Join Al Smith as he unpacks the complexities of early retirement, including the critical decision-making factors surrounding when to claim Social Security benefits. Learn about the fascinating story of Ida Mae Fuller, the first Social Security recipient, and gain valuable insights into how cost of living adjustments affect your benefits. Whether you’re planning to retire soon or simply want to better understand your future Social Security benefits, this episode provides crucial information you won’t want to miss.
Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith.
SPEAKER 03 :
Welcome to another program of Retirement Unpacked. I have some really good information for you today. And before I dive into that, I wanted to encourage you, if you have any questions about how Social Security fits into your retirement, give my office a call and we can sit down and have a conversation about that. My number is 303- 744-1128. And today we’ll be talking about Social Security, how that fits into your own retirement, and some statistical, some boring, but some very important information about Social Security, a little bit about the history of Social Security, but most importantly, some key facts that you should know if you’re going to be using Social Security as part of your retirement, which is just about everyone who’s listening, I would think. And we’ll start off with the founding of Social Security when it was passed into law. That took place August 14th, 1935. And before it was passed, both the United States, not both, but the United States, in addition to European countries and so forth, they were thinking in terms of we need to create a safety net, something for people when they’re older, something for people, you know, sort of if they’re infirmed, you know, just basically a safety net. And when that was passed into law, I don’t know this for a fact because I can’t quote where I heard it from, but I had heard that when they passed Social Security into law, they had two choices. Well, I wouldn’t say when it was passed, but when it was created, they had two choices of the design of the plan. One of those choices would have been individual accounts. very much like an IRA or your 401k at work or something like that. The other alternative was put something into a big pot with everybody’s money in there and then passing various laws to determine how that money would be dispersed. They chose the second alternative And looking back with the difficulty Social Security has in terms of remaining solvent, had they chosen individual accounts, that would not have ended up being a problem because people would have whatever’s in their account and there would be no controversy with the whole program becoming financially insolvent or needing enormous changes in order to maintain its solvency. But in any event, 1939, August, that brings us to the next major change that took place in Social Security. In 1956, this goes quite a few years ahead, Early retirement was permitted in 1956, and that was initially just for women. It wasn’t until five years later than early retirement, early retirement being age 62. It was 1961 before it was available for men. And as far as your benefits, we’ll talk about that a little bit later in the program. But obviously, early retirement involves a reduction in benefits. Disability benefits became available from Social Security a bit later. And those benefits were only available to people who were between age 50 and age 64. The next major benefit was for divorced wives. And that took place in 1965. For husbands, that didn’t occur until 1977. And Social Security was not taxed until 1983. And 10 years later, in 1993, the IRS, in its infinite wisdom, couldn’t just say, well, after you reach this income level, we’re going to tax it. They created a two-tiered system, so to speak. So basically people either pay zero tax on their Social Security or they will pay tax on maybe half of it or they will pay tax on 85% of it. And so the highest bracket as far as taxation of Social Security is for 85% of your Social Security is included with the rest of your income. And for married couples, that’s adjusted gross income of about, not about, but $44,000 per year. So in other words, if married couples have adjusted gross income of $44,000 a year or more, then 85% of their Social Security will be included in that. And that is a key component in part of the planning that I do when I sit down with people, because There are things that you can do as you get closer to retirement that will permit less of your Social Security to be taxed, and in some cases, actually, zero percent, none of your Social Security could be taxed with the right planning. And that is not necessarily an option for everyone, but depending on the sources of your income, and how close you are to retirement, there are some things that can be done that will either minimize or reduce to zero the amount that your Social Security will be taxed. So again, 1983 and then again in 1993 is where Social Security first was taxed. Between 1972 and 1975, they began doing cost of living increases. Now, initially, those were acts of Congress that were sort of like one time only. In other words, after the country experienced a certain level of inflation, Congress would pass a law that would bump Social Security benefits by a certain level. Well, after 1975, they went ahead and passed the COLA regulation. And basically, that cost of living adjustment is based on a um department of labor number and they use a gathering a bunch of a bunch of goods and services and look at what those cost last year and then this year the obvious downside of the cost of living adjustment is that it’s based on the past And so if it costs a certain amount in 2024 to live compared to 2023, then they’re going to create an adjustment a year later. And so in other words, the cost of living adjustments to your Social Security benefits, while they are helpful, they are historical. or historic. In other words, they’re based on what the cost of living was in the past, but it’s certainly better to have an increase or a bump than none at all, clearly. You may or may not be familiar with the name Ida Mae Fuller. She is the first Social Security recipient Ida Mae Fuller, have a little bit of information about her. She was born September 6th in 1874 on a farm outside of Ludlow, Vermont. She attended school in Rutland, Vermont, and one of her classmates was Calvin Coolidge, I think we’ve heard that name. In 1905, after working as a schoolteacher, she became a legal secretary. One of the partners in the firm was John Sargent, who would later become Attorney General in the Coolidge administration. So, surprisingly, she has a history besides being the first Social Security recipient. She never married, she didn’t have children, she lived alone most of her life, but she spent eight years near the end of her life living with her niece, Hazel Perkins, and her family in Battleboro, Vermont. She filled her retirement claim on November 4th, 1939. having worked under Social Security for a little short of three years. While running an errand, she dropped by the Rutland Social Security office to ask about possible benefits. She would later observe, it wasn’t that I really expected anything, but I knew I’d been paying into it for some time, this thing called Social Security, and I wanted to ask the people of Rutland about it. now what’s interesting is she paid into it for a little less than three years the current requirement in order to collect benefits are you must have 40 quarters which is 10 years obviously since it was a brand new program no one had 10 years experience so she went ahead and filed her benefits her claim was taken by the claims clerk who was elizabeth cochran burke and it was transmitted to the Claims Division in Washington, D.C. for adjudication. The case was adjudicated and reviewed and sent to the Treasury Department for payment in January of 1940. The claims were grouped in batches of 1,000 and a certification list for each batch was sent to the Treasury. Ms. Fuller’s claim was the first one on the very first certification list, so her Social Security check had the number 000001. It was issued to Ida Mae Fuller in the amount of $22.54, dated January 31, 1940. Now, all of that is very interesting, but what is really interesting are the financial details. Ida Mae Fuller paid into Social Security a total of $24.75 between 1937 and 1939. Her first Social Security check, number one, paid her $22.54. Now, I don’t think Congress way back then had the foresight to sit down and figure out, well, let’s see, if someone paid in $24 over a three-year period and they’re going to begin collecting $22 a month, how is that going to work financially? I don’t think anyone asked that question. But in any event, Ida Mae Fuller paid a total into Social Security, I already mentioned it, $24.75. She collected a total of $22,888.92. She died in 1975 at age 101. And again, I don’t think Congress ever had the foresight of how this plan was going to remain afloat, paying out those kinds of benefits with only such a minor contribution. I have some very good basic information about Social Security I will share with you after the break.
