Mailbag: PTO, Vacation Pay & Social Security

A listener question came in with a deceptively simple retirement question: Should you start Social Security right away if you don’t actually need the income yet? Taylor explains why the answer involves much more than math, touching on PTO, retirement lifestyle, flexibility, and long-term planning decisions. Before you claim a single dollar, make sure you’re not walking into a Social Security timing trap.

Here’s what we discuss in today’s show:

💸 Social Security Triangle: Three ways to evaluate timing

🧠 Psychology Matters: Confidence changes spending habits

🏖 PTO Test Drive: Practice retirement before retiring

🛡️ Survivor Planning: Protect the surviving spouse

🔁 Regret Risk: Early claiming limits flexibility

Resources:

Website:  https://www.demarsfinancial.com/

Phone: (509) 536-9556

Schedule an introduction call with Taylor: https://bit.ly/demarspodcast

Check out Taylor's YouTube Channel: https://www.youtube.com/@TaylorMadeRetirement

Taylor's Newsletter: https://demars-financial-group.kit.com/827c64fe0e

Disclaimer: Since we don't know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice, or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor, or the appropriate professional for the subject you would like help with. Demars Financial Group, LLC or its members cannot be held liable for any use or misuse of this content. Advisory services offered through Demars Financial Group LLC, a Registered Investment Advisor. Demars Financial Group is not affiliated with LPL Financial.

Transcript

SPEAKER_01 0:00

Today's topic is centered around a listener mailbag question asking about Social Security timing and retirement and what to do next.

SPEAKER_00 0:11

Welcome to Taylor Made Retirement, where we explore what it takes to build a retirement that works for your money and your life with third generation certified financial planner Taylor Demars.

SPEAKER_02 0:26

Welcome and this is Taylor Made Retirement with Taylor Demars, Certified Financial Planner at the DeMar's Financial Group. And we got a good one, Taylor, because listen, everybody has questions about Social Security, and that's what we have today. I'm gonna toss you a question that came in and we'll we'll start digging into it a little bit. So here's what we got. I always assumed that I'd start my Social Security as soon as I retired, but I'm going to be getting several weeks of vacation paid out in my final paycheck. Plus, my husband will still be working for another two years, and I don't think I'll need the monthly income. Is it wise to just put it off and not start it immediately, or should I go ahead and take the money since it's there? So a lot to this question, Taylor, but where do you want to start?

SPEAKER_01 1:06

Yeah, I love it. I I guess I should say just uh state the obvious to preface, but the this question is so personal. I mean, we obviously this podcast uh platform is great for frameworks and asking good questions and thinking out loud, but uh but obviously needs to be tailored to your specific situation. But uh I'll I I think I'll take the liberty of of taking a few different directions here. And the first thing that piques my interest is what I hear from a lot of clients is this built-up PTO. And when we start our retirement readiness roadmap process, one of the documents we ask for to get our planning process started is our clients' uh you know, pay steps. And not because I'm trying to break down every single thing on there, but there's like one of the key areas is seeing that built-up hours of PTO. And there are different company policies of how much you can roll over or but whatnot, but a consistent theme I have seen is that too many overachievers build it up too much, right? They just and that's what this this when clients talk about here is saying, Hey, I've got a significant chunk of change here. And and so when I see a client that's kind of looking at when to retire and they're not necessarily on the verge of retirement like this person, is my gentle encouragement is not to take the check.

SPEAKER_02 2:14

Okay.

SPEAKER_01 2:14

I would rather encourage them to use the PTO as designed and maybe even take the liberty of using as much as your company would allow you at a time. It may, maybe it's two weeks, maybe it's four weeks. And I think it's really helpful for clients, especially if they're just wavering on, hey, when is the actual time to retire? They get to do a trial run and be able to say, Hey, what does it feel like when I am, you know, I've got nothing to do. And and that boredom is a good forcing function to be able to say, well, this is what retirement feels like. So make sure that you've got that hobby or the social connections or a reason to get up in the morning and not just feeling like it's an extended vacation, right? Um, so maybe I'm going a little off subject here, but that's something that I think is a little overlooked is is uh I just met with uh started working with a OBGYN this week, and he's worked hard, saved hard, and he's never taken more than a week off from work, his whole career. And so he's staring down the barrel, retiring later this year. And I'm I'm I'm a little interested, but also a little worried that he may just, you know, find himself with too much time on his hands, and and so that can be solved with using up one's PTO. So sorry for the tangent there, Ben, but I think it's worth speaking to before actually talking about Social Security timing.

