Social Security and the Big Beautiful Bill

Welcome to Money Talks with Ken Wink from Summit Financial, working with people you trust. Planning for your financial future means navigating challenges like market volatility, inflation, and retirement income. Money Talks is here to help by addressing common financial concerns, sharing valuable strategies, and exploring ways you can work toward your financial goals. Now let's get started with Money Talks.

Today, we're gonna be talking about social security and the big, beautiful bill. Hello, welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting. If you like what you hear today and wanna hear a little bit more, be sure to check out our website, summitfc.net, and then go to the podcast page where you can subscribe and check out past shows. So the big federal budget bill that was passed this year, most oftentimes called the Big Beautiful Bill, it was signed into law in July, and we did a show about it a few weeks ago. And we got a lot of feedback from clients asking specifically about how this might affect Social Security. So I decided to dive in a little bit deeper and do a show just about that. Before we jump into it, though, I want to introduce my co-host, Tony Shore. Guess what today is? It's a very important day. You didn't get me a present.

Is it your birthday today, Ken?

No, it's not. It's our six-month anniversary of doing the podcast today. Wow.

We've been doing this six months? Yes, sir. It seems like we've been doing it even longer. Yes. The days just drag on when I've got to work with Ken. No, that's not what I meant. It seems like we've known each other forever and have been doing the show for a long time, but six months is quite a while. That's a landmark. Ken, we usually wait for one year to celebrate, but six months, I'll take it. The half birthday, I understand you're excited. You're excited like a five-year-old on his half birthday, right? Exactly. Yeah.

that is a perfect description of it. You know, it's like when you're, you're probably thinking like when you're dating someone and you're like, Oh, things aren't going so hot. And then like, it's like, Oh, we made it six months. So yeah, there you go.

There you go. Well, I think it's great. And we're going to be doing this for a long time. Ken, the first six months, that's just, that's nothing. We'll be doing this for years. Right. I mean, Uh, it's great. Um, that's great. So it's the six month anniversary. I thought you were going to tell me, Oh, today is national, you know, potato day or something. I didn't know, or your birthday or your anniversary. Uh, you're right. I didn't get you a present for your, for our six month show anniversary. Uh, but, uh, and I didn't realize that, but that's awesome. That's awesome. Here's to another great six months, right?

Yeah. Yeah. We'll punt on the presence until the one year. I agree with you.

Yeah, there you go. There you go. We'll do something special for we'll do a special show and something special on the one year anniversary. That's for sure of the show. Well, I'm glad you're talking about this. I mean, Social Security is important.

And as I always say, God bless Social Security.

God bless Social Security. Right. Yeah. And and, you know, you know, people are like, is Social Security going to be there? And I think I hear things in the media to scare, you know, they use scare tactics. It's not going to be there by the time you get there. Even people in retirement are worried about not getting their Social Security checks. And I think it's because you hear things like this. Here's another truth. Social Security is dying. I mean, I know the gravitas of that guy's voice. It's like, ooh, a truth in this guy's voice. I mean, it's like Liam Neeson telling you or Morgan Freeman or something with that voice. That's serious stuff. Yeah. But you don't need to worry about it if you're working with a financial services professional. And I think eventually they will fix it. But what are we talking about today, Ken, regarding Social Security and the big, beautiful bill?

So we just want to get into some of the details, make sure everyone knows what's changed and how it might affect them. The big headline was just that, you know, nobody's going to pay taxes on Social Security anymore. At least that was what they were sort of debating in the earlier stages. That isn't quite how it ended up. So just to sort of give the statistics, about 64 percent of people were not paying any taxes on their Social Security before this legislation. And now that's jumped to 88 percent. So they didn't get to 100 percent. But it did jump up to, they estimate now up to 88%. So basically what happened was there's a new extra $6,000 deduction for people that are 65 or older. And it goes from now until 2028.

