Jason Parker Interviews Kirk Larsen. Mr. Larsen is the Western Washington Public Affairs Specialist for the Social Security Administration.
Will Social Security be there when you need it?
When should you apply? age 62 – 66 or 70?
We look at some of the lesser known strategies for maximizing social security benefits for retirement.
If you need help putting together a plan for maximizing your social security beneftis contact Parker Financial at 360-337-2701 or www.Parker-Financial.net
Below is the full transcript:
Announcer: Welcome back, America, to Sound Retirement Radio, where we bring you concepts, ideas and strategies designed to help you achieve clarity, confidence, and freedom as you prepare for, and transition through retirement. Now here is your host, Jason Parker.
Jason Parker: Seattle-Tacoma-Olympia, Gig Harbor, all the good people right here in Kitsap County, and for those of you tuning in on soundretirementradio.com, or you’re listening to this as a podcast around the country, thank you so much for making Sound Retirement Radio one of the top places on iTunes, these days, to find more information about retirement. I oftentimes say, “I can’t believe it’s been over five years now since I started this little radio show.” We’ve had a lot of wonderful feedback. We’ve had some amazing guests on the program. I really hope that the information that you’re receiving from this program is really making a significant impact in your financial life as you’re either getting ready to retire, or maybe you are already transitioning through retirement. I hope that one day you will be able to point back and say that our program made a significant difference in your ability to retire, and to do it on your terms, and to do it comfortably. Thank you so much, for being here.
I do have an exciting announcement. My new book is going to be coming out. I believe we’re going to be shooting from May 5, as the launch launch date. I just wanted to touch on that briefly, and let people know that I have got a new book coming out, and that we’re going to be sharing. We’re going to have a big campaign going on to tell people more about that. That’s kind of the exciting stuff, but we won’t get too much into that. We’ve got a great guest I’m going to bring on the program today. As many of you know, if you’re preparing for a retirement, especially right now, retirement is all about cash flow. It’s all about your income. We have this wonderful program called “Social Security” that provides retirement benefits to folks that paid into the program. Today, I’m bringing Kirk Larson back onto the program. Mr. Larson is the Western Washington Public Affairs Specialist for the Social Security Administration. Mr. Larson, welcome back to another round of Sound Retirement Radio.
Kirk Larson: Thank you for having me. I appreciate it.
Jason Parker: I appreciate it. I don’t know if the rest of the country is fortunate enough to have somebody like you as a resource, but it really makes a big difference for those folks here in Western Washington. So, thank you.
Kirk Larson: Thank you.
Jason Parker: Kirk, I wanted to find out, first of all, about what you guys are terming “The My Social Security Account.” Would you take a moment, and just let our listeners know a little bit more about that?
Kirk Larson: Yes. You’ll probably remember that for many years, people used to get a benefits statement in the mail, saying, “This is what your future benefits are going to be.” “This is how much you’ve worked and paid into Social Security.” “This is how much you’re going to get at age 62,” or “age 66,” or “at age 70,” or “if you would have passed away, this is how much your survivors would get.” It was a great tool called “The Benefit Statement,” and we used to mail that out for many, many years. Due to the [inaudible 00:03:08] situation, we’ve actually discontinued the distribution of that form. We needed to come up with a way to communicate that information, so we developed a multi-use tool called “The My Social Security Account,” which basically allows people to go online and create an account where they can go to any time. If you’re not getting benefits yet, meaning you haven’t reached the age, you’re not getting any benefits yet, you can go on there and pull up your benefit statement at any time.
You can locate your work history. You can see how much money you made year by year. You can look at your benefit statement, and see what you would get if you retired at age 62 or age 66. Great planning tool. You’d also be able to go on there and see if you would have passed away, what your minor children could get, or what your surviving spouse could get. Great tool, if you haven’t started receiving benefits, and an even better tool, if you are already on benefits. The “My Social Security Account,” even if you’re already on benefits, will allow you to go online, set up an account, and then if you need to change your address, change your phone number, change your direct deposits, get a benefit verification letter. If you are trying to get a loan some place, and you needed to verify what your income was through Social Security, you would be able to go ahead and get that benefit verification letter. You could do this any time that you want.
You can just go to your account, get it opened, and then access it to get ongoing information, or even just track all your payment history over the lifetime of your account. Great tool, whether you’re getting benefits or not getting benefits.
Jason Parker: That’s great. At one point when we had you on the program, I think you mentioned that people above a certain age would continue to receive the paper statements. Have you guys cut that out now completely?
Kirk Larson: Yes. Basically at this point we said, “We’re moving more and more of our resources online, and it’s important to encourage people to get online to get that information.” Looking at the age groups that we’re talking about that we were thinking about possibly giving it to people between the ages of 60 and 66, if you haven’t started benefits yet. That group is very computer savvy. That group is in the workforce, and most people are already using the computer. We found that an important savings is that we wouldn’t have to go ahead and send out that letter to those people. It was a very expensive option to us to send out that letter. One of the main reasons that we stopped sending that letter in the mail is that it cost us $60 million a year to print and distribute that letter to hundreds of millions of people that are working in this country. It was a very expensive option for us to print, and mail, and pay the postage, and distribute that [literature 00:06:12] by mail.
