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Social Security Explained 09.07.2021

Imagine you are offered a job, and you are counting on it to provide income for you and your family for many, many years. But you didn’t ask about 1.) starting date, 2.) salary, nor 3.) benefits.

Now, change “job” to “Social Security” and you get a sense of the general lack of knowledge many Americans have about this bedrock retirement income stream.

Are you, or will you be, eligible for Social Security benefits? Do you have concerns about the solvency of the Social Security system? Are you confused about when to start taking your social security benefit—about whether to take it early or wait? Are there things you don’t understand about spousal benefits? You aren’t alone.

Towerpoint Wealth is a boutique wealth management firm in downtown Sacramento. In this post, Towerpoint’s CEO, Joseph Eschleman, will help you answer these important questions about your social security benefits.

Social Security is an essential retirement income stream for many Americans, and it is also a confusing, complicated, and evolving system, one that is next to impossible to properly navigate without a complete and thorough understanding of the rules. Importantly, knowing when to take Social Security —claiming your Social Security benefits at the RIGHT TIME—means SIGNIFICANTLY more money in your pocket.

With this post, we seek to accomplish three things: 1.) social security explained 2.) review a number of important yet oftentimes misunderstood filing strategies, and 3.) discuss what lies in store for the future of the $2.9 TRILLION Social Security trust fund.

Social Security Benefits 101

Back in 1935, President Theodore Roosevelt signed the Social Security Act, creating a social insurance program designed to give older Americans an additional income stream in retirement. Current American workers pay Social Security taxes to provide benefits to those who are eligible to receive Social Security right now.

Typically, the amount you receive from Social Security will increase or decrease based on when you elect to claim your benefit, relative to what is known as your FRA, or full retirement age. When you were born will determine what your FRA is. If you were born between 1943-1954, your FRA is 66. If you were born after 1954 but before 1960, the FRA gradually climbs from 66 towards 67, based on the year you were born, increasing two months every year. For example, if you were born in 1956, your FRA would be 66 + four months. Lastly, and much more simply, if you were born in 1960 and beyond, your FRA is 67.

To be eligible for Social Security benefits, you must earn a minimum of 40 “credits” throughout your working career. You can earn up to four credits a year, so it takes a minimum of 10 full years of work to qualify for Social Security.

Your specific Social Security benefit is computed based on the 35 calendar years in which you earned the MOST money. You can increase your Social Security benefit at any time by replacing a low, or zero, income year with a year in which you earned a higher income. Importantly, Social Security benefits do have a maximum, depending on the age you retire. For someone at full retirement age (or FRA), the maximum monthly benefit is $3,113 in 2021. If you wait until age 70 to file, the maximum monthly Social Security benefit amount is $3,895.

Social Security protects you against inflation through what are known as cost of living adjustments, or COLAs, which help beneficiaries keep up with ever-increasing living expenses. This inflation protection is extremely valuable, especially in today’s inflationary environment. While the Social Security COLA for 2021 was “only” 1.3%, many estimate that the COLA in 2022 could be higher than 6%!

When to Take Social Security – Social Security Explained

Now that you better understand how Social Security works, let’s discuss optimizing when and how to take it. Many people have multiple sources of income in retirement, which can impact the decision about when to claim Social Security. This is an extremely important decision, and here at Towerpoint Wealth, it is one that we work closely with our clients to get right, as there are a myriad of variables, rules, and assumptions that must be accounted for when developing a customized strategy for yourself.

You are allowed to begin collecting Social Security as early as age 62, but taking your benefit early will result in a major haircut, reducing your benefit by as much as 25 or 30% as compared to waiting until you reach your FRA. Obviously waiting until your full retirement age will result in receiving 100% of your earned benefits, but importantly, you can also choose to delay claiming your Social Security benefit, all the way to age 70 if you would like.

Should I wait to take Social Security?

