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Ep 9 – Social Security and Wallstreet 

Craig Kirkpatrick

Managing Partner at Orinda Asset Management

Jennifer Taboada

Vice President, National Social Security Specialist at BlackRock

Welcome to Season 1, Episode 9 of Meet the Expert® with Elliot Kallen! 

In this episode, Elliot is bringing on Craig Kirkpatrick and Jennifer Taboada to discuss Social Security.

Craig Kirkpatrick, Managing Partner at Orinda Asset Management, discusses Main Street vs. Wall Street. 

Wall Street has been going up, and there are great concerns that Main Street and real estate are going down.

Elliot Kallen: What is a real estate investment trust? How do people invest in it? Why do people invest in it? Why not just go out and buy a piece of real estate instead of being a shareholder.

Craig Kirkpatrick: When we’re talking commercial real estate—think apartment buildings, office buildings, shopping centers—there is about 27 trillion dollars of U.S. real estate on Main Street right now. There are also 200 REITs, or real estate investment trusts, and they are required by law to pay out 90 percent of their taxable income.

Elliot: It’s clear that a lot of small businesses, ones that are situated in smaller strip malls and larger commercial shopping centers, are hurting from the pandemic. If this is happening all around the country, why would I want to invest in what appears to be a bad situation?

Craig: Throughout my 30 years of investing in all different real estate companies, one of the big takeaways is that the real estate sectors will all perform differently. They all have different risks and different opportunities.

You mentioned retail, which is a sector that’s going to be challenged. There are probably 1,500 malls in the U.S., and about half of them are going to be bulldozed or repurposed.

As an investor, it’s important to work with a professional and find out which sectors will do okay or do well in this market. 

Elliot: For example, the medical and healthcare industry and senior care facilities are resistant to recessions. 

Craig: Long-term medical facilities, data storage centers, and industrial properties are great options.

Elliot: In the world of investing, we know that sometimes, the greatest contrarians—like Warren Buffet—win long-term. He invests in companies when they’re hurting the most. I’ll assume the real estate market goes through all the same cycles and disparities as every other industry. As a real estate investor, how would I take advantage of this retail recession?

Craig: Even though the office market is going to change because many people have been working from home, and there is some uncertainty, I still think the office sector might be an interesting place to invest long-term. Some of these traded companies are probably trading below the value of its real estate. 

Humans don’t like uncertainty, but being contrarian in an area like office might be interesting because we will ultimately go back to work.

Understand that if you invested in a traded REIT today, you might have a thousand properties in different locations, different cities, and different states. That’s how REITs diversify your geographic risk.

Elliot: And what would you say to someone who would rather be partners in a building versus buying a REIT, and vice versa?

Craig: A big headline right now is that interest rates around the globe are really low. People are going to need income and retirement income, so the long-term real estate outlook has not changed. 

But I do think that if you’re going to venture out and buy an individual building today, you really need to think about your return requirement and all the associated risks. There’s no price discovery. There's uncertainty and volatility. Think about location, and think about who your tenants are; retail and hotels have proven not to be recession-proof.

The biggest risk to real estate isn’t a recession—it’s if we build more. If you put an office building across the street from where you are, that’s going to do more to affect rents. That has been the 20- to 30-year risk of real estate.

Elliot: Are we in for a major commercial real estate correction?

Craig: By sectors, hotel and retail will be challenged for a while. Office will be under the gun. Medical and industrial buildings will do well.

Usually, all real estate tends to go up and down together. During this pandemic, you’ll need to evaluate the individual sector. You need to be targeted with the type of property you own.

But there are some great yields out there—6 to 9 percent cash flow dividends in this environment is good—but it’s volatile.

Elliot: Last question: Is there going to be a spillover to my own personal property if there is a dip in commercial real estate value?

Craig: The government came out and said you don’t have to pay your mortgage if you don’t want to, and it seems to me whether this COVID-19 crisis turns into a long-term credit issue where homebuyers. Remember, rates are really low, and that’s going to keep housing prices up.

I think the answer is that time will tell. Over the next 12 to 18 months, we’ll see what happens with holding prices. The government is putting 3 trillion dollars into the economy, which should help stabilize it, but it’s unknown.

Elliot: If I have a client who wants to buy a new home or trade up to a new home or get a second home in Dallas or Florida or Tahoe, should I tell them to wait?

Craig: It’s by location and by what your time frame is. What are your reasons for owning the home from an investment property standpoint? Do you intend to hold it for the next 5 or 10 years?

