Jason Parker Interviews Kirk Larson, Western Washington Public Affairs Specialist, Social Security Administration
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. Now, here is your host Jason Parker.
Jason: Seattle, Tacoma, Olympia, Gig Harbor, all the good people right here in Kitsap County and for those of you tuning in on soundretirementradio.com or you’re listening to us as a podcast around the country, thank you so much for making Sound Retirement Radio one of the top places in iTunes these days, to find more information about retirement. I often times say, I can’t believe it’s been over five years now since I started this little radio show, but we’ve had a lot of wonderful feedback.
We’ve had some amazing guests on the program. I really hope that the information that you’re receiving from this program is really making a significant impact in your financial life as you’re preparing either getting ready to retire or maybe you are already transitioning through retirement. I hope that one day you will be able to point back and say that our program made a significant difference in your ability to retire and to do it on your terms and to do it comfortably. So thank you so much for being here.
I do have an exciting announcement. My new book is going to be coming out. I believe we’re going to be shooting from May 5 as the launch date. I just wanted to touch on that briefly, let people know I’ve got a new book coming out and that we’re going to be sharing. We’re going to have a big campaign going on to tell people more about that. That’s exciting stuff, but won’t get too much into that. We’ve got a great guest I’m going to bring on the program today. As many of you know, if you’re preparing for retirement especially right now, retirement’s all about cash flow. It’s all about your income. We have this wonderful program called Social Security that provides retirement benefits to folks that paid into the program. Today, I’m bringing Kirk Larson back onto the program. Mr. Larson is the Western Washington Public Affair Specialist for the Social Security administration. Mr. Larson, welcome back another round of Sound Retirement Radio.
Kirk: Thank you for having me. I appreciate it.
Jason: I appreciate it. I don’t know if the rest of the country is fortunate enough to have somebody like you as a resource, but it really makes a big difference for those folks here in Western Washington, so thank you.
Kirk: Thank you.
Jason: Kirk, I wanted to find out first of all, about this … what you guys are terming the My Social Security Account. Would you take a moment and just let our listeners know a little bit more about that?
Kirk: Yes. You’ll probably remember that. For many years, people used to get a benefit statement in the mail saying this is what your future benefits are going to be, this is how much you’ve worked and paid into Social Security. This is how much you’re going to get at age 62 or age 66 or at age 70 or if you were to pass away, this how much are survivors would get. It was a great tool called the benefits statement. We used to mail that out for many, many years.
Due to the budget situation, we’ve actually discontinued the distribution of that form and we needed to come up with a way to communicate that information. We developed a multiuse tool called the My Social Security Account which basically allows people to go online and create an account where they can go to any time and if you’re not getting benefits yet, meaning you haven’t reached the age, you’re not getting any benefits yet, you can go on there and pull up your benefits statement at any time. You can look at your work history. You can see how much money you made year by year.
You can look at your benefit statement and see what you would get if you retired at age 62 or age 66. Great planning tool. You’d also be able to go on there and see if you were to pass away what your minor children can get or what your surviving spouse could get. Great tool if you haven’t started receiving benefits and an even better tool if you’re already on benefits. The My Social Security Account even if you’re already on benefit, will allow you to go online, set up an account and then if you need to change your address, change your phone number, change your direct deposits, get a benefit verification letter, if you’re trying to get a loan someplace and you need to verify what your income was from Social Security, you’d be able to go ahead and get that benefit verification letter. You could do this anytime that you want. You can just go to your account, get it open and then access it to get ongoing information or even just track all your payment history over the lifetime of your account. Great tool whether you’re getting benefits or not getting benefits.
Jason: That’s great. At one point, when we had you on the program, I think you mentioned that people above a certain age would continue to receive the paper statements. Have you guys cut that out now completely?
Kirk: Yes. Basically at this point, we said we’re moving more and more of our resources online. It’s important to encourage people to get online to get that information. Looking at the age group that we’re talking about, that we were thinking about possibly giving it to people between the ages of 60 and 66 if you haven’t started benefits yet. That group is very computer savvy. That group is in the workforce and most people already using the computer so we found that an important savings is that we wouldn’t have to go ahead and send out that letter to those people. It was a very expensive option to us to send out that letter. One of the main reasons we stop sending that letter in the mail is that it costs us $16 million a year to print and distribute that letter to hundreds of millions of people that are working in this country. It was a very expensive option for us to print and mail and pay the postage and distribute that literature by mail. This just is more cost-effective and much more user-friendly and much more accessible at any time that a person wants it.
Jason: It’s no wonder the U.S. Postal Service is having a hard time paying their bills. They don’t have you guys paying them.
Kirk: That is certainly true. There is a cause and effect to everything. That was a couple hundred million of pieces of first-class mail that disappeared when we stopped sending that out.