There is a big economic incentive to waiting, as your monthly Social Security benefit will grow an additional 8% (!) a year until age 70. Add in any cost of living adjustments, which also are included if you wait, and the financial incentive to delay claiming Social Security becomes even greater. With certain Towerpoint Wealth clients, we will set up a supplemental, or “bridge income” plan, and have you temporarily withdraw more money from your nest egg for just a few years to allow your Social Security benefit time to grow larger. Additionally, waiting to claim your Social Security income can benefit your heirs, as a higher earning spouse can ensure their lower-earning spouse will receive a higher survivor benefit in the event the higher-earning spouse dies first. Not always fun to talk or think about, but life throws us lots of twists and turns that need to be considered.

Some individuals implement what is known as a “split strategy” in which the higher wage earner waits to take their benefit, but the lower wage earner claims their Social Security early, getting cash flowing into the household sooner, and yet ensuring that whoever outlives the other will receives the highest possible survivor benefit.

Children, family, and divorcee benefits

Additionally, unmarried children can receive Social Security benefits if they are younger than age 18, or between 18 and 19 and a full time student, or 18 or older with a disability that began before age 22. To get benefits, a child must have a parent who is disabled or retired and entitled to Social Security benefits; or a parent who died after having worked long enough in a job where they paid Social Security taxes. Benefits stop when your child reaches age 18 unless your child is a student or disabled.

Within a family, a child can receive up to half of the parent’s full retirement or disability benefit. If a child receives Survivors benefits, he or she can get up to 75 percent of the deceased parent’s basic Social Security benefit.

Widows and widowers are also eligible for Social Security benefits, as are divorcees. Just like a regular spousal benefit, you can get up to 50% of your ex-spouse’s benefit, or less if you claim early, before full retirement age.

Is your head spinning yet??

You can reverse your Social Security claim

Complicating things further, you can always “take a mulligan” and undo a Social Security claiming decision, and while Social Security benefits were tax free prior to 1984, they aren’t anymore, and you will have to pay federal taxes on your Social Security benefit. For those who are upper middle income or upper income, 85% of a security benefit is taxable, and 15% is tax free. Additionally, 13 states also assess state income taxes on benefits.

Social Security Solutions

Now, it is no secret that the Social Security system is stressed and is facing challenges. With the COVID-19 pandemic causing record-high unemployment, coupled with many people retiring or changing careers, there are fewer people paying into the system now than ever, and estimates that Social Security will run out of funds even faster than projected even two years ago have created large concerns.

However, it is very important to realize that changes to the system have occurred regularly since its birth in 1935, and politicians, while reticent to make difficult decisions until they absolutely have to, have consistently drafted legislation to address these Social Security financial problems and economic shortfalls. And here at Towerpoint Wealth, we feel that our elected leaders have quite a few options at their disposal: 1.) Increasing the Social Security, or FICA, payroll tax. Currently, each worker pays 6.2% and the employer also pays 6.2%, for a 12.4% total payroll tax. Increasing this tax, while not popular, is always an option to shore up the system. 2.) Increasing the FRA, or full retirement age, for younger workers, has historical precedent and could be politically attractive to provide economic support to the Social Security system. 3.) Instead of tying Social Security COLA benefit increases to the consumer price index, or CPA, the government could make a shift to what is known as the “Chained CPI,” which reduces the amount a benefit will go up over time, and 4.) our politicians could always increase the earnings CAP on Social Security taxes.

Currently, the limit on the amount of earnings subject to Social Security taxes is $142,800. If the cap were fully removed, the Social Security system would be fully solvent. President Biden’s tax plan proposes a donut hole for Social Security taxes, where the first $142,800 is taxed, as well as any income over $400,000. Needless to say, it remains to be seen what solutions will be implemented, but fortunately the government has a number of arrows in its quiver to address these shortfalls. Bottom line – if you want to take Social Security early, we strongly encourage you to consider two things: 1. “The system is going bankrupt” is a poor reason for doing so, and 2. The pay raise that you earn by waiting is compelling.