I think with rates being so low, you can get really attractive mortgages locking that in. Again, it’s all about location, location, location. Some areas will do well and some areas will be challenged.

Jennifer Taboada, Vice President, National Social Security Specialist at BlackRock, discusses the nuts and bolts of BlackRock’s Social Security program. 

It’s important to understand…

  • How to take your benefits as an individual

  • How to take your benefits as a couple

  • Strategies to maximize your benefits (and get more out of the system!)

A brief history of Social Security

Social Security was implemented in the 1930s as a supplemental income to the elderly. At that time, the life expectancy was 58. Now, you have to wait until 65 to get 100 percent of your benefit.

If you look at a couple who’s reached the age of 65, one of you has a 50 percent chance of living until age 93, and a 25 percent chance of living until age 98. 

Now you’re looking at 20 to 30—or more—years of retirement. That means you need to make the best possible decision right now. How you file for benefits can not only affect what you receive for the rest of your life, but possibly also what your spouse will receive for the rest of theirs.

Unfortunately, over half of those currently collecting Social Security benefits are collecting them at a permanently reduced rate right now.

Am I eligible for Social Security?

To qualify for Social Security benefits, you must have earned at least 40 credits throughout your lifetime. You can earn up to 4 credits per year, so that’s a minimum of 10 years of paying into the system in order to be eligible to receive benefits.

How much can I collect from Social Security?

Social Security benefits are based on your lifetime earnings. The government will look at the best 35 years of your work history. (Not your entire history—just your best 35 years.) Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. 

This is an ongoing calculation up until the day you file. If you continue working, Social Security will adjust or “index” your actual earnings to account for changes in average wages since the year the earnings were received.

Focus more on the strategies you can employ to maximize your benefits now. And work with a trusted Financial Advisor who can run an analysis based on your anticipated changes in income.

You can receive your Social Security benefits as early as age 62, but they’re going to be a permanently reduced rate (up to 30 percent) for the rest of your life. 

Wait until your full retirement age to receive your primary insurance amount (PIA)—which is 100 percent of your benefit without any type of penalty.

Year born

Full retirement age

1937 or earlier

65

1938-1942

65 + 2 months for every year after 1937

1943-1954

66

1955-1959

66 + 2 months for every year after 1954

1960+

67

After age 65, you earn delayed retirement credits for every single month and year that you don’t collect Social Security. In fact, you can earn up to 32 percent increase!

Does my benefit grow until retirement age?

No. You simply get more of what was owed to you as you get closer to your full retirement age.

What to discuss with your Financial Advisor

Be prepared to answer these questions with a Financial Advisor:

  • Are you married or divorced? Is there a big age difference between you and your spouse?

  • How long do you plan on living? Longevity does play a huge part in determining when to file for benefits. Assess your family history and current health situation. Statistically, men will live to around 85 and women will live to around 90.

  • Do you plan to continue working? If you plan to work and collect Social Security benefits, Social Security will subject you to the Earnings Test—a penalty for collecting and earning simultaneously. (The good news is, once you’ve reached your retirement age, you can work. You can make billions and trillions. It doesn't matter after you’ve reached that magic number—your full retirement age.) Remember to speak with your Financial Advisor and CPA to determine your Earnings Test loopholes.

What if I change my mind?

If you change your mind within the first 12 months of filing, you can put in a Request for Withdrawal of Application. Bear in mind that it is a once-in-a-lifetime do-over. The biggest catch of all is that you must pay back everything you’ve received thus far. If you decide to withdraw your application, do it sooner rather than later.

Guaranteed increases for collecting late

But what happens when you decide to take your benefits later? You earn delayed retirement credits of 2/3 of 1% of your benefit for every month that you postpone receiving benefits. That works out to 8 percent annually, up to a 32 percent increase at age 70.

What if I’m single?

Now, if you’re single—not married, divorced, or widowed—there’s no real strategy as to how to file for Social Security benefits. You just need to find out when you’re going to pass away. You can do a break-even analysis to ensure you earn the same amount from Social Security, depending on when you think you’ll pass away.

What are my spousal/survivor benefits?

If you’re married, you do enjoy some benefits. Yes—you only have to be married to your spouse for one year to be eligible for 50 percent of everything they’ve ever worked for.

Moreover, you only have to be married for 9 months to receive 100 percent of whatever they were collecting when they pass away.

If you want to file for spousal benefits, your spouse must be collecting.

