Social Security, Social Security, Home Purchase, Fun Spending: Q&A #2635

Full analysis

Jim Saulnier and Chris Stein work through four listener questions: why the Social Security statement shows a lower survivor benefit than the claimant's own age-70 amount, whether correcting a missing earnings-record entry for stock-option income can produce back pay, how to finance a home purchase when nearly all assets are in retirement accounts, and whether using a fixed indexed annuity (FIA) for discretionary "fun" spending makes sense. All four topics are practical and directly actionable.

What was covered

• Social Security survivor benefit vs. age-70 benefit (the "missing" delayed credits). A listener turning 70 this month sees a $3,944 survivor benefit on his statement even though his own benefit is $5,101. Chris Stein explained that SSA's survivor-benefit box shows only the Primary Insurance Amount (PIA — the base benefit before any delayed retirement credits are added) and does not automatically display the enhanced amount. When SSA actually pays the survivor, it recalculates and includes the delayed credits, so the surviving spouse will receive the full $5,101 — not $3,944.

• Clarification on survivor-benefit timing. Jim Saulnier corrected a subtle error in the listener's framing: the rule that a surviving spouse inherits the deceased's full benefit applies regardless of whether death occurs before or after age 70 — the trigger is the surviving spouse being at or past their own full retirement age (FRA), not the deceased having reached 70.

• Non-qualified stock options, the earnings test, and Social Security earnings records. A second listener retired in 2016, claimed Social Security in 2017, and also exercised non-qualified stock options (NQSOs) that year. SSA clawed back roughly $15,000 because the exercise spread on NQSOs is treated as FICA wages and triggered the earnings test. The earnings record, however, shows zero for 2017, because the employer apparently reported correctly on the W-2 but failed to run it through payroll reporting to SSA. Chris Stein said the listener may or may not receive higher benefits after correction: the 2017 wages replace one entry in a 35-year average, so unless the amount is large enough to displace a genuinely low year, the benefit change will be small.

• 60-day IRA rollover as a bridge to buy a new home. A listener near 65 — essentially all her $2 million in retirement accounts (60% traditional IRA, 40% Roth) — wants to buy a $600,000 home in a hot market before selling her current home (expected to net $450,000–$475,000). She is considering pulling the $600,000 via a 60-day rollover and redepositing the proceeds from the home sale. Jim and Chris discussed the strategy but leaned toward using Roth funds instead of traditional IRA funds if she proceeds, because a failed rollover from the traditional IRA triggers a massive taxable event plus IRMAA surcharges; a failed Roth rollover leaves a smaller Roth but no tax bill for a qualified distribution. Their suggested sequence: stage the current home for immediate listing, find the new home and make an offer without contingency, list the existing home the moment she goes under contract, and take the Roth distribution only the day before closing — giving roughly 90 days total to sell before the 60-day clock even starts.

• Mortgage or HELOC as an alternative. Jim Saulnier also raised getting approved for a conventional mortgage on the new property and paying it off when the existing home closes, avoiding retirement-account disruption entirely. Both hosts acknowledged that origination costs and qualifying may be factors.

• Fixed indexed annuity for discretionary ("fun") spending. A Missouri listener near "unicorn" status (secure income covers both minimum dignity floor and all planned fun spending) nonetheless found he couldn't bring himself to spend from a large portfolio. He put a few hundred thousand dollars into an FIA with a guaranteed income rider, started income one year later, and now receives $32,000 a year — 14% more than the $28,000 quote he received from a single premium immediate annuity (SPIA). Jim and Chris said they prefer SPIAs for simplicity and carrier quality (mutual, A/A+ rated insurers), but acknowledged FIAs with riders can outbid SPIAs because most buyers never activate income or surrender before the account reaches zero (the "lapse rate"), subsidizing those who do. Jim warned against FIAs backed by private equity carriers using offshore reinsurance arrangements, citing recent Wall Street Journal reporting and regulatory scrutiny.

Notable claims & predictions

• Chris Stein: "The spouse will step into the shoes and get the $5,101… if you do the math between the $3,944 and the $5,101, it is exactly the delayed retirement credits for someone born in 1956 who waited until 70 to claim." — The statement is a reporting artifact, not an actual benefit cap.

• Jim Saulnier: "Non-qualified stock options, when you exercise them, they get reported as wages — there is FICA withholding, there is Medicare and Social Security withholding — and so [SSA] applied the earnings test." If you retired but then exercised NQSOs in a year you were also collecting Social Security before your FRA, the spread counts as earned wages for earnings-test purposes.

• Chris Stein on correcting the earnings record: "Unless these non-qual stock options, the amount that was reported, was really high and replaces a really low number in your best 35 years, it's probably not going to change [the benefit] at all." Back pay is possible but likely modest; no blanket promise of a windfall.

• Chris Stein on the 60-day Roth strategy: "I'm going to attempt it with the Roth… the worst case is you've lost your ability to put the money back in the Roth. But once you sell your house, you'll have all this money and you can start doing conversions potentially from the rest of your $1.2 million traditional IRA." — Roth is materially safer than traditional IRA for this maneuver.

• Jim Saulnier on FIA lapse rates: "Most people never turn the income on or close the annuity before fully taking all the money out. Insurance companies love this because they charge, by his own admission, a very high fee… that allows these companies to offer income greater than SPIAs." — The higher FIA payout is cross-subsidized by buyers who never use the product as designed.

• Jim Saulnier on private-equity annuity carriers: "I do fear someday some of these private equity carriers are going to run into trouble with the shenanigans they're doing" — including offshore reinsurance via Bermuda or Cayman subsidiaries. He cited recent Wall Street Journal coverage and active regulatory scrutiny.

Fact check

Survivor benefit showing PIA rather than the age-70 enhanced amount. Chris Stein's explanation is accurate and well-established: SSA's paper and online statements display the PIA (the base, pre-delayed-credit amount) in the survivor-benefit section, not the higher amount a surviving spouse would actually receive. SSA does apply the deceased's delayed retirement credits when calculating what it actually pays to the survivor. No issue here.

Non-qualified stock option spread as FICA wages subject to the earnings test. This is correct. NQSOs are taxed as ordinary income and subject to FICA (Social Security and Medicare) taxes at exercise; SSA treats this as wages from employment for earnings-test purposes. The earnings test only applies before the claimant's FRA, consistent with Chris Stein's deduction that the listener must have been under FRA in 2017.

60-day rollover rule. The one-rollover-per-12-month limit (not per account, but per person across all IRAs) was not mentioned by either host. A listener who has done any IRA-to-IRA indirect rollover in the prior 12 months cannot do another. For this particular listener the hosts present no indication she has triggered that limit, so it is not a factual error — but it is a material condition the discussion omitted. Worth confirming with a tax adviser before proceeding.

Capital gains exclusion on home sale. Jim Saulnier mentioned that single filers currently exclude $250,000 of home-sale gain and referenced a "pending rule" to raise that to $500,000 per person. The $250,000 / $500,000 (married) figures are the current law. The proposed increase he referenced has been discussed in Congress but is not enacted; he correctly labels it as something that "may someday see the light of day," so no false claim — but listeners should not plan on it.

FIA income rider fee estimate. Jim Saulnier estimated the rider fee at "about 75 to 125 basis points."