Kirk Larson is the Social Security Administrations Public Affairs Specialist for the Seattle Region.
A few of the resources Mr. Larson mentioned.
Kitsap County Senior Information and Assistance
Division of Aging & Long Term Care
360-337-5700 or 1-800-562-6418
For information on extra help for Extra Help with Prescriptions
Below is the full transcript:
Announcer: Welcome to Sound Retirement Radio with Host Jason Parker. Sound Retirement Radio is also live streaming online at SoundRetirementRadio.com. Also available for podcast on iTunes.
Jason Parker is the President of Parker Financial, an independent, fee-based investment advisory firm specializing in retirement. Parker Financial is located at 9057 Washington Avenue, Northwest, Silverdale, Washington. Parker Financial is licensed and regulated by both the Washington State Department of Financial Institutions and the Insurance Commissioner’s Office. The information and opinions expressed here are believed to be accurate and complete, for general information only. It should not be construed as specific advice for any individual and does not constitute a solicitation for any securities or insurance products. For more information, contact Jason Parker at 360-337-2701, online at SoundRetirementRadio.com or Parker-Financial.net. Here’s Jason Parker.
Jason: Alrighty, folks, welcome back to another round of Sound Retirement Radio. I sure appreciate our listeners tuning in every Saturday morning to listen to what we have to talk about on this little program. More importantly, I really appreciate the feedback we get. I appreciate people sending us emails, giving us telephone calls, our clients that help direct and guide us and tell us what topics we should talk about. Of course, if you’ve never heard our program before, I have a little saying. We want to keep our community thriving in retirement, so we want to bring on experts in a lot of different areas of retirement to make sure that that happens for our community. If you’re one of those experts, I’d like to hear from you. I know we’ve been getting a lot of books lately from different publishers. I always enjoy receiving some of these books, and if they are relevant to what we’re talking about, I certainly will be open to bringing some of these authors onto the program.
Of course, Sound Retirement Radio is all about retirement, and Parker Financial, my firm, is all about helping people getting ready for retirement and then transitioning through retirement, but as people transition through retirement, as they get ready for retirement, one of the areas in which they depend a lot of times is the Social Security benefit. We’ve had the good fortune of having Mr. Kirk Larsen on the program with us. Kirk Larsen is the Western Washington Public Affairs Specialist for the Social Security Administration. He’s been with the Social Security Administration for over 17 years. He is an expert when it comes to Social Security, and we’ve had the good fortune of having him on the program before. It’s been a very popular program, so I asked him if we could get him on here again to ask and answer some more questions. Of course, Social Security’s changing, so we’ll ask about some of that, as well. Mr. Kirk Larsen, welcome back to Sound Retirement Radio.
Kirk: Thank you. Thanks for having me on again.
Jason: Yeah, so Mr. Larsen, I was hoping maybe you could just provide some clarification on exactly what it is you do for the Social Security Administration.
Kirk: Well, as you indicated, I’m the Western Washington Public Affairs Specialist, and basically what that entails is … The main role that I do for the Social Security Administration is to get out and to talk to people about Social Security benefits so they can understand what this important program is, how it can support them in retirement, but also how it supports them throughout their lives. We are much more than just retirement benefits. We have survivor’s benefits, disability benefits, Medicare benefits, so a number of different programs that can touch you throughout your life as you receive benefits and work and pay into the system.
Jason: Yeah, and we want to talk about Social Security. I suppose, depending on the climate, Mr. Larsen, you are either a really popular guy or maybe people aren’t real happy with you, but lately, I mean, Social Security hasn’t had a cost-of-living allowance here in the last couple of years. Then there has been just recently some news articles that came out about some changes that Social Security is making to some of the ways people could handle their benefits. I was hoping we could pick your brain on that a little bit on that before we get into some of the overall workings of Social Security.
The first one, with the cost-of-living allowance, we’re two years into it now with no cost-of-living allowance for Social Security recipients. What’s on the horizon for this thing? What should people expect?
Kirk: That is a very popular question, and when I get out into the public, we try to provide as much information as possible about these different topics. Just want to put one little pitch in here for this. If you do want to research any of the topics that we’re discussing here today, a wealth of information you can find our our website. I would encourage you to go there and do some additional research. All the things that we’ll be talking about are covered on the website.
