Over the past year I find myself increasingly being asked to assist in damage control. In many of those situations the damage has been inflicted by the Social Security Administration itself.
Case in point: having just read the May 31 SSA blog post entitled The Importance of Social Security Survivors Benefits http://blog.socialsecurity.gov/the-importance-of-social-security-survivors-benefits/, I sensed my blood pressure beginning to rise. Two different items set me off, one simply misleading and the other downright dangerous.
The misleading statement reads as follows: “The amount of benefits your family receives depends on your lifetime earnings. The higher your earnings are, the higher the benefits will be.” Obviously there is some truth to the foregoing statement, but it is misleading in at least two respects.
- If the worker died after claiming his or her benefits before Full Retirement Age, then his or her surviving spouse could receive significantly less than the surviving spouse of a lower earner. Survivor benefits are most often equal to the retirement benefits the worker was receiving at the time of death.
Example: Worker A had a Primary Insurance Amount (PIA) of $2,000. He died at age 71, having delayed claiming his benefits until age 70. His widow was potentially eligible for survivor benefits of $2,640.
Worker B had a PIA of $2,600. He died at age 71, having claimed his benefits at age 63. His widow was potentially eligible for survivor benefits of $2,145.
- The deceased worker’s earnings and date of claiming determine the maximum possible survivor benefits. However, the age at which the surviving spouse claims survivor benefits determines what percentage of the maximum possible benefit amount will actually be payable.
Example (continuing): Worker A’s spouse claimed survivor benefits at Full Retirement Age (66 in this case) and became entitled to receive $2,640 per month. Worker B’s spouse claimed survivor benefits at age 60 and receives $1,859 per month.
The dangerous statement reads this way:
“When a worker dies, we recommend that their survivors apply for benefits right away. You can apply by telephone or at any Social Security office. For more information about survivors benefits, visit www.socialsecurity.gov/survivors. If you think you qualify, please don’t wait. Apply today.”
Worker B’s surviving spouse did exactly what the SSA blog suggests. She applied for survivor benefits when she turned 60, which is the earliest age of eligibility. As a result, she received a benefit of $1,859, which amounts to 71.5% of Worker B’s PIA, the minimum possible based on a PIA of $2,600.
Worker A’s surviving spouse ignored the SSA advice, and waited until she reached Full Retirement Age to claim survivor benefits of $2,640, thus receiving 100% of the maximum possible based on a PIA of $2,000.
The bottom line: many factors can come into play when a person becomes eligible for survivor benefits. It is not always a foregone conclusion that one should “apply for benefits right away.”
The Coup de Gräce
Charlie was 67 in 2014 when he filed and suspended (a technique that is no longer available) to enable his wife, then 66, to claim spousal benefits on his record. His wife collected spousal benefits for about a year, and then died unexpectedly.
Shortly after she passed, Charlie contacted SSA to see if he would be eligible for survivor benefits on her record. The response was positive, so Charlie filed the application and began collecting survivor benefits of $2,373 per month while he waited to begin receiving his own higher benefits at age 70.
The monthly payments continued for a total of 11 months, then stopped abruptly in 2016. Shortly thereafter Charlie received a letter from SSA saying that they had made a mistake in approving his claim for survivor benefits and directing Charlie to immediately repay the $26,103 he had received due to their error.
Charlie doesn’t have that amount of cash readily available, and so he is now trying to negotiate a payment plan with SSA. He is also working with his tax preparer to amend his 2015 and 2016 federal income tax returns so that he can get a refund of the income taxes he paid on the survivor benefits he now must return.
If Charlie had called me before he filed for survivor benefits, I could have saved him a lot of trouble. However, by the time he contacted me there was nothing I could do but empathize, and then explain why he has no grounds to dispute the SSA’s latest decision. So much for the advice to “apply for benefits right away.”
Peter M. Weinbaum, JD
Over the past few years, the Social Security Administration (SSA) seems to have dramatically expanded its marketing budget. SSA is constantly putting out blog posts and other communications, primarily focused on enhancing its brand and trying to persuade us that it cares deeply about the members of the public they exist to serve.
The April 13, 2017, post was entitled What Every Woman Should Know About Social Security, written by “Suze Orman, Personal Finance Expert.” http://blog.socialsecurity.gov/suze-orman-what-every-woman-should-know-about-social-security/ Following is a verbatim quote from Ms. Orman’s article:
“Here’s what women need to understand about Social Security.
