Delivered on: Thursday, August 27, 2026
To Watch on YouTube, CLICK HERE
Social Security for Federal Employees
Key factors to consider before starting benefits at 62, 67, or 70
- YOUR BENEFIT: How your benefit is calculated—and the factors that permanently increase or reduce your monthly payment
- EARNINGS TEST: Why your decision to take benefits may be affected if you are still working (and how other income affects your payments)
- SPECIAL SITUATIONS: What married couples, surviving spouses, divorced spouses, and certain federal employees need to know before claiming
- DECISIONS: The personal, financial, tax, and longevity factors to weigh—and what happens if you change your mind after filing
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Prefer to read instead? A Transcript of this Webinar is Below:
Hello and welcome everyone to today’s FedImpact webinar on social security for federal employees. I realize that social security might not be a super exciting topic to talk about and one that might feel way off into the distance for many of you.
But before you know it, this decision is going to be on your doorstep and I want to make sure that you have an understanding of how this works so that your mindset can be right with respect to what you’re expecting out of this program and maybe what you’re not.
You guys know me, I’m Chris Kowalik, the founder of ProFeds. I’m really delighted to be here to be able to dive deeper into a topic that we don’t normally get to go this deep into. For sure, I’m not going to be able to go into all of the bowels of the Social Security program because it is rather complex, but I’m going to try to keep this relatively contained to the matter at hand today and give you some good insights to be able to take a look at.
Social Security for Federal Employees
Today’s topic is all about social security for you federal employees, and we’re going to be talking about some of the key factors to consider before starting benefits at these key milestone ages. Age 62, 67 or 70, or frankly, anywhere in between, but those are the big milestones that we’re going to be talking about today.
Adgenda
For our agenda, we’re going to talk about your benefit as far as you as the worker, what your benefit is, how it’s calculated, the factors that go into making that number, and how do you increase or reduce your monthly payment in retirement based on the decisions that you’re making.
Next is the earnings test. This will primarily determine how decisions that you make to take your benefits earlier in social security might be affected if you end up having another job or you’re continuing to work for the federal government.
Next, we’ll talk about some special situations, certainly with married couples, surviving spouses, if there’s a divorced spouse, and certain federal employees, what you need to know before claiming.
And then decisions. There are a lot of decisions with respect to social security, and it’s not always just about the money with respect to the amount of benefit that you’re getting, but how that decision affects other parts of your financial life. We’ll certainly touch on that today.
What this webinar will NOT cover
What this webinar will not cover, like I mentioned, we’re not going to be able to get into every nook and cranny of the social security program.
I’m going to stay primarily focused on the benefit that you personally will receive from social security and what your spouse will receive based on different factors.
We’re not going to go into disability retirement from social security and how children are handled and all of that. We’re going to be talking about normal social security when you become eligible for it at 62.
The Basics: Where SS Fits into Your Federal Retirement
Let’s start with some of the basics. Thinking about the basics, we have to understand how social security fits into the bigger picture of your federal retirement.
When FERS was created back in the mid 80s, there were three different pieces of your federal retirement that they were thinking about as they created FERS. We have your regular FERS pension, that is the monthly payment that you are going to get once you retire from federal service.
We have your thrift savings plan, of course, a 401 style plan that you can contribute to. And based on how good of a saver and investor you are over your career, you’re going to have either a really small or a really large amount of money in the TSP to be able to pull from as you wish in retirement, not without consequence, but still as you wish.
And then we have social security, of course, the topic for today. Social security is not a program, of course, unique to federal workers. Everybody is contributing to social security out in the private sector too, but it was certainly a consideration because prior to the FERS program being created in the mid ’80s, all of your CSRS counterparts did not contribute to social security.
This was a big factor because they needed this huge workforce to get into social security to start paying into it. They created FERS and did away with the CSRS program as far as accepting new people into that program.
But I do want to make sure that you realize that the decisions that you have with each of these three legs of your stool are independent of one another. The decision of when you decide to leave federal service and start your pension is completely independent of when you start taking money from the Thrift Savings Plan.
And that is completely independent of when you decide to start taking your Social Security benefits. Just because you retire from Federal Service doesn’t mean Social Security has to start right away. That’s one of the foundations that we need to make sure that we’re all really clear on because there are a lot of choices that you’re going to have with Social Security that we’re going to be talking about today.
The “Old-Age and Survivors Insurance” Trust Fund
Let’s talk about the elephant in the room, which is the idea that the Social Security Trust Fund or what’s called the Old Age and Survivors Insurance Trust Fund is broke. We’re just going to put it right out there before we start talking about all the numbers and all of that. We just need to get this out there because this is a concern for a lot of people.
The concern is that Social Security is going to run dry and there’s not going to be any benefit, which causes a lot of people to race, to take Social Security because they’re thinking, “Well, I might as well get it while it’s there.” And then you end up perhaps regretting that later.
