In this episode I’ve compiled 10 years of interviews with Kirk Larson who is a public affairs specialist with the social security administration. Below are some of the topics we cover.
* When should you file for your social security retirement benefits.
* What is the best time to file for social security.
* How early can I file for benefits.
* When will your social security check arrive.
* Mortality rates and life expectancy.
* Social security benefits for disabled or minor children.
* The best way to file for social security.
* How a spouse can qualify for medicare based on your earnings record.
* When is the best age to start social security.
* How the COLA’s benefit people who have not started social security.
* How social security works for people who are divorced.
* Why widows may want to consider the restricted application.
* Who is still eligible for the restricted application.
* Why you might consider suspending your benefits.
Here are the links to the calculators referenced in the video:
1.) https://ssa.tools/
2.) https://opensocialsecurity.com/
3.) https://retirementbudgetcalculator.com/
Transcript:
Announcer: Welcome back America to Sound Retirement Radio where we read new concepts, ideas and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for and transition through retirement. And now here’s your host, Jason Parker.
Jason: America welcome back to another round of Sound Retirement Radio, so glad to have you tuning in to episode number 314, The Ultimate Social Security podcast. This one’s going to be so cool because over 10 years ago, one of the guests that we had brought on to the program over the years is a guy from the Social Security Administration, Kirk Larson. He’s the Western Washington Public Affairs Specialist to really help answer questions.
And over the past 10 years, there have been times in each one of these episodes where there’s always this little nugget of wisdom. And when I’ve wanted to remember what he said about this, that, or the other thing, I’ve always had to go back and try to find this specific episode.
And so what, I did what you’re going to hear today, is a compilation of all of these interviews and I went through and I tried to pick out the best pieces for you. But before we get started, as you know, I like to get the morning started right two ways and the first one is by renewing our mind, and so I’ve got a verse here for us. This comes to us from II Corinthians 12:9: “But he said to me, my grace is sufficient for you. For my power is made perfect in weakness. Therefore, I will boast all the more gladly about my weaknesses so that Christ’s power may rest on me.”
And then of course we’ve got a joke for you to share with the grandkids. Where does pasta go to dance? The meatball. Okay you guys. Hey so one of the reasons this came about, we created this special group called the … It’s a private Facebook group called RBC Nerds. If you go to Facebook and search for RBC Nerds you’ll find it.
The reason that I created it was so we had a place for the retirement budget calculator to get together and share best ideas. Not only how to use the calculator, but to have a great life as you’re preparing for and transitioning through retirement.
And one of the questions that I asked to the group was, “Hey, what’s your favorite Social Security calculator?” And there were actually two that were recommended, and I went and I tested these two free Social Security calculators and found them to be really, really excellent resources. And as a result, I thought, “You know I should do a show on Social Security, put together this ultimate Social Security retirement podcast so that you have all of this wisdom all in one place.”
So if you haven’t checked out, if you are already a member of the retirement budget calculator, if you’ve paid for a subscription, go find RBC Nerds. The only requirement to become a part of the RBC Nerds group is you have to have paid for the retirement budget calculator and agreed to the rules of the group.
And then if you have not yet bought the retirement budget calculator, remember until May 31st, we have a special coupon code that gives you 50% off for life, RBCCARES, all one word, all caps and that’s how you can have access to the retirement budget calculator for 50% off this year and 50% off for life. So if you haven’t checked that out, go check it out. If you haven’t joined us yet as a part of the RBC Nerds community, join us over there. But let’s get into this show and talk about some of these little nuances in Social Security. Okay. Thanks so much.
It is my good fortune to bring Kirk Larson on to the show this morning. Kirk is the Western Washington Public Affairs Specialist, he’s covering Washington, Idaho, Alaska helping educate 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 them on from time to time. And Kirk Larson Welcome back to Sound Retirement Radio.
Kirk: Thank you, thank you for having me.
Jason: Well that’s a great point. I think where see that a lot, Kirk, is when people are delaying taking their benefits until age maybe 70, and so they may not realize that 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.
Kirk: Exactly, exactly.
Jason: Okay, so I’ve got a bunch of questions. These are questions that real people ask us all the time. So the first one is just real simply if, 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 turned 62, when should I file for my benefits? 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: Well interestingly enough for age 62, this is one time where are you have to be a particular age throughout the month.
