Terry Gerton Today we’re going to talk about social security. You’ve been noticing as you talk to retirees that there are a lot of misconceptions about how and when to draw it. So let’s start: what’s at the top of the list for things people don’t understand about access to social security?
Tammy Flanagan Well, the one thing that’s really surprising me, and maybe I shouldn’t be surprised, but I’ve been meeting a lot of employees, I guess due to all the downsizing going on, that are all of a sudden facing retirement. And some of them are older employees. They’re in their late 60s, early 70s. And when I talk to them, I ask them, have you already begun receiving social security? And some them will say yes. Some of them will surprisingly say no. And I think they think because they’re still working, they can’t collect Social Security. The earnings limit that prevents you from collecting while you’re working goes away once you’re at the full retirement age, which for most people today is close to 67. And so they could have been receiving benefits for quite a few years. And the other thing I find that some people are married and don’t realize spousal benefits are payable while you are both living. I think some people think it’s just a survivor benefit. So I’m coming across more than just a handful of people who I’ve informed that, hey, you can collect social security, and they’re just totally taken off guard.
Terry Gerton What are the key factors that someone should think about when they’re trying to decide when to initiate a social security claim?
Tammy Flanagan Well, everybody has the same eight-year window. We start becoming eligible for social security retirement at age 62, and it doesn’t get any better than it gets at age 70. So I wouldn’t wait past age 70. Now from 67 — which is for people born after 1960, that’s the full retirement age — from 67 to 70, every year goes up 8% just for waiting. They call it delayed retirement credits. So for someone like me, who is 67, I’m waiting until I’m 70, maybe. I don’t know that for sure yet, but I’m planning to wait till I’m 70, because I’ll pick up those delayed credits. And for right now, I’m still young enough and healthy enough to continue working, thank goodness. But in my later years, if I no longer work or no longer produce income or worse yet, if I become widowed, that’s when I’m going to need the money the most. So I look at social security as my hedge against longevity. You know, the risk of living so long that we run out of our savings, and so we’re relying on those recurring monthly benefits. But not everybody agrees with me. Some people say, I’m going to get it while the getting’s good, or I’ve retired early, like my husband did, and he took social security at his first eligibility, which is great. So everyone’s going to have a different reason, whether it’s financial need, or whether it is family need, or whether like I’m doing as a hedge against the risk of living long enough that you’ve outlived your savings. So you have to really think about your own personal reason for taking it when you do.
Terry Gerton And are there some helpful calculators that folks could turn to to try different scenarios?
Tammy Flanagan Yeah, of course, on Social Security’s website, they have a couple of different ways to compute your benefit. The easiest is just to download your own personal benefit statement, and that’ll show you year by year, you know, however old you are now. If you’re younger than 62, it’ll give you from 62 to 70, the different amounts of benefits just for waiting, assuming that you work until you’re at least that age. But also on Social Security’s website they have calculators where you can choose the date. You can say, well, what if I want to leave, you know, in January of 2026? Well, it’ll show you what your benefit would look like on that date. So those are nice and fairly user-friendly to use. And then there’s also those websites that are called, like, social security maximization, or you can find books or worksheets to figure out, you know, what’s the break-even point. You can almost drive yourself crazy by getting down to the real nitty gritty on that. So I don’t suggest getting too hung up on it. Because the reality is, if we all died at about age 81 or 82, it really wouldn’t have mattered if we took it at 62 or 70, because that’s the age when most people break even. Meaning you would have gotten the same amount whether you took a small benefit for more years or a larger benefit for fewer years. So it’s not going to really make that much difference in the scheme of things unless we live to be 95 or 100. Then people like me will be glad I waited. And if we die early, we risk the chance of not collecting anything, but it is insurance.
Terry Gerton And so why do you think people remain so confused or have these misconceptions about the benefits of social security and when to take them?