So it's a bonus standard deduction. It's a bonus to the standard deduction for those 65 and older. And that's $6,000 per person. That's really good. That's right. is what's causing fewer people to have to pay taxes on Social Security because it's based on your income, taxable income. And by reducing people's taxable income, they've gotten around having to eliminate the actual tax on Social Security, right?

Right. Yeah. So, you know, and that's something that a lot of times politicians will get criticized for just sort of helping the wealthy. So the wealthiest will still pay. So that's good. We don't want like you said, Social Security has its problems and doesn't. It maybe isn't fully funded enough. You know, they're saying that it may run out of money. There may have to be some reductions to benefits in 2033, 2034. We'll see how the cookie crumbles on that. But at this time, there's still people paying in and sort of the middle class, I would say, wins on this one.

Yeah, yeah. This really helps the middle class because if you have reportable income of $150,000 or over, it starts to phase out. And then if you make $175,000, you don't get the $6,000 at all. So really, it's more the middle class and lower class that get the $6,000 deduction. And so that's on top of the already additional deduction for seniors, which is $1,600 per person. And that's on top of the standard deduction, which for couples is $31,000, I think. $31,500. Yeah. So that adds up to about $45,000 a standard deduction for the next four years for people 65 and older. If you're a couple and you're each 65 and older and filing jointly, you're going to be looking at $45,000 for a standard deduction. And, you know, I figured it out. I already talked to my parents' tax person and financial advisor, and they're not going to owe any taxes next year. Yeah, well, that's great. Yeah, because of that.

Yeah, we can't all do cartwheels forever. It's supposed to expire in 2028. Yeah. There's always a chance it gets extended, but there's also a chance that people that were tax-free for a while might get reverted back to having to pay taxes on it. Yeah.

Again, we'll see how it goes.

But for right now, seniors celebrate, do cartwheels, enjoy that extra money in your pocket. Inflation and especially medical costs are a challenge for all retirees. So having this extra money in their pocket, whether it's on a monthly basis or at tax time, it's a big benefit.

It is. That's probably one of my favorite parts of the bill is the standard deduction and the additions to the standard deduction, especially for seniors. They hit the two areas that I think need the most help, and that's seniors and the middle class. So that part of the bill anyway does that. And so I think that's a good thing. Now, Social Security is important for so many people and so many seniors, and you incorporate Social Security into Into what you do there for your clients and people you meet with, right? You can help them maximize their social security benefits.

Yes, absolutely. So we can run a social security maximization report for anyone that would like one. There's no cost for it. We just love helping people and getting extra money out of the government. You know, everybody works so hard and saves money. want to get as much as we can out of it. So yeah, we'd be happy to sit down with anyone, create a social security maximization report. And one step even further, Tony, we can create a retirement income analysis report, basically find out whether the money's going to go the distance, see if they can make it all the way to their later years without running into any financial problems. So the goal is a hundred percent chance of success. Yeah, there you go. Planning. You can you can get there.

Yeah, that's and that's what it's all about. So before we move on, let our listeners know how they can call to set up that consultation or get that no charge Social Security maximization report run to show them. And it's based on their personal information. So it'll show them exactly where they're at. You got it.

You can give us a call, 586-226-2100, or go to our website, summitfc.net.

Yeah, that sounds great. Now, here on Money Talks, I mean, Social Security is a big topic for a lot of our listeners. I know you get a lot of questions on it. And before we go on, just to clarify the stability of Social Security, as long as people are paying in, as long as there are people in America working, there's money going into the systems. So it's not like in 2033 it's flat broke. It's just the reserve fund will be run out and it will not be the money coming in to keep the reserve fund at the right level. If we did nothing, Social Security benefits, they say, would probably have to be reduced by about 20 percent in 2033 or But the politicians have never let it get to that point. It's it's happened once before and they've made corrections. They raise the full retirement age. They can also increase the amount of taxes taken out for Social Security. Right.