This just is much more cost-effective, and much more user-friendly, and much more accessible at any time that a person wants it.
Jason Parker: It’s no wonder the U.S. postal services are having a hard time paying their bills. They don’t have you guys paying them.
Kirk Larson: That is certainly true. There is a cost and effect to everything. That was a couple of hundred million pieces of first class mail that disappeared when we stopped sending that out.
Jason Parker: When I set up my account online at the time that I did it … This was a couple of years back. I probably was an early adopter. In order to do it, I had to set up the account online, and then I received the password in the mail a couple of weeks later. It wasn’t instant access. Is it still that way, or is it a little bit more instantaneous now?
Kirk Larson: It is now instant access. We do ask for your email address, and we’ll use that as proof, but now it is instant access.
Jason Parker: Okay. Right before our interview here, I went onto Social Security’s website. You guys have kind of this hypothetical Social Security report dated January 2, 2014 prepared for [a wonder worker 00:07:31], especially prepared. On this report, it says … I thought I’d just bring this up, because most people were used to seeing this number every year on their mailbox. Unless they’re logging in, they’re probably not paying attention. It says, “Without changes in 2033, the Social Security Trust Fund will be able to pay only about 77 cents for each dollar of scheduled benefits.” Of course, down below it says, “These estimates are based on the intermediate assumptions of the Social Security Trustees’ annual report to the Congress.” Would you take a moment and comment on that for us?
Kirk Larson: Certainly. Yes, currently today, Social Security is looking pretty good. Today, we have about a little over $2.5 trillion saved up in the Social Security Trust Fund. We’ve been building that up for many years. That trust fund does exist. That is money that we have invested. As a matter of fact, we earn about $120 billion a year in interest generated by the trust fund, based on those investments. However, as the baby boomers, that generation of about 76 million people, as they continue to retire, we are going to need to start liquidating the Social Security Trust Fund. That’s going to happen relatively soon, probably around the year of 2015, 2016, 2017. Social Security is not going to be bringing in enough money for each year from the taxation of people’s wages to pay for all the benefits that are going out. We are going to need to start liquidating the Social Security Trust Fund. That $2.6 trillion that we have saved up right now, that is going to start going down.
We’re going to have to start selling off the assets, converting that into cash, and paying that out to people to maintain the benefits. We have enough money in the program, and enough money coming in from the taxing of people’s wages to meet all of our obligations up until the year 2033. What does that mean? Does that mean that in 2033, Social Security is going to go broke, we’re going to stop sending checks out? No. That’s not what that means. What that means is that in the year 2033, the Social Security Trust Fund would be gone. We would have liquidated the entire $2.6 trillion, and paid it out to people in the form of monthly benefits. At that time, we will only have 77 cents of every dollar to pay every dollar. What that means is that we won’t be broke, however, we will be in a deficit situation.
One of two things would need to happen. Either we would figure out a way to get that money from someplace else, probably borrowing it or we would figure out a way to slow down the benefits, and we would have to pay out less money. Everybody would take a 23% cut [in 00:10:36] benefits as of that time. The report does say something very important that’s based on current assumptions that’s assuming that nothing changes from this point forward, meaning that we don’t change the way that we do business. What that report really encourages is that to help people understand that we do need to change the way that we do business. The way that we pay benefits out, and the way that we bring money in, that will need to change in the future, or the program will not be completely sustainable after 2033.
Jason Parker: Kirk, I’ve been reading some of these dire headlines. You’ve probably seen them too, the talk about Social Security Disability Benefits, and how dire that situation is, at least to some of the headlines I have read. Does Social Security look at retirement benefits and disability benefits as two separate entities, or is it all one trust fund that’s paying all this money? Should we be concerned about disability benefits, and our ability to continue to pay those?
Kirk Larson: It is. Technically they are broken into three different trust funds. There is the disability benefits, there is survivor’s benefits, and there is retirement benefits. It is one big lump of money, though. You are correct. The disability program is running out of money faster than the retirement program. This 2033 [war castle 00:12:06] is looking at all programs put together. That date, 2033, is all programs put together. That being said, if we did not move money from the retirement program into the disability program, the disability program would not be able to [pay 00:12:27] 100% of it’s coverage sooner than 2033. The retirement program would be more sound for a little bit more time beyond 2033. Basically, 2033 is looking at all three programs hooked together. It does take that into consideration.
Jason Parker: Okay. [Good 00:12:48]. Kirk, I’m looking at the time here, and we need to take our first quick break. We’ll be back, and we’re going to ask you some questions on how people can maximize these benefits. We’ll be back in just a minute.