Jason: Okay, well-
Kirk: So 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 and you’d have to be born on the first or the second of the month.
Jason: 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 continue to consider you to be at that age throughout the entire month. So 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.
Jason: So-
Kirk: So let’s say you did want your benefits to start that particular month, the month you’re turning 66, or 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 on how when we recommend that they should go ahead and file.
If you want your benefits to start that month, you should probably file, I would call … 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 you a particular appointment, but it could take three to four weeks to possibly get you the appointment. So if you want it to start it November, I would call four to six weeks ahead of time asking for the soonest appointment.
Jason: Okay.
Kirk: If, though, you’re filing online, we complete our online applications very rapidly. And if you wanted benefits to start in November, you can file at some time during the month of November. And we typically start those claims, probably approve those claims within about seven to 10 days; so it’s a very rapid process if you’re actually filing online.
Jason: So 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 want it to start in November, you wouldn’t be able to 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.
So 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.
So you would probably file it and then he wouldn’t hear anything for some time. And then, probably during the month of November, when you’re actually due benefits, we would go ahead and approve it then.
Jason: Okay.
Kirk: 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 to your claim, we might actually approve it earlier and then you’d get a letter in the mail saying you’ve been … 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: Okay. And so once I start it, 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 draft [inaudible 00:09:19]?
Kirk: Yeah that’s always a good question. We pay all of our checks one month behind. So if you’re filing and approved for the month of November, November’s check arrives in December. And then December is 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.
So 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, “Ah, I know it’s going to arrive on the 25th.” Because the fourth Wednesday of the month might fall on a different date. So it can fluctuate from month to month slightly.
Jason: And with husband and wife, even though they’re married, they’re still gonna have two different dates where those deposits are made?
Kirk: That’s correct. If they’re filing independently on their own records … You have husband and wife, they’re filing separately on their own records, depending on when they’re born 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: Well I’m so glad you mentioned this, because I’ve learned that retirement is all about cash flow. And, 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. And so there’s an ebb and flow that takes place, so you can’t just assume that 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.
And so 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 coming in, and when’s it going back out; so that’s really helpful.
The next question I wanted to ask you pertains … And 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 what do you think? 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: Well, there’s a few things that Social Security talks about. And the 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 benefit.
What Social Security emphasizes for people is that you should look at some very large concepts and very large factors, allowing us to guide you on when you should file for benefits. And 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 their job, stop working, and don’t need to take their benefits. They can wait because they have other assets, other income they can live on. Maybe they’re going to have a pension, maybe they’re going to take money out of other retirement accounts.
There are many people, though, that if they stopped work, they don’t have a choice. They need that Social Security benefit, they need that money coming in right now. So the number one factor we tell people is when you’re considering filing for benefits is 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 up front, but by filing early, you are taking reductions; you’re not getting your full benefits and eventually those reductions are going to catch up to you.
Now for many people, 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. Thereafter, those cuts that you took catch up to you. And actually would have been a better decision to wait longer rather than filing earlier. And this is the concept of the break even point.
So we tell people if you arrive at 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 the people, are living much longer than we used to.
And the average 65 year old man today, if you make it to age 65, you’re going to live to about age 84. And the average 65 year old woman that lives till age 65, they can expect to live to about age 86 and a half. So you got to take those factors into consideration.
Yes it’s great to have some extra money up front. If you stop work 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 an early, that can actually cost you thousands or 10s of thousands of dollars depending on how long you live.
And 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 till about age 90 or beyond. And 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’ve 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 at that you could at 62?
And so for some people that are higher 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?” And it’s one of the things we’re faced with all the time it’s not just a numbers question.
Kirk: Absolutely. And 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.
So 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. This should be something that you’ve thought about and, hopefully, thought about for a very long time, and factored this in to an overall retirement strategy.
Jason: Yeah. One of 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 age is age 67 now, based on when they were born. And so the question I have to about that, we know that … I think it’s between ’43 and ’54 full retirement age, 1943-1954, it’s 66 as full retirement age. And 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 till 67, and then you only earn 8% per year. So is it that you’re only having the ability to earn 24% in delayed retirement credits if you have that later birthday [inaudible 00:18:29]?
