good stories and some just stick with us because of how profoundly different these people's lives were because of what we knew. And one was a woman I met. She was the sister of another client and I got to know Carol and basically in getting to know her, in our discovery phase, as we call it she just sort of matter-of-factly said yeah, and unfortunately I was alone then because I ended up being widowed years ago. And I said, oh, wait a second. I don't think I remember you telling me that. And she says, oh, wait a second, I don't think I remember you telling me that. And she says, yeah, and I've had people tell me you might be eligible for Social Security benefits based on his record. And she said, oh, it's been so long, come on, I don't think so. So she pursued it a little and she was told, no, I was told I can't get benefits from my deceased husband's record because I make too much. And I said, whoa, now I really have to break this down.
Speaker 2:So there are rules, even for widows, that if you make too much money in a job that you may have forfeiture. It's something that it impacts. You called the earnings income limit and I said I need to know more, carol, because you may be forfeited, but you might not be forfeited a whole year's worth of income from his record. So we broke this down, paul, and this was so meaningful to her because she was just trying to make it work, being alone, trying to pay down her mortgage, pay down some debts, and just make it work until she would retire in maybe three to four years. And so we figured out that she was eligible for about $1,700 a month and she could get that for about seven months in a year. She'd be forfeited because she broke through an earnings limit, but not so much that she'd be forfeited all of that income. So you can imagine $11,000 to $12,000 more for about three more years before she would then switch to her own Social Security benefit.
Speaker 2:It was amazing what she felt. She was in tears, saying this is unbelievable to me, mike. I can't get over how different my life now can be. I have no more stress about working and having to work, maybe extra years, and I would have never known. She would have never known about the earnings limit and how it truly worked. She would have never known of the switching abilities to take her deceased husband's record first and switch to her own later. So just doing those things not only makes a difference in people's lives, like immediately, but it can forever change the trajectory of what their retirement might look like.
Speaker 1:That's amazing. I would never have even thought about it.
Speaker 2:She gave up on it, right, she gave up because of what people told her. They told her only what they knew, only what maybe they experienced because of their own situations, but not knowing a full context of someone's life. It's so imperative that people don't try to give others advice. To be honest, find a specialist, find someone who actually knows how these rules can work to help you navigate through these times, especially if they're troubled times.
Speaker 1:Yeah, definitely. All right. A couple more questions while I have you guys. So you talk about a concept of dollar cost ravaging. What is dollar cost ravaging, and how does this and why is this something that a retiree needs to be aware of?
Speaker 3:Yeah. So I think a lot of people maybe not, but most people that we seem to come across they've heard and understand the concept of dollar cost averaging. So that's the concept of markets are up and down and you're consistently putting and saving money away and you're buying in the market. When it's low, you're buying when it's high and you're buying in the middle. So over the course of your retirement you've bought the average cost of a security, whatever you're investing in, and you have the growth above that when you're accumulating and you're putting money in the market. All you really care about is, of course, you want the market to be down to buy more shares, but what you really care about is what was your average annual rate of return over that period? And the thing is, the game changes when you go to the retirement income phase. We call it the distribution phase or in the book we refer to it as the spended phase save it and spend it. So the spended phase.
Speaker 3:We have something called sequence of returns, risk and we refer to that as dollar cost ravaging and what that is, because we again, we're believers in the stock and the bond market. The stock market, of course we know it's volatile, though it doesn't grow in a straight line, so you can't look at your average annual rates of return over and what you might have done in the first part while you accumulated. The order in which the market grows or goes down every year matters much more, and the fact that we can't predict year to year if it'll be way up or way down or whatever, or how it will sequence. It's risky and your risk increases of running out of money the more that you need to rely on the markets to produce the wealth or the income that you need, because you can't time it. You have to understand and we use probabilities of success in the last hundred years of markets and if we ran a thousand up to 10,000 tries, what's your probability of this working?