Jason: When I set up my account online, at the time that I did it, this was a couple years back. I probably was an early adopter but in order to do it, I had to set up the account online and then I received a password in the mail a couple weeks later. It wasn’t instant access. Is it still that way or is it a little bit more instantaneous now?
Kirk: It is now instant access. We do send you out … We do ask for your email address and we’ll use that as proof but now it is instant access.
Jason: I went on right before our interview here, I went on to Social Security’s website and you guys have kind of this hypothetical Social Security report dated January 2, 2014 prepared for [inaudible 00:07:32] worker especially prepared. On this report, it says, I thought I’d just bring this up because most people who are used to seeing this number every year in their mailbox and so unless they’re logging in, they’re probably not paying attention. It says, “Without changes, in 2033, the Social Security trust fund will be able to pay only about $.77 for each dollar of scheduled benefits.” Of course down below, it says, “These estimates are based on the intermediate assumptions of the Social Security trustees annual report to the Congress.” Would you take a moment and comment on that for us?
Kirk: Oh certainly. Yes, currently today, Social Security is looking pretty good. Today we have about a little over $2.5 trillion. That’s $2.5 trillion saved up in the Social Security trust fund. We’ve been building that up for many years. That trust fund does exist. That is money that we have invested. As a matter of fact, we earn about 125, $120 billion a year in interest generated by the trust fund based on those investments. However, as the baby boomers, that generation of about 76 million people, as they continue to retire, we are going to need to start liquidating the Social Security trust fund. That’s going to happen relatively soon, probably around the year 2015, 2016, 2017. Social Security is not going to be bringing in enough money for each year from the taxation of people’s wages to pay for all the benefits that are going out.
We’re going to need to start liquidating the Social Security trust fund. That 2.5 or $2.6 trillion that we have saved up right now, that is going to start going down. We’re going to have to start selling off the assets, converting that into cash and paying that out to people to maintain the benefits. We have enough money in the program and enough money coming in from the taxing of people’s wages to meet all of our obligations up until the year 2033. Now, then, what does that mean? Does that mean that in 2033, Social Security’s going to go broke? We’re going to stop sending checks out? No. That’s not what that means.
What that means is that in the year 2033, the Social Security trust fund would be gone. We would have liquidated the entire $2.6 trillion and paid it out to people in the form of monthly benefits and at that time, we would only have $.77 of every dollar to pay every dollar. What that means is that we won’t be broke, however, we will be in a deficit situation. One of two things would need to happen, either we would figure out a way to get that money from someplace else, probably borrowing it or we would figure out a way to slow down the benefits and we would have to pay out less money, everybody would take a 23% cut in benefits as of that time.
Now then, the report does say something very important. That’s based on current assumptions. That’s assuming that nothing changes from this point forward, meaning that we don’t change the way that we do business. What that report really encourages is that to help people understand that we do need to change the way that we do business, the way that we pay benefits out and the way that we bring money in, that will need to change in the future or the program will not be completely sustainable after 2033.
Jason: Kirk, I’ve been reading some of these dire headlines, you’ve probably seen them too, that talk about Social Security disability benefits and how dire that situation is, at least some of the headlines I’ve read. Do Social Security look at retirement benefits and disability benefits as two separate entities, or is it all one trust fund that’s paying all this money? Should we be concerned about disability benefits and our ability to continue to pay those?
Kirk: It is technically, they are broken into three different trust funds. There’s the disability benefits, there’s survivor’s benefits, and there’s retirement benefits. Now then, it is one big lump of money though. You are correct, the disability program is running out of money faster than the retirement program. Now in this 2033 forecast though, is looking at all programs put together. That date, 2033 is all programs put together. That being said, if we did not move money from the retirement program into the disability program, the disability program would go, would not be able to pay 100% of its coverage sooner than 2033 and the retirement program would be more sound for a little bit more time beyond 2033. But basically, 2033 is looking at all three programs hooked together. It does take that into consideration.
Jason: Okay great. Kirk I’m looking at the time here and we need to take our first quick break. We’ll be back and we’re going to ask you some questions on how people can maximize these benefits. We’ll be back in just a minute.
Alrighty folks, welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. As always, I sure appreciate you taking time out of your day to join us on this program. I’ve got Kirk Larson who’s the Western Washington Public Affairs Specialist for the Social Security Administration on the program with us. Kirk has been a contributor to this program over the years and he has been … These Social Security topics just happen to be some of the most popular programs that we do. It’s really a treat. It’s very hard. Kirk, Mr. Larson’s very busy man and so the opportunity to have him on this program is really golden. Again, Mr. Larson, we appreciate you being here. Mr. Larson, I also wanted to say that over the last several years, we’ve been starting every program out with a joke, and I forgot to tell our listeners. If you’ll indulge me for just one minute here, I’ve got a joke for everybody. I’d hate to disappoint them. They all look forward to these so much. Here’s my joke. Why did Mozart get rid of his chickens?