With the cost-of-living situation, actually since 1975, we’ve been giving a cost-of-living increase, and in 1975 it was turned into an automated process. Before that, basically Congress would need to get together and would need to make a decision if there was going to be a cost-of-living increase, and it wouldn’t happen every year. Starting in ’75, they basically came up with a formula that looked at the effects of inflation and then based on that would give an automatic cost-of-living increase. Since 1975, up until this year, every year there’s been a cost-of-living increase. As a matter of fact, back in the early ’80s, we were giving 10 and 15 percent annual increases because inflation was very high.
In ’01 to 2010, basically there was not a cost-of-living increase. This was on the heels, of course, of the 5.8 percent increase which we gave just before the economy started going down and just before the effects of inflation basically remained neutral or in some cases even dipped for certain areas. That in combination with the economy and the larger increase that we’ve given, and then the effects of almost no inflation or in some cases negative inflation, basically the automated formula, unlike some people have put it, actually the formula … We applied the formula just as we have every year, and it produced basically a zero adjustment.
There’s some conspiracy theories out there that the government had simply said, “We’re just not going to give people a cost-of-living increase.” Not the situation. We ran the formula like we’ve done since 1975,and when we ran it, it actually came out to produce a negative number. By law, we don’t lower people’s Social Security checks, so basically it moved it to a zero level.
Jason: Yeah, I think that from the people that I speak with, they say to me, “Jason, our prescription medication costs more than it did a year ago. Our food costs more than it did a year ago. Gasoline prices are up more than they were a year ago.” They’re looking at these different places where they’re feeling the pinch of inflation. They’re feeling that there is inflation in the economy, and so when the Social Security Administration comes out and says that there’s no inflation, I don’t think that sits well with a lot of people that aren’t experiencing that to be true.
Kirk: Once again, this isn’t a formula that’s designed by Social Security. That’s put out by the Treasury Department. This isn’t a statement that’s being put out by Social Security. This is based on the overall economy. If you talk to our economists throughout the economy, they would agree that compared to where we were in 2008, there has been no inflationary adjustment. Now certainly certain things that seniors typically buy, prescription medications, different things like that, those have seen an increase in benefits. Certainly regional effects have … This is a cost-of-living that’s applied across the country, so certainly while certain expenses here in the State of Washington may have gone up, they have to look at the entire nation when they apply this formula because there’s not a regional adjustment. It is quite possible when you were talking to someone right in Port Orchard or right in Silverdale, and they’re talking about the expense of medication or a doctor they may see or some sort of other product that they purchased, they may see an increase in that.
Jason: And their insurance costs, yeah.
Kirk: Potentially, but the system does take an overall picture of the entire economy, and when you look at the entire economy, food prices are actually down, energy prices are actually down compared to where they were in 2008. If you think where we were in 2008, when gasoline prices were approaching $4 a gallon, and heating fuel prices were up, and food prices were up because they were using the corn to make ethanol, there’s a number of different effects. If you look back to where we were 2008 and then where we are today, things have either gone down or remained leveled out, and that’s pretty well true throughout the economy, except for, as you indicate, certain insurances and certain prescription drugs.
Jason: Yeah, now we’ll be sure to have you back on the program if we go through an inflationary period where Social Security’s increasing everybody’s benefit by 10 or 15 percent. I’m sure you’re going to be a well-loved man at that time.
Kirk: Unfortunately, when those things happen, of course, the reason the amounts of money go up in those cases is because inflation is going way up and expenses are going way up, and that’s what they’re trying to compensate for. It’s not a way to increase a person’s benefit, but it’s a way to try to keep the important Social Security benefits that they receive, keep those competitive and allow people to continue to buy the products that they need.
Jason: Okay, I think we owe our listeners some clarification because we’ve had you on the program in the past, and we’ve talked about ways to maximize Social Security benefits. I think we can probably talk about a couple of those ways again today, but one of the things I wanted to bring up and ask you about is I saw an article come out recently that said that Social Security … It used to be the Social Security Administration would allow people to begin their benefits as early as 62, and then at some point in the future, if they changed their mind and decided that they wanted to repay all their Social Security benefits to restart their benefit at the higher amount, say at age 66 or at age 70, that the Social Security Administration would allow people to do that. This article that I read just recently said that the Social Security Administration has pulled the plug on that type of planning. Is that accurate?
