Ep. 082 - Christian Financial Planning: Social Security and Pension Decisions

Episode Transcript

Austin
Every financial choice we face is ultimately a spiritual decision. As stewards, we are called to manage God's provision in a way that honors Him, provides for our needs, and blesses others. Today, we'll walk through how to approach Social Security and pension decisions with the heart of a faithful steward, using both wise financial principles and biblical truth as our guide.
So, Spencer, today we want to talk about Social Security and pension benefit timing as stewards. And the reality here is we are never addressed in Scripture by Christ or in the Old Testament about what to do about government payments to sustain our lifestyle. Believe it or not, there's no pension in the Old Testament. There's no Social security in the New Testament.
And so as we explore this, we want to come back and be reminded that one God is our provider. We always trust Him first and foremost. But then as we are faced with these types of decisions, when do I take Social Security? How do I utilize this pension that's being offered to me? We really need to take time and pray and consider a whole litany of circumstances as stewards.
So what are some of the key things that we really need to come back to before we even begin this conversation of what makes the most financial sense?

Spencer
Well, I think we anchor ourselves in a couple of scriptures, one being Psalm 90:12. So teach us to number our days that we may gain a heart of wisdom. There has to be this level of humility that we know that our lives are finite, that God is infinite, and we seek His wisdom on this. James 1:5 if any of you lacks wisdom, let him ask God, who gives generously to all without reproach, and it will be given him.
So we want to first seek the Lord's wisdom in this. He may tell us to do something that is different than what the spreadsheet says, and that is great. But we also want to recognize that there are some ideas that generally trend towards wisdom, that we want to take into account and think about our trade offs. Lay those before the Lord.
And I think even with that line of humility, first we have to recognize that being faithful is not necessarily making the right choice. Hindsight's always going to be 20/20. And so as we look at this, what we want to do is lay the process before the Lord and have Him speak into it. There is a general wisdom again with a trajectory, but, we need to hear from Him.
So I think as we do this, we need to understand the tradeoffs of starting early versus waiting. And really think through how this impacts us, not just on a cash flow standpoint, but it can also impact us on an emotional standpoint. A lot of different trade offs here.

Austin
So you're saying there's sometimes there's this trade off between what's the right choice versus the wise choice per se. Maybe the spreadsheet says one thing, but maybe that's not the right choice for this individual. Oftentimes there can be emotions involved. Talk through some of those.

Spencer
Yeah. So as we think about the emotions. One of them would be fear. We have clients that sit down with us and say, well, I'm not sure that Social Security is going to be there. I'm afraid of losing that benefit. So I'm just going to take everything that I can right now. Well, we want to at least acknowledge fear is one of those elements that a client's feeling in that moment.
We also may be at a point where a client is fearful of what's going to happen with the cash flow stream once he or she retires. That fear we certainly need to address in a different way, because there may be funds that can be tapped into that would be different than Social Security or pension, allowing those other income streams to grow or to be more significant there.
So there are fears that sometimes they really don't add up because there are other alternate paths that are very easy to see. And then there's sometimes fears that are difficult to quantify. We think Social Security will be there. We plan for Social Security to be there. We would be really surprised if Social Security wasn't there based on the fact that it's in law and people like Social Security, and they're not likely to keep representatives in place who are going to change it a whole lot, but we have no certainty that it's going to be there.
So those emotions can drive us either towards taking a particular benefit early, or can drive us towards decisions like taking a lump sum and just trying to grasp what we can take.

Austin
Right. And I think the reality here again, we come back to this reality that God is our provider. The United States government, the company that we worked for, the governmental agency that we worked for. They are never our provider. We put our faith and hope in Jesus to provide for us, just like when we were first starting out in work and maybe didn't have as much resources.
And in the middle of our career and at the end of our career. God is always the one that gives us health. He is always the one that gives us life. He is always the one that we turn back to. And when we turn our eyes and start fixating, whether it's on Social Security or a pension, it can lead us away to being afraid and having those decisions maybe be driven more by.
I really don't want to see X go to zero or Y go to zero where this never happened or that never happened. And so I think we just kind of always need to come back to that reality of like, no, God is providing, He has provided, He will provide. And we take steps of faith, not placing our trust in the government or in a company.