Kirk: Well two things I will address there, and I’ll answer your question first on that and then I want to talk about … 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. Now that it’s important to remember with our delayed retirement credits, or so 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 in 1954 if you’re born in there, you get 100% at age 66 and then we slowly move it up. And then for people born 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 benefits automatically by .66% or 8% a year, but you don’t have to wait a full 12 month period to get all those bonus credits.
So you’re exactly right, we stopped paying bonus credits at age 70. So if you could get 100% at age 66, and you wait till age 70, you get a 32% increase automatically to your payment. But if you don’t get 100% till age 67 and you wait till age 70, that’s only three years, you’re only going to get three years’ worth of bonus credit, you’re only going to get a maximum of an increase of 24%.
Jason: Yeah and that’s a little loophole that I don’t think many people realize, and there’s not a whole lot they can do about it because it’s based on their birthday, when they’re 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 till 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; so that’s just an interesting little nuance. The next thing I wanted to ask you-
Kirk: Oh.
Jason: Oh go ahead.
Kirk: Well with that also it’s important to remember that people don’t get 100% of their benefits until much longer after that. And that group decided to file at age 66 and you can’t get up to 100% till age 67, you actually would also be reduced additionally at age 66. So it’s not necessarily a disadvantage is just 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 as a 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 then getting 100% of your benefit did increase some time ago.
Jason: Yeah.
Kirk: Interesting fact, we are living almost 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: Yeah. 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 that six years. But I guess that’s just splitting hairs, that’s just the way the rules work, and 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 the mortality tables, that’s something you’re talking about how long people live. Social Security, you guys use some mortality tables in all of this right? How often do these mortality tables get updated from the Social Security Administration?
Kirk: Well we do have a team of people that look at that projecting out ages, how long people are expected to live. Interesting thing we actually on our website, 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. How long will I, on average, how long is it expected that I will live?” And it will show you currently the average … Someone born in 1965, on average, how long they’re going to live.
Jason: That’s awesome.
Kirk: And the interesting thing, the longer you live, the higher that number goes.
Jason: Yeah.
Kirk: So-
Jason: The longer you live, the longer you live.
Kirk: That’s right. And the more likely you are to continue living strangely enough. So I mean if you’re putting in that you were born in 1930, you’re what, about age 88 right now? It would probably say, “Well if you 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.” So it will give you some interesting information by visiting our website.
Jason: I’m going to-
Kirk: We have a whole team of people that work on those numbers. If you want to get that information once again visiting our website, best place to go ahead and get that type of information. We do have information on we’re talking about mortality rates, life expectations, 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. 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.
Jason: You know this show, though, is all about retirement, and you brought up an interesting little nuance that I don’t know a lot of people are aware of. I’ve talked to people in the past who had children later in life, and they’re getting ready to file for Social Security. And because their kids are under a certain age, it’s possible that there could be an additional benefit for their children. Would you go ahead and talk for a minute about how that works Kirk?
Kirk: Well, absolutely. If you reach retirement age, or if you become disabled, or if you pass away and you have a minor child … That’s a child that’s under the age of 18, or between the ages of 18 and 19 and still in high school. Or if you have a child that’s become disabled themselves before the age of 22, those are all children that can get benefits on your record.
So if you’re reaching retirement age … And I’ll give you an interesting number here. Let’s say you’re reaching retirement age and you could have gotten $2,000 at age 66. And you file for your benefits early, you file let’s say at age 62. Well as you well know, you take a cut in your benefits, you’re not going to get 100% of your benefits. Your benefits will be reduced by about 25%; you’re going to get $1,500 off of your record.
But if you have a minor child or a disabled child, that child is eligible for 50% of your benefits. But here’s the neat part, they’re not eligible for 50% of what you took, they’re eligible for 50% of the original benefit. Your child would be eligible for 50% of the $2,000 or $1,000 per month.
Jason: Wow, isn’t that amazing? Now the cutoff age is at age 18 then?
Kirk: Well if your child is still in full time attendance in high school … Doesn’t mean that they’re necessarily going to a high school, we have a lot of children that are homeschooled or take other different types of educational paths. But if they’re still in what’s technically considered full time attendance at a high school level between the ages of 18 and 19, they can keep those benefits as well.