Right, yeah, and that's one bad thing about this new deduction is that about 4% of the annual revenue that comes into Social Security is actually taxes on the benefits that they're paying out. Sure. So it's about $55 billion a year, at least it was last year. Wow. Even small changes can unfortunately affect the program's sustainability. But like you said, there's hope that they're going to get it figured out. I do know, and we can all criticize politicians for this, is that if they were to address it right now and increase taxes just 2%, it would most likely be fine and never hit zero in the reserves. If they wait till the last minute, it could be 4% or 5%. And that 2%, that's 1% for the employee, 1% for the employer. Right. So it's not a huge impact. No, just fix it right now.

But or they could do a combination of things. They could raise the full retirement age because people are living longer anyway from 67 to, you know, 68, 69, 70. And they could also increase the cap on which Social Security. taxes are taken out, which is of your paycheck, of working people's paycheck. So right now, if you make over, I forget what it is. It's pretty low, like $175,000.

I think they raised it to $185,000, but it's still...

Yeah, I mean, for anyone like the CEOs or people who make good money, if you're making over $185,000, you're only paying that 6% or 12% Social Security tax on your income up to that point and then nothing. So if you make $500,000, you're only paying into Social Security on the first $185,000. The rest of that $500,000 you pay, you're not paying into Social Security. Whereas other people who say make $100,000 a year or $50,000 a year, they're paying on 100% of their income is they're paying Social Security taxes on, but the wealthy are only paying it on a portion. So I'm not against the wealthy paying fewer taxes, but what I am saying is if all they'd have to do is either remove the limit or raise it. And that the reason they say they can't do that is because then they'd have to pay out more benefits. So it would be a wash, but they wouldn't, they could adjust that. They could say they could, you know, they could put a limit on benefits too. So, right.

Yeah.

And then they want to make it fair, which I think is good, but at the same time, got to keep the program solvent. Right. Yeah.

Well, and you can make the case Elon Musk could get by without Social Security. You know, he could create some kind of a tax on right millionaires or multimillionaires or billionaires. Just, you know, just throw in half a percent or one percent and sort of help the little guys out. So there's there's paths to to remedy the situation. That's for sure.

Oh, yeah. There's at least three options they have immediately. I don't know why they kicked the can down the road this far. I think, you know, I know that they're worried about the other side saying they're, you know, they're increasing Social Security. If any change, they're going to say they're messing with your Social Security. But really what what the changes are doing is keeping it solvent. So it's it's there for everyone. So I think I think. Somebody could really be a hero. That could be their legacy. If if like maybe a lame duck president who's in his last term. Yeah, I think Biden should have done it. I think before that, you know, you know, if Trump does it, he should do it. They should do it. One of them should do it. I don't care about party politics. I just think, you know, make the changes to shore up Social Security now and save a lot of people a lot of headache and a lot of money. We just need a snappy name. You know, that's all it takes these days.

Yeah. Yeah. Yeah. Yeah. Yeah.

I can't think of one off the top of my head, but there's probably some fun acronym they'll make. And it's all about and it's all positive. I remember the government always names a lot of the names for bills that they pass are the opposite of what they do. And I'll never forget. And they do that on purpose to confuse people or to get the votes. But they I'll never forget the Inflation Reduction Act. That was the name of a bill. And if you read the bill, it's like, actually, this could increase inflation. Right. It's not going to reduce inflation, even in the long run. So I always get a kick out of that. It did nothing to reduce inflation. They just named it. What should we call this? What's something everybody would like? You know, free money for everyone, Bill. Yeah. Right, I mean, you can name it whatever. Our show a couple shows ago was about how to choose a career and how to choose a college major, that there's got to be classes for how to name, uh, yeah, yeah, they must go through a special training, okay, to become a congressperson or a legislator. You must have to, uh, learn how to name bills. Uh, you just pick positive things, you know, uh, something like candy for everyone or, you know, it's just like, what? The candy for everyone, Bill. Best bill ever, Bill. Yeah. Big, beautiful bill. Big was right. I'll tell you that.

Yeah.

And I do, and I do think portions of the tax laws in there are, are, are beautiful for some people like, like we've been talking about for decades. that's $6,000, man. If you're 65 or over, uh, that's really going to be helpful for a lot of people. So, yeah.