Kirk: Why did they?
Jason: They kept saying Bach-Bach-Bach.
Jason: You seem to like my jokes about as much as my friend Dean did, but anyways …
Kirk: Well, it may be a work in progress.
Jason: I have to admit, the jokes are so bad that even in this little radio studio, my face turns kind of bright red even though our listeners can’t see me. One of the things I wanted to ask you about, when looking at the Social Security statement from a planning perspective, does social … Historically, Social Security has had this cost of living allowance since the 1970s. When somebody’s trying to estimate their future benefits and the statement says here’s your benefit at 62, here’s your benefit at 66 and here’s your benefit at age 70. Are those benefit estimates assuming a certain cost-of-living allowance over time or is that only based on earnings?
Kirk: That’s a very good question. I do get that question quite often. Actually, what that is saying, that statement is in today’s dollars. Meaning that, let’s say you’re turning 62 in 10 years. It’s not telling you what your benefit’s going to be in 10 years. It’s saying if you were 62 today, this is the dollar amount that you would get. It’s actually giving you the information in today’s dollars. Each year as we have the cost of living increase, even if you weren’t working, your Social Security benefits continue to go up each year as you get a cost-of-living increase.
A lot of people don’t realize that but this year for example, we gave everybody a 1.5% increase to their Social Security benefits. Just not the people that are getting benefits but everybody got a 1.5% increase. You got a 1.5% increase to your Social Security benefits automatically. Even if you hadn’t been working and paying into the system, your benefits automatically went up so that cost-of-living increase is for just not individuals getting benefits, it’s for everybody because your benefits, everybody’s benefits automatically go up.
Jason: There has been some talk in recent years that Congress was thinking about changing the formula for the cost-of-living allowance. Anything you can shed some light on there for us or …
Kirk: As I indicated, we were just talking about that the assumption is that if Social Security continues to do business the way it has, come the year 2033, we’re going to be at a shortfall. Congress’s idea, and that’s one of the many ideas I have to say, that have been put out there to change the way that Social Security does business, to change the way that Social Security pays money out. One of those suggestions that has gotten some traction in Congress is to change the way that we pay the cost of living. It’s just a proposal.
That has not gone through Congress. It hasn’t been voted on. Congress has put together many other different ideas on the way to either figure out a way to send less money out of Social Security or to bring more money into Social Security. That concept of changing the cost-of-living calculation is just a proposal. Of course what it would be designed to do, they’re obviously not changing the program to pay more money out, they’re changing the cost-of-living calculation to downward the amount of money that will be paid out so it to be somewhat constricting the way that the cost-of-living calculation will be figured.
Jason: Okay great. One of the things that I found interesting and we’ve been doing this for five years now., I think we had John probably five years ago to talk about some of these planning concepts. You helped introduce a lot of people to the idea of married couples coordinating benefits to try to get that most out of the Social Security system over to people’s lifetime. I want to ask about some of these specific strategies because it seems like they’re starting to get more and more mainstream. We’re reading about it in the Wall Street Journal and Kiplinger and some of these different news media outlets. One of the things that I hear from people all the time is if I go, as a married person, if I go into the Social Security administration’s office, are they trained to help me understand how to maximize Social Security benefits over to people’s lives, or are they trained to help me understand how to get the most benefit I can get today? Or did they look at all of those different planning options?
Kirk: The people at her office or at our 800-number, they’re trained to go ahead and answer your questions that you have about benefit programs. They’re trained to go ahead and facilitate taking your application and then answer you on benefits to answer additional questions that you might have. If you were to go in and say, “Hey, how can I get the most money out of my Social Security?” They could say, they could look up your record and say, “Yes, if you waited all the way till age 70, you would get a bonus. Currently it’s 132% of your benefit.”
They will go ahead and provide those answers, but if you were simply to go into an office and say, “Hey what’s the most, the best way I could make the most out of Social Security,” our representatives in our office or at our 800-number are not there to be financial advisors. There are many other very great financial advisors out there. We encourage people to seek financial advice, Social Security representatives at the offices and the 800 number, that’s not their purpose. Truthfully, even if they were to try to give you ideas on that, they’re really not trained to do that. A financial advisor takes into account all the different aspects of income that you might have in your retirement years and would have a lot more information on you. What is your health situation? What are your goals in retirement? That’s not the job of the Social Security representatives. We want them to focus on what they do best and that’s basically answering questions about the programs, how to qualify for the programs, helping people take applications.