- You can claim a benefit based on your own work history, or on your spouse’s Social Security earnings record, if you are married for at least ten years.
- You are eligible for Social Security if you have worked (and paid into the system) for 40 quarters, which is 10 years.
- Your benefit is based on the highest 35 years of earnings. That’s where working through your 60s might be helpful, if it knocks out some of your lower-income years from your benefit computation.
- When your spouse dies, you won’t be allowed to keep collecting his/her benefit and you are entitled to just one benefit. But you will be able to claim the higher of the two benefits.
- If you were married at least 10 years before you divorce, you will be eligible to claim a benefit based on your ex’s Social Security record.”
What, you may ask, is so dangerous about that? The answer: taking it at face value and relying on it in your planning. Here are some observations and comments relating to her numbered paragraphs:
- You do not have to be married for 10 years to potentially be eligible to claim benefits on your spouse’s Social Security record. You are required to have been married for only one year. However, whether you have been married for 10 years or one year at the time you claim, there are a number of additional hurdles you must be able to clear in order to be eligible to collect spousal benefits.
- While it is true that you must have accumulated 40 credits of covered earnings to be eligible for benefits on your own record, you may still be eligible for benefits on the record of a spouse (or former spouse) even if you have never worked. In 2017, it takes earnings of $1,300 to generate one credit; and although the maximum number of credits you can earn in any given calendar year is four, you could theoretically earn enough ($5,200) in one quarter (or even in one day) to accumulate 4 credits. So you don’t actually have to have worked in 40 separate quarters to be eligible for benefits on your own record, although you must have earned credits over a minimum of 10 different years.
- It is essentially true that your benefits are based on your highest 35 years of earnings, but keep in mind that we are talking about inflation-adjusted However, the potential to increase your benefits by continuing to work is not limited to your 60s. For example, if your earnings during the year you turn 83 become part of your highest 35 years, your benefits will increase.
- It is true that you cannot receive spousal benefits after your spouse has died, because spousal benefits are available only during your spouse’s lifetime. Moreover you cannot collect your own benefits plus survivor benefits at the same time. However, there are circumstances under which it makes sense to claim benefits on your own record until you reach Full Retirement Age, and then switch to survivor benefits. In other situations, you might claim survivor benefits first and later switch to benefits on your own record.
- Yes, you must have been married for at least 10 years to have the possibility of claiming benefits on your divorced spouse’s record. However, there are many circumstances under which you will not be eligible to receive divorced spouse’s benefits despite having been married to your former spouse for at least 10 years.
By the way, to the extent that any of the above is applicable to women, it also applies to men.
I suspect that Ms. Orman was well compensated for bringing her name-recognition and celebrity status to the SSA’s online blog. However those who rely on these kinds of sound-bite articles do so at their peril.
Peter M. Weinbaum, J.D.
Social Security Administration (SSA) representatives routinely dispense inappropriate advice and/or incorrect information to people like you and me. In the course of consulting with hundreds of couples and individuals, I have become personally aware of dozens of such instances. Sometimes the clients have come to me for a second opinion following an experience with SSA. Sometimes they report back after I have helped them make informed decisions about their benefit claiming. In either case, it’s a risky proposition to rely solely on advice or information received from SSA, either over the phone or in person at a local office.
Training and competence. SSA employees are primarily charged with processing applications for benefits. They are supposed to be trained to know, or be able to research, the rules that pertain to benefit claiming; to understand and explain how those rules operate in your particular situation; and to follow prescribed procedures to translate your application into benefits. As in most bureaucracies, not all representatives are equally well trained and knowledgeable. SSA reps run the gamut from highly trained, excellent public servants to inexperienced or incompetent functionaries – and everything in between. The problem is that it’s hard to assess the competency of the representative you are dealing with.
A very personal decision. Even the best SSA representatives are not trained to be claiming strategists, nor do they know enough about your particular circumstances to be able to give you reliable advice about which approach would be best for your situation. Heck, I am a very knowledgeable claiming strategist, and I don’t tell clients what they should do. I show them a range of strategies and encourage them to make claiming decisions that fit well with the rest of their financial situation.
True Story: I worked with a couple last February to help them figure out their Social Security claiming situation. John and Joan own a small business. They settled on a strategy that called for John to file and suspend before the end of April 2016, and for Joan to file a restricted application for spousal benefits when she turned 66 eight months later.
