Jason Parker interviews Kirk Larson, Social Security Washington Public Affairs Specialist. They discuss when Social Security is deposited each month depending on your birthday, when you should file an application to start Social Security, and 3 factors to consider when deciding what age to start Social Security. They also discuss the fact that people born in 1960 or later can only earn 24% in delayed retirement credits, the 2.8% COLA for Social Security, and how to find life expectancy using the Social Security website.
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Below is the full transcript:
Announcer: Welcome back America to Sound Retirement Radio where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence and freedom as you prepare for and transition through retirement, and now here is your host Jason Parker.
Jason: America, welcome back to another round of Sound Retirement Radio. We’re so glad to have you tuning in this morning. We have a great guest lined up for you. If you are thinking about social security, we’re going to bring him on in just a minute to really clarify some of those things you need to be thinking about with social security.
But before we do, as you know, I like to get the morning started right in two ways. The first one is by sharing a verse and then also giving you a joke. Maybe something you could share with the grandkids at Thanksgiving. Okay, so here is the verse. It’s from John Chapter five verse six and seven. It says, “When Jesus saw him lying there and learned that he had been in this condition for a long time, he asked him, ‘Do you want to get well?’ ‘Sir,’ the invalid replied, ‘I have no one to help into the pool when the water is stirred. While I am trying to get in, someone else goes down ahead of me.’ Ain’t that an interesting thing? That’s a pretty clear question. Do you want to get well? Which I think would give you a yes or no answer there, but that’s not how this guy answers. Ain’t that interesting?
Okay. And then I’ve got a joke for you. Something to put a smile on your face. The joke is, how much does grandpa weigh? Just a little more than gram. Grandpa, gram. All right, it is my good fortune to bring Kirk Larson onto the show this morning. Kirk is the Western Washington Public Affairs Specialist. He’s covering Washington, Idaho, Alaska educating people about social security. He’s been a guest of ours on the program for the last 10 years or so. We’ve had the good fortune to bring him on from time to time. Kirk Larson, welcome back to Sound Retirement Radio.
Kirk: Thank you for having me.
Jason: What did you think of my joke this morning Kirk?
Kirk: Well, that’s a pretty weighty matter when you’re getting into that.
Jason: You’re one sharp dude.
Kirk: Well, thank you.
Jason: Kirk, we’re going to talk about social security. That’s our topic this morning. This is episode 186, so if you’re driving down the road in Seattle, remember we make all these shows available to you as a podcast as well. But, let’s start with just what’s new? What’s happening with social security for this year?
Kirk: For 2019, of course, the big conversation right now is the 2.8% increase that people were given. Typically, we give a cost of living increase each year. This year is one of the larger ones that we’ve had for some time, so everybody will be seeing a 2.8% increase to their social security payments.
What I also would like to emphasize to everybody is that this just isn’t an increase for people that are getting benefits. People that are getting benefits get this increase too, yet you just don’t happen to see it because you’re not getting a monthly payment, but everybody is getting a 2.8% increase to their social security payments. If last year your benefit was $1,000, it’s going to be higher next year simply because of the cost of living increase by 2.8%.
Jason: Boy, that’s a great point. I think where we see that a lot, Kirk, is when people are delaying taking their benefits until age maybe 70, and so they may not realize it not only are they benefiting from the delayed retirement credits, but they’re also benefiting from any inflation adjustments that are happening over time. That’s pretty cool.
Jason: I’ve got a bunch of questions. These are questions that real people ask us all the time. The first one is just real simply. Let’s say my birthday is November, and I’m turning 62, and I’ve decided that I’m going to start my social security right when I turn 62. When should I file for my benefit? Should I wait right until the month that I’m turning 62? Should I do it a month before? What’s the best time to file for social security?
Kirk: Interestingly enough, for age 62, this is that one time where you have to be a particular age throughout the month. For age 62, you actually have to be 62 an entire month, meaning that if you’re turning 62 in November, in order to file for the month of November, you’d have to be born on the first or the second of the month.
Jason: Oh, okay.
Kirk: If you’re not, if you were born on the third of the month, you actually could not file until December. You’d have to wait until the following month to actually file.
Jason: Oh, what if I was turning 66? How would that impact me?
Kirk: 66 does not matter. We actually consider you to be 66 throughout the month or any of the other ages for that matter. We consider you to be that age throughout the entire month. If you were turning 66 in November, it doesn’t matter if it was November 1st, the end of November. You qualify for the 100% benefit if 66 is your full retirement age. You qualify for that benefit no matter when you file in the month.