Jason: Okay all right. That’s fair. That’s what my expectations were too. I just want to make sure I understood that correctly. I have to tell you the folks right down here at the Silverdale Social Social Security administration office, most of the people that we know that have gone in there just had a wonderful experience with the people. You guys are doing a good job, and we appreciate that.
Kirk: Great, good to hear.
Jason: But on this topic of maximizing benefits. Will you help our listeners understand, you have your own earnings record, the spousal benefit and then the survivor benefit. Will you help our listeners understand these three different components?
Kirk: Sure. I’ll give you an example. Generally, let’s say you’ve worked and paid into Social Security. Basically, when we go to figure out what your Social Security benefit is, we use your highest 35 years’ worth of work. We basically take your work history, we adjust for inflation and we pick out the highest 35 years. Let’s say based on that over your lifetime, we used the highest 35 years and we determined that the average monthly benefit that you’ve made would give you a monthly benefit of Social Security of about $2000 per month. We’ll say that you are eligible for $2000 a month based on the average of your highest 35 years’ worth of work. We take that and that is what you are potentially eligible for.
Let’s say you could get 100% of your benefits at age 66 and right now for people born between 1943 and 1954, you can get 100% of your benefit if you waited to file at age 66. Then for people born 1960 or later, they get 100% of their benefits at age 67. If you file early, for every single month you file early, you reduce your benefits by roughly half a percent. If you could have gotten 100% at age 66 and you file 48 months early or four years early, you’re going to take roughly about a 25% cut in your benefits. You’re going to go from $2000 a month down to $1500 per month. On the survivor side, if you are then to pass away during your lifetime, you’ve lowered your benefits to 1500 but you’ve also reduced whatever your surviving spouse is going to get. They’re now going to get the maximum of about $1500.
During your lifetime, you’ve lowered the benefit but you’ve also lowered it for your surviving spouse. Most spouses today, we do treat individually. Meaning let’s say you are eligible for 2000 and your spouse, your wife was eligible for $1500, basically you both will be eligible to potentially file for your own program. If you can file early, you’re going to file before you reach the age of 66 for example, you both would only be able to file for your own program. There is a program out there called spouse’s benefits. However, the spouse’s benefit is only designed basically to get your spouse up to the 50% of whatever you’re going to get. Let’s say in your example, your spouse had not gone out and work and paid into Social Security and you were going to be eligible for $2000 at age 66, your spouse when she reaches age 66, she would be automatically eligible for up to $1000 a month under your Social Security program.
Jason: So even if she didn’t work, she is eligible for 50% as a spousal benefit?
Kirk: That is correct. The assumption is that the reason she didn’t work is that she was supporting the family. She was supporting perhaps raising children, she was supporting other individuals. By the way, I say she in this situation. This can go either direction. Your wife could be the one that’s worked and going to get the $2000 and you may not have paid into Social Security. This goes either direction from spouse to spouse. With that, basically what they did is they came up with a program called spouse’s benefits and they said for the sacrifices that one spouse may have made in a couple, that person should be recognized for the work they did do whether it be raising children, taking care of adult parents, whatever it might be, they should be recognized for the work that they did. If an individual has worked, they’re eligible for benefits and your example would say $2000. Their spouse, their living spouse is eligible for up to an additional 50%, or in this example, $1000 per month. However, if your own spouse is already qualifying for $1500 a month on their own record, obviously they would file for the 1500 rather than taking the smaller amount.
Jason: Okay, I do want to ask you. I know there’s some unique strategies here. I want to get into those but at that point we need to take our next break. We’ll be right back to talk some more about those.
Kirk: Sounds good.
Jason: Alrighty folks, welcome back to another round of Sound Retirement Radio. I’m your host Jason Parker. It is my good fortune to have Mr. Kirk Larson on the program with us. Kirk is the Western Washington Public Affairs Specialist for the Social Security Administration. Today, we are talking about Social Security. It’s a core component of most retirees’ income plan as you’re preparing for retirement. Retirement’s all about cash flow so we want to make sure you have as much tax advantage inflation-adjusted income as you can get. Social Security is a really unique way to help you do that. Mr. Larson, you’re just given this example. You have husband who’s making his full retirement benefits $2000 at 66. The wife’s full retirement benefit on her own earnings record is $1500 per month. We were talking about spousal benefits and how to coordinate those. So go ahead.
Kirk: Yes. Now there is an interesting strategy. Actually this is actually designed into the Social Security law. It was basically a way that we how to encourage people to wait as long as possible to file for their retirement benefits. This strategy only comes into effect if you wait to file until your full retirement age. For people born 1943 to 54 up to age 66. Let’s say both you and your spouse are age 66. Neither one of you has filed for benefits. You’ve reached age 66 and you file for your $2000. Your wife also reaches age 66. She has a very interesting option. Now just as a spouse, she’s potentially eligible for the 50% of your benefit or $1000.
