Caller asks about Social Security for her retirement income – but the answer turns out to be even more lucrative - unbeknownst to this teacher.
Scott: And let's go to Colorado. We're going to talk with Peggy. Peggy, you're with Hanson McClain. Hi Peggy.
Peggy: Hi. Thanks for taking my call.
Scott: Yeah, thanks for joining the program.
Peggy: Okay, my question for you is, I'm about 18 months from being able to retire as a teacher in Colorado.
Peggy: And so I'm trying to get my ducks in a row, and one of the things that I'm looking into is, I want to know, obviously I'm going to get my full retirement from teaching. I also have paid many years into Social Security, because I've had at least two careers. And so I'm wondering if you know how many years I need to have worked for Social Security in order to also get full benefits from Social Security.
Pat: Forty quarters, 10 years.
Peggy: Is it possible...
Peggy: Is it possible to get a full retirement from my teacher retirement and a full retirement from Social Security?
Scott: If you've been...I'm not an expert on Colorado's teachers' plan, but I assume you have not been paying into Social Security while you've been paying into the state teachers' retirement system, is that correct?
Peggy: I have not, but I have not taught consistently.
Pat: How many years have you been in it?
Scott: Yeah, the Social Security website, where they send you the statement, how many years or quarters have you paid into Social Security?
Peggy: Okay, yeah, I knew you were going to ask me that. I haven't...
Scott: You've had more than 10 years?
Peggy: I will tell you, I've got more than 20 years in Social Security.
Scott: Okay. So here's the...
Peggy: And I've got 20 years in teaching.
Scott: Okay, you're definitely vested for Social Security, but there will be an offset. So that estimate they send you, that they did years ago, and they quit sending you, then the Social Security Administration started sending again within the last year or two, that says, "Here's what you can expect to receive at retirement," I think there's a little notation on there that says, "Expect an offset if you are a participant in a government plan." There will be an offset on that. And it's a very convoluted formula.
Matter of fact, I did a webinar on just Social Security, recently updated it, with the changes on it, that delves into this some, as well as other issues on Social Security, at our website, moneymatters.com, that you can go to later, but at moneymatters.com you'll see the webinar, Social Security to go into it. And to be frank on it, it's going go into high level on this issue, but what happens is those years that you didn't pay into it, the logic behind it, whether you like it or not, the logic behind it is that, "Look, you weren't paying into it for all those years, and because you weren't paying into it, you were paying into a different program, we're going to take an offset from Social Security, from what you're receiving in your pension."
Pat: And it could be quite substantial, too.
Scott: Yes. What have you been a teacher for? What grade?
Peggy: I teach elementary, but I've taught many things. Right now I'm doing English as a second language, I'm doing gifted and talented, I'm doing intervention. I taught 10 years abroad as well, in Russia.
Pat: Oh, you did? Wow.
Peggy: But most of that overseas stuff, I was working for the State Department, so at that time, I was paying in Social Security.
Pat: Hey, were you an employee of the State Department?
Scott: So here it goes deeper.
Pat: Okay, so this is a...I'm glad we actually had the...
Peggy: I was at State Department, yes.
Peggy: I was a State Department employee.
Pat: How many years did you have at the State Department?
Peggy: Well, probably about seven, of the time what I was overseas.
Pat: Okay, and did you vest with them?
Scott: You probably need three more years.
Peggy: Well, I don't know if I did or not.
Pat: So here's something that I think. If you were sitting in our office, what we would recommend is you actually dig into your State Department pension and see if you vested, and vesting may have been dependent upon five years and your age at the time.
Scott: It's probably 10, but...
Pat: But you may want to actually return to work for the State Department in some capacity in order to...
Scott: For part time, or something...
Pat: ...to vest that pension. Because most pensions are...
Peggy: Okay, well, that's exactly why I'm calling, to find out if I should quit teaching and do my Social Security some more.
Pat: Oh, well...
Scott: It's not, it's the Federal pension.
Pat: It's the Federal pension that we're interested in, the Social Security isn't, it's not going to move the needle.
Scott: That was just gravy.
Pat: It's not going to move the needle, it's the Federal pension from...
Pat: So what it would allow you to do is, most pensions are predicated on age and years of service, and the older you are, the higher the payout. So I would contact human resources at the State Department and ask them, first of all, are you vested, and then if you're not vested, what would it take to be vested, and what the benefit would look like. And you might find those are the most profitable three years that you will ever, ever work. We just had a client in our office, I was talking to an adviser today, we had a client today, he wanted to retire. We had him stay on his payroll for another 15 months, and his pension, the lump sum pension increased by $110,000. Was it 120? It was over 100. That's what you want to do. If you were sitting in any of our offices, we would talk about the investments and how awesome we were, and how we're going to help you and all that. Then I would say, "But the most important part of the conversation is the work you have to do."
Scott: Peggy, you would really benefit by meeting with a certified financial planner. A good financial adviser digs into these things, because this is where true value can be had, helping you navigate through these, because we've helped a lot of clients over the years on these sort of issues, whether it's a federal employee, or a military service...
Pat: Or someone that came in who had terminal cancer, and we got them off pension, to actually get a lump sum.
Scott: For Peggy's situation, a good certified financial planner has done this sort of work, and that's where we highly recommend you talk to a good financial adviser.