Let’s say you did want your benefits to start that particular month, the month you’re turning 66, or it could be 65, or 62, or 63, whatever it might be. If you want the benefits to start, typically we encourage people depending on how they’re filing. It changes when we recommend that they should go ahead and file. If you want your benefits to start that month, you should probably file … If you’re calling in to schedule an appointment, probably do it about four to six weeks ahead of time.
When you call in to schedule an appointment with our offices, we have lead times. Of course, we have a lot of people that want to file for benefits, and so we would schedule a particular appointment, but it could take three to four weeks to possibly get you the appointment. If you wanted to start it in November, I would call four to six weeks ahead of time asking for the soonest appointment.
If, though, you’re filing online, we complete our online applications very rapidly. If you wanted benefits to start in November, you could file at some time during the month of November, and we probably approve those claims within about 7 to 10 days, so it’s a very rapid process if you’re actually filing online.
Jason: If my birthday is November, I’m going to start in November. Should I wait until November to file, or can I go online in September and say, “Hey, I just want to get this done. I want to file in September.” But make a note that I don’t want the benefit to actually start until November. Can I do that?
Kirk: Very good point. Actually, you can. You can file up to three months in the future, so if it was June and you wanted to start in November, you wouldn’t be able to do that. If you went online, the computer would say, “You’re going to need to file the application later on.” You can only go up to three months in the future. Yes, if it was September, you could go ahead and file with the month of September and indicate that you want the month of November.
Now then, if you’re doing that online, most likely we’re still not going to approve you until the month of November because we’re trying to take care of the people that are due money right now in the month of September, for example. You would probably file it, and then you wouldn’t hear anything for some time. And then probably during the month of November, when you actually do benefits, we would go ahead and approve it then.
If for some reason, though, we had time to process your claim, we didn’t have as many people filing as we thought during the month of September and October and we were able to get around your claim, we might actually approve it earlier and then you’d get a letter in the mail. Let’s say in October we approved it. You might get a letter during the month of October saying, “You’ve been approved for November.”
Jason: Let’s say that I filed early in October. They approved it early. Let’s say you guys decided to approve it early. I wanted it to start in November. When would I expect my first check to show up or my first direct deposit?
Kirk: That’s always a good question. We pay all of our checks one month behind, so if you’re filing an approval for the month of November, November’s check arrives in December, and then December’s in January, January in February and so on. We also now stagger people’s payments. A lot of people don’t realize this, but we used to pay most people’s payments on the third of the month.
Now we actually stagger payments based on when you’re born in a particular part of the month, so if you’re born in the first third of the month, your check will arrive on the second Wednesday of the month. If you’re born in the middle third of the month, your check is going to arrive on the third Wednesday of each month. And if you’re born in the last third of the month, your check is going to arrive on the fourth Wednesday of each month.
A lot of people don’t realize this, but your check is not going to arrive on any particular date. Depending on when the second, third or fourth Wednesday falls in a particular month, that’s when your check is going to arrive, so you can’t look at your social security check and say, “I know it’s going to arrive on the 25th,” because the fourth Wednesday of the month might fall on a different date. It can fluctuate from month-to-month slightly.
Jason: With husband and wife, even though they’re married, they’re still going to have two different dates where those deposits are made?
Kirk: That’s correct, if they’re filing independently on their own records. You have a husband and a wife. They’re filing separately on their own records. That check is going to arrive depending on where they’re born in the month, so you might have one check that comes in on the second Wednesday and then another check that’s going to come in on the fourth Wednesday.
Jason: Boy, I’m so glad you’ve mentioned this because I’ve learned that retirement is all about cash flow. Kirk, I don’t know if I’ve told you this since the last time we talked, but we’ve created some software recently called the Retirement Budget Calculator because we really want people to understand their spending. But one of the things we give them the ability to do in that software is to plug in when they’re going to receive that social security check.
There’s an ebb and flow that takes place, so you can’t just assume that the social security is going to show up on the first day of the month and budget around that because that may not be the case. That’s one of the things our calculator allows people to do is to really get granular to understand when these different cash flow things are going to be happening; when’s money come in and when’s it going back out. That’s really helpful.
The next question I wanted to ask you pertains to … This is probably the one we get the most. Most people are looking at starting social security at either 62, their full retirement age, which for a lot of folks right now is 66, or waiting until age 70 to start their benefit. If somebody came to you and asked you, “When do you think somebody should start benefits?” What are some of the questions they need to be asking or some of the things they need to be taking into consideration when trying to make that determination?