Alrighty, folks. Welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. As always, I sure appreciate you taking time out of your day to join us on this program. I’ve got Kirk Larson, who is the Western Washington Public Affairs Specialist for the Social Security Administration, on the program with us. Kirk has been a contributor to this program over the years. These Social Security topics just happen to be some of the most popular programs that we do. Mr. Larson is a very, very busy man, so the opportunity to have him on this program is really golden. Again, Mr. Larson, we appreciate you being here. Mr. Larson, I also wanted to say that over the last several years, we’ve been starting every program out with a joke, and I forgot to tell our listeners. If you will indulge me for one minute here, I’ve got a joke for everybody. I’d hate to disappoint them. They all look forward to this so much.
Here is my joke: Why did Mozart get rid of his chickens?
Kirk Larson: Hmmm! Why did they?
Jason Parker: They kept saying, “Bach! Bach! Bach!”
Kirk Larson: Mhhh! Okay!
Jason Parker: Yo seem to like my jokes about as much as my friend [deemed it 00:14:28], but anyways …
Kirk Larson: Well, it may be a work in progress.
Jason Parker: I have to admit that the jokes are so bad that even in this little radio studio, my face turns kind of bright red, even though our listeners [can’t see me 00:14:42]. One of the things I wanted to ask you about … When looking at that Social Security Statement from a planning perspective, does Social … Historically, Social Security has had this cost of living allowance since the 1970s. When somebody is trying to estimate their future benefits, and the statement says, “Here is your benefit at 62, here is your benefit at 66, and here is your benefit at age 70,” are those benefit estimates assuming a certain cost of living allowance over time, or is that only based on earnings?
Kirk Larson: That’s a very good question, [actually 00:15:18]. I do get that question quite often. Actually, what that is saying, that statement is in today’s dollars, meaning that … Let’s say you’re turning 62 in 10 years, it’s not telling you what your benefit’s going to be in 10 years. It’s saying, “If you were 62 today, this is the dollar amount that you would get.” It’s actually giving you the information in today’s dollars. Each year, as we [give a cost 00:15:46] of your living increase even if you weren’t working, your Social Security benefits continue to go up each year as you get a cost of living increase. A lot of people don’t realize that, but this year, for example, we gave everybody a 1.5% increase to their Social Security benefits. Just not the people that are getting benefits, but everybody got a 1.5% increase. You got a 1.5% increase to your Social Security benefits automatically. Even if you hadn’t been working and paying into the system, your benefits automatically went up. That cost of living increase is for just not individuals getting benefits. It’s for everybody, because everybody’s benefits automatically go up.
Jason Parker: Okay. There has been some talk in recent years that Congress was thinking about changing the formula for the cost of living allowance. Anything you can shed some light on there for us?
Kirk Larson: As I indicated [while 00:16:45] we were just talking that, the assumption is that if Social Security continues to do business the way it has, come the year 2033, we’re going to be at a shortfall. Congress’s idea … That’s one of many ideas, I have to say, that have been put out there to change the way that Social Security does business, to change the way that Social Security pays money out. One of those suggestions that has gotten some [traction 00:17:12] in Congress is to change the way that we pay the cost of living. That’s just a proposal. That has not gone through Congress. It hasn’t been voted on. Congress has put together many other different ideas on the way to either figure out a way to send less money out of Social Security or to bring more money into Social Security.
That concept of changing the cost of living calculation is just a proposal. Then of course, what it would be designed to do is they’re obviously not changing the program to pay more money out. They’re changing the cost of living calculation to downward the amount of money that would be paid out. It would be somewhat constricting the way that the cost of living calculation would be figured.
Jason Parker: Okay. Good. One of the things that I have found interesting … We’ve been doing this for five years now. I think we had you on, probably five years ago, to talk about some of these planning concepts. You helped introduce a lot of people to the idea of married couples coordinating benefits to try to get the most out of the Social Security system over two people’s lifetime. I want to ask you about some of these specific strategies, because it seems like they’re starting to get more and more mainstream. We’re reading about it in the Wall Street Journal, and Kiplinger, and some of these different news media outlets. One of the things that I hear from people all the time is as a married person, if I go into the Social Security Administration’s office, are they trained to help me understand how to maximize Social Security benefits over two people’s lives, or are they trained to help me understand how to get the most benefit I can get today, or do they look at all of those different planning options?
Kirk Larson: The people at our office or at our 800 Number, they’re trained to go ahead and answer your questions that you have about benefit programs. They’re trained to go ahead and facilitate taking your application, and then after then after your own benefits, to answer additional questions that you might have. If you were to go in and say, “Hey, how can get the most money out of my Social Security,” they could look after your record and say,”Yes, if you waited all the way until age 70, you would get a bonus. You would get … Currently, it’s 132% of your benefit.” They will go ahead and provide those answers, but if you were simply to go into an office, and say, “Hey, what’s the best way I could make the most out of Social Security,” our representatives in our office or at our 800 Number are not there to be financial advisors.
