Jason interviews Kirk Larson about Social Security planning.
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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 visit www.ssa.gov
Below is the full transcript:
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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: America, welcome back. Thank you so much for making Sound Retirement Radio your place, your destination, for expert retirement advice. You know, with Thanksgiving upon us, I just wanted to say how grateful I am to you, our listeners, that we get to share life together. I love to get these opportunities when some of you reach out to us, ask questions, or you just let us know that the information we’re providing for you is helpful. That really means a lot to me. It’s hard to believe we’ve been doing this, I’ve been doing this for seven years now. You’re listening to episode 116. I’m bringing Kirk Larson back onto the program from the social security administration. You’re going to love this episode.
Before we get started, as you know, I think one of the best ways we can start the morning is by renewing our mind and so I’ve got a verse here for us from the Bible. Hebrews 12:28 says, “Therefore, since we are receiving a kingdom that cannot be shaken, let us be thankful, and so worship God acceptably with reverence and awe.” With reverence and awe. Then of course I like to give you a joke, something you can share with your grandkids if you’re going to get to spend some time with them this week and so I’ve got one here for you. In the spirit of Thanksgiving, why can’t you bring a turkey to church? Because he’ll use foul language. Foul. All right, think about it.
Okay, so episode 116. I’ve got Kirk Larson on the program. Kirk is the Western Washington public affairs specialist for the social security administration. He’s been with us on the program several times over the years. Kirk Larson welcome back to another round of Sound Retirement Radio.
Kirk: Good morning. Glad to be here.
Jason: How’d you like my joke this morning?
Kirk: You got to give me a second. I’m still thinking about that turkey joke. I’m wrapping my mind around that one.
Jason: Foul. Okay. All right, Kirk. We’ll start out, I’ve got a bunch of questions. Most of these are questions that I hear from people all the time as we’re helping them with the financial planning process, so I’m just going to relay them to you. Before we get going, I know that social security has a new public awareness campaign out there. Will you tell us a little bit what that’s about and then we’ll link in the show notes for our listeners.
Kirk: Yeah, we have a new video out that’s on our website, www.socialsecurity.gov, and it’s called Life’s Journey. Most of the time when you say social security, out in the public or you’re talking to someone, you say social security, people automatically think of retirement benefits but we like to remind people that social security is much more than just about retirement benefits. It’s really a program that touches you throughout your life. From the point that where you’re born and you get a social security number and now most people when they have a child, the child’s given a social security number right there at the hospital. It’s all taken care of. As you grow up and begin your first jobs, you’re working and paying into social security.
Then the programs there really to protect you and your family. Protect you with disability benefits. Protect your family with survivors benefits if something should happen to you. Then ultimately, yes, as you reach retirement age it’s there to protect you from the loss of income because you can no longer work you start to draw those retirement benefits, and ultimately receive Medicare coverage. Social security, we want people to understand that it’s only fair, you’re paying into the program throughout your life, you should be able to derive some benefits and millions of people do draw benefits from social security before reaching retirement age.
Jason: All right. Very good. It’s interesting to me though. Why do you feel like the social security needs to educate our population about the different ways that social security impacts us? I mean are they concerned that social security’s on the chopping block and you guys are trying to protect what you do there or what’s the purpose behind it?
Kirk: Well we always want to put social security in a good light. It is an important program that people can draw upon throughout their lives. A lot of people forget that today in this country we have over 9 million people that receive social security, disability benefits. We have about 4.5 million people that draw survivors benefits and about 2 million children that receive survivors benefits. We just like to remind people that social security is there to protect them throughout their lives and understand that the program does have a value beyond social security retirement benefits.
Yeah, there’s that element, keep that in front of people’s minds as they look to, people look at the 6.2% coming out of their paychecks and say, “Why am I paying this? Why should I be paying this?” Unfortunately a lot of millennials say I’m never going to qualify for benefits at some point in the future, we want them to understand that from the very first moments when you start paying into social security, you’re deriving a benefit from this program and it’s just not about retirement. It’s about much more than that.
Jason: Okay. Very good. 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: Oh, 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.
If you’re reaching retirement age, 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 would 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. 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 cut off age, is that age 18 then?
Kirk: Well if the 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 home schooled 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. That’s really good to know. I’m going to throw you a curve ball here because this is something that came up recently and I just want to validate it with you. 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 an 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. She doesn’t even necessarily need to file, but she does need to be eligible to file. Meaning so you hit the nail right on the head there, when she hits 62, she was technically eligible to file. Doesn’t matter if she actually does but she could if she wanted to, and this allows her spouse to file on her record using her insured status to quality for Medicare benefits. 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. 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 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.”
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: That’s a common question that I get too and I’ll have to give you a little background on this before I answer that question. Today social security is 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. As the baby boomers continue to file, we’re going to actually need to start liquidating 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.