Kirk: Not exactly. As you indicated, there was a strategy that some people had used to basically file for the benefits at age 62, receive four years’ worth of checks, and then at age 66, come back in, for example, and say, “Hey, you know, I took a reduction. I collected those 48 checks, but now I want to receive a higher check. When I filed earlier I took a reduction. Now I want to get the higher amount.” In some cases that can be as much as a 25 percent reduction if you file early. What we did is we said, “Okay, you can do that. You just need to pay back those 48 checks that we gave you.” The interesting thing there, though, is that we only ask back for the actual dollars that were provided, so we didn’t ask for any interest that would be charged.
While I would say that it was an interesting idea, I wouldn’t say that a ton of people out there did this strategy, but it was an option that people had, and some people did use it. What happened is that, looking at that, we re-evaluated the system and said, “Why are we doing this? Why is this out there, and is it wise for us to go ahead and allow people to, in effect, get an interest-free loan on this money in some ways?” We looked at the people that were using this particular strategy, and it wasn’t the typical person that you would expect, the typical American retiree. It was somebody that was basically trying to make money off of this particular method of filing.
They didn’t eliminate this option. What they did is restrict it. Basically the new law, which the final standards on this law have not come out. There is a 60-day comment period that, if anybody wants to make comments, they can actually go to our website, and then it’ll take you to another site where you can make a comment. There’s a 60-day window starting December 8 through February 8, where people can make comments on this change. Basically the change said that we will still allow people to withdraw their claim. It’s just that they need to do it within 12 months of initially filing, and they can only do it one time.
Jason: What about the person that they decided to implement this strategy when they were 62 and today they’re 66? Is there any leeway for that person? I mean they’re not within that one-year safety zone anymore?
Kirk: The way the law is currently written, there is not an adjustment for those people, so that is why I do encourage people, if they would like to comment on this, they should go into the comments section. If they are in that situation while the rules are out, as of December 8, the final rules have not been issued, so they are in that situation and they would think that they would like to withdraw, once again remembering that you’re going to need to repay all that money that you’ve received, if it is still an option, it may be wise to go ahead and do that while we are still in this 60-day comment period because the final rulings have not come out yet. That is not a guarantee that it would allowed at this point, but it is more likely for it to happen at this point than, let’s say, six months from now.
Jason: That’s a big change. I guess that’s the risk we do with any type of planning for any people, really, is that the rules can change midway through the game. Congress or the Social Security Administration or whoever gets to make the rules can changes the rules on people. You would think that the right thing to do would be to give people in the past the opportunity to make an adjustment there, but I certainly understand why you guys are looking at making that change.
Kirk: That certainly can still happen. In reality, most people, even ones that went into this strategy with the concept of withdrawing it, I would say the vast majority of people, even when they go in with the idea that they’re going to withdraw this once they get to the age 66 and they look back at those 48 checks that they received, the thousands of dollars that they’ve received, and looking at getting an increased new check, most people ultimately did not do that. They didn’t go back and say, “Oh, yeah, I’ll write you a check right now for $50,000 so that I can see an increase in my check of a few hundred dollars per month.”
While I think some people, no matter what we do, and whenever any group makes a change in the law, there are some people that are going to benefit from it, and there’s some people that are going to find it disadvantageous for a number of different reasons.
Jason: Yeah, Mr. Larson, we’ll be right back. We need to take a quick commercial break.
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Jason: All righty, folks, welcome back to another round of Sound Retirement Radio. I’m Jason Parker, your host, President of Parker Financial in Old Town Silverdale. Today we have Kirk Larsen on the program with us. Kirk Larsen is with the Social Security Administration. We’re just asking him some questions about some of the changes that have happened recently to Social Security.
Mr. Larsen, one of the other things, and I just looked at this article briefly, but I thought it also said something about filing the file-and-suspend strategy. Has that changed, also? We’ve talked about that on this program in the past.
