March 18, 2020 0 comment

Socializing With Your CPA Can Help You Maximize Your Social Security

I hope that as you read these posts that I put out with different tax tips that you don’t come to think of tax planning as just simply a transactional thing. Something where you get a menu of tax planning ideas that you just pick from them and half hazardly try to avoid tax or half hazardly try to reduce your tax liability. Though you can do that it’s not very effective if you’re trying to achieve an overall financial goal. So tax planning, what I hope you understand, is that tax planning really is just a component of financial planning. In fact in my business I work very closely with financial planners, insurance agents, end of life planners, attorneys, because really again tax planning is just one component of really your overall life plan, and really if you’re doing it smart you’re just trying to get yourself into a position where you’re more financially free, where you are in a position to prosper. On the tax side you’re just using tax law to help achieve that, but not only tax law. You use a lot of other tools to achieve those things and they work in concert. So today for just a minute I want to show you or share with you one area where tax law harmonizes with other planning opportunities.

So today I want to talk about social security. Of course there’s basically every area that we talk about on tax law, every area synchronizes or harmonizes with some non-tax consideration, but social security is one of those. Especially when it comes to people who kind of control their own destiny or in other words self employed people. People who own businesses, operate business, the entrepreneur out there. This discussion is specifically applicable to you. Often when you go into a financial planner, one of the first things the financial planner will do is they’ll try to get a picture of where you’re at. As part of your financial plan the first thing they might write down is how much social securitybenefit are you going to get in retirement and they kind of just write down this number. They can get that number from various places, but they write down this number and then they start planning around that or I guess on top of that and they just kind of leave it alone, they ignore it. Many financial planners do. They take it for granted. This is the social security part, now we’re going to work on everything else. Of course that makes sense. I mean the financial planner doesn’t get paid generally for helping you optimize that social security part and so it never gets discussed and therefore many people don’t really even understand that yeah you have some affect, you have some power over what that social security component of your retirement looks like. Again, especially if you are self employed and have your own business. As a self employed person, the reason that you have some control is because you have a good bit of control over how much you pay yourself. In other words, what your wage is or how much self-employment income you’re going to recognize, etc. You have a significant amount of control especially if you will sit down and plan and be deliberate. That means you can purposely create a social security benefit that is higher. You can purposely keep your social security benefits lower and of course there’s trade-offs, right there’s social security taxes and self-employment taxes, but you can make these decisions. 

There’s one place though that so many people really blow it. I have clients walk in my office often. They’re married couples. Well one came in just the other day, that’s why I’m sitting here doing this. This married couple comes in and they were in their fifties I believe. They come in my office and the husband says, “I want to start paying my wife through my business so that she can qualify for social security benefits.” His wife had never worked before, or at least hadn’t worked for many, many years. She raised their family. She hadn’t been in the work force and therefore she hadn’t been accumulating any social security benefit on her own, but he wanted to start paying her so that she could and I just simply pointed out to him that before he made that decision they should really calculate what her social security benefit would be without paying her at all and what it would be if they did pay her and what it would be if they paid her this much or what it would be if they paid her this much. They should do some planning and figure out what kind of benefit they want for her and how easy it will be to achieve that, what it’s going to take. In other words, is it worth it? Is it worth paying X amount of dollars to achieve this benefit for the spouse, and the reason that is, is because even if the spouse never works their entire life, a spouse can qualify for some social security benefits just based on the other spouses wages, or social security, or lifetime wages. So the point is plan so that you know what kind of benefit you’re going to get, that your spouse is going to get, and what it will cost to get the benefit. Then you know is it worth it, is what we have to do to achieve this socialsecurity benefit worth it. Is it worth the cost, and you can plan. So this is an area again where a non-tax consideration, social security benefits, kind of melds with tax planning because the way you manipulate how much social security benefit you qualify for is by, again manipulating or exercising some control over the amount of wages or self-employment income you have or your spouse has. 

If you need any help with this, if you need any help determining what your social security benefits are going to be, planning for them or knowing how much your spouse will qualify for, this is something I can help you with. It’s also something your financial advisor should be able to help you with and by the way there’s a tool online. The Social Security Administration allows you to log in to your own personal social security account. You can see what your estimated benefit is as of today. You can download the data into an excel file so that you can provide it to a professional like myself or a financial advisor and then we can work with that data to figure out what your benefits might be in the future and again we can help you plan.