Once you’ve reached your full retirement age, your benefit plateaus. Spousal benefits and survivor benefits do not increase. The only benefits that earn delayed retirement credits are your own.

Can I suspend my benefits?

Even if you file for benefits early, you can turn off your benefit. You can voluntarily request to suspend your retirement benefits at your full retirement age and wait until age 70 to receive up to a 32 percent increase on your already-reduced amount. You aren’t required to pay any money back, and you aren’t required to make the decision within the first year.

Simply call SSA and tell them you don’t want your benefit anymore. They will suspend your benefit, and that way, you can earn delayed retirement credits.

This is a great way to get immediate income if you’re in a tight financial situation.

However, there is a catch—your spouse was collecting a spousal benefit, that also gets turned off.

How are spousal benefits and individual benefits collected?

Social Security will pay the highest one of the two benefits that you’re eligible for. They will not pay your benefit and half of your spouse’s.

What are some collection strategies?

Waiting until the last moment to file doesn’t necessarily yield the best results. Take an honest look at your longevity before deciding whether to delay your benefits.

If you were born on or before January 1, 1954, you can boost your retirement income via the Restricted Application! The strategy allows you to restrict an application to spousal benefits only, giving you some Social Security income now while allowing your own retirement benefit to grow 8% a year until age 70. It’s a way to get up to 4 years of extra income.

If you’re grandfathered in to the Restricted Application, reach out to a Financial Advisor to run an analysis to make sure that you’re not missing out on money that you could be eligible for.

If you find yourself in the unfortunate circumstance that your spouse passes away, you can collect survivor benefits as early as age 60. If you developed a disability before your spouse passed away, you can collect them at age 50.

How does divorce affect my Social Security?

As a divorced spouse, you’re eligible for spousal benefits if you meet the following criteria:

  • You were married for at least 10 years

  • You’ve been divorced for at least 2 continuous years

  • You remarry after reaching age 60 (or age 50 if disabled)

  • Both you and your ex-spouse(s) have reached age 62

There are certain limitations: If you continue to work while receiving benefits, the same earnings limits apply to you as to your ex-spouse. And if you receive a pension, your Social Security benefit on your ex-spouse’s record may be affected.

Ex-spouses’ benefits don’t decrease because you’re collecting on their record. In fact, they aren’t notified that you filed on their behalf.

How do Social Security taxes work?

Unfortunately, taxes don’t end in retirement. Most of you will be paying taxes on 85 percent of your Social Security benefits if you have additional income from wages, self-employment, interest, dividends and other taxable income.

In calculating this, Social Security will assess your provisional income, which is 50 percent of your Social Security benefits plus your modified adjusted gross income.

If you:

  • File a federal tax return as an "individual" and your provisional income is

    • $25,000 to $34,000: you may have to pay income tax on up to 50 percent of your benefits

    • $34,000 or higher: up to 85 percent of your benefits may be taxable

  • File a joint return, and you and your spouse have a provisional income that is

    • $32,000 to $44,000: you may have to pay income tax on up to 50 percent of your benefits.

    • $44,000 or higher: up to 85 percent of your benefits may be taxable.

Insider Tips

Be proactive about your Social Security. When filing for Social Security benefits, Social Security will never reach out to remind you to file for benefits. A Financial Advisor can help you stay on track to minimize your penalties and maximize your benefit.

Again, Social Security will never call you. They will only ever contact you by mail. If anyone calls you claiming to be a SSA employee, it’s a scammer!

Access your statement on an annual basis. Social Security openly admits making errors on an estimated 7 to 8 percent Social Security Statements. It’s up to you to find them and correct them within the statute of limitations—3 years, 3 months, and 15 days.

When looking at your Social Security Statement, understand that the number on the left-hand corner states your estimated benefits. That number will change every day up until the day that you file for benefits. If your income changes drastically in some way, shape, or form, then that benefit could be different than what was originally anticipated.

Finally, make an appointment with Elliot if you need assistance with creating a well-informed Social Security strategy.

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Disclaimer:

Prosperity Financial Group and Meet the Expert® with Elliot Kallen do not make specific investment recommendations on Meet the Expert® with Elliot Kallen or in any public media. Any specific mentions of funds or investments are strictly for illustrative purposes only and should not be taken as investment advice or acted upon by individual investors. The opinions expressed in this episode are those of the Meet the Expert® with Elliot Kallen guests, and not necessarily of Elliot Kallen or Prosperity Financial Group.

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