Social Security taxes start automatically the day you start working. But when the time comes you have got to file an application to get your benefits. When to file? Well, it’s not that simple. You need a “strategy.” To look at some of those important considerations,  the Federal Drive with Tom Temin  talked with federal retirement expert Tammy Flanagan.

Interview Transcript: 

Tammy Flanagan
Tom. I’m glad to be back. And this is a very important topic. A lot of people ask about claiming, and a lot of people have opinions. Pretty strong opinion sometimes about whether it’s better to take it right at 62, or whether it’s a delay. So I’m happy we’re talking about this today.

Tom Temin
Because one of the considerations that you can’t know is when you’re going to depart this earth.

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Tammy Flanagan
That would be helpful as far as this decision goes. But I don’t think we really want to go there, do we?

Tom Temin
No. Because if you start at 62, and you’re dead at 68, then if you thought of waiting till 70, you get nothing?

Tammy Flanagan
Well, you won’t need the money, will you?

Tom Temin
So what are the big factors, then?

Tammy Flanagan
Funny we’re talking about this, because yesterday I received in the mail a letter from Social Security, reminding me that I’m going to be reaching my full retirement age next month. And your full retirement age is somewhere between 65 and 67. And at that point, it’s all based on your year of birth. So the young folks who were born in 1960 or later, that’s age 67, I’m a little bit behind that. But anyway, so when you reach that full retirement age, that’s when you’re entitled to your unreduced Social Security benefit, your full benefit. So when you decide to claim that benefit at age 62, which is your first eligibility to claim it, it’s a 30% reduction, or close to it for someone like me who’s older. So we really do have to give some thought to whether or not it makes sense to take it early, or to wait to our full age or some other points all the way up to age 70. So we all have this same eight-year-window. And the theory for some people is, I’m gonna get it while the getting’s good. Because if I’m retired, and who knows what’s going to happen to the future of Social Security, I might as well take it. And that’s fine, you can do that. I don’t think social security is going anywhere. And I think for those of us who are either near or at the age, we can claim it, it would be unlikely for Congress to make big changes, because that would create a riot in my opinion. So I don’t think that’s a big fear that’s well founded, but some people feel that way.

I think the more important questions to ask is, number one, do you need the money right now? For instance, someone like me who’s at a later age, still working, and my husband’s still living, and he has a retirement and I have savings. And we’re not really needing that Social Security check right now. And my theory in my situation is that I’m going to delay it if I can till age 70. Because as long as we’re both still living and comfortable financially, I’d rather have that much bigger check. In case I do live a long time. It’s ok, if we all die at age 81, it really doesn’t matter when you claim it. But what if you live to 91, or even 101, you don’t want to run out of money. And this is one of those checks that comes as long as you live. And if you get that bigger check, the cost of living adjustments is going to be based on a bigger amount. So that’s my theory.

Tom Temin
And then there’s the idea that because they tax Social Security, which you paid for with a tax, but that’s another topic. That if you take it while you’re still having healthy other streams, like from full time work, you’re going to pay a higher tax rate.

Tammy Flanagan
That’s absolutely true. So why create more taxable income when there’s an advantage to leaving it where it is. But we always have the other situation where people retire at younger ages, they might stop working completely when they’re in their 50s or early 60s. And without claiming Social Security, they probably don’t have enough money to really live comfortably. And so if you’ve saved enough in your savings, and you have government pension, in the case of our audience, there’s nothing wrong with claiming it when you retire. So I don’t want anyone to ever feel guilty that they took it early. Because that’s what retirement is, it’s the source of those three streams of income. So there’s something to be said for that as well.

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Tom Temin
And by the way, what is the processing time these days? If you make your application to Social Security, how long does it take till that first check comes?

Tammy Flanagan
Well, it’s nothing like your first civil service or first retirement check, because Social Security is all electronic. So if I went on Social Security’s website today, I could file for my benefit right there online, it’ll probably take me about 30 minutes. And I should have my first check by next month. So it’s really not a big process. The disability benefits are a little more time consuming, because they have to be reviewed and medical documentation has to be considered. But if you’re applying for Medicare or Social Security retirement, it’s a pretty painless process.

Tom Temin
And briefly, what are the considerations for spouses? Say one half of the couple has consistently earn more, and therefore will have a bigger social security payout. That is the one that goes to the spouse if the higher earning one dies first?

Tammy Flanagan
Yeah. Well, first of all, a lot of people don’t realize this, especially if you’re younger, and you haven’t thought much about this. But while both spouses are living, there could be a benefit paid on the higher incomes work record to the spouse who’s still alive. So we have what’s called spousal benefits, which we don’t have under the Federal Retirement System. So in other words, let’s say you had a spouse who worked very little outside the home, doesn’t have much if any social security of their own, they can claim benefits based on their spouse’s work record. And they can collect up to 50% of that while both of you are still living. So a lot of spouses are still entitled to those benefits. We think of those more like back in the station wagon days when dad took the car to work, and mom stayed home with the kids. But we still have a lot of stay at home parents today and people who don’t work outside the home for whatever reason. So that’s still in play.