Speaker 1:And by working just to clarify getting to the end with still having money.
Speaker 3:At least $1 left.
Speaker 1:At least $1.
Speaker 3:That's success, right? So if someone tells us we want a 30-year retirement period, we want a 95% probability that this will work and we want to be invested in a balanced, more like moderate or a 60% stock, 40% bond, then we can then run the market trials and basically say, okay, here's what you can take out based on your parameters, your safe withdrawal rate. Because if you don't and you just assume you're going to earn 8% a year on average and it goes straight up, so we're going to pull 8% a year out of our portfolio, you're going to be a detriment to yourself and likely burn out of your assets. So we have to make sure we highlight what those risks are. A lot of people don't understand the shift. It's always oh yeah, my investments just go straight up every year. It's not the way it works.
Speaker 1:Interesting A dollar is the goal, at least.
Speaker 3:And that's based off of Bill Bangan's research, the 4% safe withdrawal rule and all that which. Now we have a hundred years of market research and all those things. 4% was what Bill Bengen, who did the research over a 50-year market period 1929 to 1979, he found that you could withdraw 4% inflation adjusted for 30 years, with a 50-50 stock to bond portfolio mix and an 80% probability of success. Meaning having $1 left at the end of that 30-year period, no matter how the market's sequenced over that period. And that's a gross number. But now we have IRAs which are all taxable, so less than that because of taxes. And of course, if we want a higher probability, the safe withdrawal rate number comes down. If we have a longer retirement period, it comes down. If it's shorter, it goes up. So all these different parameters and what the client's risk tolerance is, that all factors into what their safe withdrawal rate is. Plus we have another 50 years of markets to look at. So it's specific to what the client needs and what they're looking for and what they can tolerate.
Speaker 3:So it's very dangerous, just to assume 4%.
Speaker 2:And I think, Paul, the crux of this comes down to. People don't have to leave this to chance. They don't have to be thinking will I get the correct sequence of returns to meet my income requirements? Will the market simply agree with me, or will they be disagreeable? This seems very stressful. It's a horrible way to approach retirement. Honestly and that might be one of the reasons many people delay and delay retirement.
Speaker 2:They think I better not, I better not, I don't think I'm ready, I don't think I can. This is what the mindset needs to be. It has to be a paradigm shift. It has to be as you approach retirement. What will the cost of my retirement be? How much of my wealth will I need to meet the retirement income goals that I've set forth? And I have to do this over a long period of time. But what will the cost be?
Speaker 2:In the book we describe this. We think of, let's say, you and your wife. You go to Myrtle Beach frequently and you finally decide we're going to buy another place and it's going to be right on Myrtle Beach, and these three beachfront homes present themselves, beautiful sunset, and it's on the same exact beach and every house is identical. All three homes identical exterior interior, all the same sizes, everything same beachfront access. And the realtor says let's start here. This one costs $1.2 million. Here's the one next store it costs $830,000. And then the one on this far left, exactly the same home it costs $538,000,.
Speaker 2:Paul, which one are you going to take? Are you going to say well, for prestige and status, I'm going to go buy one of the more expensive homes? Most people are racing over to the $538,000 home saying this is the one, where's the contract? This is what we have to do when we approach retirement. It's not about accumulating wealth anymore, although we think you still can if you have a proper plan developed but it's about what's the best use of our wealth now, and that's when a specialist and, as Russ and I believe, firmly believe we can be the specialist to help guide you, from the moment you've accumulated, you're ready to leave full-time employment. How do we best deploy the assets for you to make sure that retirement works and not worrying about, year after year, what the markets might do to you?
Speaker 3:And say something on that. The worry I think people overlook that, but I've actually just read recently that stress can be the equivalent of smoking the health impacts it has on your body. So there's a lot to be said with longevity and stress and that correlation too. You want to live how you want to live without being stressed and to be able to really enjoy it.