Jason: Okay, wow that’s really good to know. I’m going to throw you a curve ball here because this was something that came up recently, and I just want to validate it with you. But the situation, Kirk, was there was a woman who was about to turn age 62, her husband was older than her; he was 68, I believe. He had not qualified for Social Security and Medicare based on his own earnings record, but the understanding that we came to was that because she was turning 62 and was now eligible for Social Security, that that made him eligible for Medicare based on her record. Is that your understanding?
Kirk: That is correct. As soon as he … She doesn’t even necessarily need to file, but she doesn’t need to be eligible to file, meaning … So you hit the nail right on the head there. When she hit 62, she was technically eligible to file; doesn’t matter if he actually does, but she could if she wanted to. And this allows her spouse to file on her record using her insured status to qualify for Medicare benefits.
Jason: Really?
Kirk: And ultimately if she took cash benefits, he might also be eligible for a portion of cash benefits off her record under our spouses’ program.
Jason: See that’s just amazing. See Social Security has so many nuances, so many moving parts it’s hard to wrap your mind around all this, and we really appreciate having an expert like you that can come on the program and enlighten us, and keep us thinking straight here.
Now this next one, you probably hear this one a lot, Kirk, but this is one that we hear a lot. And it’s partly comes from the Social Security statement that we all receive. And I’ll just read to you what my 2016 statement says and then ask you the question that we hear all the time. But it says, “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because by the year 2034, the payroll taxes collected will be enough to pay only 79% of scheduled benefits.”
So the question that we get from that is, “If I’m eligible for Social Security at 62, should I take it as soon as I can because Social Security’s saying that in 18 years they might have to take a reduction, so I better get as much as I can, while I can?”
Kirk: And that is a common question I get too, and I’ll have to give you a little background on this before I answer that question. Today, Social Security’s in pretty good shape. Today not only are we bringing in hundreds of billions of dollars in the form of taxes from wages, but we also have the Social Security trust fund that has about $2.8 trillion saved up in the Social Security trust fund. And as the baby boomers continue to file, we’re going to actually need to start liquidating that that trust fund.
Actually we’re moving into a time period now to where the taxation of people’s wages will not cover all of our benefits that we’re paying out. So that situation they’re talking about having in 2034 is actually happening today. This thing is, though, we have $2.8 trillion saved up in the Social Security trust fund, but now we’re going to have to start liquidating that trust fund to cover the shortfall.
And that will allow us to fully fund the program through the year 2034; that’s our current estimate. And in 2034, the $2.8 trillion will be gone, we would have liquidated all of the trust funds, and at that point, we would only be able to pay 79% of all of our obligation.
Now what I like to emphasize to people here is two things, number one, this could change. If Congress does change the law and changes the way that money comes into the Social Security or the way money goes out on Social Security, that number could be moved backwards. The point is here is that Congress and the President do need to act on this. And so I always encourage people to talk to their Congressmen, their Senators, their President and encourage them to come up with a solution to meet this major challenge.
Jason: Yeah.
Kirk: Now then with that, I also like to emphasize that, of course, Social Security is not going to go away. Many people say, “There will be no Social Security in the future.” Definitely not the reality of the situation. The worst case scenario, we end up at 2034 and where everybody at that point would need to take a 21% cut in their benefit; so that is the worst case scenario. So like I said, talk to your Congressman, your Senators, your President and encourage them to come up with a solution to meet this problem.
Jason: Yeah.
Kirk: Now then your question, if you are somebody saying, “Well I don’t know if the Congress and President are going to come up with a solution.” I think the reality is that we’re going to arrive at 2034 and we are going to take a 21% cut. So your question is, “Should I take my benefits at age 62?”
I always say this, “If you did take your benefits at age 62, you’re going to be taking a reduction right off the top anyways, you’re going to take a 25% reduction there.” And if this does come to pass on 2034, everybody takes a 21% cut, you’re still going to take that 21% cut.
So let’s say you could have gotten $1,000 if you’d waited till age 66, for example, you file at age 62 and you’re only going to get $750, you’re going to take a 25% cut because you’re filing early. Then under the worst case scenario, you arrive at the year 2034, you would then take a 21% cut to your $750 payment.