Tom Temin
So that means 50% of the higher income person’s social security is more than the regular amount for the one who earned less.

Tammy Flanagan
That’s correct. So for instance, let’s say, I’m the higher wage earner and my benefit is $2,000 a month that my full retirement age. And my spouse, let’s say only has earned a benefit of 600 a month? Well, they’re gonna get half of that 2,000, because that’s more than their own 600. So yeah, the higher benefit would be payable in that case. And again, that also depends on what age you claim it, because there’s reductions. But as a widow or a surviving spouse, it becomes a different story, because in that case, you can claim that widows benefit at any age if you have young children, or as early as age 60, even if there are no children that are dependent on you. So in some cases, if your spouse dies early, you can claim that widows benefit and delay your own earned benefit to pick up those extra credits. So that’s one case where you can choose between the two, if you haven’t claimed the first one in advance. So that’s another option there. But widows can take over that deceased spouses benefit at any age, as long as they’re 60 or above.

Tom Temin
We’re speaking with Tammy Flanagan, she’s a principal with retirefederal.com, and a longtime expert in these matters. And at the same time, you’re thinking about Social Security as a Fed, as you touched on a moment ago, there is your main federal annuity, Your FERS annuity that you would have to apply for. And as you imply that just doesn’t come the week you retire, by any stretch of the imagination, does it?

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Tammy Flanagan
No. It’s a whole process when you apply for your federal retirement benefits, sometimes we call it your government pension. But whether it’s FERS or CSRS, that benefit is going to be processed from your agency, through the HR office onto payroll onto OPM. And even you have a role in that whole process, because it’s your responsibility to file the application, to make sure it’s filled out completely, make sure you’ve included all the documents that it’s asking you to include. And then handed into HR at least 30 days more likely 60,90, even 120 days ahead of your date of retirement. Because your HR office has work to do. They have to put together this literal package of papers that they’re going to put in a FedEx envelope, and mail that to OPM as soon as you retire. Usually, within the first two weeks of your life after retirement that goes to OPM. Payroll has to wait until they pay out your last paycheck to send that payroll information. And they do send it electronically from payroll. But that also hits OPM within that first month after you retire. So once it gets to OPM, it goes to a mail room because it’s a package of papers. So they have to put two hole punch and put it in a cardboard folder and do a little triage to see if there’s maybe a health benefit change on the top of that stack or maybe this is a disability, it has to go to a different office to look over the medical documentation. Or maybe this is someone who it’s questionable whether or not they’re eligible to retire. So somebody has to make sure that they’ve met the age and service requirements to even collect the benefits. So there’s a lot of work that gets done along the way before it even gets to that final processing stage where they start to cut the checks and pay you on a monthly basis.

Tom Temin
And if you had many different assignments at different agencies or in and out of government, does that complicate it and make it slower?

Tammy Flanagan
It can. I’m working with a guy right now who worked for three different agencies. One of them was up on Capitol Hill, and they don’t do official personnel folders with the normal documentation. They have a transcript of service. And OPM wasn’t given him credit for that because they didn’t have that transcript from up on Capitol Hill. So that delayed his, believe it or not, he’s still waiting after two years. There was a couple of other things that got in the way of his. So they won’t finalize that claim until they have everything they need to really give you the accurate benefit.

Tom Temin
Well, here’s your retirement cake. And we’ll see in two years maybe with a check, great.

Tammy Flanagan
That’s not the majority, by the way, so don’t worry if you’re planning to retire.

Tom Temin
What’s your experience with contacting OPM, if you have a question during this period?

Tammy Flanagan
Yeah, well, first of all, wait until you get your civil service active number, they call it a CSA number. Because without that number, you’re not going to get to talk to anybody. If you’re in that Limbo stage, where you’ve just left the agency, call back to your HR office, they can probably help you with any questions you have until OPM takes over. But if you are going to call OPM as a retiree, I suggest by all means, call early. If you’re on the East Coast, it’s a little easier, because 7:40am is 7:40am. But if you’re out in California, that’s like get up at 4am to make that phone call, may or may not be practical for you. But the earlier the better. Because those customer service lines get very busy later in the day, especially on a day like Friday afternoon or Monday morning. So be strategic. And when you’re calling in, you’ll have less frustration, hopefully.

Tom Temin
Really then retirement planning is one thing, but actually starting the process, you should give yourself six months. Shouldn’t you?

Tammy Flanagan
I’d say start at least a year ahead of time. And if you can, if it’s available to you, take a pre retirement planning class at least five years before you plan to retire. It’s not too early, because there’s things that have to be in place for five years in order to carry your health benefits your life insurance. Those things have other requirements to keep those as a retirement benefit.

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