Spencer
Well, and what's ironic sometimes here is that a client will say, well, I really want to be able to take everything out in a lump sum. And we say, well, what's the plan for it? Well, I'm going to put it in CDs, okay. Why CDs? Well, I got FDIC insurance there. Okay. So you were concerned that maybe everything was going to fall apart, including potentially the US government.
So you're going to take out this distribution, pay a lot in tax and then put it right back into an instrument that's backed by the full faith and credit of the US government. It's you know, there's a level sometimes there where our emotions can override, you know, what's really equal. If we just, you know, think through things.
So, as we do that, what we want to do is actually come back to this idea that nothing is known for sure other than God's love for us, His provision for us. You know, James 4 says in verse 13, come now, you who say, today or tomorrow we will go into such and such a town and spend a year there and trade and make a profit.
Yet you do not know what tomorrow will bring. What is your life? For you are a mist that appears for a little time and then vanishes. Instead you ought to say, if the Lord wills, we will live and do this or that. As it is, you boast in your arrogance. All such boasting is evil. And I think the trajectory that we really want to highlight here is being to certain that we know the direction that the US government might go, that corporate profitability might go, that the economy might go and really come back and say, okay, let's lay this out and let's make sure that we see all the trade offs.
We're not driven by emotions, but we can understand what our options are.

Austin
Right. Well, I love what James says here. It's like, okay, let's go pick up today or tomorrow we'll go into some random town trade and make a profit. It's a very short sighted approach. It's, well, maybe there's not going to be much more than tomorrow, so I'm just going to pick up what I have. Go do it. But He comes back and He says you don't know what tomorrow will bring.
And I think again coming back and saying yes we don't know how long we'll live. We don't know how short we'll live. So I think again coming back and saying okay what is my life I mist that appears for a little time and vanishes. So in that mist-like existence, how do I honor the Lord with these decisions rather than just having maybe a super short, myopic view on the next season of life?
So as we think about that, let's shift and talk a little bit more about the actual elements of what we need to consider when we're thinking about pensions or Social Security. We'll start off with pensions first. What are some of the options that folks have if they have access to a pension?

Spencer
Oftentimes with pensions we've got a handful of different decisions. One is do we take a lump sum or do we take a lifetime income stream? Now there are a number of different pieces to this. Those who would take the lump sum sometimes are concerned with the financial stability, maybe, of the institution that's offering the lifetime income stream, which is understandable.
The challenge is that we've got multiple levels of insurance sometimes here that are in play, such that, you know, if this should all fall apart, we may see the entire economic system fall apart. So, what I mean by that is many times we will have an institution that has its pension, that it's not even run by that institution.
The institution may not be on the steadiest of ground, but the pension itself may be run and owned. In a in a sense, they've been paid off. Another insurance company, you know, may be running that. So we need to be careful before we jump to conclusions here. One of the things that we see oftentimes people underestimating is their life expectancy.
The clients who we work with, they are not, most of them don't need to be thinking about the normal life expectancy. They have typically had better access to education. They have better access to health care. They're more affluent than the average bear, and their quality of life is far higher. So when we put all of those together, instead of maybe a life expectancy for someone who is, 65 being 85, maybe it means it needs to be more like 91 or 92 there, which means that that pension lifetime income stream is going to be more valuable than sometimes people give account for.
The pension lifetime income stream also is really attractive because if we're going to have a certain amount of funds that are going to be used to generate a steady level of income, there are plenty of studies that are out there that would suggest you're going to be far better off in taking that lifetime income stream, then trying to keep the amount that you would need for that income in cash or CDs or, you know, US Treasury bonds.
So the efficiency there is to pool your funds with others who some will live shorter than you, some will live longer than you. But again, given the idea that most of us underestimate our longevity and particularly most of the clients that we sit down with for the first time, say in their late 50s or 60s, and we're doing planning for they will underestimate that potential longevity.
This is a much more valuable asset than a lot of people give credit for. Now, if you already have income solved for and you want to just invest all of these investments, you know, really aggressively or you've already got income, solved for and you want to give it away as quickly as you can in those scenarios. It certainly could make sense to look at a lump sum in the vast majority of scenarios there where we need some of those resources, at least to be positioned in a way that we're going to get income on a month to month or quarter basis.
That pension oftentimes is a really strong option.