Reach out to Discuss a Sound Social Security Strategy

Ensuring that you have a sound and well thought out Social Security claiming strategy can literally mean hundreds of thousands of additional dollars in benefits in your pocket. Please share this article with your friends who are thinking about Social Security. And please, email us at to begin a conversation about developing an optimized strategy for you, to determine the best year and month for you and/or your spouse to begin claiming your Social Security benefit.

Joseph Eschleman, CIMA®, Certified Investment Management Analyst, CIMA®

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Worried About The Obscurity of YOUR Social Security? 07.30.21

Imagine you were offered a job, and were counting on it to provide income for you AND your family for many many years. BUT, you didn’t ask about 1.) the starting date, 2.) the salary, nor 3.) the benefits!

Now, change ‘job’ to ‘Social Security’ and you get a sense of the general lack of knowledge many Americans have about this bedrock retirement income stream.

However, why is the very foundation of retirement security for millions of Americans so confusing? When should you take your Social Security benefit? Early at 62? At normal retirement age (NRA)? Delay and take it at 70?

Social Security Benefits waiting until 70

Do you have concerns about the solvency of the Social Security system (hint: as long as workers and employees pay payroll/FICA taxes, it’s not going anywhere), and how that might affect your benefit?

Social Security Explained system

Have you heard of Social Security spousal benefits and survivor benefits, but not sure you understand how they work?

Social Security spousal benefits survivor social security benefits

Social Security Explained | Other FAQ’s about Social Security include:

  1. What exactly is Social Security?
  2. When am I eligible for Social Security?
  3. How is my eligibility determined?
  4. How much do I pay in to the Social Security system?
  5. How much will I get from Social Security?
  6. What happens to my Social Security benefit if I still work?
  7. Do I owe taxes on my Social Security income?
  8. How do I qualify for Social Security disability benefits?
  9. What is the average Social Security benefit?
  10. What will COVID-19 do to Social Security?

Still confused? Have more questions? Hungry for clear answers? Found below is a simple educational video we just produced, designed to break down the complicated topic of Social Security, specifically arranged in a digestible and easy-to-understand format.

Click HERE to watch the video!

Towerpoint Wealth social security explained

Be sure to also click the SUBSCRIBE button to follow

Towerpoint Wealth on YouTube!

Understanding it is an imperfect system, Social Security continues to be a central and essential component of the retirement income planning and optimization we do with virtually all of our clients at Towerpoint Wealth, with literally hundreds of thousands of dollars at stake depending on how you claim it.

What’s Happening at TPW?

Most of the Towerpoint Wealth team spent some time earlier this week prepping new backpacks full of back-to-school supplies we purchased for low income and homeless students in the greater Sacramento area.

Cheers and thumbs up to Jesuit High School here in Sacramento for coordinating this program, as it is enjoyable to do little things like this to give back and help our local community.

Towerpoint Wealth Backpack Packing for jesuit high donation 7_27_2021

Happy 37th birthday on Wednesday to our smart, YOUNG, fun, sincere, affable, and hard-working Partner, Wealth Advisor, Jonathan LaTurner. Jon’s amazing birthday dinner was held at Canon | East Sac, and his amazing birthday cakes were prepared by Freeport Bakery – mmmmm!

Towerpoint Wealth Partner Wealth Advisor Jonathan LaTurner

Graphs of the Week

Some say low interest rates, a perennial shortage of housing supply, and the new geographic mobility of would-be homebuyers all mean the white-hot real estate market has more room to run (click HERE to watch an excellent TPW-produced video on this subject).

Others believe the OPPOSITE – that soon-to-be rising interest rates, artificially-high prices, the end of mortgage forbearance and foreclosure moratorium programs, and the divergence between home prices and wages all portend an upcoming end to the massive residential real estate bull market.

What do you think is going to happen to home prices over the next 12 months? Click HERE to message us and let us know your thoughts!

More room to run for home prices?

interest rates home prices

or the end of the road for price increases?

Price increase home divergence

As the 24/7 news cycle churns, twists, and turns, there have been a number of trending and notable events have occurred over the past few weeks:

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, with any questions, concerns, or needs you may have. The world continues to be an extremely unsettled and complicated place, and we are here to help you properly plan for and make sense of it.