Kirk: Yes, the file-and-suspend strategy is actually a pretty good one. That’s where you arrive at age 66, or whatever your full retirement age is, and at that point, if you file for your benefits and suspend them, you can continue to earn bonus credits. You earn the bonus credits at the rate of .66 percent per month, or about 8 percent a year for every year that you don’t take the benefits. The interesting thing with the file-and-suspend strategy is that if you suspend your benefits and two years go down the road, at the end of the two years, if you say, “Hey, I want to start my checks today,” we would normally say, “Okay, instead of you getting your regular check, you’re going to get 116 percent of your check for the rest of your life.” Pretty good option.
Kirk: There’s a second option. If you had filed and suspended it, we give you a second option. We say that, “If you so choose, you can go back at that point, and you could collect all 24 checks that you could have received during that time period. Now you won’t get the bonus credits. You don’t get the extra percentages for the rest of your life, but you could say, “Rather than taking 116 percent of my check today, I think I’d rather go back and have you give me those 24 checks. That still is a good option. That is an option. You can do that. This law did not change that.
Jason: Okay, all right.
Kirk: What it referred to, and there is a provision in this law change that talked about the withdrawal strategy, there is a provision in there that people … What they basically were doing was backdooring withdrawing their claim. Basically, what they would do is they would start drawing their benefits, they would arrive at age 66, and they would say, “I want to suspend my benefits retroactively. I want to go back all the way to the date that I filed for my benefits and suspend them as of age 62,” which would then basically do the same thing as withdrawing your claim. You would then have to repay all those benefits, and in effect it was the same type of maneuver to do that.
Jason: I see.
Kirk: Basically, it only would affect people for the checks that they would have received. By filing and suspending, you never receive a check because you filed and immediately suspended your benefits so there’s no checks coming. The strategy that these people were doing was receiving the checks and then electively going back and suspending their checks in years past.
Jason: To give our listeners an example, then, would this be accurate? Say you’re 66 years old, you’re still working. You really don’t need your Social Security at 66, your full retirement age, but you go ahead and you file for it but you suspend the payments. The reason you do that is for a couple of reasons. Number one is that two years out, let’s say now you’re 68 years old, and something’s happened, and you need to come up with a lump sum of money, you could actually go to the Social Security Administration at that point and request just a lump-sum payment, 24 checks of your back Social Security.
Kirk: That is correct. Really, the way we look at it is this way. It’s your money, and so you should have the flexibility to do with it what you want. If your intent is to get those bonus credits. Let’s say an example of $1,000. You were going to get a check for $1,000 per month at age 66. You say, “I want to earn bonus credits. I’m still working, don’t need my Social Security check, whatever it might be, and you suspend your check at age 66. Two years go by, you’re now age 68 years old. You could come in and say, “Activate my check today. Give me all those bonus credits,” which in effect basically rather than getting $1,000 per month, you’ll now get $1,160 per month for the rest of your life, nice little increase in your check; or you could say, “Give me all 24 of those back checks.”
Jason: That would also be important, then, for people who have a spouse, and there’s a high likelihood that the spouse is going to need that spousal benefit because then the spousal benefit would be higher as well, right?
Kirk: The survivor’s benefit …
Jason: I’m sorry, the survivor benefit, yeah.
Kirk: Yeah, potentially you could have a spouse, and let’s say you did, using your example there, actually as a spouse, if you file and suspend at age 66 and you have a spouse that could get benefits on your record, the spouse could then also file on your record at whatever age they happen to be, and they would be eligible for up to 50 percent of your Social Security benefit.
Jason: Here’s a neat strategy. Two people are 66 years old. The husband’s the primary wage earner. He’s got the larger Social Security. Let’s say the wife she never worked. She’s a stay-at-home mom. He’s 66, but he’s still working, doesn’t want to start receiving a Social Security check because all that additional income might bump him up into the next income bracket or whatever reason. He wants to suspend it because he wants those bonus credits to accumulate for his own Social Security, but his wife … He files for Social Security at 66, he suspends it, which means he’s not getting a check from Social Security Administration, but his wife, she’s also full retirement age. She’s 66, and she says, “You know, I’d like the spousal benefit,” and she can receive as much as potentially 50 percent of what his benefit would be, so even though he’s not receiving his benefit, she could still receive her spousal benefit?
