Jason interviews Kirk Larson about recent changes in Social Security.
Kirk Larson is the Washington Public Affairs Specialist for the Social Security Administration. He has worked with the agency for over 24 years in both technical and supervisory roles. Kirk has presented Social Security information in both the Seattle and San Francisco Regions. He has had numerous articles published and has appeared on TV and radio shows to discuss Social Security issues. He has received several awards for his public service and outreach efforts.
To learn more please visit 2016 Social Security Changes
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.
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The next thing I want to do is just share with you a quick joke. This is really for those of us living in Washington, and a couple of the ways you know that if you are truly a Washingtonian. Number 1, you use the statement “sun break” and know what it means. Number 2, you know more than 10 ways to order coffee. Number 3, you know more people who own boats than air conditioners. You know the difference between a chinook, a coho, a chum, a pink, and a sockeye salmon. You consider swimming an indoor sport. You have actually used your mountain bike on a mountain. You think people who use umbrellas are either wimps or tourists. There you go.
Folks, you’re listening to episode 84, changes in Social Security. It is my good fortune to be able to bring Kirk Larson back on to the program. I’m going to give Kirk a proper introduction here. Many of you may have not have heard him on past episodes, but Kirk Larson is the Washington public affairs specialist for the Social Security Administration. He has worked with the agency for over 24 years in both technical and supervisory roles. Kirk has presented Social Security information in both the Seattle and San Francisco regions. He’s had numerous articles published and has appeared on TV and radio shows to discuss Social Security issues. He has received several awards for his public service and his outreach efforts. Kirk Larson, welcome back to another round of Sound Retirement Radio.
Kirk: Thank you, Jason. Always a pleasure to be on here to provide people information about Social Security. Thank you very much for having me.
Jason: Absolutely. Your programs are always well-received. Kirk, we’ve got a topic that we need to get into, because back in November of 2015, Congress changed some significant rules regarding claiming strategies for Social Security. I was hoping you could just enlighten our audience and share with them what happened and how it’s going to impact people’s lives going forward.
Kirk: Certainly. Certainly. There’s a big topic, one that really snuck up on people. This wasn’t something that was really publicized, and it was kind of a wakeup call to us too. We didn’t know that this was coming down the line. This was actually part of the Bipartisan Budget Act of 2015. In this 2 year budget act that they were working on, they put in a number of small tweaks to Social Security. It’s kind of really interesting actually. In the budget itself, there was just a little bit about the budget and there was a whole lot of different little things that they did to Social Security. There were 2 major ones that really affect the public. There were a few things that happened behind the scenes that affect the way that we do business, but it really didn’t affect the public.
I want to focus in on the 2 big ones that affect the public. It’s the concept of what people may have heard of as something called file and suspend. People out there may have heard you have this option of file and suspend. I’m going to explain what that is and what it was used for, and then I’m going to explain what happens to it, where is it going away. Then I’ll talk about the second issue here.
Basically the file and suspend was this. Your listeners may know that if you waited until age 66 or your full retirement age, you had a very interesting option. You could go ahead and say, “Hey, rather than taking my benefits now,” and at age 66 for many of your listeners, they could probably get 100% of their benefits at age 66. Rather than taking your benefits, you can wait all the way up till age 70 if you chose and earn bonus credits. You can actually get more than 100% of your benefit.
However, if you didn’t activate your benefit, and you had a spouse, then your spouse wouldn’t have been able to claim on your record. A lot of people said, “Hey, I want to get the bonus credits, but I would like to allow my spouse, who may be able to get some additional money on my record, I would like to allow them to file on my record.” People would file and then immediately request that their benefits be suspended so that you could go ahead and earn these bonus credits, about 8% a year or a really good return on your investment there on Social Security, and your spouse could file on your record.
I’ll give you a scenario here. I’m eligible to get $2,000 at age 66. I said, “Hey, I don’t want to do that. I’m going to file and suspend, and my benefits will continue to increase at the rate of 8% a year, so that by the time I reach age 70, I won’t get $2,000 a month. I would get a 32% bonus, so I would get $2,640 per month by delaying taking my benefits for 4 years.” Great option. That’s not changing. You can still do that. However, by filing and suspending, my spouse, who may be eligible for some benefits on my record, would then be able to file on my record while I’m not getting a monthly check and claim up to 50% of my benefit.