However, her own benefit’s already 1500 so she wouldn’t qualify if she had filed early, if she had filed under the age of 66, she wouldn’t get the spouse’s benefit. She would have to file for her own benefit first. However, if she waits or he waits until age 66, they get a choice. They can either file for their own benefit or they could take 50% of their spouse’s benefit. Let’s say both of you reach age 66, you file for your 2000. Your spouse now rather than taking her 1500, she files for $1000 off your record. You’re getting 2000. She’s getting 1000. The family income is $3000 per month. Had she taken her own though, the family income would’ve been 2000+1500, would’ve been $3500 per month. Why would she want to take the smaller number?
Here’s the reason. By not taking her own benefit at age 66, we give her record bonus credits. We allow, we will give her each month that she waits beyond age 66, she gets a bonus credit worth .66% per month or about two thirds percentage per month or about 8% a year. If she waited just one year, drawing the thousand dollars off your record, she comes back in a year later on, she can now say, give me 108% of my $1500 per month. If she was to wait all the way till age 70, which is the maximum point. After age 70, you don’t accumulate anymore these bonus credits. She could now collect 132% of her $1500 per month which would be somewhere around.
Jason: So that’s $1980. She would switch from that point the $1000 per month spousal benefit that she had been receiving to her own benefit at that point, 132%, is that 1980? Is that what you …?
Kirk: I believe that is correct yes. So she would go ahead … Go ahead.
Jason: I was just going to say so she can do … At my firm, we call this switch strategies where you elect a lower benefit early, allow your own benefit to delay earned retirement credits and switch to the higher benefit. Is this using the restricted application, is that what you would file in order to make this happen?
Kirk: That’s correct. When she would be able to file her benefit, she’d indicate in her application that she is filing for spouse’s benefits only. Basically that would preserve the right of her own record, her own $1500 to continue to increase in value at the rate of 8% a year. Now then, once again I want to stress this, the key to this is that you don’t file for anything early and that’s the way it’s designed. We designed it that way to encourage people to wait as long as possible to file and maximize their benefit. Social Security wants to give you as much money as possible. I’ll tell you a reason why.
Some people say that sounds kind of like a gift that Social Security is giving someone. It’s really not a gift. We’re just encouraging people to maximize their benefits and here’s the main reason why. One universal thing that Social Security has discovered is that the longer you wait to take your benefits, the higher that benefit’s going to be and as you begin to stretch into your 80’s, Social Security is becoming a larger and larger piece of your retirement pie. The reason being is that other things such as 401(k), investment stocks, bonds, cash, those things get used up in your 60s and 70s. Therefore, the bigger Social Security benefit that you can have, the more money you’ll have as you get into your 80s. We’ve discovered that the more money you have as you get into your 80s, the more likely you are to remain healthy and the more likely you are to remain in your own home. That’s at all different economic levels. Whether you’re the person with $1 million or you’re the person with $20,000. It really doesn’t matter. The higher you can make your Social Security benefits, the more likely on average to remain healthy and to remain in your own home. Basically this is built in encouragement to encourage people to wait as long as possible to take their Social Security benefits.
Jason: In that scenario, we’re talking about married couple, they both reach for retirement age. That gave them these options. They filed, they restricted application. Help our listeners understand what a file and suspend does and when that comes into play and why they would want to do that.
Kirk: Same basic concept of this scenario. I’ll just slightly switch it. We use the same situation. You are eligible for 2000. Your wife is eligible for 1500. You both reached the age of 66. Now then, your wife decides to file for her $1500. However, she asked that it be suspended and she does not want to get her actual Social Security check. This and the reason that you’d want to do this is this then allows you, the other spouse, to now file on her record. She files and suspends her record and she’s going to get, she’s not going to get her $1500 per month, you are now eligible to file on her record and get $750 a month and you also do not touch her own record. Now both of you, you do have an income coming in $750 a month, your $2000 check is increasing in value at the rate of 8% a year and her $1500 check that she’s not getting is also increasing in value at the rate of 8% a year.
Jason: I think you just hit on something that’s really important. In order for me to be able to receive my spousal only benefit, she has to have activated her benefit first. She had to file for those benefits and then put them into suspense. I can’t do a restricted application for my spousal only benefit unless she’s filed, right?
Kirk: That’s correct. As long as you’re currently married. Of course we do recognize divorced spouses benefits, just slightly changing things here. Same scenario. You’re now divorced and you have been married to your ex-wife for at least 10 years.
Jason: My wife’s not going to be happy to hear this show.