SPEAKER_02 3:24

Yeah, absolutely.

SPEAKER_01 3:24

But when it comes to the timing itself, uh, I love to approach this timing question with a certain framework that we've come up with. I like to call the Social Security Triangle. And the reason for that is I feel like there are three distinct angles that one needs to evaluate to determine for their specific situation when they should pull the trigger to Social Security. And many times people are looking for the quantitative element. That's the first angle most people start and stop at, including this person, which is saying, hey, I need to bridge some income, maybe, uh or maybe not. And they're thinking about the dollars and cents and the numbers to it. And many times the next question people ask on that vein is, how do I get the most dollars out of the system? And that's when you get down the rabbit hole of saying, hey, how much does your benefit grow by when you delay it up to your full retirement age? And then full from full retirement age to age 70, it goes up by 8% per year. And then if you delay to 70, you'll break even and get most dollars out of the system around your mid to early 80s. It's a whole gambit. And I'm not opposed to going down that rabbit hole, but that's just one angle, one side of the way to evaluate this decision. And that's quantitative. The second angle that we look at it from is what I would call qualitative, which is to say, hey, what are those non-numeric elements that are going to help you make sure you get the most out of Social Security? And a common way to look at it is being able to say, well, the the studies show, and firsthand experience I see among clients is when people start an additional fixed income source, like a pension or social security in this case, people feel a greater sense of permission to spend, regardless of how much they've saved up for retirement. I've seen people with millions saved up for retirement and plenty of spending capability, uh, suddenly take more trips, do more experiences, you know, you'll go out to eat more, whatnot, just because they've finally turned on Social Security, despite us being able to run the numbers and tell them, right, uh logically to say you can spend more. Us humans have a funny psychological element that just feels like we can unlock more lifestyle once we have more fixed income that doesn't care what the economy or the stock market is doing. Does that make sense?

SPEAKER_02 5:25

Yeah, and I'm I'm sure that's you know a big part of it, right? Is is hey, if it does give you that ability and that confidence to live your life a little bit, right, and take advantage of everything you work for, then yeah, maybe it makes some sense in that case.

SPEAKER_01 5:37

Yeah, yeah. So it's it's it's that's the second angle is being able to make the argument for starting sooner, right? Is the qualitative sense many times. And then the third angle for us is survivorship. So obviously this client is married, could talk about a husband. Many times that there's an argument for starting later because a quantitative or starting sooner because a qualitative, many times survivorship question is the one that helps push people one way or another, is being able to evaluate from a comprehensive lens what does our income source and breakdown look like for retirement? Obviously, Social Security is one source. Maybe you have a pension, maybe you're not. Maybe you're doing part-time work for a time in retirement, maybe you've got rental income. Obviously, there's a there's the portfolio to talk about about how withdrawal sequencing is happening and taxes in that sense. And being able to figure out, okay, if heaven forbid, one of us gets hit by a bus earlier in retirement, mid in retirement, or just hopefully as long as possible later in retirement, how is the surviving spouse taken it taken care of from an income standpoint? And being able to run that stress test is important for us to model out, literally saying, hey, call them George, be able to say, what if something happened to you at 60, 70, 80, so on, and trying to find what are those weak points throughout uh both of the joint lifetimes to say, is your surviving spouse, your wife, going to be taken care of? And so for that reason, as many times we say, well, why don't we stagger uh the Social Security claiming for each of you, where the higher earning spouse with the greater benefit does delay. Maybe it does, maybe they go to 70, maybe not, but delay one of the benefits so that we're able to, for the surviving spouse, they get to keep the higher of the two income streams from Social Security, make sure that they're not leading anything on the table and taken care of at that point.