If my spouse, let’s say she had not worked or she had worked very little, she could go ahead and file on my record and could claim up to 50% of my $2,000. Doesn’t lower my benefit. This was just a side benefit. If she hadn’t worked and she was 66 years old, she could get $1,000 off of my record, or if she had worked a little bit and she was only going to get $800 on her own record, she could file on my record and the $800 gets subtracted out of $1,000 that she could have gotten, so she ends up getting $800 off her own work record and then an extra $200 off of my record.
Jason: Kirk, I just want to clarify there too. The reason that that was possible in the old rules was because the husband had activated his benefit by filing and then putting them into suspense, but now …
Kirk: That is exactly correct.
Jason: Now under the new rules, what my understanding is that she’s basically lost that ability, right? Until he’s actually activated his benefits, she can’t claim the spousal benefit. Is that right?
Kirk: That is correct. Now I want to separate this out here so your listeners don’t get confused. That’s correct. Basically in that situation, I’m eligible for the $2,000. Now under the new rules, I would actually need to file and take my benefits before my wife could file on my record. This also goes both ways. If my wife was filing for benefits, the $2,000, and I had the lower benefit, I would have to wait for her to file. This is for, and I want to emphasize this, this is for a current spouse of course, meaning that if you’re a divorced spouse, the rule is slightly different. I’m going to maybe confuse this a little bit more. For a current spouse, yes, under the new rules, I will need to have filed for my benefits and start receiving my benefits before my current spouse can file on my record, but if there was a divorce situation, my ex-spouse does not have to wait for me to file.
Jason: She can file. If it’s a husband and wife and they’re divorced, and the wife wants to file based on her husband’s earnings record, she can do that. She doesn’t have to wait for him to file for benefits before she becomes eligible for that spousal benefit, but she still has to be full retirement … Does she have to be full retirement age to be eligible for a spousal benefit?
Kirk: She does not have to be eligible. She does not have to be full retirement age in order to get the spousal benefit. That’s both for married and divorced spouses. They do not have to be at full retirement age. Now then that example we just used, I’m eligible for $2,000, so my spouse is eligible for 50% of that or $1,000. Of course, if she’s filing early, she’s not going to get the full $1,000. The $1,000 would be reduced because she’s filing early for that money. They can do that but they just won’t get the full benefit.
Jason: Okay. There also used to be a provision, Kirk, where we would talk about the restricted application, where you would restrict taking your own benefit to receive just a different benefit, your spouse’s benefit maybe.
Jason: How has that changed or how has that been impacted?
Kirk: Yeah. That is the second change. Actually, I think this is going to be more impactful than the losing of the file and suspend. The file and suspend option, while it sounded very interesting, was actually used by a very small portion of people that actually filed for benefits. This one, the [crosstalk 00:10:28].
Jason: Actually, before we go on to the second one here.
Jason: I know there’s a big deadline coming up that we want to make sure our listeners know about, but the Social Security as I understand, there was a little bit of a provision here to allow people that are currently full retirement age to still use the file and suspend, but it’s going away pretty soon. Can you give us some timelines on that?
Kirk: Yes. It goes away as of April 1.
Jason: April 1?
Jason: Okay, so April 1 is the last day that you have the ability to file and suspend, but that’s only if you’re currently full retirement … You have to be full retirement age to be able to file and suspend.
Kirk: That’s correct. You have to be full retirement age in order to file and suspend. You’d have to be in a very unique situation. You’d have to be over the age of 66 by April 1 and not have already activated your benefits. That’s a very small group that we’re referring to here. By doing that, if you did that, you preserve your spouse’s right to potentially file on your record. Even if your spouse can’t file on your record right now from what we understand, and when I say from what we understand, while Congress passed this regulation, we actually haven’t written the full rules to go ahead and govern this particular policy.
Jason: I see.