That situation they’re talking about happening in 2034 is actually happening today. The 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 shortfalls. That will allow us to fully fund the program through the year 2034. That’s our current estimate. In 2034 the $2.8 trillion would be gone, we would have liquidated all of the trust fund, and at that point we would only be able to pay 79% of all of our obligations.
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 of 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 Congressman, their Senators, their president, and encourage them to come up with a solution to meet this major challenge. 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. Simply not the reality of the situation. Worst case scenario, we end up at 2034 and everybody at that point would need to take a 21% cut in their benefits. That is the worst case scenario.
Like I said, talk to your Congressman, your senators, your president, and encourage them to come up with a solution to meet this problem. Now then your question though, if you’re somebody saying well I don’t know of 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. 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 then, 2034 everybody takes a 21% cut, you’re still going to take that 21% cut.
Let’s say you could have gotten $1,000 if you waited until 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 earlier. Then, under the worst case scenario, you arrive at the year 2034, you would then take a 21% cut to your $750 payment. 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. 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. I would say for some people that might make sense but for many people, particularly somebody with longevity on their side, they live well into their 80s and maybe into their 90s, that might be a big disadvantage because you’re going to be compounding a cut on top of another cut.
Jason: That’s great. The next thing I wanted 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 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. What I’m referring to is the restricted application and the file and suspense strategy that had been available before, earlier this year. Would you take a minute and just help our listeners understand how the 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. 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. That did take one interesting filing option away from married couples. The other one, this restricted application, does still exist in a limited form. The restricted application basically said that if I reach my retirement age, 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 can say rather than taking my own benefits, I’m going to file and restrict my application to spouse’s benefits only and get 50% of my spouse’s benefits 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 your born before January 1, 1954, you still have this option and we will continue to see this into the future. That does exist on a limited sense. However, if you’re born after January 1, 1954, you no longer have that option either. This had to do more with a concept of fairness. A lot of people were saying married couples were getting this advantage that unmarried individuals did not have. Congress went back and evaluated the law, how it’d been used over the time with it also experience 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 this situation, simply because in the short run they couldn’t afford to give up the full benefits.
Jason: As I understand widows can still, regardless of birthday, they can still restrict, is that true?
Kirk: That is correct. If you are a widow or widower and you reach 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 benefits and then maybe at my full retirement age, switch over to the program.” Yes, 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: Those you do have the right.
Jason: Thank you Kirk. For our listeners out there, I want to remind you of a couple things. First of all, from a financial planning standpoint we take a unique approach to how to maximize social security. If you visit the website soundretirementplanning.com, you can actually download a chapter from my bestselling book on some of the strategies financial advisors think about as we’re helping people optimize social security. Just a reminder that that’s available to you. Then also, to let you know, we do have a webinar coming up in December. We’ll have all the links on there for you as well if you’re interested in attending the webinar for this year.
Kirk, I wanted to ask you, and I want to get to this before we run out of town, 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 7:00 in the morning until 7:00 at night and that’s 800-772-1213.
Jason: What’s the best time of day, Kirk? What’s the best time of day because I have 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 until 2:00 in the afternoon, so is the rest of the country. Those are probably the busiest times. I recommend to people, you call at like 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 call people. You are right. If you’re trying to call mid-day, 10:00 to 2:00, there is a chance that you’ll be on hold for an hour or more.
Now we always do give 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 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. There are some good options there.
Jason: Okay. 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 will show you what your future benefits are going to be and it’ll allow you to review your work record. Very important things to do. You can then, after you have the my social security account, you can file for retirement benefits, disability benefits, spouse’s benefits, Medicare benefits, you can do all that right online.
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 a 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 the my social security account.
Jason: All right. Folks your listening to episode 116. I want to remind you that we archive all of these programs for you online. We also transcribe them for you so if you need to go back and just read a specific section of the interview. We have Mr. Kirk Larson on the program with us today. The Western Washington public affairs specialist for the social security administration sharing with us his knowledge and wisdom on how this program works and how it can really benefit you. Kirk, we only have a minute left, but in this minute, one of the benefits of social security is the taxation of it. Do you want to speak just real quickly on the taxation of social security?
Kirk: Absolutely. It’s important, and I’m sure financial advisors always advise people on this. When you’re reaching retirement age, not only do you need to have money for food, shelter, clothing, and fun, but you might also need to put some money aside for tax purposes. Yes, social security benefits are taxable at the federal level. Today, actually, about 40% of all people receiving benefits do pay some form of income tax. However, there are limits. If you as an individual, you’re filing individually and you’re under …
Jason: We only have 10 seconds.
Kirk: Go ahead and go to our website and find out more about taxable benefits for social security benefits. Very important to understand this fact.
Jason: We’ll put a link in the show notes. Kirk, thank you so much for being a guest on the program today.
Kirk: Thank you.
Jason: Take care.
Announcer: Information and opinions expressed here are believed to be accurate and complete, for general information only and should not be construed as specific tax, 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 9057 Washington Avenue Northwest, Silverdale, Washington. For additional information call 1-800-514-5046 or visit us online at soundretirementplanning.com.