There are many other very great financial advisors out there. We encourage people to seek financial advice. Social Security representatives at the offices and the 800 Number, that’s not their purpose. Truthfully, even if they were to try to give you ideas on that, they’re really not trained to do that. A financial advisor takes into account all the different aspects of income that you might have in your retirement years, and would have a lot more information on you … What is your health situation? What are your goals in retirement? That’s not the job of the Social Security representatives. We want them to focus on what they do best, and that’s basically answering questions about the programs, how to qualify for the programs, helping people take applications.
Jason Parker: All right. That’s fair, and that’s kind of what my expectations were too. I just wanted to make sure I understood that correctly. I have to tell you, the folks right down here at the Silverdale Social Security Administration Office, most of the people that we know that have gone in there have just had a wonderful experience with the people. You guys are doing a good job, and we appreciate that.
Kirk Larson: Great. Good to hear.
Jason Parker: On this topic of maximizing benefits, will you help our listeners understand you have your own earnings record, the spousal benefit, and then a survivor benefit? Will you help our listeners understand those three different components?
Kirk Larson: Sure. I’ll give you an example. Generally, let’s say you’ve worked and paid into Social Security. Basically, when we go to figure out what your Social Security benefit is, we use your highest 35 years worth of work. We basically take your work history, we adjust for inflation, and we pick up the highest 35 years. Let’s say based on that, all through your lifetime, we use the highest 35 years, and we determine that the average monthly benefit that you’ve made would give you a monthly benefit of Social Security in about $2,000 per month. We’ll say that you are eligible for $2,000 a month based on the average of your highest 35 years worth of work. We take that, and that is what you are potentially eligible for. Let’s say you could get 100% of your benefit at age 66. Right now, for people born between 1943 and 1954, you could get 100% of your benefit if you waited to file at age 66. Then for people born in 1960 or later, they get 100% of their benefit at age 67.
If you file early, for every single month you file early, you reduce your benefits by roughly half a percent. If you could have gotten 100% at age 66, and you file 48 months early or 4 years early, you’re going to take roughly about a 25% cut in your benefits. [You are to 00:23:04] go from $2,000 a month down to $1,500 per month. On the survivor’s side, if you were then to pass away during your lifetime, you’ve lowered your benefits to 1,500, but you’ve also reduced whatever your surviving spouse is going to get. They are now going to get the maximum of about the $1,500. During your lifetime, you’ve lowered the benefit, but you’ve also lowered it for a surviving a spouse. Most spouses today, we do treat individually. Let’s say you were eligible for 2,000, and your wife was eligible for $1,500. Basically, you both would be eligible to potentially for your own program. If you were going to file early, you were going to file before you reach the age of 66, for example, you both would only be able to file for your own program.
There is a program out there called “spouse’s benefits.” However, the spouse’s benefit is only designed, basically, to get your spouse up to the 50% of whatever you’re going to get. Let’s say in your example, your spouse had not gone out and worked and paid into Social Security, and you were going to be eligible for $2,000 at age 66, your spouse, when she reaches age 66, she would be automatically eligible for up to $1,000 a month under your Social Security program.
Jason Parker: Even if she didn’t work, she is eligible for 50% as a spousal benefit.
Kirk Larson: That is correct. The assumption is that the reason she didn’t work is that she was supporting the family. She was supporting, perhaps, raising children. She was supporting other individuals. By the way, I’d say “she” in this situation, this can go either direction. Your wife could be the one that’s worked and going to get the $2,000, and you may not have paid into Social Security. This goes either direction from spouse to spouse. With that, basically what they did is [that 00:25:06] they can’t afford the program called “spouse’s benefit,” and they said, “For the sacrifices that one spouse may have made in a couple, that person should be recognized for the work they did do, whether it be raising children, taking care of adult parents,” whatever it might be, “they should be recognized for the work that they did.” If an individual has worked, they’re eligible for their benefits, in your example we’ll say $2,000, their living spouse is eligible for up to an additional 50%, or in this example, $1,000 per month.
However, if your own spouse is already qualifying for $1,500 a month on their own record, obviously they would file for the 1,500 rather than taking the smaller amount.
Jason Parker: I do want to ask you … I know there’s some unique strategies here, and I want to get into those, but at that point, we need to take our next break. We’ll be right back to talk some more about those.
Kirk Larson: Sounds good.
Jason Parker: Alrighty, folks. Welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. It is my good fortune to have Mr. Kirk Larson on the program with us. Kirk is the Western Washington Public Affairs Specialist for the Social Security Administration. Today, we are talking about Social Security. It’s a core component of most retirees’ income plan as you’re preparing for retirement. Retirement is all about cash flow. We want to make sure you have as much tax advantage and inflation-adjusted income as you can get, and Social Security is a really unique way to help you do that. Mr. Larson, you were just giving this example. You have a husband who’s full retirement benefits’ $2,000 at 66. The wife’s full retirement benefit on her own earnings’ record is $1,500 per month. We were talking about spousal benefits, and how to coordinate those. Go ahead.
