You Can't Decide Without Facts
When should you claim your Social Security benefits? Should you claim them on your own work record or on your spouse's work record? Those relatively simple questions can become very complex in certain cases.
Fortunately, there are Social Security Administration (SSA) offices throughout the nation with staff waiting to help. Unfortunately, the advice you get from the SSA is not always correct and may be incomplete.
By law, SSA employees are not allowed to give you advice on when to claim your benefits or how to claim them – but they are supposed to give you the advantages and disadvantages of filing strategies. Without a proper understanding of your options, you can't make the best retirement decision.
A recent audit highlights one area where the SSA has not been providing the full picture to retirees, causing significant underpayment of benefits.
Rules and Changes
The SSA's Office of the Inspector General (OIG) just released an audit showing poor performance in notifying widows and widowers about their retirement benefit options.
When you apply for Social Security benefits, typically the SSA will calculate benefits based on your earnings, as well as benefits based on your spouse's or ex-spouse's earnings, and will automatically pay you whichever benefit is higher.
If your spouse had already filed and the benefits from their record were higher than your benefits, you could file a restricted application for spousal benefits only. By waiting until age 70 to claim your benefits on your own work history and claiming only spousal benefits before then, you can increase your own benefits by 8% per year between your full retirement age and age 70 – significantly increasing the monthly benefits on your own record.
Rule changes starting in 2016 eliminated the restricted application option for those born after January 1, 1954 – but all widows and widowers are still allowed to file restriction applications. In the audited cases, the claimants were eligible for both widow(er) benefits and their own benefits. The audit results suggest the SSA is either confused by its own rules or simply failing to inform widow(er)s of their options.
Audit Finds Many Improperly Informed Seniors
Out of a random sample of 50 current beneficiaries, the OIG found that a surprising 82% would have been able to receive a higher monthly benefit amount by employing the above strategy. Extended to all such beneficiaries, OIG estimated that SSA underpaid 9,224 beneficiaries by a collective $131.8 million and another 1,899 beneficiaries will be underpaid by a collective $9.8 million per year when they reach age 70.
Every beneficiary must make their own choice on how to file, but the OIG found no documented evidence that filers were notified of their option to delay benefits – and there's no economic reason to avoid the delay when spousal benefits are higher at filing time. Your total benefits won't be any lower than your spousal benefits in the interim period and your own benefits are likely to be higher than spousal benefits after several years of 8% increases.
Divorced widows and widowers may not know what spousal benefits they may apply for, or even that an ex-spouse has passed away. Privacy issues preclude SSA employees from disclosing much about your ex-spouse's work record to you, but they can tell you about how your benefits will be affected by claiming on your ex-spouse's record – assuming they understand the rules and are current on the latest changes.
Spousal benefit rules are not straightforward, especially when divorce and/or death is involved. Most people need help navigating through the complex rules, and the OIG's report implies that you can't always trust the SSA alone to give you the right information.
If you can't trust Social Security offices to give you correct information regarding Social Security benefits, whom can you trust? Our best advice is an out-of-context quote from Ronald Reagan – "Trust but verify."
Assume the SSA is correct but don't act until you've found verification – especially if your SSA office and the SSA website are giving conflicting advice. Consult multiple online sources along with the SSA website and your local SSA office. Do you get the same answer with every source? You're probably in good shape. If not, you'll have to dig further, starting with the SSA. Try a different SSA contact and see if they can resolve the conflict.
Be as detailed as possible with your questions. It's often a piece of missing information that leads advisors to give bad advice.
If you feel overwhelmed by that effort or can't tell who is correct, consider consulting with a financial professional who has proven expertise in Social Security matters. Ask for the advisor's credentials and certifications first. Check their performance with the Better Business Bureau, your local Chamber of Commerce, and online reviews.
The key is to start planning for retirement far in advance as part of a comprehensive long-term financial strategy. You can lay out a retirement strategy with verified options years before you retire. Prepare now and avoid an unpleasant surprise at retirement, when there's little that you can do about it.
Regardless of where you plan to retire, the number one factor in ensuring that you can retire on your terms is your 401(k). Make sure that your 401(k) is maximizing its potential with this free analysis that checks your fees, fund mix, and other factors to help you hit your retirement goals.