We get questions like, “Should I take it now before it goes broke? Will waiting mean that I get to get hit by this future reduction? Will social security even be there? Should younger employees count on it?” All good questions.
But here’s the deal. No politician wants to be on watch when social security goes belly up. There’s going to be something that happens with this, and I hate that we’ve kicked it down the can down the road so long, but I want to talk about the timeline and what this actually means.
If nothing changes between now and the end of 2032, which by all measure is not far from now, 100% of scheduled benefits will be paid up to that point. That is in the trust fund itself, beyond the year of 2032.
Now we start dipping into the reserves. And so 78% of scheduled benefits would be paid at that time. How long that lasts, I suppose is up for debate, but I don’t want you to think that by 2032, the money’s gone, it’s all dried up.
The last penny has been paid out of social security and it’s just over. Congress is going to have a lot of decisions to be making here shortly and they’ve got a lot of policy levers that they can be pulling, but what they end up doing is relatively unknown.
There’s lots of options out there. Perhaps they raise the social security start age from 62 to a higher age. Perhaps they make people contribute a higher percentage or for higher earners for a longer period of time after they’ve hit the maximum taxable earnings limit.
There’s all sorts of ways that this can be modified to be able to extend these benefits beyond 2032 in their full insurance capacity. But what Congress chooses to do, we simply don’t know.
I do not want this to be the reason that you all clamor to take all of your benefits from social security early and end up after things have been resolved, end up regretting the decision that you’ve made. And you’ll see why as we go through today’s material.
The Intent of the Social Security program
Let’s talk about the intent of the social security program. This program was designed to provide a retirement benefit to those people who have paid into social security for at least 10 years.
It’s intended to be funded through your entire working lifetime, so 6.2% of your pay, whether you’ve worked with the federal government or otherwise, 6.2% of your wages would have gone into the social security program.
And the idea is that this benefit would be payable at your “full retirement age.” And we are going to be referencing this all the way throughout today’s material.
I want everyone to pay special attention to the chart on the right hand side, find your full retirement age and mark it down, write it on a scrap piece of paper, pull out a Sharpie and write it on your palm, whatever you need to do, but know what your full retirement age is.
And this has nothing to do with when you are eligible for retiring from the federal government. This is strictly for social security purposes.
You simply find the year in which you were born, you go to the right hand side and that is your full retirement age. For simplicity’s sake today, I’m going to refer to the full retirement age as age 67 since that’s where the vast majority of you are landing, but it’s worthwhile to know that if you happen to be born prior to 1960, your full retirement age may be a few months before that 67 mark.
Again, 67 will be what I will reference throughout the rest of today’s material, but yours might be a little bit different.
The Decision: When to start Social Security?
Let’s talk a little bit about the decision that you’re going to need to make. You may decide to start receiving your social security benefits any time between the age of 62 and 70. That is your choice and you’re the only one that deals with the consequences.
Your spouse might have something to say about that too because they’re going to have to deal with it, but this is squarely in your court to be able to make this decision. And the intent is to pay benefits at your full retirement age.
You can take it at 62 if you want, but if your full retirement age is 67, know that that is what your benefit was intended for. If you decide to take it earlier, like 62, you’re going to receive a lower amount.
You’re going to have a penalty applied to what your intended dollar amount was out of social security. If you end up taking your social security benefit later, you’ll receive a higher amount.
These are called delayed retirement credits and it happens every year you delay taking social security after your full retirement age, your benefit goes up by 8%. From 67 to 68, it goes up 8%. From 68 to 69, it goes up 8% and so on.
It is worthwhile to note that there is no benefit to waiting beyond the age of 70 to start. That’s the best your benefit’s going to be, so you might as well take it at that point.
When will you die?
The single piece of information that would make when to start social security benefits super, super simple is also the hardest question you’ll ever answer, which is when will you die? You don’t know the answer to this question, at least I hope you don’t.
If you did, we could just close up shop right now. We could tell you exactly when to take social security because we know when the end point is and we would just save a whole bunch of time today.
But because we don’t know when we will all die, we now have to go into the math of how all of this works.
Let’s put our math cap on. We’re going to run through some numbers. I’ll try not to bore you with some of the crazy details, but I want you to understand functionally how this program works.
The Calculation
Let’s start with the calculation of your actual benefit. The benefit at your full retirement age is called your primary insurance amount. You are going to hear us refer to PIA throughout the rest of today’s material. So no PIA equals benefit at full retirement age.
That PIA calculation uses a process to determine the monthly average of your earnings. And whether it’s monthly or it’s an average, you probably don’t care. What you want to know is what gets spit out at the end, but I need you to understand some of the inner workings of this.
