We often advise people to wait to take Social Security: Here’s one important exception.
Scott: Lisa, you're with Hanson McClain.
Lisa: Hi. I know you were just talking about Social Security and I've read your book, "Personal Decision Points," which I enjoyed very much.
Scott: Well, thank you.
Lisa: It was very informative. Anyway, at the beginning of the book and you were just talking about this (on your show), it sounds like. I've heard you say for people with substantial savings maybe they should go ahead and start taking Social Security early because it is less likely that they're going to get it in the future. Social Security will probably change over the next 20 years with some sort of means testing.
Scott: Yeah. What is your situation, Lisa?
Lisa: Okay. I'd like to know what you would recommend for my husband and I. My husband is 63 and is still working. He makes about $340,000 a year. He may cut back to half-time next year. I'm 65 and I'm not working, but I do have self-employment income from some farming operations with my family. It varies significantly from year to year, but about $20,000 usually.
Pat: How much...
Scott: How much?
Pat: Give us a range.
Lisa: Well, it can range from nothing to $100,000, so I figure like $20,000 a year.
Pat: And why are you taking it as self-employment income?
Lisa: Well, I was looking at my tax return because some of it is considered self-employment. I have farming income from when my grandparents were living, their farming operation and then there's some that I do with my siblings. My sister's a CPA, so she's the one that determines what part of my farming operation is self-employment.
Pat: Do you work in the farm?
Lisa: Yeah, I help with the books.
Scott: Got it.
Scott: Let's say it's five years from now. Where's the income? The farming income's going to continue. What about your husband?
Lisa: Well, like I said, he's thinking about cutting back to half-time next year. Then he'll probably keep working for a couple more years. Conceivably, he could retire in two or three but...
Scott: And do you have much in the way of savings to replace that income?
Lisa: Yeah. Yeah, we do. Well, we also have some other source of income. We have rentals that we get probably about $22,000 a year from.
Scott: All right, so if you were my older sister, I would say, "Look, your situation is such that you're going to have a nice income the rest of your life." Much more than the average retiree, right?
Scott: If you were my sister, I would recommend at your normal retirement age, 66, I'd recommend applying for Social Security. And when your husband reaches 66, probably the same thing.
Pat: For him as well.
Scott: And there might be some of the listeners saying, "That's crazy. Why don't you wait until they're both fully retired?" I think you would be easy targets. You’ve got $100,000 a year of mostly passive income from a farm income, I mean.
Lisa: Yeah, yeah.
Scott: It wasn't that many years ago...when I was in this business, there used to be an excise tax on retirement plan contributions greater than $750,000. It was a 15% excise tax. Now $750,000, some people might say it’s probably not that much. Maybe it was more 20 years ago, granted. You can run the numbers. While it would make sense to wait till age 70, but that assumes that the benefits aren't going to change at all and it also assumes that the tax law surrounding that is not going change.
Pat: Scott, you answered the question. If it were you and you were in this situation...
Scott: There's no question.
Pat: You'd take it. You want to take it as soon as you can under normal retirement age, which is 66 for you. And then your husband wants to take it at his normal retirement age, assuming he...
Pat: ...unless he quits working completely prior to then, in which case he may want to take it earlier.
Lisa: Okay. Okay.
Pat: Does that make sense?
Lisa: That sounds reasonable.
Pat: And you're just betting...this is what your bet is and you don't have to bet with us because the numbers would say defer until age 70, but I'm betting sometime between now and the age of 80, they're going to come back to you and say, "That Lisa and her husband, they've done okay for themselves. They could live on a lot less. Let's take some from them." And you've seen people like Chris Christie, right?
Pat: Yeah, he recommended it.
Scott: He recommended it. And he, I mean, he stands behind Donald Trump everywhere. I mean, you can't get much more Republican. Although, I don't think Donald Trump is actually Republican, but you couldn't get much more Republican than Chris Christie, and he is the one that said incomes over $100,000 should probably be means tested. You've got it from both sides of the aisle. They're going to have to do something. And unfortunately, Lisa, you've done really well for yourself. Congratulations, you're going to have to start paying your fair share.
Pat: Yes, it's about time.
Lisa: Well, that's kind of what I thought you guys would say, but I thought I'd call in and run it by you to see what you'd say.
Pat: Well, I appreciate it. All right.
Lisa: Okay, well, thank you.
Scott: Thank you, Lisa.
Pat: Have a great day.
Scott: Good luck to you.