So you’re right in the short run, you might come out ahead. But in the long run for many people, that larger cut that you would take in the future would be extremely detrimental. So you got to really look at where you are, what your life expectancy is, is it worth it to take those large cuts; a lot of moving parts you need to take a look at.
So I would say for some people that might make sense, but for many people particularly somebody with a longevity on their side, they live well into their 80s and maybe into the 90s, that might be a big disadvantage because you’re going to be compounding a cut on top of another cut.
Jason: Well, that’s great. The next thing I want to ask you about along the same line of thinking here has to do with changes to the law. Because we just saw this happen last year and it was pretty … It kind of caught a lot of us, especially financial advisors that do a lot of this planning for people, kind of caught us by surprise that the law was changed pretty significantly.
And what I’m referring to is the restricted application and the file and suspend strategy that had been available before earlier this year. Would you take a minute and just help our listeners understand how that program works now, especially for married couples with that restricted application.
Kirk: Yeah, I think I’ll mainly talk about the restricted application. The concept of the file and suspend was kind of an interesting one; I’ll briefly talk about that. It used to be that if you wanted to file and suspend your benefits at your full retirement age … So you were 66 and you were saying, “Hey, I don’t want to take my benefits I’m going to suspend them.” The reason that you would want to file and suspend is to allow your spouse to, potentially, file on your record.
And maybe your spouse isn’t going to take their own benefits, maybe they were going to suspend their own benefits as well and not file for them. Your spouse could then file on your record and get some money off your record while both of you are not taking your own benefits and allowing your benefits to increase automatically at the rate of 8% a year. A really good tool, that one has been basically completely all done away with. There is no more real concept of the file and suspend at this point. So that did take one interesting filing option away from married couples.
The other one, the restricted application, does still exist in a limited form. And the restricted application basically said that, “If I reach my full retirement age and I haven’t filed for anything yet so I’m, let’s say 66 years old, and I haven’t filed for benefits yet. Yet my spouse is receiving their benefits.” Once again, it gives you an interesting option.
You could say, “Rather than making my own benefits, I’m going to file and restrict my application to spouses benefits only and get 50% of my spouse’s benefit. And I’m not going to touch my own and I’m going to let my own continue to increase at the rate of 8% a year.”
This does still exist. If you’re born before January 1, 1954, you still have this option and we will continue to see this in the future. So that does exist on a limited sense. However, if you’re born after January 1, 1954, you no longer have that option either.
So this has to deal more with a concept of fairness. A lot of people were saying, “Well, married couples we’re getting this advantage that unmarried individuals did not have.” So Congress went back and evaluated the law how it had been used over the time. It also experienced that many of the people that were using this law were actually very wealthy individuals.
And so the concept came back as, “Why are we subsidizing or giving married couples only this option and, basically, subsidizing individuals that were actually very well off?” Individuals in the lower income and middle income brackets really weren’t taking advantage of the situation simply because, in the short run, they couldn’t afford to give up the full benefits.
Jason: And as I understand, widows can still, regardless of birthday, they can still restrict. Is that true?
Kirk: That is correct. So if you are a widow or widower and you reached the age of 60 years old, for example, you get the option to say, “Hey, rather than taking my own benefits, I’m going to file for survivors benefits.” Or if you were at age 62, you could do the same thing. You could say, “Rather than taking my survivors benefits at age 62, maybe I’ll file for my own benefit, and then maybe at my full retirement age switch over to the program.” So that program of survivors benefits you can move back and forth … Well not back and forth, but you can move from one to the other at a later date.
Jason: Okay. Hey for our listeners-
Kirk: For those you do have the right.
Jason: Kirk I wanted to ask you, and I want to get to this before we run out of time, but what’s the best way for people to file Social Security and what’s the best way for people to contact Social Security if they have specific questions?
Kirk: Absolutely. There are several different ways you can get information from Social Security. You can call our 800 number, which is open from seven in the morning till seven at night and that’s 800-772-1213.
Jason: And what’s the best time of day, Kirk-
Kirk: Or-
Jason: Just … What’s the best time of day? Because I’ve had people tell me they sat on hold for an hour when calling in.