All of your years of earnings throughout your whole lifetime, all of those earnings that were subject to social security tax when you earned them are adjusted. They’re inflated to today’s dollars. We’re on an even playing field. All those dollars that you made decades ago are going to be inflated to look like what they would look like today.
And then the Social Security Administration is going to cherry pick the highest 35 years of those earnings, and they’re going to distill that down through a crazy calculation to determine your average indexed monthly earnings.
And that process spits out your primary insurance amount. It’s worth noting that if you have less than 35 years of social security earnings, those years count as zeros. That’s really pulling down your average. Anytime you can continue working and replace those zeros with real numbers of earnings, the better off your social security benefit is going to be.
That’s why you start to see your benefit not changing all that much as you get closer and closer to actually taking social security because you’re not having those big leaps in this average that the social security administration is using.
Again, I’m not going to bore you with the super granular details of this calculation, but generally I want you to understand 35 years of earnings and they’re going to take the best of those 35 to put it in this calculation.
Example of Delaying Receipt of SS Benefits
I want to talk a little bit about the example of delaying receipt of social security benefits. This is a slide that I pulled over from our workshop. This kind of mimics what it would look like on your social security statement. Well, first, there’s a lot of things going on here, so follow along with me.
I’d like you to start in the gold bar right in the middle of the page. At 67, this is your primary insurance amount. You are going to get 100% of your full retirement age benefit, that PIA. That $1,714 is what the Social Security Administration intends to give to you as long as you’re going to wait until 67.
If you take those benefits earlier, you’re going to get less. If you take them later, you’re going to get more. We’ve already covered that part. But there’s a couple of things extra that I want to point out on here. If we’ve looked at age 67 in that gold bar, you’ll see it says 100% of FRA, full retirement age benefit.
But if you go up to 62, the earliest age that you can draw social security benefits, you’ll see that it is only 70% of your intended benefit. There is a 30% penalty that you are getting by taking social security at 62.
Likewise, if we go down to the very bottom of this chart, we’ll see at age 70, if you wait until that point to start receiving social security benefits, you are going to have a benefit of 124% of your intended amount.
Again, those delayed retirement credits of 8% a year continue to make this a better and better benefit for you the longer that you wait. But of course, the longer you wait, the fewer payments you are going to receive.
We’re going to talk about all of that today. Just keep in mind, full retirement age is your benefit at 67, and that is also called your primary insurance amount.
The Earnings Test
Let’s talk about the earnings test. We have to keep on our math theme here. We’re going to get some numbers out. The earnings test that the Social Security Administration uses, this is just a fancy phrase for penalty. And the penalty is the conditions were not right for you to take social security, and so they’re going to withhold some of your benefit. Earnings test would apply if all of these things are true, all three of them. A person is drawing their social security benefits and they are under their full retirement age. Again, for today’s purposes, we’re going to call that 67, and their wages exceed the allowable limit for that year.
For 2026, that limit is $24,480. You can make that free and clear. The government doesn’t care. Social security administration’s happy. Once you start making more than that, you are going to start to have a penalty. And that limit changes each year. I do want to point out though, that $24,480 of income that we’re talking about, these are wages. This is not any money from your pension, from your 401k, from the TSP, other investments. This is from an actual job that you have where you are earning money.
That might be your federal job that you have right now. That might be you moonlighting at the local Walmart when you finally leave federal service. Whatever that might look like for you, it is you going to a job and earning a wage for that pay period.
Example
How is the earnings test calculated? The social security benefit will be reduced by $1 for every $2 above the allowable limit that you earn. Remember, you can earn 24,480 free and clear, but once you earn $2 more than that, you have to give a dollar back to the Social Security Administration.
And you’re not technically giving it back. It’s going to be penalized the following year. Here’s an example. Let’s say a person has $1,200 a month of social security benefit at the age of 62. Once they make more than about $53,000 a year, they would lose all of their Social Security benefit the following year.
But here’s the good news. It will be refactored into your benefit once you reach your full retirement age. Yes, it is still a penalty, but it’s a deferred penalty.
The penalty’s happening now because you’re not getting the money, but there’s a deferred payment that’s going to happen to you because it’s going to refactor into bringing up your full retirement age benefit, your PIA, based on the amount that you actually didn’t receive. That gives you an idea of how that piece works.
The Taxes
With respect to taxes, at the federal level, all of you should expect to pay tax on your social security benefit. Generally speaking, up to 85% of your social security benefits can be included in your taxable income at the federal level. You’re not going to pay 85% tax rate on social security.
It is 85% of what you are receiving from social security can be included in the dollar amount that gets you to your taxable level that you’re going to owe tax on come the end of the year.
The reason I say all of you should plan to pay tax on your social security benefit is because despite the recent legislation that was passed that reduced or eliminated social security benefits for some people, the tax on social security benefits for some people, federal retirees are likely going to be required to pay tax on their benefit because of their income level.