Kirk Larson: Yes. There is an interesting strategy. This is actually designed into the Social Security Law. It was basically a way that we have to encourage people to wait as long as possible to file for their retirement benefits. This strategy only comes into effect if you wait to file until your full retirement age. For people born in 1943 to ’54, that’s age 66. Let’s say both you and your spouse are age 66, and neither one of you has filed for benefits. You reach age 66, and you file for your $2,000. Your wife also reaches age 66. Here’s a very interesting option. Just as a spouse, she is potentially eligible for the 50% of your benefit or $1,000. However, her own benefit’s already 1,500, so she wouldn’t qualify if she’d filed early. If she had filed under the age of 66, she wouldn’t get the spouse’s benefit. She would have to file for her own benefit first. However, if she waits or he waits until age 66, they get a choice. They can either file for their own benefit or they could take 50% of their spouse’s benefits.
Let’s say both of you reach age 66, and you file for your 2,000. You spouse now, rather than taking her 1,500, she files for $1,000 off your record. You’re getting 2,000, she’s getting 1,000, the family income is $3,000 per month. Had she taken her own though, the family income would have been 2,000 plus 1,500, would have been $3,500 per month. Why would she want take the smaller number? Here is the reason. By not taking their own benefit at age 66, we give her record bonus credits. We will give her, each month that she waits beyond age 66, she gets a bonus credit worth .66% per month or about two thirds of a percentage per month or about 8% a year. If she waited just one year, drawing the $1,000 off your record, if she comes back in a year later on, she can now say, “Give me 108% of my $1,500 per month.”
If she was to wait all the way [to 00:29:36] age 70, which is the maximum point … After age 70, you don’t accumulate any more of these bonus credits, she could now collect 132% of her $1,500 per month, which would be somewhere around … What [does that say 00:29:53]?
Jason Parker: It’s $1,980. She would switch from that point, the $1,000 per month spousal benefit that she had been receiving to her own benefit at that point. 132% is at 1,980. Is that what you …?
Kirk Larson: I believe that is correct, yes. If she would go in … Go ahead.
Jason Parker: I was just going to say … At my firm, we call these “switch strategies,” where you elect a lower benefit early, allow your own benefit to earn delayed retirement credits, and switch to the higher benefit. Is this using the restricted application? Is that what you would file in order to make this happen?
Kirk Larson: That’s correct. When she would [be able 00:30:38] to file for her benefit, she’d indicate on her application that she is filing for spouse’s benefits only. Basically, that would preserve the right of her own record, her own $1,500 to continue to increase in value at the rate of 8% a year. Now then, once again, I want to stress this. The key to this, is that you don’t file for anything early. That’s the way it’s designed. We designed it that way to encourage people to wait as long as possible to file, and maximize their benefits. Social Security wants to give you as much money as possible. I’ll tell you the reason why. Some people say, “That sounds like a kind of a gift that Social Security is giving someone.” It’s really not a gift. We’re just encouraging people to maximize their benefits. Here is the main reason why. One universal thing that Social Security has discovered is that the longer you wait to take your benefits, the higher that benefit’s going to be, and as you begin to stretch into your 80s, Social Security is becoming a larger and larger piece of your retirement [pie 00:31:46].
The reason being is that other things, such as 401(k)s, investments, stocks, bonds, cash, those things get used up in your 60s and 70s. Therefore, the bigger Social Security benefit that you can have, the more money you’ll have as you get into 80s. We’ve discovered that the more money you have as you get into your 80s, the more likely you are to remain healthy, and the more likely you are to remain in your own home. That’s at all different economic levels, whether you are the person with $1 million or you are the person with $20,000. It really doesn’t matter. The higher you can make your Social Security benefits, the more likely you [all are in 00:32:29] average to remain healthy, and to remain in your own home.
Jason Parker: [That’s good 00:32:34].
Kirk Larson: Basically, this is built-in encouragement to encourage people to wait as long as possible to take their Social Security benefit.
Jason Parker: In that scenario, we were talking about a married couple, they both reach full retirement age, that gave them these options, and they filed a restricted application. Help our listeners understand what a file and suspend does, and when that comes into play, and why they would want to that.
Kirk Larson: Same basic concept of this scenario. I’ll just slightly switch it. We’ll use the same situation. You are eligible for 2,000, your wife is eligible for 1,500, you both reach the age of 66. Now then your wife decides to file for her $1,500. However, she ask that it be suspended. She does not want to get her actual Social Security check. This, and the reason that you’d want to do this, is this then allows you, the other spouse, to now file on her record. She files and suspends her record, and she’s not going to get her $1,500 per month. You are now eligible to file on her record, and get $750 a month. You also do not touch your own record. Both of you, you do have an income coming in, $750 a month. Your $2,000 check is increasing in value at the rate of 8% a year, and her $1,500 check that she is not getting is also increasing in value at the rate of 8% a year.
Jason Parker: I think you just hit on something that’s really important. In order for me to be able to receive my spousal only benefit, she has to have activated her benefit first. She had to file for those benefits, and then put them into suspense. I can’t do a restricted application for my spousal only benefit, unless she’s filed, right?