Kirk: We’re expecting that if you file and suspend by April 1, and then let’s say a year from now your wife finally is of age where she can file for benefits or he can file for benefits, their right will be preserved by you filing and suspending as of April 1. However, we cannot guarantee that because the regulations … Congress passes these laws. Then we have to write the regulations. Those regulations actually haven’t been written yet, since this came up so quickly. We are still in flux on this situation, but we expect that that’s the way it will go. I want to say this upfront. I am not completely sure, because I haven’t actually read the policies to govern this particular [late law 00:12:40] law yet because we are still writing them.
Jason: One other thing too that I think our listeners should understand from the file and suspend. One of the advantages of doing that was being able to go back and request the lump sum at a future point. That’s now, because the file and suspend is gone, that’s gone now as well, right?
Kirk: That is correct. That was a great option that if you file and suspended, and then let’s say you’ve reached the age of 70 and you said, “Hey, I’d like to go back, and I don’t want the bonus credits. Don’t give me those bonus credits, but I would like to get [48 00:13:13] checks at, for example, $2,000. I’d like you to pay out all those checks at one time.” That was another great benefit of this particular policy that’s going away. After April 1, we actually don’t see any reason that anybody would actually want to file and suspend in the future really.
Jason: Yeah, yeah, they’re going to lose …
Kirk: [crosstalk 00:13:39]. The benefits of it are going away.
Jason: There is no ability to file and suspend after April 1, is there?
Kirk: Theoretically there is 1 scenario where this could come up, where it might be beneficial for someone to file and suspend. We will still have it. It’s just losing most of its value, but you could still do this. Let’s say you started your benefits at age 62, and you took your reduction in your benefits, about a 25% reduction. Now you reached the age of 66. You say to yourself, “You know, that was a bad idea for me to take my benefits early. Sure, I got the checks, but I’m reduced. I could be living well into my 80s. I’d like to have a larger Social Security check.” Theoretically, you now that you’re age 66, you can request to have your benefits suspended and earn the bonus credits not on your 100% of your benefit, but on the smaller portion of your benefit.
Jason: Okay. All right, so it could still be in play.
Kirk: That is the one … It could. That’s a very, very unusual situation. In my 24 year career, I’ve seen 1 person do that, but that was the only scenario where we could see file and suspend might be an option for someone.
Jason: Okay. The next one is the restricted application. We were just getting ready to transition into that. Go ahead and tell our listeners what’s going on there and why you think that’s going to have a bigger impact.
Kirk: Yeah, the restricted application was a really interesting idea. Once again this has to do with spouse’s benefits. I’ll use that scenario again. I’m eligible for $2,000 on my record and my wife is eligible for $2,000 on her record. It really doesn’t matter when I file for my benefits. I file for my benefits, and let’s say I’m eligible for $2,000. My spouse now reaches her full retirement age, age 66, and she hasn’t filed yet. This is critical point number 1. She has not filed yet, so she reaches age 66. If she’s waited till age 66, she had the option of saying, “Rather than taking my $2,000, I’m not going to do that. I’m going to go ahead and file on my spouse’s record. I’m going to take 50% of my spouse’s benefit. Rather than taking my $2,000, I’m going to file on my spouse who’s …”
Let’s say I’m getting $2,000 a month. She’s eligible for 50% of that. She gets $1,000 per month. She could have taken $2,000 but she elects to take $1,000. Why would you ever want to do that? Simple. Her own $2,000 benefit which she did not take is increasing at the rate of 8% a year. Then at age 70, she could drop the $1,000 that she’s getting on my record, activate her benefit, and now she gets $2,640 per month. It was a really good option for people to maximize their Social Security benefits and get some money as a spouse. That was actually the option that was used a little bit more than the file and suspend. This is still kind of the concept of file and suspend, except there’s no suspending. I actually took my benefit, and that’s what gave my spouse the right to file on my record, because I actually activated my benefit. I didn’t suspend them.
This is how this works now. If you turned 62 before January 1 of this year, you still have that option. Now you can’t use that option till you’re at your full retirement age, so if you turned 62 in December, you wouldn’t be able to use this option unless you waited until age 66 and you hadn’t filed for benefits. But you still have this option. If you turn 66 after January 1 …
Jason: 62 or …
Kirk: … of 2016.
Jason: 66 or 62?