And I don’t mean their income level from a job. I mean their income level from their pension, from anything they’re receiving from social security and the Thrift Savings Plan.
All of that is going to put you in such a high tax bracket and put you in such a high tax dollar amount that you are not going to qualify for the elimination of the Social Security tax that was recently passed. Just plan on all of it being taxed or at least 85% of it, and then maybe you’ll be happy if in fact you do qualify for some of those breaks.
At the state level, states get to decide whether they tax social security benefits at the state level. They have no control over whether it’s taxed at the federal level, but at the state level, the states get to decide there are only eight remaining states that tax some portion of your social security benefit.
The last time we did this webinar, there were twice this number. States are getting smart to start reducing the amount of taxation that they have on social security because ideally we want this list to be zero. If you happen to be in one of these eight states, just be prepared that at least some portion of your social security benefit will be taxed.
Cost of Living Adjustments
Let’s talk about cost of living adjustments. COLAs, as they’re lovingly called, are applied to social security benefits each year. The Bureau of Labor Statistics is going to determine how the social security benefits will change for current retirees by calculating what we call the consumer price index for wage earners or a CPIW for short.
Once they determine that number, it’s a percentage, that is how much the social security benefit will change for everybody who’s already collecting benefits. I’m kind of oversimplifying something that’s pretty complicated, but that is generally the way this goes.
As of 2026, the 10-year average for social security COLA is 3.11%. Some would argue that that feels too high to assume that we’re going to continue in that high inflation kind of bracket, but this is in fact the 10-year average that we’re working with right now.
Break-Even Analysis
When we think about when to take social security, there is a common tactic out there called the breakeven analysis. And it’s this idea that we want to look at the specific point in time when the total cumulative benefit for waiting to claim a larger monthly check catches up to the total amount that you would have collected by starting your benefits early.
If you were to take your benefit at 70 instead of 62, at what point do those lines cross so that beyond that point, you’re better off moving into the future if you live a long time. We’ll talk a little bit more about this breakeven analysis, but I will share with you, this is a little bit of a controversial tactic.
Some analysts really love this, some hate it. And the reason that anyone doesn’t love the breakeven analysis is because by itself, it doesn’t tell someone what the right strategy is.
It can feel misleading because there’s lots of things that haven’t been included in the breakeven analysis that makes this kind of operate in a bubble. And that’s not how finances work. We have to have integrated finances where we’re thinking about the idea of what are you giving up, opportunity costs.
If money is coming in, what are you doing with it? How is it growing? Are you spending it? Are you investing it? If you’re investing it, what’s the rate of return on it? Those are opportunity costs that get lost if in fact you’re not receiving the income.
There is some frustration around the breakeven analysis, but one that I at least wanted to point out to you and kind of get to these points here so that you can see how they work.
Break-Even Points
The ultimate thing that we’re trying to figure out when we think of breakeven points is what makes it worth the wait? Nobody wants to have delayed gratification if what’s on the other side isn’t better than if you just took it now.
If you start taking social security at 62, you naturally get a head start by receiving payments now, but we already determined you’re going to receive a lower amount, in fact, 30% lower than what the social security administration had in store for you.
If you take it right at the point that you’re supposed to take it at 67, once you reach the age of 78, you will have exceeded the amount that you would have received had you started drawing it at 62.
There’s typically a 10 to 11 year gap between this. It’s going to take you 10 or 11 years by starting the benefit at 67 to finally surpass all of those missed payments that you would have otherwise received between 62 and 67.
If you wait all the way out to age 70, to begin taking the benefits, once you reach about age 83, you will have exceeded the amount that you otherwise would have received had you drawn at 62.
This might feel a little harder for many of you, but with life expectancies, especially if you’re in great health, you’ve got a great family history, and you can tide yourself over financially between 62 and 70, you have an opportunity to be able to have a larger amount of lifetime income, assuming that you live a long time.
Because remember, the one question that would make all of this really simple is when are you going to die? And because we don’t know that, we have to look at various scenarios and you’re going to have to ultimately decide which one feels most aligned with what you need and what you want.
Who Can Draw off of YOUR Social Security Record
Let’s talk about the who, as far as who can draw off of your social security record. You have this magical social security record held at the Social Security Administration, and that record contains all of your earnings throughout all these years, all that you’ve contributed, all of that is part of that record.
And although you have not contributed to a little bucket where all of your money gets paid back to you, you’ve contributed to the larger bucket for everybody, we have a record at the Social Security Administration of all that you’ve done to contribute to the greater good.
And all of that is going to be used to determine how much you personally can get from Social Security. We’ve already seen that calculation. On the far left-hand little tile there, it shows you. You personally can draw off of your own social security record, which is what you’ve probably been planning on for many years.
