SHOW NOTES: 2020-07-30 MiM

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Last Week’s Question of the Week: Social Security Benefits are calculated from how many of years of earnings? Is it 25 or 35 years?

ANSWER: 35 years!

HOST: As we all get a little closer to retirement, please tell us how important our future Social Security benefit is going to be in our future retirement income?

KLAAS FINANCIAL: Deciding when to begin to draw your Social Security benefit or your spouse’s is kind of a big deal. And, that decision will depend on your overall financial situation. When we are sitting down looking at future retirement income sources with our clients, Social Security income is usually an important piece. We usually look at any possible pensions, income from investments and finally, Social Security.

Commonly, we would say that a person going into retirement will need about 70% of their pre-retirement earnings to maintain their pre-retirement standard of living. If you have average earnings, your Social Security retirement benefits will replace only about 40%.

Questions you need to consider include:

a) What type of debt do you have going into retirement and what are your real income needs?
b) Do you have a spouse who will also be collecting Social Security?
c) Do you plan to be gainfully employed after you retire from your current job? If you wait, you could receive Delayed Retirement Credits of 8% each year, up to age 70.
d) If you are working, how much would you be earning? Perhaps it may be worth waiting.
e) First step is to find out what your Social Security benefit is looking like. Visit to find out. Set up an account today and see how those numbers are growing for you based on your yearly wages. Remember that Social Security benefits are based on the earnings on which you pay Social Security payroll taxes. The higher your earnings (up to a maximum taxable amount in 2020, currently $137,700), the higher your benefit will be someday.

HOST: What is the average Social Security retirement benefit in the United States today? And how many people are currently collecting?

KLAAS FINANCIAL: Actually, the number of people collecting, and the dollar amounts are quite large. The average monthly Social Security retirement benefit as of January 2020 was $1,503 per month, or about $18,036 per year.

The maximum benefit depends on the age you retire, and of course how much you averaged in earnings in your highest wages for the past 35 years. If you are at the maximum taxable earnings limit, and if you retire at full retirement age in 2020, the maximum benefit would be $3011 per month.

As of June 2020, about 65 million people, or more than one in every five U.S. residents, are collecting Social Security benefits. During 2020, Social Security will pay out over $1 trillion dollars in benefits!!! Nearly nine out of ten individuals age 65 and older receive Social Security benefits.

So, for our listeners, the “optimal age” for drawing Social Security benefits depends on other sources of income, spouse’s income, health and longevity, etc.

HOST: What is the earliest I can begin my Social Security? And remind us what “FRA” stands for?

KLAAS FINANCIAL: Age 62 is the earliest you can begin your benefit, however that monthly benefit is reduced by about 30 percent, because according to Social Security you are taking it early, as compared to what they consider your FRA or Full Retirement Age. FRA refers to the age at which a person may first become entitled to full or unreduced retirement benefits.

What is your FRA?
If you were born before 1954, your FRA is 66 or younger.
If you were born between 1955-59, FRA is 66 plus some months;
If you were born on or after 1960, then your FRA is 67.

Reduction of SS prior to FRA:
If for example, your full retirement age is 67 and you start retirement benefits at age 62, your monthly benefit amount is reduced by about 30%.
Age 63 – about 25% reduction
Age 64 – about 20% reduction
Age 65 – about 13.3% reduction
Age 66 – about 6.7% reduction

HOST: If I take my Social Security early, prior to Full Retirement Age what restrictions do I have to watch out for?

KLAAS FINANCIAL: The Social Security administration may reduce or postpone your benefits between the ages of 62 and full retirement age (66-67) since you are electing to collect benefits before your FRA (Full Retirement Age). If you make over $18,240/year in 2020, your earnings are limited. Be careful of this! SS deducts $1 from benefits for each $2 earned over $18,240.

In the year you retire, the allowable earnings limit is $48,600 which means they will deduct $1 in benefits for every $3 if you go over the limit.

There is no limit on earnings for workers who are “full” retirement age or older for the entire year. You are entitled to all of your own social security benefit or 50% of your spouses (whichever is greater) in retirement. Be aware of age differences, etc.

HOST: Andrea from our Money in Motion Listener Corner asks: “How much does it cost to have a will prepared?”

KLAAS FINANCIAL: Great question! First of all we are not estate planning attorneys, however we always suggest that our clients and listeners prepare their Wills, Power of Attorney Documents for Property and Health, as well as potentially a trust. Over the years we have seen quite a range in the cost of these different documents, so you should call a local attorney’s office to get actual pricing. As far as averages go however, an estate planning attorney will typically charge a minimum of $150 to $600 for a will, with the average cost being about $375. Of course, the cost is sometimes dictated by where you live.

This fee generally covers a basic draft and could increase if any issues or complications arise. Attorneys may also charge extra for services such as power of attorney and other estate-planning documents, so make sure you ask up front what the costs will look like.

Some attorneys will offer a complimentary first meeting and give you a quote for the items you need after that meeting, and others may charge you a fee for the first meeting, and may possibly apply that as a credit should you choose to work with them.
If you would like a referral to a reasonable attorney near you, please give us a call and we can suggest some that we currently work with. Thanks again for asking!

This Week’s Question of the Week: How many Americans currently collect Social Security Benefits? Is it 30 million or 65 million people?

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Catch C.J. Klaas and Maleeah Cuevas on Money in Motion every Thursday on Madison's 1310 WIBA from 8:05-8:35am.