Speaker 1:Definitely All right, a couple more questions. So you introduced something in the book called solve for zero strategy. What is that?
Speaker 2:Solve for zero is the concept that, upon retirement and once you've begun taking social security benefits, the idea of how much other income might you still be able to have? Other income like maybe it is part-time income or IRA distributions, the use of that tax-deferred account that you've accumulated for many years, dividends, interest, tax-exempt income, all of those things how much more of that can you still have when paired up with the Social Security income in your household yourself or yourself and your spouse, and still be a federal tax of zero? And I mean zero meaning the bottom line of your 1040, where it says taxable income, the number is a zero. We can help people calculate that and, while you might not immediately experience that, maybe we have you draw down some of your investment income or IRA type income in earlier years. But upon claiming Social Security benefits, if we can have a highly leveraged, heavily weighted plan that has a lot of Social Security income and less needed from other sources, you might achieve solving for zero or having zero federal tax.
Speaker 2:Now we don't know what the tax rates will be from year to year but given what we know, we know that according to the provisional income formula, that only 50% of Social Security income is counted in that provisional income formula. All of the other income is then 100% counted and when you get through to getting a provisional income figure you go through a couple of thresholds to determine how much of your social security income is then taxable. When you pair that up with all the other 100% taxable income, even without a standard deduction, you might be highly tax favorable. But with a standard deduction you might completely erase any of the adjusted gross income you have with the standard deduction and be a zero taxability. So we say this in our workshops all the time. This is just an additional benefit of proper planning. We're not saying that you'll always be tax efficient, but many can achieve even tax efficiency in addition to having the robust income plan and the very fortified income plan that we've developed with them.
Speaker 1:I have to ask there's so much knowledge that's in the book and that you've shared just during this interview, for that person who's facing these questions when can I retire? When should I retire? When should I take social security? How does this impact my spouse? All these different things what's the reaction been? And I know sometimes you don't necessarily see the reaction from a book, and maybe you have if you've talked to anyone, but what's the reaction and I know sometimes you don't necessarily see the reaction from a book, and maybe you have if you've talked to anyone but what's the reaction you typically get, whether it's from the book itself or whether it's from doing these workshops that you do, because I can imagine that you're just that peace of mind and that ability to have a plan that you're confident in and removing stress is huge for people. It's huge for people.
Speaker 2:I'll let Ross answer this in a moment. The two words that come to mind for me, Paul, are relief and gratitude. That's what the people that we've helped feel. They feel relief, they feel gratitude that there was someone there that could actually help them in a meaningful, intentional way. Put these pieces together.
Speaker 3:Because until then, if they were trying to go it alone or they were going with some misguided advisory, say, yeah, this should be good, right, if things cooperate. And so people are very grateful when they actually understand that we're taking the time and we have the knowledge to know how we're going to use the least amount of their own wealth and give them the right claiming strategy to really enhance their lifestyle and to make sure and they know it's going to work in a highly probable way. The other thing is too I'll give you an example, a quick story of someone I helped recently. I would say trust is another thing. It builds a lot of trust with people when they see the impact we make. And here's this because this is what this woman actually told me. She's like I trust you implicitly.
Speaker 2:Now, she wasn't even a client yet.
Speaker 3:So we had met with her, we being me, and she came in and she wanted to figure out okay, with her, we being me, and she came in and she wanted to figure out okay, when should I claim Social Security? She was already going to work until 70 anyways. So she's 67. She achieved her full retirement age and she wanted to know should I claim Social Security now, because I can and not be reduced, I'm going to work till 70 anyways, and how do I manage my assets? The whole thing, how do I put this together? And this is our discovery phase. And so when I'm figuring out with her, I'm talking through her and figuring out her story, and I unpacked that she had been married and divorced and raised her kids, basically her whole life on her own. And I just happened to ask her I said how long were you married? 11 years she was married and she was divorced for 30 something. But she was married over 10 years. And I said is your ex-husband still alive? By chance? She said no, he passed away. And I said okay, here's what I need you to do. While you're going through our homework process and all that I said, I need you to call social security and say my ex-spouse passed away and I believe I'm eligible for a survivor benefit from his record. Can you please run the numbers for me and compare them to my benefit, cause they will do that. They'll compare the two.