Austin
Right. So one of the other characteristics of pensions for married beneficiaries or married clients is whether to take the spousal joint survivor benefit, how to think about those. So as we think about that, how does a steward consider those types of benefits?

Spencer
Well, I think one of our governing ideas when we think about spousal benefits needs to be from Philippians 2:4, where Paul says, let each of you look not only to his own interests, but also to the interests of others, and particularly in a spousal relationship, if we go to Ephesians 5 and we see Paul talking about each spouse coming together and laying down his life for each other, much like Christ has done for the church.
That is a really high call, and particularly when we think about how we structure our finances to be able to take care of both spouses more times than not, we're looking at a financial planning decision where it makes sense to take some kind of survivor benefit and some pension options, some pension plans even will incentivize you for taking some kind of spousal option.
So every pension plan is a little bit different. There are many, though, that if you take that 50% survivor benefit, that's from an actuarial standpoint at least a little bit incentivized over the others. Now, depending on what plan you have access to, there might be 4 or 5 decisions that are out there. There might just be a couple of decisions.
What we would tend to do, though, we would come back, and if there's some kind of a level income option where you're getting benefits even before age 62, if you can, you know, stay away from those, oftentimes that will make sense because it's going to reduce your benefit thereafter. But when we talk about the spousal side of things, it's uncommon
if we look through a financial plan and say, you know, you should not take the option that has a spousal benefit. There are some plans where you will have, say, a 70% survivor benefit, and sometimes that's more than is needed. The reality is that most folks are going to have the stronger of the two Social Security income streams if they, if their spouse passes away, they're going to retain that.
And then if they retain at least 50% as a survivor benefit on the pension, then oftentimes that's enough to, you know, at least take care of a lot of the core expenses right there.

Austin
Well, and I think, you know, we can dream up any number of scenarios where it's like, well, but the husband has shorter life expectancy because he has X, Y, or Z, and wife has a shorter life expectancy because she has a cancer diagnosis or things like that. And so I think when we dive, this is where it's really important as we dive into the minutia with clients to know, hey, what is your health like?
If there have been serious health issues or you have a terminal cancer diagnosis, these change the calculus of how to steward these resources that God has placed in your hands. And so I think we always need to come back to this as saying there is no right answer. There is maybe wisdom of taking one path versus another, and there may be financial reasons to take it one path or another, but there's always exclusions of okay, this makes sense for this couple, but it doesn't make sense for this couple.

Spencer
Well, sure. And if we've got some kind of, health situation with both spouses in particular, then that's another one of those arenas where a lump sum may make a great deal of sense. Or if there's only a 50% survivor benefit, and we have the spouse who has, earned the benefit, so to speak, that would only be able to provide a 50% survivor benefit.
Again, that might make a ton of sense to take that lump sum, because all of these are kind of within the realm of what could be reasonable from an actuarial standpoint. So we would lean in the direction to be more protective over the course of a general life span. But we also recognize, like you said, that mileage varies here very significantly.

Austin
Yeah. It's again where we come back to James 1:5 we need to pray and seek the Lord for wisdom. So we've been talking about pensions. Let's go ahead and switch over to Social Security because some of the calculus of longevity, plus stewarding and being a selfless individual, as we think about a married couple, those are very similar talking points that we come back to with clients is, hey, we need to both think about, let's not look to your own interests, but look to the interests of others.
You are a married couple. What's going to be protective for both of you? So what are some of the big things that we need to think about when considering Social Security benefits?

Spencer
Well, typically we're going to advise the higher earning individual to defer his or her benefits to age 70, if we can. Now, there can be circumstances where, the spouse who has a lower lifetime earnings history is much younger and will not be able to tap into a spousal benefit for some period of time. And we need to be careful about, again, different sets of circumstances.
But oftentimes if we have spouses that are roughly, you know, within a few years of each other, then we're going to see a spouse with a higher earnings history defer, because that's protective for both spouses. So if we have one spouse that has, an estimated, primary insurance amount, I should say of $3,000 on a month to month basis at full retirement, and another spouse that has $2,000.
We'd like to see that spouse that has the $3,000 PIA defer his or her benefits, oftentimes because if he should survive, his spouse or she should survive her spouse, then she's going to continue to keep that higher level of benefit. But if the higher earning spouse passes away and the other spouse has that benefit, that surviving spouse is still going to have that higher benefit, whereas that would not be the case if that benefit is taken early or taken even at full retirement age.