Kirk Larson: That’s correct as long as you’re currently married. Of course we do recognize divorce spouse’s benefits. Just slightly changing things here. Same scenario. You’re now divorced, and you had been married to your ex-wife for at least ten years.
Jason Parker: My wife is not going to be happy to hear this show.
Kirk Larson: It is not a good situation. I am sorry about your situation here. You’re currently unmarried. You were married to this individual for ten years. You both now reach age 66, and your spouse says, “Hey, I am not going to file for my benefits, but I’m also not going to file in suspense so you can file on my record,” and you say, “Hey, I want to go ahead and maximize my benefits also, so I’m not going to take my own benefit.” However, if you were married to the individual for ten years, and now you’ve been divorced for at least two years, you can independently file on your wife’s record or she can independently file on your record in that situation as well. We call this “Independently entitled divorce spouse.” If you’re still married, then your wife would have to go ahead and file and request a suspense, or you could file and request a suspense, and your wife could file on your record. The rule slightly change if you’re talking about divorce. We don’t expect your divorce spouse to cooperate, and file and suspend their benefit so that you can file on their record.
Jason Parker: Let me ask you this; what if you were married for ten years, divorced, married again for ten years, and divorced. Now you have two ex-spouses. Can you file for Social Security benefits on both of your ex-spouses’ records.
Kirk Larson: Good try. I like that. You’re thinking here. I like that. The answer is “No.” We will, though, if you do have two spouses, we will look at both records, and let you draw up benefits on the higher of the two ex-spouses. You can’t draw on both of them at the same time.
Jason Parker: One time we had you on the program, and you talked about filing for benefits. Let’s say I’m 66, and my benefit’s $2,000 per month, and I’m not ready to start my benefits yet. I’m still working, and I just kind of wanted to wait, earn this delayed retirement credits. You talked about doing a file and suspend, and then at 68 or at a future point, having access to a lump sum of money if I needed it. Would you take a minute and just kind of refresh my memory how that works?
Kirk Larson: Certainly. Once again, just to emphasize to your audience, if you’re doing a file on suspend, you can only do this at age 66, or at your full retirement age, or higher. You can’t do this if you’re under your full retirement age. Let’s say you’re intent is to wait until age 70. You say, “I want to wait until age 70, so I’m not going to file for my benefits.” I would still recommend that you file and suspend your benefits at your full retirement age or age 66. Here is the reason why; if you file and suspend, you get the option to unsuspend them at any time, and you can retroactively unsuspend them going backwards as far as you want. Let’s say you did that at age 66, and now you reach age 68, and you go, “That was a bad decision for me. I don’t care if I have the extra money,” or you say, “I have a great opportunity to buy some land some place, but I need a lump of cash.”
If you filed and suspended, you can go backwards and say, “I suspended my benefits two years ago. I want to unsuspend them now.” If you just said, “Unsuspend them now,” two years, you [would 00:38:16] get 116% of your benefit for the rest of your life. However, you do get an option. You can say, “Unsuspend me, but go all the way back to the date that I initially suspended, and give me all 24 of my back-checks.” You won’t get the bonus credits … I’m sorry.
Jason Parker: There’s no limitation. Whether it’s 24 months or 36 months, you can request all of that as a lump sum. You don’t get just a portion of it as a lump sum, if you wanted [the pay 00:38:48].
Kirk Larson: No. You could request all or some of it. That’s the other thing. If you had two years under your belt, you could say, “Make my check 108%, and then give me 12 of those checks at 108%,” or you could say, “Go backwards, and give me 6 months worth of those checks, and then give 112% of my benefits.” You can go anywhere in between, whatever you want to do. Then remember, every month you do go backwards, and you take the check, that you don’t get the bonus credit as well. If you went all the way back to the beginning, you’d get 24 checks, but you wouldn’t get any bonus credits. You would just get 100% of your benefits, and they’d give your 24 checks at 100% of your benefits.
Jason Parker: All right. Mr. Larson, love having you on the program. We have another quick break that we need to take, and then we will be back. I’ve got some ore questions to ask you.
Kirk Larson: Sounds good.
Jason Parker: Alrighty, folks. Welcome back to another round of Sound Retirement Radio. I’m your host, Jason Parker. As always, you can find us online at soundretirementplanning.com. I write a blog. Just about every week, we have new information up there for people that are preparing for retirement, transitioning through retirement. I’d like to encourage you to check that resource out. Make sure that you’re looking at some of this information.
Today, I have got Kirk Larson on the program with us. Kirk Larson is the representative, the Western Washington Public Affairs Specialist for the Social Security Administration. Kirk, it’s so great to have you on the program, and to share … Social Security can get kind of complicated when you start looking at all these different options and strategies that are available. One of the ones that comes up frequently when we’re consulting with folks has to do with people who are widowed. I was hoping we could take the last couple of minutes of this program, and talk about some of these lesser known things. The Widow’s GPO and WEP. Let’s start with the divorce. What are some of the new ones … I’m sorry. Not divorced. Widowed. What are some of the new ones is there, if you’ve been widowed, people should be considering?