Here in the middle, you will also see spouses listed here. We have your current spouse. This is you while you’re still living and still married. We have your surviving spouse once you have passed away, how that surviving spouse will receive income. We also have a former spouse, as long as certain criteria has been met that can draw off of your record.
And then we have your children. Children are going to be a very limited timeframe that they’re able to pull off of your record. We are not going to be talking About children’s benefits on today’s session. We are going to talk about these spouses though, because your decision of when you take your own social security may very well be impacted by at least a couple of the spouse programs and how they work.
Example: Living worker
There’s a lot going on here. I tried to simplify all of the craziness that is out there in the social security land to try to bring this down and distill it so that we can talk about it today. The table that you have up right now is you as the worker while you are still living. All three of these scenarios, you are still alive.
For you as the worker, if you go to the right hand side, your benefit will be based on when you decide to claim social security, when you decide for it to start and your primary insurance amount or your PIA. Remember that is what is payable to you at your full retirement age.
That gold bar that we looked at in that real colorful chart, full retirement age, primary insurance amount. We already know this because we went through the chart, but at 62, if you decide to take your benefit, you’re going to only get 70% of what the Social Security Administration had planned for you.
If you take it right at 67, you get exactly that PIA number. And if you wait until 70, you’re going to have 124% of the intended number of your PIA. We’ve already reviewed this in a little bit different of a format, but I wanted to put this in context here so that as we’re talking about your spouse, we have an opportunity to address this.
Remember, everything we’re going to address on this slide is while you are still living as the worker. You don’t have to still be working, but you are the person whose social security record we are talking about. Your current spouse, as long as you’ve been married for at least a year, the Social Security Administration deems your spouse as a valid recipient of a special benefit. And that benefit will be based on the age that your spouse is when they claim this benefit to start.
And it’s based on your PIA. While you are still living, your current spouse can draw a percentage off of your social security record of your PIA, and it does not affect your benefit at all. While both of you are living, your current spouse at 62, at their age 62, they can draw 32.5% of your primary insurance amount.
This is on top of what you’re already drawing. This is a little bit of a bonus. If they wait until they’re 67, they will draw half of your PIA and it doesn’t get any better from there. At 70, it’s still half of the PIA. Even though you can continue to have bigger and bigger payouts because you’re choosing to wait to draw Social Security, the same thing does not happen for your spouse.
In order for your spouse to be able to take advantage of this spousal benefit, you as the worker must file to receive Social Security benefits. That is what unlocks the current spouse to be able to take this benefit.
The spouse, just a little technicality here, the spouse is going to receive their own Social Security benefit, whatever that number is, plus the Social Security Administration is going to kind of top off or add to their own benefit, the amount that would make them equal either 32.5% of your PIA or 50% of your PIA. They’re not just taking 32 and a half or 50% of your PIA and calling it good.
They’re being forced to take their own Social Security benefit and then based off of yours can get a bonus. The Social Security Administration doesn’t call it a bonus, but just for our purposes here, it kind of feels like a bonus where it brings it up to at least half of your PIA, assuming that they wait until their full retirement age to draw it.
Now a former spouse, so now you are divorced. If you were married for at least 10 years, your former spouse can get the same benefits that we just described for your current spouse. Same rules. But a former spouse taking benefits off of your record, they do not reduce benefits for your current spouse.
They also don’t reduce them for you, but specifically they don’t reduce them for a current spouse. It is a separate decision. Most of the time, you’re not even going to know that a former spouse has claimed benefits off of your record.
They’re going to do that directly with the Social Security Administration and the Social Security Administration doesn’t contact you to get your approval. It’s none of your business. They’re going to draw off of your record. And the fact that it doesn’t affect you in any way, shape or form is good news.
Again, all of these benefits are based off you as the primary worker, as the worker living, your own benefit, your current spouse benefit and any former spouse benefit.
Example: Deceased Worker
The next slide talks about the scenario of what happens once you have passed away as the worker. We have two different scenarios. Let’s talk about the surviving current spouse. In order for this to pay out, you had to have been married for nine months and they can’t remarry prior to the age of 60.
Off to the right hand side, you’ll see that this benefit is based on the spouse’s claiming age. How old they are when they decide to turn this benefit on and your current social security amount when you die. If you haven’t already started taking benefits, it would simply be calculated on the day of your death of what that benefit would be.
At 60, it’s no longer 62, it’s now 60. A surviving current spouse can draw 71.5% of your benefit, but if they wait until 67, they will get 100% of your benefit. And you’ll notice it says benefit. It doesn’t say PIA. If you started taking Social Security at 62 and took that huge penalty, that 30% penalty, guess what?
That carries over to your surviving spouse. They don’t just magically make the penalty go away. Their benefit will be based off of your reduced benefit because you chose to take it early.