Kirk: Yeah. And if you’re calling probably between 10:00 and 2:00, 10:00 in the morning till 2:00 in the afternoon so is the rest of the country; those are probably the busiest times. So I recommend that people that you call at 7:00 in the morning, 7:30 in the morning; not everybody knows that we’re open. Or call at 6:00 at night, we’re open from 6:00 p.m. to 7:00 p.m. So those are some better core hours to be able to be able to call people.
But you are right, if you’re trying to call midday, 10:00 to 2:00, there is a chance that you’ll be on hold for an hour or more. Now that we always do get the call if it appears you’re going to be on hold, we do allow you to do the option of a call back. We’ll basically say, “If you’re going to … You might be on hold for an hour, if you’d like us to call you back at a later time, please let us know and we will call you back so you don’t have to sit on hold.”
Jason: Okay and then .
Kirk: Good options there.
Jason: What about the best way to file?
Kirk: Best way to file for benefits is online. If you go to our website, you can set up a My Social Security account. And the My Social Security account is important because it’ll show you what your future benefits are going to be, and it’ll allow you to review your work records; so very important things to do.
And you can then, after you have the My Social Security account, you can file for retirement benefits, disability benefits, spouses benefits, Medicare benefits; you can do all that right online. And after you have the My Social Security account, and you’re on benefits you can actually directly interface with Social Security. And in the future, if you need to change an address, change your phone number, change your direct deposit, get a replacement 1099 form, or get a benefit verification letter, or here’s two other cool things you can do if you have the account.
You can also get a replacement Medicare card if you lost your card or you can get a replacement Social Security card. You don’t have to come into an office, you don’t have to call us, you can do all those things right online after you get to my Social Security account.
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 so.
But this is for … And I want to emphasize this, this is for current spouse, of course. Meaning that if you’re a divorced spouse, the rule is slightly different. So I maybe confuse this a little bit more but so for 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 find on my record. But if it was a divorce situation, my ex-spouse does not have to wait for me to file.
Jason: So she can file.
Kirk: Right.
Jason: It’s a husband 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 retire- … 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.
Jason: Okay.
Kirk: 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 dollars would be reduced because she’s filing early for that money. So they can do that, but they just won’t get the full benefit.
Jason: Okay.
Kirk: Theoretically … Well there is one 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. And now you reach the age of 66 and you say to yourself, “You know, that was a bad idea for me to take my benefits early. Sure I got the check, but I’m reduced and 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 credit, not on your 100% of your benefit, but on the smaller portion of your benefit.
Jason: Okay. All right, so it gets-
Kirk: That is the one-
Jason: One way.
Kirk: It could. That’s a very, very unusual situation. I in my 24 year career, I’ve seen one person do that. But that was the only scenario where we could see file and suspend might be an option for someone.
Jason: Oh, I was just going to-
Kirk: Oh, go ahead.
Jason: I was just going to say I understand, too, that those are in today’s dollars. You guys don’t take … On those estimates, they’re not including any future cost of living adjustments are they?
Kirk: That is correct, they are in today’s dollars. That’s a common question that we get. So if you’re age 50 and you’re looking at what you’re going to get at age 62, we are saying that that isn’t in today’s dollars; that’s what you would get if you were 62 today. So very good point on that. We do not try to project what future cost of living increases would be.
Jason: Okay.
Kirk: So, of course by design, if you were age 50, by the time you were reached age 62, that benefit would be higher because of the cost of living increases.
Jason: Okay, great.
Kirk: You did bring up another interesting point that I like to point out to people when they are looking at that, though. That statement does make one very big assumption. Let’s say you are age 50 and you’re looking at that what you’re going to get at 62 or at age 66. When it says this is what you’re going to get, it’s assuming that you’re going to continue to work all the way to at least age 62 making what you’re making today.
So if you’re age 50 and you’re making $60,000, it’s assuming you’re going to work another 12 years making $60,000 a year; that’s how it comes up with that projection. If you were to stop work right there at age 50, or you were to change your work pattern, you went to part time work went from making $60,000 down to $30,000, then that estimate actually will change.
Jason: Okay.
Kirk: So, it’s making one big assumption when it’s telling you that. We do have another tool at our website called the online retirement estimator that will actually allow you to run different scenarios to see what your future benefits might look like if you’re going to change your work pattern.