Kirk Larson: If you have a deceased spouse, couple of important things. Number one, you can file for survivor’s benefits as early as age 60. You don’t have to wait until age 62 to file for survivor’s benefits. We do have something called “The earnings restriction,” meaning that, if you’re under your full retirement age or under 66 currently, let’s say, there are restrictions on how much you can earn from wages and self-employment, and get all of your benefits. Currently, it’s $15,480. If you’re age 60, and you wanted to file for survivor’s benefits off your deceased husband or wife’s record, you could go ahead and do that. However, you would be from that point forward restricted to making the $15,480, and getting all 12 of your survivor’s checks. If you’re age 60, and let’s say you did have a deceased spouse, you could go ahead and file on that deceased spouse’s record, and you would get 71½% of your benefits for the rest of your life, theoretically.
Here’s some really good things that you can do with that … This the way you can maximize your benefits. Let’s say you decided do that, and at age 60 you file for survivor’s benefits, and you get a 71½% of [their 00:42:19] benefits. Then at age 66, you could drop the survivor’s benefits, and then get 100% of your own benefits. Even better, draw the survivor’s benefits for ten years … Draw the from age 60 to age 70, and then at age 70, drop that 71½% of your deceased spouse’s benefit, and then get 132% of your benefit for the rest of your life. [Number 00:42:45] of ways you can use that to maximize the benefits off of your record. You could even do that at age 66. You could file for 100% of your deceased spouse’s record, and then at age 70, drop that, and get 132% of your own benefit for the rest of your life. Very important.
Also another interesting aspect. With spouse’s benefits … We were talking about you were alive, and you got divorced from your spouse. We were talking about … That you potentially could file for spouse’s benefits off your living current spouse or your living ex-spouse. If you get remarried … if you’re an ex-spouse, and you get remarried, you can’t file on that living ex-spouse’s record. However, with survivor’s benefits, you can get remarried. The key is you get remarried after the age 60. If you are 60 years old … Let’s say you’re 60 years old, you’re getting remarried, and you had a prior spouse that you had been married to, either for ten years, and you divorced them, or you were married to that spouse at the time of death. You don’t have to have a ten-year requirement if you’re married to him at the time of death. You’re getting remarried at age 60, and you, theoretically, could go ahead at age 60, get remarried and still go back, and file on your previous spouse’s record, and get survivor’s benefits off of their record. The key is that you’re remarrying after the age of 60.
If you were getting remarried at age 59, you don’t get that option. You wouldn’t be able to be remarried and file on a previous spouse’s record. You only get that option if you remarry after the age of 60.
Jason Parker: All right. Let me run this scenario by you. Let’s say somebody out there is 62, and they’re widowed, and they go into the Social Security Administration Office to file for benefits, because they’re ready to retire at 62. The Social Security Administration, are they going to advice that person to consider only taking their spouse or their survivor benefit at age 62, or are they going to say, “Take your own benefit”? In other words, are they going to potentially recommend that the person consider this strategy of suspending their own benefits, and only taking their survivor benefits? If they go into Social Security, and let’s say their survivor benefit in your example was $715 a month, because I know it [would have been 00:45:20] more than that, the 25% reduction, if they start at 62. It would be $750 per month.
Kirk Larson: We’ll use that as an example. Sure.
Jason Parker: The survivor benefit’s 750 at 62. The widow’s benefit is 1,500. Is Social Security going to say, “Mrs. Jones, only take your survivor benefit of $750 and let your own benefit grow, or are they going to say, “The higher of the two benefits is 1,500. You should take that, because that gives you the most money today”?
Kirk Larson: They’re going to give the person options. If you came in, or you did over the phone, they basically give you options. They’d say, “You could get $750 as a survivor today, or at age 66 as a survivor, you could get,” let’s say, “$1,100,” or “Today on your own record, you could get $1,500, or at age 66, you could $2,000. Which do you want to do?” We leave it up to the individual to make the choice.
Jason Parker: I guess the only concern I have there is if she is 62, if she wants to retire, they’re telling her she can get 750 today, or 1,500 today. It seems like most people would say, “Give me the 1,500,” not knowing that they have the ability to coordinate both of those benefits. You see what I’m saying?
Kirk Larson: Basically we say that you could do that to … Basically if you said that “Hey. I am going to take the $1,500 today,” then we would say, “Then of course you would not be able to take the $1,100 at age 66 as a survivor, because you’re already getting more money. However, if you took this $750 today as a survivor, at at age 66, you could go ahead and get $2,000 on your own record.”
Jason Parker: Is that just a restricted application? I guess that’s what I want to make sure, that if people are widowed, and they’re out there, and they’re going in to file for benefits, we just want to make sure that they’re considering two different benefits that they have access to at two different periods of time. 62, maybe take the smaller benefit for a couple of years, and then switch to your own benefit at 66, because you’re going to have a lot more money. Would you file a restricted application if you only wanted to receive your survivor benefit at 62?
