Most people miss out on key Social Security benefits—spousal, survivor, tax rules. Learn how to make smarter retirement decisions.

Hey everyone, Kevin Crandell from Real Estate Wealth Management back with you. Today we are talking about social security. Now a lot of people don’t know what they don’t know about social security and I can tell you that we’ve been able to educate dozens if not hundreds of community members on what their options are.

Anywhere from from spousal benefits to survivor benefits to when should I file, what’s the difference between my lifetime benefit from filing now versus filing when I’m 67 and I think that the best way to make the right decision with social security is being educated, is understanding what you can do to make sure that you make the right decision. Now the first thing we have to consider is what do we have available as far as our toolbox. Now a retirement toolbox could be anything from social security to a pension to your 401k to your IRA, other investment accounts, you’ve got inheritance, you’ve got real estate properties, maybe there’s life insurance or annuities or even like a Roth account.

When we’re talking about social security it is one building block in your retirement and the more we think of it as a tool instead of a crutch to lean on, the more we can utilize it for your overall retirement benefit. I’m surprised how many people don’t know that the spousal benefit is available to them. When it comes to a spousal benefit with social security it means that the lower earning spouse is eligible to potentially receive 50% of what the higher earning spouse gets if it’s more than their earnings record benefit.

An example is let’s take John and Mary. John collects $3,000 a month from social security and Mary is eligible for $1,200 a month through her own earnings record benefit. If Mary files for a spousal benefit or for retirement age then she will be eligible for up to $1,500 instead of the $1,200 because of that spousal benefit and the beauty part is that it doesn’t decrease John’s benefit at all.
There’s a lot more nuance to that and we can dig into that. If you have questions let me know. Another thing that a lot of people don’t realize is that they could be eligible for a survivor benefit and this is something that we talk about in long-term planning especially when you have one spouse who’s five or ten years older than the other and likely to pass away first.

Now once the higher earning spouse passes away that lower earning spouse is eligible for up to 100% of the benefit that they either collected or were going to collect or eligible to collect at the time of their departure. We’ll take it back to John and Mary. John is collecting $3,000.

Mary is collecting that spousal benefit of $1,500. John passes away. Now Mary is eligible to collect that $3,000 benefit for the rest of her life.

Now again there’s a lot of nuance to when you filed, when you could file, and how that affects the overall benefit but it’s based on their full retirement age at your full retirement age. Another thing about social security that a lot of people don’t understand is how it’s taxed. The way that they calculate that is something called provisional income and what you do is you take all of your earned income any taxable income that you have and you add half of your social security income.

So if John and Mary they have $30,000 of income from IRA distributions and pension payments and all of their investments they have $30,000 a year in total taxable income and they collect $12,000 a year from social security. That would take half of that and add it to the $30,000. That would be $36,000 in provisional income and that’s going to put them into one of three boxes.
If that provisional income number is below $32,000 per year for married filing jointly then they won’t pay any tax on social security. If they’re between that $32,000 and $44,000 then they’re going to be taxed up to 50%. That doesn’t mean that half of their social security is going to go to tax.

It means that up to 50% of it will be added to their taxable income and then obviously if they’re over that $44,000 then that puts them into the 85% of their social security being taxable as regular income. Now a lot of people ask at this point why am I being taxed on this if I was already taxed on it coming out of my paycheck for all of those years that I was working. Well you have to think of it more as a mandatory pension fund.

It was pulled out of your income as a tax and now it’s being paid back to you. So if you think of it more as mandatory contributions to the social security fund and just like any other pension when it gets paid back to you you’re being taxed on it. Another good thing for those in California is that California does not tax social security.

It is the one thing they don’t tax but it is a bright spot for living for those of you in California who are going to be collecting or are collecting social security as it already isn’t taxed at a state level. So we’re lucky there. We’ll be bringing you more content on this.
Again, Kevin Crandell with North State Wealth Management and I hope to see you on the next video.

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