Kirk: Well this is not a good situation. I’m sorry about your situation here. So you’re currently unmarried, you were married to this individual for 10 years. You both now reach age 66. Your spouse says, “Hey, I’m not going to file for my benefits but I’m also not going to file and suspend so you can file on my record.” You say, “Hey I want to go ahead and maximize my benefits also so I’m not going to take my own benefit.” However if you’re married to the individual for 10 years and now at least two years, you’ve been divorced for at least two years, you can independently file on your wife’s record or she can independently file on your record in that situation as well. We call this independently entitled divorced spouse. If you’re still married, then your wife would have to go ahead and file and request suspense or you could file and request suspense and your wife could file on your record. The rule slightly change if you’re talking about divorce. We don’t expect your divorced spouse to cooperate and file and suspend their benefits so that you can file on their record.
Jason: Let me ask you this. What if you were married for 10 years, divorced, married again for 10 years and divorced. So now you have two ex-spouses. Can you file for Social Security benefits on both of your ex-spouses records?
Kirk: Ooh, good try. I like that. You’re thinking here, I like that. The answer is no. We will though, if you do have two spouses, we will look at both records and let you draw benefits on the higher of the two ex-spouses. But you can’t draw on both of them at the same time.
Jason: One time we had you on the program and you talked about filing for benefits so let’s say and 66 and my benefit’s $2000 a month and I’m not ready to start my benefits yet. I’m still working and I just kind want to delay, earn this delayed retirement credits. You talked about doing a file and suspend. At 68 or at a future point having access to a lump sum of money if I needed it, would you take a minute and just refresh my memory how that works?
Kirk: Certainly. Once again just to emphasize for your audience, if you’re doing a file and suspend, you can only do this at age 66 or your full retirement age or higher. You can’t do this if you’re under your full retirement age. Let’s say your intent is to wait until age 70 so you say, “Hey I want to wait till age 70 so I’m not going to file for my benefits.” However, I would still recommend that you file and suspend your benefits at your full retirement age or age 66 and here’s the reason why. If you file and suspend, you get the option to unsuspend them at any time and you can retroactively and to spend them going backwards as far as you want.
Let’s say you did that at age 66. Now you reach age 68 and you go, “That was a bad decision for me. I don’t care if I have the extra money,” or you say, “Hey I have a great opportunity to buy some land someplace but I need a lump of cash.” If you filed and suspended, you can go backwards and say hey I suspended my benefits two years ago. I want to unsuspend them now and if you just said unsuspend them now, two years, you’d get 116% of your benefit for the rest of your life. However, you do get an option. You can say, unsuspend me but go all the way back to the date that I initially suspended and give me all of 24 of my back checks. You will get the bonus credits I’m sorry?
Jason: So there’s no limitation, I mean if whether it’s 24 months or 36 months, you can request all of that is a lump sum. You don’t have to … You don’t get just a portion of it as a lump sum if you wanted it to be.
Kirk: No, you can request all or some of it, that’s the other thing. If you have two years under your belt, you could say make my check 108% and then give me 12 of those checks at 108% or you could say go backwards give me six months’ worth of those checks and then give me 112% of my benefits. You can go anywhere in between whatever you want to do. Remember, every month you do go backwards and you take the check, you don’t get the bonus credit as well. If you went all the way back to the beginning, yes you’d get 24 checks but you won’t get any bonus credits, you just get 100% of your benefits and they’d give you 24 checks at 100% of your benefits.
Jason: All right, Mr. Larson, loved having you on the program. We have another quick break that we need to take and then we’ll be back and I’ve got some more questions to ask you.
Kirk: Sounds good.
Jason: Alrighty folks, welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. As always, you can find us online at soundretirementplanning.com. I write a blog just about every week, we have new information up there for people that are preparing for retirement, transitioning through retirement. I like to encourage you to check that resource out, make sure that your looking at some of this information. Today, I’ve got Kirk Larson on the program with us. Kirk Larson is the representative, the Western Washington Public Affairs Specialist for the Social Security Administration. Kirk, it’s so great to have you on the program and to share. Social Security can get kind of complicated when you start looking at all these different options and strategies that are available.
One of the ones that comes up frequently when we’re consulting with folks has to do with people who are widowed. I was hoping we could take the last couple of minutes of this program and talk about some of these lesser-known things, the widows, GPO and WEP web. Let’s start with the divorced. What are some of the nuances, I’m sorry not divorced, widowed. What are some of the nuances there if you’ve been widowed people should be considering?
Kirk: If you have a deceased spouse, a couple important things, number one, you can file for survivors benefits as early as age 60. You don’t have to wait until age 62 to file for survivor benefits. We do have something called the earnings restriction meaning that if you’re under your full retirement age or under age 66 currently let’s say, there are restrictions on how much you can earn from wages and self-employment and get all of your benefits.