Kirk Larson: Yes, basically. You don’t even have to say anything. It automatically … The wording in the application itself says, “I am only filing for survivor’s benefits.” There’s nothing extra you even need to put in that. The restriction is automatically built in. When you file a survivor’s claim, and you say, “I am only filing for the survivor’s benefits off of my deceased husband” or “wife’s record,” it’s actually built into application. If you file for the retirement benefits, in the application it says, “I am only filing for retirement benefits.” It already has a built in restriction already designed into the application.
Jason Parker: That’s [great 00:48:22]. The person, do they have to go … Let’s say at 70 now, they want to switch over to their own benefit. Does the Social Security Administration contact them, and say, “Hey, Mrs. Jones, you’ve been on your survivor benefit from 62 up to 68, do want to switch over now?” Is there any kind of triggering factor that happens that gives the person the opportunity, or do they have to know that they have to go in to make that happen?
Kirk Larson: If you’re getting a survivor’s benefits, yes. The computer will actually do a calculation. If you’re eligible for own benefits, it will do a calculation, and as soon as you’re eligible for more money on your own record, it sends a letter to the office saying, “Contact this individual. They’re getting survivor’s benefits. They now could get more money on their own record, because of the bonus credits.” That having been said, once again we don’t advice the person. If the person was getting $900 a month as a survivor, we simply contact them, and say,. “Hey, today you could now file on your record, and get $950 a month. Of course, though, if you let it continue to climb, at age 70 it will actually even be higher. Which do you want to do?”
Jason Parker: [This’s so good 00:49:39].
Kirk Larson: It’s the same thing with the survivor’s benefits versus your own benefits. We simply give the person options, saying, “You could file for the $1,500 on your own retirement retirement today, and then basically that would be the only benefit you’d on, or you could take $750 as a survivor, and then get 2,000 on your record at age 66. Which do you want to do?” Although the person might see it, they’re not going go into facts, and say, “Hey …” They’re not going to put pressure on the person, saying, “You know, the better idea is to take 750 now, and then take 2,000 later on.” Here is the simple reason why they don’t do that. Even though it might appear to be obvious to the interviewer that this might be the right method, we don’t know what that person on the other side of the table is going through. Maybe they have terminal cancer. Maybe they’re not going to live more than two years, so taking the higher benefit today, even though over the course of the lifetime it might not be the best decision, taking the higher benefit today might be the better thing to do.”
Our people at the office are trained to tell people, “These are the options you have,” and not try to guide them in any particular direction. We try to inform people, and help them understand what options they have, and then allow them to make the choice based on their own decisions, and their own criteria on what they consider to be the most important [to that 00:51:06].
Jason Parker: Like I said, I think you guys are doing a great job. I just know that it can be really confusing for people.
Kirk Larson: Definitely.
Jason Parker: Sometimes people need a little bit of a guidance on the best thing for them to do, and to consider it from the financial planning perspective, to understand the implications. We only have about two minutes, Kirk. I was hoping you would take just two minutes real quick, and touch on the GPO, Government Pension Offset, and Windfall Elimination Provision.
Kirk Larson: Two very important programs. Basically, this program that was developed back in about 1984-85. It basically was designed to eliminate the concept of double-dipping. Basically, if you are a government employee, and you have not paid into Social security for a portion of your working career, let’s say you were under the old Civil Service program … There’s fewer and a fewer of those people out here, although I must say, many firefighters, many police officers don’t pay into Social security. They pay into their own programs. If you’re in that situation, potentially, you’re not going to qualify for all of your Social Security benefits. If you go online, and your statement says, “You’re going to get $500 a month,” and you are a government employee, and you haven’t been paying into Social Security for the last 20 years, but you did work, and you did get enough credits to qualify for aid benefit, that information may not be completely accurate.
It says rights in there, if you’re going to be eligible for a government pension that you did not pay Social Security taxes on, potentially you’re going to be eligible for something called “The Windfall Elimination Provision,” which can reduce what you’re going to get off of your own Social Security record. Using the concept of GPO or Government Pension Offset, that will reduce or eliminate what you can get off a living spouse’s, or get as a survivor. Those are two rules. It only affects a very small portion of individuals. If you are a government employee, and for a portion of your career you have not paid into Social Security, then you very carefully need to look at the situation, and understand that even if you go online, and your Social Security benefits are saying “X,” once you are eligible for that government pension that you didn’t pay Social Security taxes on, you may not get all of that money.
That’s the guidance I would give. If you’re in that situation, go online, and you can just type in on our website “WEP,” or “GPO,” and it will bring up a fact sheet that talks about both these programs.
Jason Parker: Mr. Larson, again I sure appreciate. You are a great resource for our community, for our listeners, for people tuning in from around the country. I just wanted to say “thank you” again for taking time out of your busy schedule to help educate our community about these choices they have.
Kirk Larson: Thank you for having me.
Jason Parker: All right. Have a good one. Thank you, Mr. Larson.
Kirk Larson: Thank you.
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