SPEAKER_02 7:13

I gotcha. Well, you know, what it sounds like is it's it's it's really not a simple answer, is it? I mean, this it's not a hey, it's it's there, I can turn it on, or hey, I've I've got enough income I feel like for for now that I don't need to worry about turning social security on. There's there's a lot more that goes into that decision.

SPEAKER_01 7:29

Yeah, 100%. And and and the funny thing, of course, about social security is for better or what better or worse, once you turn it on, you you can't change it. Technically, you can change it if you if you claim you can you pay the money back within a year and then you know claim at a later year or another time, but 99% of people don't do that. And and so the the the regret is uh asymmetric, right? You start too early and you wish you started later, you're locked in. You you what you say you're telling you're gonna delay later, you can always pull this pull the ripcord and start sooner. I mean that that that's an easier uh you know reversible option. So with when we're kind of at a you know on the fence here with making a decision with clients, I tend to be on the side of delaying, right? Just because it gives us more options, and options are gold in retirement. We want to be able to create flexibility and opportunity for trade-offs. So that's uh of course I can't give a final say for this mailbag question, but like you said, Ben, I feel like that's what I get excited about my job is being able to weigh the complexities and the trade-offs for client-specific scenarios to find a tailored solution for their scenario.

SPEAKER_02 8:34

Yeah, I love that. And you you can begin that retirement readiness roadmap uh right now by logging on to Marsfinancial.com. You can click that link in the description. Click on could we be a fit when you're on the website there as well and uh begin that process. But uh, I guess on the flip side of this, Taylor, is there you know, you you know, you said you generally would lean towards waiting, right? And there's obviously circumstances where people would maybe want to go ahead and turn it on. Is there anything any typical scenarios where somebody might go ahead and and start Social Security because they want to use that money towards something else, like paying off a mortgage or just investing or just using it in some other capacity?

SPEAKER_01 9:09

Yeah, that's a great question. I feel like honestly, I don't I don't generally weigh specific factors like paying off a uh a mortgage or other spending goals when it comes to Social Security. Because at the end of the day, your checking account it's just hungry. It doesn't care where it gets fed from, right? Right. It says I can feed me social security, feed me pension, feed me a portfolio withdrawals. The dollars are gonna be used up no matter what. Uh obviously there are different trade-offs when it comes to hey, what what what type of source is it, you know, is it fixed, is it variable, what how is it taxed and such? But at the end of the day, I I'm trying to look at it from a comprehensive lens to say how does the plan support the the strategy? Because if the plan is better benefited by making portfolio withdrawals to pay off the home so we can get the longer-term benefit from delaying Social Security, that's where I'm going to edge on that side. Yeah. So I wish I could give you uh a more deliberate and concrete answer, but I it's hard for me to say whether I always prefer to delay, always prefer to claim earlier because it's just so so client scenario specific. And um, that's what I love being able to weigh with people.

SPEAKER_02 10:12

Yeah, and I think it's just important and great to just be able to kind of hear your process and what you go through and work through to help someone get to that decision. So great question. One we can't answer specifically here, but something you can obviously go directly to Damar's financial group with and begin working through with a little bit more detail and attention to what your goals are and kind of where you stand with everything else. But but a good question nonetheless. And again, something you want to think through. If you got if you're approaching that social security decision, make sure you have a plan for what you're gonna do with that. It's not something you just want to say, I'm ready, let me turn it on, or hey, I'm just gonna wait just for the heck of it. Have a plan in place. And that's what Demars uh Financial Group can help you with. So if you want to get in touch, begin that retirement readiness roadmap, you can do so now at DemarsFanancial.com or just click that link in the show description. All right, Taylor, great stuff. Uh, thanks for kind of taking us through that. I know we'd obviously love to get to an answer, but that's that's the part of planning that uh we always talk about. It's gonna be different for every person, so it's hard to lay out a specific answer, though. But appreciate you taking us through it.

SPEAKER_01 11:10

Yeah, my pleasure. Thank you.

SPEAKER_02 11:11

Thank you for listening to another episode of Taylor Made Retirement with Taylor Demars of the DeMars Financial Group. We'll have another episode coming soon. Please hit that subscribe button and look forward to talking to you again soon. Take care.