Kirk: I’m sorry [crosstalk 00:17:52]. If you turn 62 after January 1, 2016, you no longer have the right to claim that benefit. It’s created 2 … We basically grandfathered people in that were already age 62.
Jason: People who were born before January 1, 1954, they’re still going to be eligible for the restricted application. People who had already filed and suspended, they’re not going to have that taken away from them. If they currently have their benefit in suspense, they can still do that. When it comes to the restricted application, if you were born January 2, 1954 or later, you’re out of luck with the restricted application. If you’re not full retirement age or you haven’t filed and suspended, you only have until April 1 and then people are going to lose that opportunity completely, if I understand what you’re saying here.
Kirk: You are exactly correct.
Jason: Kirk, as I look at this, these changes really significantly impact married couples, because it doesn’t really impact singles as much.
Kirk: It doesn’t impact singles and it doesn’t impact divorced spouses as much. You are correct.
Jason: How about for widows? Is there any impact on widows?
Kirk: Very good question. That’s one of the common questions I’m getting when I’m going out to the public and talking to them. It does not impact survivors benefits at all. The regulations that were used for survivors benefits still remain in effect, meaning that you could file for survivors as early as age 60 and get survivors benefits, and then later on switch over to your own record if you wish.
Jason: Kirk, this caught you guys by surprise over there at the Social Security Administration. It had a really negative impact for married couples. That’s who I see impacting the most. Why do you suppose Congress decided to put their sights on married couples and take benefits away from them more than anyone else?
Kirk: It was basically this ended up being an unintended loophole that was created with a law that was passed back in 2000. This concept of being able to do this didn’t exist until the year 2000, and it really didn’t come into use until a few years after that when people detected this loophole. The law that was passed was the Senior Citizens’ Freedom To Work Act of 2000. It focused on eliminating certain restrictions to allowing older individuals to continue working and getting their Social Security benefits. However, it created these 2 loopholes that just happened to be for married individuals.
Actually it’s not penalizing married individuals. It’s putting people back on to the same footing. It’s taking away an unintended loophole that was created back in 2000 and putting basically single individuals back on to an even footing with married individuals that this loophole was created that … While a lot of people weren’t taking advantage of it, we wanted to put back a concept of fairness than 1 person works, 1 person should qualify for benefit. We also noticed that primarily very wealthy individuals were the only people that were actually taking advantage of this loophole because they had the financial means to say, “Hey, rather than both of us needing to file for our benefits, only one of us will do that and we’ll allow one of ours to increase in value while we’re still getting more money.”
Jason: Kirk …
Kirk: It ended up giving … Actually it ended up giving married individuals an unfair footing compared to single individuals who of course wouldn’t have this type of option to get this extra bonus money.
Jason: I know that you there at the Social Security office, especially with something like this, you’re just implementing what Congress passes. It’s not like you guys are changing the rules. You’re just saying, “Okay, Congress made a new law and we’ve got to implement it,” but do you think Americans should be thinking that wealthy individuals may experience more means testing or possibly other reduced benefits in the future just as a result of where we’re at? We only have about a minute to answer that one.
Kirk: Yes. Just a minute to answer that question, that’s a pretty big question. I will say this. Of course, Social Security does face some financial insecurity going into the future, which is a whole other topic for a whole other show. There will be a number of different potential ways to ensure that Social Security stays solvent throughout the century. Means testing, while that has been proposed as an idea, I can say that in Congress that hasn’t gotten very much traction at all. There are some other different regulations on restructuring Social Security payments and taxation that are probably more appealing and more appealing to the general public. I would say if you had somebody that was concerned with the concept of means testing to restrict Social Security payment, that’s probably a little bit further down the line than some of the other different ideas that Congress is considering to make sure that Social Security says solvent through the end of the century.
Jason: Okay. It is an election year, and we’re hearing a lot of different ideas thrown out there of course. Kirk Larson, I just wanted to say thanks again for being a guest on Sound Retirement Radio this morning.
Kirk: Thank you so much. I look forward to coming back.
Jason: Absolutely. For our listeners, remember retirement’s all about cash flow. You’ve been listening to episode 084. You can read the transcript or download this program online. Until next week, this is Jason Parker tuning out.
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