Jason: Okay. Well I think that’s a great tool, but I wanted to ask you a little nuanced question here regarding people who have been divorced and never remarried. Is there any way for them to get a feeling for what the benefit would be based on their ex-spouse’s earnings record by visiting the Social Security website?
Kirk: In that situation, that is a question we get, unfortunately you would not be able to get an idea of what the benefits would be on a divorced spouse. Divorced spouses or your current spouse, for that matter, have privacy rights. And so then you do not have access to their records or the ability to get an idea of what you may qualify for on their record.
Jason: So how do you-
Kirk: So that is protected information.
Jason: How do you, if you’re trying to do some planning for how much benefit you’re going to get you’ve been divorced, is there any way for people to make estimates about what they think? Or they just have to wait and it’s like a crackerjack box, they get to see what the surprise is when they go in and file for benefits when they’re ready for retirement?
Kirk: Well I always tell people that will ask that question, number one remember with spouses’ benefits, generally it’s not going to give you that much money. So if your own benefit … And I’ll say, “If your spouse was an extremely high wage earner and over their working career they made like $100,000 a year for almost every year that they worked, their maximum benefit’s going to be somewhere around maybe $2,600 per month. The most you could get off of their record would be about $1,300 dollars per month.
If your own benefit’s already going to be more than $1,300, it doesn’t really matter, because you’re not going to get anything off of their record off of your living spouse’s record. Because spousal benefits only gives you up to 50%. And if your spouse was less than a maximum wage earner, the benefit’s going to be less than that.” So I always tell people, “Look at your own benefit, if your own benefit’s already over $1,300 at your full retirement age, generally, you don’t need to worry about spouse’s benefit.”
Jason: Kirk if somebody walks into the Social Security Office and they’re trying to figure out … Let’s say they’re a married couple and they’re trying to figure out the best way for that married couple to coordinate their benefits between any spousal benefit that’s available and then their own working benefit, does the Social Security Administration give people advice on the best way to claim Social Security?
Kirk: Very good question. We do not give people advice on what type of benefit to claim or how to maximize their particular benefit. Social Security, when you go into an office, they will give you straight facts on what your choices are.
So if you came in and we would say, “Hey, you could file today and this is how much your benefit would be. Or you can file at 62 and this is how much your benefit would be, or you could file at age 66, for example, and this is how much your benefit would be.” That’s basically all our technicians are there to do. We’re not financial advisors, we’re not financial consultants. We don’t know all the other factors that contribute to you making that decision on when to take your Social Security benefits. That’s why we encourage people to go to financial advisors.
Now I do need to say, even though I’m on your show today, we don’t endorse any particular financial advisors. What we do endorse is people going out and getting financial advice on how to maximize, just not their Social Security benefits, but how do Social Security benefits play into your overall retirement strategy?
So we do encourage people to go out and seek that information, we don’t endorse any particular avenue of getting that information. But Social Security people in our offices are not there to go ahead and provide that type of information; they simply provide the option.
The number one question that we get when people come in, and it’s one that we really can’t answer because it’s more of a philosophical question, “When should I file for my benefit?” That’s probably the number one question that people come in, and it’s actually kind of a disappointing question. You would hope by the time people are getting close to their retirement age, they would have had a strategy that they’d been working on for many years to understand when they should actually file for their benefit.
Jason: Yeah.
Kirk: So, it’s not a question of what’s the technical aspect of this, but what is the best way for me to get the most out of my Social Security benefits? And it’s really not a question that we can answer. And it actually turns right back around to, “You should seek some financial advice from financial advisors to help you understand what the implications are of, just not taking your benefit, but do you have enough to make it through retirement for the next 20 plus years?”
How does Social Security work into that strategy, and it’s not a question that we can readily answer. We can certainly say, “The best way to file to actually get it for the technical purposes.” But get that philosophical idea of when should each individual file for the benefits is an individual choice.
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Investing involves risk, Jason Parker is the President of Parker Financial, an independent fee based wealth management firm located at 1957 Washington Avenue Northwest, Silverdale, Washington. For additional information, call 1-800-514-5046 or visit us online at soundretirementplanning.com.