Speaker 3:She comes back to me and I asked her how did it go with Social Security? She said you'll never believe it. She's like, and I trust you now with everything, and I'm not even a client. She said I'm going to become a client and she did. But what she said was I'm going to be claiming his benefit and it's going to start retroactively back six months and to take it monthly and all I'm going to do is give it all to my kids because I don't need it. That was their father, so it was a great way to give him a legacy to their kids. And it ended up being a total of about $61,000 that she was going to get from social security and then she'd switched to her own at 70 when she actually retires. You're not going to get a letter from social security saying you have benefits that are waiting for you.
Speaker 3:No, so essentially we found her 61 000 that she knew, that she never knew it would even be possible to be, to exist, and it built, like I said, it builds a lot of trust with people helping them utilize that, get the most out of their benefits essentially their specific situation. So that was a huge one that impacted me greatly. That you share that and I share that pretty much at every workshop we do, because it's incredible to me.
Speaker 1:I really appreciate your time today. This has been fascinating. It's something I'm myself. I'm let's see how old am I? I'm 49. I'm still a few years away, but I see the impact that social security has for my parents and I've learned so much from you guys and just listening to your book and talking to you that I really appreciate all the wisdom that you've shared. Before we wrap up today's interviews, are there any final thoughts that you'd like to share with our audience?
Speaker 2:The thoughts I would have are a great thank you to you, paul, your team, helping us see this project through to completion, publishing number one Amazon bestseller. We are so excited every single day to help more and more people, and you've allowed us now to help even more people than we were before. We can now promote this book. We can hopefully have people read this and again change their mindset a little bit. Don't jump to a conclusion that you're faced with the same, I guess, predicament or the same claiming decision as your neighbor or your sister or what your parents did. It should be very unique, the decision-making that you have when it comes to social security. Claiming Again. We think it can be a cornerstone. Russ and I have embraced the complexity of the rules and the filing strategies. We have trademark software that can help people with this, again, deducing what the least amount of capital needs to be to have the retirement that you wish for. So you have excess capital beyond break even bookcom, beyond break even bookcom to get essentially the free ebook and audio version of our book.
Speaker 1:Tell us just briefly. So the two of you co-narrated the audio book. What was that experience like?
Speaker 3:Yeah, it was actually kind of boring because we would go back and forth with the chapters and we were in our studio and he'd be reading and it'd be going on and on and on and I'd be reading and it was harder than we thought because it's just, it's like a marathon and reading out loud is tiring. It was like reading to my kids to put them to bed, except bedtime was a long ways away.
Speaker 1:But it was great. It was great. I just listened to it. It came out very well and I personally love how the two of you bounce back and forth. I think it brings in some contrast and some more interest. Any final thoughts before we wrap up.
Speaker 3:I'd say that we help people. We're physically located in New York State and we have an office in Jupiter. We teach our workshops physically in New York and in South Florida and in Texas and Tennessee, but this is a national program and we have clients in almost every state and so no matter where you live it doesn't matter where you live In the US we help everybody. And again, beyondbreakevenbookcom is where you can read more about how we help people really through our book complimentary PDF and audio book and then, if you have any questions, you can call us directly at 1-888-280-PLAN P-L-A-N and you can schedule a complimentary retirement income stress test is what we call it to see where you stack up and what you think you might do.
Speaker 3:And if you have the right, claiming decision and strategy for you and your family Very cool, thank you so much for your time today.
Speaker 1:I've enjoyed the conversation. We have too. Thanks for having us. Thank you, Paul. All right Bye for now.