The same thing holds true if you decide to delay your Social Security while you’re living. Let’s say you wait until 70 to get that 124% of your benefit. Your current spouse, when they’re a surviving spouse, they will be able to get 100% of that higher dollar amount that you waited for.
Very important that we understand the distinction between this and the big line of demarcation is are you as the worker still living? If you are, you have to look at the previous slide. If you’re already passed, now we’re looking at this slide. Nearly the exact same thing happens for a surviving former spouse.
The only difference is that they had to have been married for 10 years. It’s not nine months anymore, it’s 10 years. Former spouse, once we pass that 10 year threshold, this is great news and they have the same requirement. They’re not allowed to remarry prior to the age of 60. If they do, they lose this benefit.
But the calculation is exactly the same that we just reviewed for a current spouse. And again, it’s worth noting that the payments for a surviving former spouse do not reduce benefits for a current spouse.
The Gap: Addressing an “Income Shortfall”
That’s a lot. I was shocked that I was able to get that on two slides because the complexity surrounding all of these benefits is extraordinary. I don’t have all of the details in these slides.
Of course, we’ve got certainly exceptions to rules, but this gives you a really good foundation for where these benefits begin as far as how they’re calculated, when they’re payable, who gets it, when do they get it, how much it’s going to be. There’s an awful lot to think about here.
But the thing I want to talk about now is what we call the gap. And the gap is when you need the income and you’re trying to figure out if social security is the right place to take it from.
You might have just retired and you went from having your paycheck down to having your pension check. Maybe you started with the first retirement supplement to kind of bridge the gap a little bit for you, or maybe you didn’t.
Maybe you started taking money out of TSP or some other investment accounts, lots of different choices. But when it comes to an income shortfall where you have a gap of income that you’re trying to fill, there are several places that that income shortfall can be addressed.
Social security being one of them, of course, the topic for today. We have accounts like the TSP. You might have a savings account or a cash account that you can just pull money from if you need it. Perhaps you have other retirement accounts, IRAs, 401 s, your spouse has a 403 from being a teacher. There’s just all sorts of different types of accounts that are out there.
There’s also non-retirement accounts like brokerage accounts that don’t have the rules as far as waiting till 59 and a half to access them and all that stuff. Then you have CDs, bonds, any other kind of account you might have.
There are different ways to solve an income shortfall. And I hope that you’re considering all of these as you’re trying to decide whether taking social security now or presumably at the time that you retire or waiting makes sense.
Off to the right hand side, I have a special note here. It’s worth noting that the social security program, those benefits can only be left to certain people when you die, right? We just covered what it looks like if we have a surviving current spouse or a surviving former spouse, but it’s pretty important to realize that nobody else can get it.
You can’t name your brother or sister or your parents, gosh, if they’re still alive. Rarely does it go to your children. It’s when they’re minors that this benefit pays out and presumably by the time you’re drawing social security benefits, your children are grown.
There’s a point that once both of you are gone, you and your spouse, there’s nothing more that the social security administration has to pay out. In fact, there’s nothing that they will pay out at that point.
But when we think about other accounts like TSP or that savings account that you have money stashed away in, or an IRA or a Schwab account or some CDs or bonds, all of those have the ability to be paid to someone other than your spouse in the event that you die.
It can either be left to your estate and divvied out by the courts or you can actually designate a beneficiary. There’s far more flexibility with these other accounts as far as making sure that the money goes so that someone uses it, even if it’s not you, after you die.
There’s at least a concept in social security of the timing of all of this is, man, take social security while you can, and that way the money’s there and preserve these other types of accounts to where the beneficiary can receive it directly upon your death.
I’m not saying that that’s the right way to go, but that is kind of a thought that a lot of people bat around with respect to social security and the timing and choosing how we’re going to address the income shortfall.
Starting Social Security at Various Ages
There are a couple other kind of rules of thumb or thoughts that people have generally speaking with respect to timing social security. And I want to talk just briefly about those here.
At 62 on the far left hand side, these are some conditions that cause people to naturally veer towards taking social security at 62. If you simply do not have enough money to pay your bills, you didn’t save a lot in TSP, that thing’s gone, you don’t have any other cash accounts, you legit need money and there’s no other place to get it. 62 is the way to go. You’re not going to have any other choice.
If you have poor health or your longevity is not great, maybe you’ve got bad family history, you’ve got a diagnosis, you’ve got whatever it might be when it’s just you thinking, well, I suppose I should take something even if I’m not going to be around long enough to really make this feel worthwhile, there’s at least the thought that you can get some benefit out of the social security program.
This is especially true if there’s no surviving spouse to protect. If it’s just you, you’re single, you have no children that you’re trying to protect a legacy for, you’re not trying to preserve other assets, taking social security at 62 is one way to go.
67, remember this is the target age that the social security administration has in mind for you. Let’s say you were still working prior to age 67 and you wanted to avoid the earnings test prior to your full retirement age.