Kirk: There’s a few things that social security talks about. First off, I will say this. Social security is not an agency that’s designed to give financial advice to people. We encourage people to seek out financial advice and to talk to different individuals, talk to different financial advisors, different groups to help you understand when you should take benefits.
What social security emphasizes for people is that you should look at some very large concepts, some very large factors when allowing this to guide you on when you should file for benefits. The first main one that we like to talk about is, number one, do you need the money? For many people, if they’re going to file for benefits no matter where it is, somewhere between 62 and age 70, the question becomes is do you need the money now to live?
There are some people that can stop working and don’t need to take their benefits. They can wait because they have other assets, other incomes they can live on. Maybe they’re going to have a pension. Maybe they’re going to take money out of other retirement accounts. Many people, though, that if they stop work they don’t have a choice. They need that social security benefit. They need that money coming in right now.
The number one factor we tell people when you’re considering filing for benefits: what are your financial needs? Do you need that money right now? If you don’t, obviously waiting, your check is going to be larger in the future, so you should take that into consideration. The other two big factors we tell people to take a look at is what is your health situation, and what is your family longevity?
If you take your benefits early, you’re basically front-loading your retirement benefits. You’re taking extra money upfront, but by filing early, you’re taking reductions. You’re not getting your full benefits, and eventually, those reductions are going to catch up to you.
If you’re front-loading your retirement, you’re taking the benefits early that can be beneficial all the way up until about age 80. Those cuts that you took catch up to you, and actually it would have been a better decision to wait longer rather than filing earlier. This is the concept of the break-even point.
We tell people, “Look, if you arrive age 62, for example, and you’re not in great health and people in your family die in their 70s, it might make extremely good sense to file for your benefits early. But if you reach age 62 and you’re in average health, it’s important to remember that we, as a people, are living much longer than we used to. The average 65-year-old man today, if you make it to age 65, you’re going to live until about age 84. The average 65-year-old woman that lives until age 65 they can expect to live until about age 86 and a half.” You got to take those factors into consideration.
Yes, it’s great to have some extra money upfront if you stop working at age 62. It’d be great to have some extra money. Take that social security check. But over the course of your lifetime, by filing early, that can actually cost you thousands or tens of thousands of dollars depending on how long you live.
The really interesting factor here is that one out of every four 65-year-old people, 25% of the population that reaches the age of 65, they can expect to live until about age 90 or beyond. If you take your benefits early, yes, it helps you when you’re in your 60s and 70s maybe, but you’re actually disadvantaging yourself as you live into your 80s and possibly 90s.
Jason: One of the things I’m reminded of too. I think it goes back to this first point that you made. Do you need the money? But there’s a quality versus quantity, so you might end up getting more money if you delay taking the benefit, but you get more of that money a lot later in life, like you say, after age 80. Can you really enjoy it at the same capacity, at the same level after 80 that you could at 62?
For some people that are high net worth, that aren’t dependent on every dollar for social security to provide for them, they’ve got to be thinking about this not just in terms of how do I get the most money, but how do I get the most life out of that money? This is one of the things that we’re faced with all the time. It’s not just a numbers question.
Kirk: Absolutely. Social security is really not in a position to be able to answer those questions for people. We encourage people to think of those questions, but we don’t have all of the information. We have a very tiny piece of your overall retirement puzzle, an important piece, but just a tiny piece. We encourage people to step away and examine those things before you arrive at our office or before you go online and file your application for retirement benefits. That should be something that you’ve thought about, and hopefully, you’ve thought about for a very long time and factored this in to an overall retirement strategy.
Jason: Yeah. One of the things I wanted to ask you about. We’re seeing a lot more people come in when they bring their social security statements in to ask for advice. We’re noticing a lot of people their full retirement is age 67 now based on when they were born. The question I have to you about that. I think it’s between ’43 and ’54 full retirement age. 1943 and 1954. 66 is full retirement age. Correct me if I’m getting these numbers wrong.
But if your full retirement age is 67 and you want to earn delayed retirement credits, those delayed retirement credits don’t start until 67, and then you only earn 8% per year. Is it that you’re only having the ability to earn 24% in delayed retirement credits if you have that later birthday?