Austin
Right. You know, Spencer, I think one of the big things with Social Security timing as well is, is it going to release you to be able to live and give? I think that's one of the things that oftentimes our clients maybe just need a little bit of a nudge and maybe this could be a good place for that nudge to happen is if you are trying to live off of your savings, but you don't want to see your savings go down, so you take a miserly amount out, well, you're not being encouraged to live and give in those really crucial years where you have health, you're maybe more able to travel, you're more able to
spend time with your family. This is really a critical period early in retirement as stewards where you really think, okay, I have slowed down paid work, maybe ceased paid work, what is God calling me into? What is this next season? If it is purely about protecting a nest egg and we're not doing those things that He has called us to do in this next season of life, well, then maybe starting a Social Security benefits stream might actually be a wise decision to pull it forward to give you that little extra push.
And I think this is where we, again, come back and say there is no one single solution for everybody, and we really need to come back with the Lord and say, every one of these decisions is discussed with the Lord. It's prayer. We are, we seek the Lord in prayer. We look at an eternal perspective and we say, God, what do you want me to do in this season and in the next season and forever beyond that?
How do we really come back with the Lord day in and day out to say, hey, what are the things that are slowing me down from being willing to live out what you've called me to? And if it's a fear of running out of money, or if it's a fear of Social Security not being there, then let's deal with that versus just, okay, when is the optimal day, week, month, and year to start my benefit?

Spencer
Well, and I think we come back to incorporating everything together in a plan because so often we might have the fear that Social Security is not going to be there, or where is the money going to come from? I'm going to start Social Security right now. Whereas if we have a better foundation, what we may do is we look at things in a plan is to be able to take resources out and actually do more living and giving
in the midst of that season, because we might let's just say we have a couple that is they're both turning 62 and they could get benefits, that would be something like $4,000 on a month to month basis together. Well, if they defer those benefits at least a full retirement age, they're going to get far more than that.
Well if we can do something to help them to be able to take distributions from other places and allow that benefit to grow, sometimes what we can go ahead and do is make sure that they're actually doing the living and giving that they need to in that season, because we have a plan in place. So instead of the 4,000, it might be that we need to plan for a distribution that would be 6,000 or 8,000 and $9,000 on a month to month basis, so that they're not feeling so constrained of only using Social Security and taking it just as soon as they can.
Instead, in the context of the overall plan, now we're taking resources from other places. We have a higher amount that's going to be available through the course of time. But the plan itself, if we revisit that, we lay it before the Lord, we feel like it's stable, now we're able to do more living and giving, just because we can see where those funds are coming from,
and we're not responding out of an emotion that really doesn't have any place within the decision making process.

Austin
Absolutely. Spencer, thanks for this conversation about Social Security and pension benefit timing. I think one thing that we do need to caution folks on, just in general, is if you are planning this out, if you're trying to take the next steps of what is going to be the wise next steward, the best place to start is probably not your local social security office.
The people there are fantastic. They are image bearers of God. But what they're likely going to do is say, take your benefit now and that may not be the best solution for you. So clients, if you want to talk to us about when you should take your Social Security benefit, if you want us to pray with you, seek the Lord with you,
we would love to do that. As always, feel free to leave questions down in the comments below and we'll see you again next time! If you found this episode valuable, share it with a friend and subscribe on your favorite podcast platform so that you don't miss the next episode.

Disclaimer
This content was provided by Second Half Stewardship. We are in Knoxville, Tennessee and you can visit our website at www.secondhalfstewardship.com. The information in this recording is intended for general, educational and informational purposes only, and should not be construed as investment advisory, financial planning, legal, tax, or other professional advice based on your specific situation. Please consult your professional advisor before taking any action based on its contents.