Currently it’s $15,480. If you are age 60 and you wanted to file for survivors benefits off your deceased husband and wife’s record, you could go ahead and do that however you would be that from that point forward restricted to making the $15,480 and getting all 12 of your survivors checks. If you’re age 60, let’s say you did have a deceased spouse, you could go ahead and file on that deceased spouse’s record and you’d get 71 ½% of their benefits for the rest of your life theoretically.
Here’s some really good things that you can do with that. This is a way you can maximize your benefits. Let’s say you decided to do that and at age 60, you filed for survivors benefits and you get a 71 and a half percent of their benefits and then at age 66, you could drop the survivors benefits and then get 100% of your own benefits, or even better, draw the survivors benefits for 10 years, drawn from age 60 to age 70 and then at age 70 drop that 71 and half percent of your deceased spouse’s benefit and then get 132% of your benefit for the rest of your life. Number of ways you can use that to maximize the benefits off of your record or you could even do that at age 66, you could file for 100% of your deceased spouse’s record and then at age 70, drop that and get 132% of your own benefit for the rest of your life.
Very important, also another interesting aspect, with spouse’s benefits, if you’re likely … We were talking about your alive and you’ve gotten divorced from your spouse, we were talking about that you potentially could file for spouse’s benefits off your living current spouse or your living ex-spouse. But if you get remarried, if you’re an ex-spouse and you get remarried, you can’t file on that living ex-spouse’s record. However with survivors benefit, you can get remarried. The key is you get remarried after the age of 60.
If you’re 60 years old so let’s say you’re 60 years old, you’re getting remarried and you had a prior spouse that you have married to either for 10 years and you divorced them or you’re married to that spouse at the time of death and you don’t have to have a 10 year requirement if you’re married to him at the time of death, you’re getting remarried at age 60. You theoretically should go ahead at age 60, get remarried and still go back and file on your previous spouse’s record and get survivors benefits off of their record. The key is is that you remarrying after the age of 60. If you’re getting remarried at the age of 59, you don’t get that option. You wouldn’t be able to file, be remarried and file on a previous spouse’s record. You only get that option if you remarry after the age of 60.
Jason: Let me run this scenario by you. Let’s say somebody out there, 62 and they are widowed and they go in to Social Security demonstration office to file for benefits because they’re ready to retire at 62 and the Social Security administration, are they going to advise that person to consider only taking their spouse or their survivor benefit at age 62 or are they just going to say take your own benefit. In other words, are they going to potentially recommend that the person consider this strategy of suspending their own benefits and only taking their survivor benefit. If they go into Social Security, let’s say their survivor benefit in your example was $715 a month, it would be more than, it would be 25% reduction if they start at 62 so it would be $750 per month.
Kirk: We’ll use that as an example, sure.
Jason: Their survivor benefit is 750 at 62. Their own benefit, the widow’s benefit is 1500. Is Social Security going to say, “Hey Mrs. Jones, only take your survivor benefit of $750 and let your own benefit grow,” or they’re going to say,
“Oh, you know the higher of the two benefits is 1500, you should take that because that gives you the most money today.”
Kirk: They’re going to give the person options. If you came in or you did it over the phone, they basically give you options. They’d say, “Okay you could get $750 as a survivor today or at age 66, as a survivor, you could get we’ll say $1100, or today on your own record, you could get $1500 or at age 66, you could get $2000. Which do you want to do?” We leave it up to the individual to make the choice.
Jason: I guess the only concern I have there is if she’s 62, she wants to retire, they’re telling her, she can get 750 today or 1500 today. It seems like most people would say give me the 1500, not knowing that they have the ability to coordinate both of those benefits. You see what I’m saying?
Kirk: Basically what we say is that you could do that. Basically if you said that, “Hey I’m going to take the $1500 today,” then we would say, “Well then of course you would not be able to take the $1100 at age 66 as a survivor because you’re already getting more money. However, if you took the $750 today as a survivor, at age 66, you could go ahead and get $2000 on your own record.”
Jason: Is that just a restricted application? I guess that’s what I want to make sure of. If people are widowed and they’re out there and they’re going in to file for benefits, we just want make sure that they’re considering two different benefits that they have access to at two different periods of time so 62, maybe take the smaller benefit for a couple of years and then switch to your own benefit at 66 because you’re going to have a lot more money. Would you file a restricted application if you only wanted to receive your survivor benefit at 62?
Kirk: Yes, basically and you don’t even have to say anything. It automatically … The wording in the application itself says I am only filing for survivor’s benefits. There’s nothing extra you even need to put in that so the restriction’s automatically built in. When you file a survivor’s claim, you say, “I am only filing for survivors benefit off of my deceased husband and wife’s record,” so it’s actually built into the application or if you file for the retirement benefit, you say in the application it says I’m only filing for retirement benefit. It already has a built-in restriction already designed into the application.