Yep. Well, important to mention, um, that up until this point, we've just talked about all federal taxes. I want to talk about the state level too. Um, so there's actually nine States that still charge social security tax. Um, there's often like an exemption. If you, um, you know, are in too low of an income tax bracket, but for our out of state listeners. So here in Michigan, there's, there's no tax on social security and Minnesota where Tony lives, there is a tax on social security. Yes. We're one of the worst. We're Minnesota is one of the highest tax states in general, but yes. Yeah, so like anything, it depends upon your income in most of these cases anyway. So if you're out of state and want to talk taxes, feel free to give us a call and we can look at your unique circumstances and ultimately decide how much should you have taken out of your Social Security for tax withholding, if anything. We've got a team of CPAs here that just love crunching those numbers. So we'd be happy to help out with that.

Yeah. Yep. Exactly. Well, I appreciate that, too. I mean, obviously, state taxes play a part. A lot of what we talk about on the show in general is federal on the federal level. But but yeah, and Michigan isn't you know, it's not a super high tax state, but it's not super low. So you've got kind of in the middle there with some taxes. But it's great that they do not tax Social Security. I think that and most states don't. So that's good. like nine do, which is too bad. I think there's moves in all nine of those states to eliminate that. So we'll see if that ever happens.

Yeah, I don't want to say the bad actors, but the states where you do have to pay taxes still are Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont and West Virginia. Interesting.

Yeah. And you would think it would be all like, oh, that's probably all, you know, blue states or Democratic states or are all high tax states. But it's not. It's spread out all over. It's weird which states do and don't tax Social Security.

Well, in New Mexico and West Virginia are like not very high income states.

So, yeah, West Virginia is a very low income state and very conservative state. I'm surprised that they tax Social Security.

Yeah, I was surprised when I saw that too. But most of them have some kind of an income rule. So like in Connecticut, if you're single, if your income's under 75,000, then there's no tax. And if you're married, $100,000 or less, there's no tax. So at least they are sort of protecting the lower income people. But if you're higher income, then they're sort of sticking it to you a little bit more. Yeah.

Yeah, yeah, exactly. So what else do we need to know about this, Ken? What else do you want to talk about today?

Oh, last thing I guess for today would be that if you're 65 or older and your income is $75,000 or less if you're single and $105,000 or less if you're married finally jointly, then it's the full $6,000 deduction. And then you mentioned it in passing earlier, but yeah, if you go above $150,000, it doesn't all just go away in one fell swoop. There is a... a phasing out, so it sort of slowly disappears, up to $175,000 for an individual, and then $250,000 for a couple. So for a couple between 150 and 250, it phases out, and then after the 250, the $6,000 new deduction completely goes away.

Okay. I had that wrong. I thought it was $175, but it's $250. So at $250, it phases out.

For a couple.

Yeah. Which is plenty in retirement. I don't think there's a high percentage of people that have $250,000 a year taxable income every year in retirement. Yeah.

Some people never know. Yeah. I mean, some people will turn on the social security at full retirement age and then keep working. So that's a situation that we see pretty, somebody, you know, yeah. Sometimes these, these married couples, they just say, you know, if I were to just go home and be home all day, my spouse would kill me or we'd kill each other or divorce or whatever. There'd be some static there. So, you know, sometimes people just keep working or, you know, and maybe they really enjoy what they're doing. Maybe it's a business that they own and they don't want to let their employees down. There's there's a lot of reasons other than marital conflicts that people will keep working. Right. But then start drawing on that social security, especially if you have some health problems. You know, if you're in your 60s and you don't think you're going to make it to your 90s, you know, it may make sense to turn on Social Security sooner rather than later. Most of the break even, sort of the magic numbers, age 82 for a lot of people. So if you delay Social Security from 62 to 65, a lot of times you got to live into your 80s to really throw your fist up and say, I beat the government. I beat Uncle Sam. I lived long enough and waiting paid off.