Tammy Flanagan Well, I think a lot of people hear there’s an earnings test, and so therefore we think if we’re working, we can’t collect. But the earnings test gradually disappears, and I think we don’t dig deep enough to see that, you know, once we reach age 67, there is no longer an earnings test. So I think, we hear things and we just listen to the first headline, and we don’t read down deeper into it. And then the other group of people that I’m meeting today that aren’t collecting social security are CSRS [(Civil Service Retirement System)] retirees. Every once in a while, I’ll run into someone who didn’t realize that the Social Security Fairness Act that passed early this year, January 5 of this year, got rid of the windfall elimination provision and the government pension offset. Which means now CSRS retirees who maybe hadn’t even thought to apply for social security might now be eligible for possibly part of their spouse’s benefit or widow’s benefit, or even their own benefit that they neglected to apply for.
Terry Gerton That’s great advice. And so we’ll send everyone to the Social Security website and make sure that they check out their eligibility. I’m speaking with Tammy Flanagan. She’s the founder and principal retirement specialist at Retire Federal. Tammy, let’s change direction just a little bit and talk about the process of retiring and how it’s going right now with what’s going on at OPM. We’ve talked in the past about potential buildup of retirement delays. What are you seeing there?
Tammy Flanagan Well, they are coming in strong. I think part of what it was, and we don’t have the statistics from August yet, of course, because we’re just coming down to the end of the month. But for the month of July, retirements were up, but not nearly as much as they were in May and June. And I think the problem there was a lot of folks were worried about the One Big, Beautiful Bill that included initially a lot of changes to civil service retirement, FERS [(Federal Employees Retirement System)] retirement. Luckily, none of those changes took effect. They were pulled out of the bill at the last minute, but a lot of people were trying to get ahead of that. So they left in May and June. So we saw double, close to triple, the number of retirements going into OPM. But at the same time that was happening, OPM is initiating this new online retirement application. So anybody retiring today for the most part is filling out their application online. It’s going to go through HR, it’s going to go through payroll and all the way to OPM electronically, rather than in the old FedEx envelope through the US mail or FedEx. And so that’s going to speed up the front end of processing where things are going to get to OPM, hopefully more complete, more accurate with less mistakes on that front end. But that doesn’t mean there’s still not going to be delays. Because if you’ve had a divorce and you have to have a divorce decree splitting up your retirement between you and your former spouse, that’s going to take more time. If you have service that maybe you didn’t pay into the retirement fund or you took a refund of those contributions, those calculations of deposits and then your time to make the decision to pay it back, that is going to make more time, so there will be some delays at the processing side of it. But you will see some go pretty quickly, I think.
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Terry Gerton How do you counsel folks to prepare for that delay in processing from submission to collection? Sometimes it can be three months, sometimes it could be six or nine or more.
Tammy Flanagan I always say, what’s that old saying, expect the best and prepare for the worst. And I think that really it does apply here, because I think the majority of people will have a pretty smooth transition. Especially if you started with the same agency, you ended with that agency, you really didn’t have anything unusual happen throughout your career, like you didn’t switch from full-time to part-time and back to full- time again or things like that. Those should go pretty quick. And I think this electronic processing will help those go even quicker than they did before. But we’re still going to have those cases where there could be an error in your service history. So you want to make sure that all of your records reflect what you’ve done. So if you look in your official personnel folder, or the electronic official personnel folder as everybody has today, make sure you see that clear history of your federal career — from the first time you were a summer hire, to the time you went in the military, to the you came to your full-time career and switched agencies. All of that should be documented in your current personnel file. Some people think that their old agencies still have those records, and if they do, they’re in the wrong place. They should have followed you to your current appointment. So I think the most important thing to do is make sure you have a clear history of your federal careers. Because if you can’t see it, don’t expect OPM to see it either. So you want to make sure of that. I think that’s one of the most important things we can do.
Terry Gerton Along those lines, there’s an interesting statement on the new portal that promises instant certification for some applicants. What do you think that means?
Tammy Flanagan I’m wondering myself. But I think what it means is that, again, if somebody has that, what I’d call a clean case where everything’s coming in accurate, everything’s signed properly, service history is very clearly spelled out, everything’s in the retirement fund, I think those are the cases that, once OPM receives them, they see that they’re fully adjudicatable right then and there. I think you’ll see some people getting their first check, maybe even on time if we’re really lucky, but if nothing, maybe just one month delay rather than two or three months as we’ve typically seen.
Terry Gerton Sounds like good preparation on the front end may make the back end more simple and quick.
Tammy Flanagan I’m optimistic.
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