SPEAKER 01 :
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SPEAKER 03 :
Welcome back to Retirement Unpacked. We’re talking about Social Security. And we talked so much already about the history of Social Security and about Ida Mae Fuller, who was the first recipient, had Social Security check number, a whole bunch of zeros and then a one. And interestingly, she almost kind of became famous Because as Social Security changed over the years and so forth, they would always talk about the first check going out each year for Social Security was to item a fuller. And they often made reference to that. Some more basic things about Social Security that you should really know, some really solid basic things. The first being you need to know your full retirement age. for most everyone it’s going to be between age 66 and age 67 when social security was first passed into law it was age 65 because people were not expected to live that long back at that time and uh in any event ida may fuller certainly proved them wrong and uh For people born between 1943 and 1954, the age is somewhere between age 66 and 67. And if you’d like to know precisely when your full retirement age is, it’s like 66 and a certain number of months, then you need to go on the Social Security website, and there’s a way to look that up. Anyone born… 1960 or later, the full retirement age is age 67. And the reason this was changed to age 65 is because people were living longer and it would also shore up Social Security, so to speak. The other thing you need to know is if you qualify for Social Security, because not everyone qualifies, you need 40 quarters. And you’re thinking, quarters? Well, you know, what’s that about? You get, basically, you get these credits. And for example, $1,810 per quarter will get you one credit. To get the maximum amount of credits, you need $7,240 for that quarter. And 40 quarters, or 10 years, is what you need to be what they call fully insured. That means you are eligible for Social Security. And you need to then also determine what’s called your primary insured amount, which you can learn also on the website. Something else that is good to know about, I talked about it when I spoke about the history of Social Security, is the cost of living adjustment. The cost of living adjustment for 2025, for those of you already collecting Social Security benefits, was 2.5%. But I think we all know we have experienced some heavy-duty inflation recently. In 2024, it was 3.2%. And in 2023, it was 8.7% cost of living adjustment. And in 2022, it was 5.9%. Now, the years previous to that are all very modest 2021 it was only 1.3 2020 1.6 if we all go all the way back to 2016 there was no cost of living adjustment because during the year of 2015 they put those numbers together from the previous year things did not go up in cost at least the one they used for the social security adjustment factor Now, it’s pretty obvious that if you wait longer, you get a larger Social Security benefit. And if you apply for early benefits, which can be applied for as early as age 62, your benefit is reduced. And this can become for most people a really key component in your retirement planning, whether you’re working with an advisor or just getting out the calculator and looking at your financial statements of your investments, knowing the different benefit levels of your Social Security, depending when you file is incredibly important. Whenever I work with an individual or a couple, and we’re planning what their retirement is going to look like financially, it’s incredibly important that we have their Social Security benefits, the most recent statement. And the full retirement age, we talked about it, it’s nearly age 67 for most people. And if someone retires as early as 62, that can be reduced between 25 and 30 percent. And something else that it’s completely important to know is for those who file early, age 62, and if you continue to work, and if you have earned income that exceeds $23,400, for every $2 you earn above that threshold, you will lose $1 of Social Security. So keep that very much in mind if you’re thinking of filing Social Security early. As over $23,400, you lose a dollar of Social Security for every additional $2 that you earn. Now, it still may be a good idea to file early. If you have some news from your doctor that you have a much shorter life expectancy or any one of a number of circumstances can be a reason to file early. Just know that if you’re working, there is a possibility of losing benefits. Now, a lot of people choose to file at full retirement age, and some of them postpone to age 70. Now, you never want to postpone after age 70 because the benefits don’t increase after age 70. But between full retirement age and 70, the benefits will increase your retirement benefits by 8% each year. And if it’s wise to wait to 70 versus file at full retirement age, there’s kind of a break-even point at about age 81. What that means is if two people had the exact same benefits in their Social Security statement, one of them files at full retirement age, one waits till age 70 and files. He’ll have a higher benefit, but he missed out or she missed out on those earlier years. By age 81 and a few months, they each would have collected the same amount. Now that doesn’t