Kirk: Two things I’ll address there. I’ll answer your question first on that. You mentioned social security statement. I want to talk about that too to kind of tell your listeners what that’s about and how you can get your social security statement, but you’re exactly correct. It’s important to remember with our delayed retirement credits, or some call them bonus credits, you can actually get more than 100% of your social security payment by waiting beyond your full retirement age to activate your benefits.
As you said between 1943 and 1954, if you’re born in there, you get 100% at age 66. Then we slowly move it up, and then for people born in 1960 or later you don’t get 100% until age 67. Now then, we pay our bonus credits or delayed retirement credits monthly, meaning that you don’t have to wait a full year. Each month that you wait beyond your full retirement age we increase the benefit automatically by 0.66% or 8% a year, but you don’t have to wait a full 12-month period to get all those bonus credits.
You’re exactly right. We stop paying bonus credits at age 70. If you could get 100% at age 66 and you wait until age 70, you’d get a 32% increase automatically to your payment. But if you don’t get 100% until age 67 and you wait until age 70, that’s only three years, you’re only going to get three years worth of bonus credits. You’re only going to get a maximum of an increase of 24%.
Jason: That’s a little loophole that I don’t think many people realize. There’s not a whole lot they can do about it because it’s based on their birthday or when they were born, but it really does disadvantage if you were born 1960 or later. It’s not only that your full retirement benefit doesn’t start until 67, so you got to wait a whole year longer to get your full retirement benefit, but you lose out on 8% delayed retirement credits that those people born in 1959 and before have access to. That’s just an interesting little nuance. The next thing I wanted to ask you-
Jason: Oh, go ahead.
Kirk: With that also it’s important to remember people don’t get 100% of their benefits until much longer after that, so had that group decided to file at age 66 and you can’t get 100% until age 67, you actually would also be reduced additionally at age 66. It’s not necessarily a disadvantage. It’s that these later generations are living much longer than we used to, and those people are going to end up drawing checks much longer than many people that could have gotten 100% even at age 65.
We used to allow people to file at age 65 and get 100% of their benefit, but because we are living much longer than we used to, social security has drawn this out and getting 100% of your benefit did increase some time ago. An interesting fact: we are living almost as twice as long as we used to compared to a 65-year-old person that could get their benefits in 1940 when we started paying monthly benefits. That same 65-year-old person is now living twice as long past the age of 65 compared to that person back in 1940.
Jason: There’s just this thing I think about there though. If you were born in 1954, you get to start benefits at 66. I can’t imagine that life expectancy is that much different from somebody born in 1954 versus 1960. I can’t imagine that the 1960 person is going to live that much longer, you know, six years, but I guess that’s just the way the rules work. That’s what we have to work with, and that’s what’s important. That’s why we bring experts like you on to help people understand how this whole program works.
I want to ask you about mortality tables. That’s something you were talking about; how long people live. In social security you guys use mortality tables in all of this, right? How often does this mortality tables get updated from the social security administration?
Kirk: We do have a team of people that look at that, projecting out ages, how long people are expected to live. An interesting thing. You can go to our website, and it’ll actually show you on there how long you’re going to live. You can go in there, type in your date of birth, and then based on our mortality assumptions you could say, “I’m born in 1965. On average, how long is it expected that I will live?” It will show you currently someone born in 1965 on average how long they’re going to live.
Jason: That’s awesome.
Kirk: An interesting thing. The longer you live, the higher that number goes. Somebody who was born in-
Jason: The longer you live, the longer you live.
Kirk: That’s right. And the more likely you are to continue living, strangely enough. I mean, if you put in that you were born in 1930, you’re what? About age 88 right now. It would probably say, “Well, if you’ve made it this long, you’re somebody that has longevity on your side. You’re likely to live all the way to at least age 92.” It’ll give you some interesting information by visiting our website.
Jason: I can-
Kirk: But we have a whole team of people that work on those numbers. If you want to get that information, once again, visiting our website. The best place to go ahead and get that type of information. We do have information on mortality rates, life expectation, different things like that.
Jason: Awesome. Kirk, we’re just about out of time, but we’ll put a link too to that specific calculator for our listeners. But I just want to say thank you so much for taking time out of your busy schedule to join us here again and help educate our listeners. Thank you.
Kirk: No problem. The last thing I just want to say is remind people if you want to get your social security statement or you want to work with social security online, you need to visit our social security website and open up your individualized My Social Security account, so you can see what your future benefits are going to be and a number of other great things you can do. But we’ll leave that to another time to talk about all those wonderful things.
Jason: We’re out of time. Thanks so much Kirk. I sure appreciate it.
Kirk: Thank you.
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