Kirk: That is exactly correct. Using that example of $1,000 again, he files, he suspends. He earns his bonus credits on his $1,000. I’m assuming once again that she has not worked and that she doesn’t have her own Social Security check, she would be eligible for a full 50 percent of that $1,000, or $500 per month. If she had worked a little bit, and let’s say she was going to qualify for a little bit on her own check. Let’s say she was going to get $300 on her own Social Security, she could collect $300 on hers and an additional $200 off of his, bringing her back up to the $500 level. That is exactly correct.
Now, let’s say he reaches age 68. He has an option. He can say, “Start my checks. Give me 116 percent of my checks for the rest of my life.” He can say, “Let’s go backwards. Give me all 24 of those checks. Give me a lump sum of $24,000,” or he could say, doing a kind of in-between one, he could say, “Give me just 12 months’ worth of those bonus credits. Make my check 108 percent of Social Security benefits and then give me 12 of those checks at 108 percent each.” He could do it anywhere in between.
Let’s say he took the bonus credits. Let’s say he said, “Give me 116 percent of my check for the rest of my life.” He starts to get his check. He’s getting now … His spouse is getting $500 per month because she’s always eligible for 50 percent of the original benefit. She doesn’t get the effect of any of the bonus credits he earned while he’s alive. Now then, he passes away. She would then convert over and go from $500 a month to the $1,160 per month that he was receiving. In death, she would get the bonus of the bonus credits.
Jason: That would definitely be a good strategy.
I was watching the news. You probably saw this. Out in France, they raised the retirement age, I believe it was from 60 to 62.
Jason: When they did that, the people in France, especially the young people. They took to the streets. They were rioting, tipping over cars, burning stuff. They were not happy about France increasing the retirement age from 60 to 62. Right now, full retirement age is 66. It’s my understanding … Should our generation, me and you, Mr. Larsen, should we expect that Social Security or when we can retire is going to be much later than where people can retire today?
Kirk: Currently today, for someone born after 1960 … Someone born 1960 or later, their full retirement age, the date that they could get 100 percent of their Social Security check, that is age 67. Now then, will that go up in the future? There are some proposals out there right now put out by the President and the Congressmen and Senators saying that, yes, that age should go up. Now, then, I think we can basically assure … and I can almost guarantee this, as far as guarantees can go … is that someone born before 1960, their retirement dates are pretty well set in stone. Those would not go up, but potentially for people born after 1960, that could go up a little bit. I have heard some proposals saying that for every two years past 1960, for every two years going past that, to begin to increase the retirement age by one month. Someone born in 1960 could get 100 percent of their check at age 67. Someone born in 1962 would get 100 percent of their check if they waited until age 67 and one month, and then so on.
Jason: What’s kind of interesting to me is in France people take to the streets and they protest this. Really what the government’s doing is they’re telling me and guys like you … They’re saying, “Look, we’re going to go ahead and make sure that all these generations before you get as much as they possibly can, but you guys get to shoulder the burden of it.” The proposal I had heard that was for me, Mr. Larsen, that I was going to have to wait until I was 69 before I got my full benefits. Maybe this isn’t a question to you but just to all of our listeners, America, why is that okay? Why is it that our generation and people in their 30s and 40s, we don’t stand up and say, “No, you’re not going to balance the Social Security responsibility on our shoulders.” That doesn’t seem right to me, Mr. Larsen.
Kirk: Part of the thing that we also need to realize is that we, as a people, are living much longer than we used to. When the Social Security systems basically in the United States and throughout Europe, when those came out, someone that lived until age 65 could expect to maybe … If you reached the ripe old age of 65, you could probably expect to live to maybe age 73, 74. You could expect to live another 8 years on average.
Jason: We tricked them.
Kirk: We tricked them. We have gotten better because of medical sciences and different things, we are living much longer. Today, someone that reaches the age of 65, they can expect almost to live double that age. We have doubled the life expectancy past the age of 65. Today the average American reaching age 65, they will live until age 83 or age 84. In fact, we’ve doubled that time period.
Jason: Mr. Larsen, I had to cut you off. We’re out of time, but I sure do appreciate you being on the program today.
Kirk: Oh, no problem at all. Very good, and I hope to be on again in the future.
Jason: Thanks to Kirk Larsen from the Social Security Administration.
Announcer: You’ve been listening to Sound Retirement Radio with Host Jason Parker. For more information, contact Jason Parker at 360-337-2701, or online at SoundRetirementRadio.com.