Click here to Download

– Joseph, Jonathan, Steve, Lori, Nathan, and Michelle

Towerpoint Wealth Sacramento Independent Financial Advisor
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The Donald vs. Joe – Which Way Will Your Income Taxes Go?

As of yesterday, more than 17 million people across 44 states and Washington D.C. have already voted. It is projected that a record-setting 150 million people will vote in 2020’s presidential election, representing approximately 65% of eligible voters, which would be the highest rate since 1908! As a country, we are truly rocking the vote this year!

For many voters, considering and sorting through all of the complicated issues can sometimes be a confusing and overwhelming responsibility:

As is typically the case, income taxes rank highly on the list of topics important to voters. According to a mid-September Gallup poll, 61% of voters said that the presidential candidates’ position on income taxes was either an extremely important or very important influence on who they vote for.

Understanding the upcoming election will be pivotal when it comes to tax policy, as well as how divergent the two candidates are regarding virtually every single issue, the dichotomy between Trump and Biden in tax policy and philosophy should come as no surprise. Both candidates have a plan, each with far-reaching consequences, for the following:

  • Individual tax rates
  • Capital gains and dividends
  • Individual tax credits and deductions
  • Education tax credits
  • Corporate taxes
  • Payroll taxes
  • Estate taxes

Hungry for more information?

  1. Click HERE for a concise “low down” on each candidate’s position on the major tax issues, courtesy of Grant Thornton.
  2. Click HERE For a fresh (filmed just this morning) take from Michael Zezas, Head of U.S. Public Policy Research at Morgan Stanley, on what Biden and Trump’s tax policy proposals mean for investors, the markets, and the election.

What seems to be clear is that who wins in November could very well spell the difference between cementing the Tax Cuts and Jobs Act of 2017 as a permanentshift in U.S. tax policy, or instead, reversing major portions of this three-year-old legislation in favor of more progressive tax policies.

Either way, let’s not forget that there almost assuredly will be a substantial difference between what is promised on the campaign trail and what actually passes into law!

What’s Happening at TPW?

Lori and Raquel. On Tuesday. Together. With Bob Ross (on the right)! That’s all. 

Our President, Joseph Eschleman (and his wife, Megan Eschleman), and our Partner, Wealth Advisor, Jonathan LaTurner (and his fiancée, Katie McDonald), escaped to Oregon to do some wine tasting in the Willamette Valley this past weekend!

TPW Service Highlight – Tax Minimization Planning

Keeping with the theme of today’s newsletter, we at Towerpoint Wealth believe our energy is best spent helping our clients plan for things we have some control over, while being aware of, but not reactionary to, things we do not. And while paying taxes is as exacting and constant today as it was the day Benjamin Franklin penned his famous Death and Taxes quote in 1789, that doesn’t mean it can’t be planned around and minimized.

We are fortunate to have two team members who are licensed CPAs here at TPW, our Director of Tax and Financial Planning, Steve Pitchford, and our new Wealth Advisor, Matt Regan. Fortunately for us (and our clients!), both Steve and Matt are extremely well-versed and experienced in helping TPW clients reduce the income tax “drag” on their net worth and investments, specifically monitoring and focusing on the following areas:

  • Tax efficient investing
  • Tax loss harvesting
  • Tax legislation updates and changes
  • Asset/investment account drawdown
  • Account withdrawal tax optimization
  • Charitable trust planning
  • Charitable giving planning and analysis
  • Income tax credit and deduction analysis
  • Direct coordination and planning with your CPA/tax advisor
  • Tax return analysis
Steve Pitchford, CPA, CFP®
Director of Tax and Financial Planning
(916) 405-9166

Graph of the Week

Will it be a landslide, or will it be close? Will it be contested, or will it go smoothly? Reply to this email and let us know what you think!

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Steve, Jonathan, Lori, Joseph, Raquel, Nathan, and Matt