But you said something there. If you're going to keep working full time, in the most cases, you probably don't want to take Social Security because they're going to withhold it anyway until, you know, if you're making too much money, right? Because there's an income threshold where they start taking Social Security back if you're making more than a certain amount. Isn't that correct? Yeah.

Right. And you want to make sure that you hit full retirement age in most cases, because once you hit full retirement age and that's that's different for people, depending upon what year that you're born. And if you're not sure what that is, give us a call and we'll be happy to go over it.

For most of our listeners, it's going to be 66 plus a few months or 67.

Yeah. Yeah. So that's usually when you want to wait to turn it on if you're still working, because the income thresholds, if you're younger, depending upon whether you're single or married and whether or not you're working and your spouse is working also, you normally want to stay under $30,000 at the highest of income.

Yeah. And most people, if they're working full time, especially at that age, they're making more than thirty thousand dollars full time. So then Social Security starts withholding the benefits from you and you're not going to get your full check. So but there are so many. That's what I was going to point out. There's so many ins and outs with Social Security. So many strategies. And it depends on your personal situation because your brother or your neighbor or your coworker or your parents or somebody, you know, or your best friend said they said, I took it at 62. I'll get more checks. You've got to do the same. Don't just do it because somebody else did it. No. You have to go to a trusted financial services professional who's a fiduciary looking out for your best interest and who has that proprietary software, that social security maximization report. It does over 20,000 calculations. You can look at spousal benefits because that makes a difference. You and your spouse, who's going to have what, and if one should pass, you want to make sure that a good higher amount is there. So one of you has... higher amount. So there are a lot of strategies involved, and I know you've helped so many people over the years with this, Ken. I encourage our listeners to don't make a move about Social Security or don't panic about Social Security going away or any of that without talking to Ken and his team there at Summit Financial, right?

Absolutely. We'd be happy to help. And yeah, there's just so many variables, right? We tell people all the time, if you know what day you're going to die, let us know and we'll come up with the perfect strategy. Yeah.

Security and spending your last dollar. Yeah. Then, you know, with a good spreadsheet or if you're good at math, you might if you knew the day you were going to die, you could figure it out almost exact. But you have to also know the rules and ins and outs. You'd still need to meet with a financial professional first. Because there are a lot of rules and strategies, especially spousal strategies when it comes to Social Security. But nobody knows the day or time, right? None of us know the day or time. All right. Well, I'll tell you what, Ken, before we go, let our listeners know. how they can set up that no charge, no obligation consultation, or just come in, ask questions, maybe get a plan, get a second opinion on where they're at, get a first opinion, get a plan, put in place a written plan and get that Social Security maximization report run.

Yes. And I always tell people here at Summit Financial, we absolutely do retirement income plans and we absolutely manage investments, but we also have Summit tax services. So we can do tax preparation and we have CPAs on hand to strategize with. We've got Summit health services. So we didn't even touch on this today, but what your income is during retirement, oftentimes will determine how much you pay in health insurance premiums. So there's ways that you can strategize and keep more money in your own pocket. We've got estate planning attorneys here to help set up wills and trusts, power of attorney, patient advocate, do not resuscitate orders, titles to make sure that your house doesn't go to probate after you pass away. And also insurance services. So we do auto and homeowners insurance. So what we always tell people is most people have an auto and homeowners insurance person over here and then a financial advisor over there and then a tax person over there and then an attorney over there and then a health insurance person over there. You know, how often do those professionals all talk to each other? And the answer is typically, well, not at all. There's nobody that's creating a comprehensive estate planning, health insurance program tax and investment overall.

And retirement income plan. Right. Yeah. All in one. And you have all that under one roof. I mean, the Summit Financial Consulting team is great. I really encourage people to give you a call. Give that number and web address one more time before we go.

Yep. 586-226-2100. And then our website address is summitfc.net. So Summit and then financialconsultingfc.net.

All right. Sounds great, Ken. And listeners and viewers out there, thanks for tuning in. That does it for today's episode of Money Talks with Summit Financial and our host, Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.