Jason: That’s great and then the person, do they have to go … Let’s say it’s 70 now, they want to switch over to their own benefit, does the Social Security Administration contact them and say, “Hey Mrs. Jones, you’ve been on your survivor benefit from 62 up to 68 or do you want to switch over now?” Is there any kind of triggering factor that happens that gives a person the opportunity or did they have to know that they have to go in to make that happen?
Kirk: If you’re getting a survivor’s benefit, yes the computer will actually do a calculation. If you’re eligible for your own benefit, it will do a calculation. As soon as you’re eligible for more money on your own record, it sends a letter to the office saying contact this individual. They’re getting survivor’s benefits. They now could get more money on their own record because of the bonus credit. Now then, that having been said, once again we don’t advise the person. If the person was getting $900 a month to the survivor, we simply contact him and say hey today you could now file on your own record and get $950 a month.
Of course though, if you let it continue to climb, at age 70, it will actually even be higher. Which do you want to do? The same thing with a survivors benefits versus your own benefit. We simply give the person options saying you could file for $1500 on your own retirement today and then basically that’ll be the only benefit you’d be on or you could take $750 as a survivor and then get 2000 on your own record at age 66. Which do you want to do? They’re not to go into, although, the person might see it, they’re not going to go into facts and say hey they’re not going to put a pressure on the person saying, “Hey, the better idea is to take 750 now and then take 2000 later on.”
Here’s the simple reason why they don’t do that. Even though it might appear to be obvious to the interviewer that this might be the right method, we don’t know what that person on the other side of the table is going through. Maybe they have terminal cancer, maybe they’re not going to live more than two years and so taking the higher benefit today even though over the course of the lifetime it might not be the best decision, taking that higher benefit today might be the better thing to do. Our people at the office are trained to tell people these are the options you have and not try to guide them in any particular direction. We try to inform people and help them understand what options they have then allow them to make the choice based on their own decisions and their own criteria what they consider to be the most important.
Jason: Yeah, like I said I think you guys are doing a great job. I just know that it can be really confusing for people.
Kirk: Oh definitely.
Jason: Sometimes people need a little bit of guidance on the best thing for them to do and to consider it from a financial planning perspective, to understand the implications. We only have about two minutes, Kirk. I was hoping you would take just two minutes real quick and touch on the GPO, government pension offset and Windfall Elimination Provision.
Kirk: Two very important programs. Basically, this was a program that was developed back in about 1984, 85 and it basically was designed to eliminate the concept of double dipping. Basically if you are a government employee and you have not paid into Social Security for a portion of your working career, let’s say you’re under the old civil service program and there’s fewer and fewer of those people out here. Although I must say many firefighters, many police officers don’t pay into Social Security, they pay into their own programs, if you’re in that situation, potentially you’re not going to qualify for all of your Social Security benefits.
So you go online and your statement says, “Hey, you’re going to get $500 a month and your government employee, you haven’t been paying into Social Security for the last 20 years but you did work and you did qualify get enough credits to qualify for aid benefit, that information may not be completely accurate. It says right in there if you’re going to will be eligible for a government pension that you did not pay Social Security taxes on, potentially, you’re going to be eligible for something called the Windfall Elimination Provision which can reduce what you’re going to get off of your own Social Security record.
Using the concept of GPO or government pension offset, that will reduce or eliminate what you can get off a living spouses or get as a survivor so those are two rules. It only affects a very small portion of individuals, but if you’re a government employee and for a portion of your career, you have not paid in to Social Security, then you very carefully need to look at the situation and understand that even if you go online and your Social Security benefits are saying X, once you are eligible for that government pension that you didn’t pay Social Security taxes on, you may not get all of that money. That’s the guidance I would give. If you’re in that situation, go online and you can just type in on our website WEP or GPO and it will bring up a fact sheet that talks about both these programs.
Jason: Mr. Larson, again, I sure appreciate. You’re a great resource for our community, for our listeners, for people turning in from around the country. I just wanted to say thank you again for taking time out of your busy schedule to help educate our community about these choices they have.
Kirk: Thank you for having me.
Jason: All right, have a good one. Thank you Mr. Larson.
Kirk: Thank you.
Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only and should not be construed as specific facts, legal or financial advice for any individual and does not constitute a solicitation for any securities or insurance products. Please consult with your financial professional before taking action on anything discussed in this program. Parker Financial, its representatives, or its affiliates have no liability for investment decisions or other actions taken or made by you based on the information provided in this program. All insurance related discussions are subject to the claims paying ability of the company. Investing involves risk. Jason Parker is the president of Parker Financial, an independent fee-based wealth management firm located at 1957 Washington Ave. NW., Silverdale, WA. For additional information call 1-800-514-5046 or visit us online at soundretirementplanning.com.