You’re like, “Man, I’m going to keep working for the federal government or I’m going to retire and then go get another job, maybe a contractor or something fun, whatever it might be.”
And you’re like, “Well, man, I don’t want to have this earnings test. I’d rather just wait.” You wait till 67 to turn on social security. And at this point you need income, but you could wait until 67 to avoid the full penalty if you start those social security benefits early.
At 67, the idea is that you have some other buckets of money that you can pull from, IRAs, obviously your TSP, 401 s, brokerage accounts, savings accounts, those types of things to tide you over between 62 and 67.
And then we have age 70. In this case, you have enough assets, enough other sources of income to use during this big delay from 62 to 70. You’ve got great health, your longevity is strong.
Maybe you’re the higher earner between you and your spouse and you want to make sure to preserve, first get the big bumps in social security between 67 and 70, those 8% delayed retirement credits, but you also want to make sure that if something happens to you that you’ve left the highest benefit amount that the surviving spouse would receive benefits from.
Here’s the deal. In doing a webinar like this, it’s really hard to put these slides together because most of the time people don’t have all of the things in one of these boxes.
Maybe they have poor health, but they also want to protect their spouse. That puts them on opposite ends of this social security decision, which is what makes this painfully difficult.
The Logistics: Preparing for Social Security Benefits to Start
In easy land, this all makes sense. These are the conditions that taking at 62, 67, 70 makes it work, but in real life, it’s not typically this cut and dry. Let’s talk about preparing for social security benefits to start.
When you’re ready to begin receiving social security benefits, about four months in advance, you can apply to have those benefits started.
The social security administration pays one month behind. If you have a benefit that’s supposed to begin in May, it would really be paid in June.
There’s always a lag in the payment itself. As far as your direct deposit that will come to you, there are three different points throughout the month that the Social Security Administration pays out, and it’s all based on your day of birth.
If you are born between the 1st and the 10th of the month, your direct deposit’s going to hit on the second Wednesday of the month. If it’s between the 11th and the 20th of the month, you’re going to be paid on the third Wednesday.
And if it’s between the 21st and the 31st of the month, you’re going to be paid on the fourth Wednesday of every month from that point forward.
Just at least gives you an idea of some of the logistics with respect to Social Security.
Filing for Social Security Benefits to Start
Now for filing for the benefit to start, like the physical process of doing this, you can do it in a couple of different ways. You can go online by going to ssa.gov. You’re going to either need to sign into an account you’ve already created or go ahead and create your personal social security account and complete the application.
I personally want all of you to go establish your ssa.gov account regardless of how far you are from actually retiring or starting to draw social security benefits. This is a good fraud protection measure to make sure nobody else has claimed your social security account without your knowledge.
Very smart to go in and do this. Ssa.gov, create one of these accounts, make sure that everything looks right. And if anything is wrong, call the social security office immediately.
Kind of back to the application itself, you could apply over the phone. I would say this is probably the least effective way of completing your application because they’re going to have lots of questions for you. You don’t have a lot of time to think, you might feel a little bit more rushed.
I’m going to really encourage you, if you can, to avoid doing this by phone. Of course, if you need to, go ahead and do that, but it may leave you a little bit more frazzled than you think. And then lastly, you could do in person. You could visit your local social security office.
I would call ahead to make an appointment. Some of them have appointments online that they can be made where you can book it online and then show up in person. And that way you’re able to talk to a real life human being in person to be able to get your application started.
Changing Your Mind
Once you’ve started your social security payments, you very well may come to a point that you realized you wanted to do something differently and you’ve changed your mind. You have a very limited window to turn off social security benefits and there’s kind of two different timeframes.
The first is within 12 months of starting your social security benefits, you can withdraw your application and by doing so, you’re agreeing to repay all of the benefits that you’ve received up to that point. You’re essentially going to have a total do-over.
Your benefit will be recalculated as if you never started those benefits at all, and you can reapply for those benefits later when you’re ready. This is, I think, the Social Security Administration’s attempt to keep people from feeling so nervous about filing for benefits and then realizing they made a big mistake and not having any recourse, any takebacks.
This 12 month period is there for that purpose. But again, you have to pay all that money back to start over. Another option is once you have reached your full retirement age, you can decide to temporarily suspend your benefits to allow them to increase by that 8% per year that we talked about before, and then you can turn them back on at age 70.
This is kind of an interesting and not very often used benefit or a kind of tactic here, but I want to point out that if you took your benefit at 62, you had that 30% penalty that we’ve already established today.
If at your full retirement age, you agree to stop receiving those payments so that you can get the 8% delayed retirement credit, you’re not eliminating the penalty that you locked yourself into. You still have that big penalty.
All that you’re doing at this point is allowing it to grow more rapidly from 67 to 70. It’s also worth noting that if you have any family members drawing off of your record, if you have a spouse drawing off of your record, if you have children who may be drawing off of your record, if you suspend your benefit for this purpose, their benefits are suspended as well.
Again, this isn’t used all that often and there would only be certain circumstances where this really makes sense, but it is kind of an interesting feature.
The Connection Between Social Security & Medicare
Next I want to talk about the connection between Social Security and Medicare. These programs are pretty closely connected administratively, but they are very different decisions, very different decisions. Medicare eligibility does not require you to start Social Security and vice versa.
These are independent decisions that you get to make. If you are receiving Social Security benefits, your Medicare premiums will be deducted from the payment. That is a great administrative function to make this easy to where you’re not mailing in checks or trying to set up another deposit.
If you are not receiving Social Security benefits just yet, you will simply have a Medicare bill and you’re going to have to pay those premiums separately. I just want you in your mind to separate the decision of when you enroll in Social Security and when you enroll in Medicare. Who knows?
They might be the same point in time, but they’re probably going to be different.
The Decision: Many Questions Drive Your Social Security Decision
Let’s wrap up and talk about the decision. I’m sure your head’s been swimming a little bit, especially on those two slides where I talked about all the different breakdowns of the different ways that people can be paid, whether it’s you or your current spouse, your former spouse, or your surviving spouses once you’re gone.
There’s a lot that goes in to making the right decision in Social Security. There are tons of questions that drive the Social Security decision for you. I’ve only listed these because this is what’s going to fit on my slide here, but there’s a lot that goes into this.
Things like, are you going to continue working up through your full retirement age? Do you need your Social Security benefit to be able to pay your bills?
Are you the higher earner in a marriage and you’re worried about how your decision is going to affect a surviving spouse? What’s your health look like?
Do you have reasonable longevity expectations? Do you have other buckets of money, other assets that can fund the years where you’re delaying receiving Social Security benefits?
And then a piece we haven’t even really talked about today, but that’s super important, and that is what tax planning opportunities or consequences would claiming your benefits actually create for you? There are positives and negatives there, and it’s worthwhile to get to the bottom of these numbers.
This Deserves Careful Thought
This decision deserves very careful thought. It’s an important one and one that there’s very little take backs on. I want to make sure that when you’re thinking about all of these factors that go into choosing the right time to start these benefits, that you’re doing so from a place of not in a bubble, right?
We can’t have you just looking at the benefits for social security. You have to zoom out a little bit and look at the whole picture. I highly, highly encourage you to consult with the financial professional, get that professional financial guidance to ensure that that social security decision that you make is the best one for you based on your circumstances.
It is far more complicated than just looking at the social security website or coming to a webinar. I’ve touched on kind of the wave tops of all of these things today, but it is such an important decision and one that you’ve paid into for your whole working career. It’s worth it to get it right.
Wrap-Up & Final Steps
Along with social security, there are a lot of other decisions you need to get right too. When you retire from federal service, how you protect that pension for your spouse, what do you do with your life insurance?
How does your health insurance work? What about long-term care needs? What are you going to do with your TSP? How is all of this going to come together? That is exactly why we have our retirement workshops that are in-person training sessions.
These are full day sessions. There is no cost for you to attend. This is open to any federal employee in the area who wishes to attend, and we’re going to cover all of those federal benefits topics that I just mentioned and talk about the decisions that you’re going to need to be making as you approach that window to retire.
It’s not just your social security benefit that you need to get right. It’s a series of decisions that you need to get right, and we need to make sure that they all work together.
The very best part of our workshop is that following the session, you are going to have one-on-one help available in the following weeks following the session where you get to ask all of your specific questions and be looking at your numbers, not just social security, but your pension, your TSP, what’s that health insurance going to look like?
How do we protect the pension for your spouse from your first pension, right? All of the inner workings of these decisions are going to be covered here in this workshop, and then all the one-on-one help is really where you dive into your specific details. You can see all of the locations and dates for these workshops by going to fedimpact.com/attend.
You will see a long, long list of locations and dates that are available to you. I hope that you will join us. I want to thank you for joining us. Stay tuned to all of our resources to get benefits and news updates. We do a lot in the federal space to help all of you stay on top of these benefits. And some benefits are more geared towards people who are really close to retiring, kind of like social security and Medicare, those types of topics.
And then other topics that we have on articles and podcasts and webinars are really focused more towards people in the middle of their career that are really trying to get their legs under them and figure out what to do. No matter where you are in your journey, I’m really glad that you’re taking us along for the ride and staying nice and closely connected to us to be able to get those updates.
Remember, to find a workshop close by, you can go to fedimpact.com/attend, and to either sign up for the next webinar or see all of the replays for our previous webinars, you can go to fedimpact.com/webinar. Thank you so much. We’ll see you next time.
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