In mid-November I received the following email message from John:
“I just wanted to follow up with you since we last spoke. I did file and suspend last April, and Joan went into our local SSA office today to file a restricted application for spousal benefits. The representative at the window tried to talk her out of it! She wanted Joan to file for benefits under her own account since she’s turning 66 next month. Joan had your analysis with her and kept insisting that the clerk should proceed with the restricted application. The clerk kept saying: ‘Well, that may be what YOUR HUSBAND wants you to do, but what do YOU want to do? Don’t you realize that you could be getting twice as much by filing for your own benefits?’
What is the matter with these people? Joan finally had to tell her to just do what she was being told to do, and the rep relented, so it seems to have turned out OK: Joan will get half of my PIA for the next four years, while our own Social Security benefits will each continue to grow at 8% per year.”
True Story #2. I completed an analysis for Mike and Joanne back in March 2016. Mike was already 67 years old, while Joanne would turn 66 in October. They decided that Mike would claim his benefits in October to coincide with Joanne’s turning 66, when she would claim spousal benefits.
Around the middle of September he completed an application for his benefits online. However, the next day he got a call from an SSA representative who had read his application. The rep recommended that Mike should file for his benefits retroactive to March, pointing out that if he did that he would receive a lump-sum check for $18,000.
The $18,000 lump sum seemed attractive to Mike, so he contacted me immediately with two questions. He wanted to know (1) why he shouldn’t do the retroactive application, and (2) why I hadn’t notified him of this opportunity.
I told Mike that filing retroactively would cost him about $108 per month for the rest of his life as well as Joanne’s life. If getting $18,000 into his pocket by September had been important to them when I consulted with them back in March, Mike could have claimed his benefits at that time. But an extra $18,000 in early benefits was not important to them, and claiming his benefits in March would have been inconsistent with everything they had told me about their goals and priorities. Mike thanked me for “screwing my head back on straight” and the next day politely told the rep that he was going to follow through with the application as filed. The rep was incredulous and made one more attempt to convince Mike of the stupidity of his decision, but Mike stood his ground.
Have a plan and stick to it. If you don’t know what you’re doing and why you’re doing it when you seek help from SSA or file an application, you risk being talked into losing out on thousands of potential benefit dollars. What’s more, if the representative you deal with seems knowledgeable and acts in a friendly manner you may not know when you are being misled. In fact, you may even thank them profusely and tell your friends how helpful those folks at SSA really are! If you have a well thought out plan, great! Execute your plan and don’t get derailed. If you don’t, fill out this questionnaire and get started.
Many SSA representatives appear to believe that they are only doing a good job if they can (1) turn an inquiry into an application, and/or (2) persuade an applicant to adopt a strategy that will maximize their benefits on that day, regardless of the long-term consequences.
The moral of these stories: taking advice from Social Security representatives may be hazardous to your wealth!
Peter M. Weinbaum, JD
On October 18 the Social Security Administration announced a Cost of Living Adjustment (COLA) of 0.3% for 2017. Aside from the three years in which there was no COLA (2010, 2011, and 2016), this is by far the smallest percentage COLA since these automatic increases were first introduced in 1975.
How does this translate into extra dollars? It amounts to a $3 monthly increase for every $1,000 of monthly benefits. So if you’re receiving a monthly benefit amount of $2,000, you would expect a gross benefit increase of $6. The COLA takes effect beginning with December 2016 benefits, which are payable in January 2017.
But don’t spend it all in one place: if you are paying Medicare Part B premiums it is quite likely that the entire COLA increase, and possibly more, will be consumed by higher Part B premiums. We will know more when Medicare releases its premium schedules for 2017.
The real impact of this miniscule COLA will be felt in other areas that, while not affected by the size of the COLA percentage increase, depend on the declaration of a COLA of any size to trigger a change. Here are some of the affected numbers:
Social Security Contribution and Benefit Base. Also known as the “taxable wage base,” the ceiling on earnings subject to Social Security taxes grew to $118,500 in 2015, and remained at that level in 2016 because there was no COLA in 2016, and the wage base cannot increase unless there is a COLA declared for a particular year.
The 0.3% COLA for 2017 has allowed the wage base to spike upward, based on a formula that tracks the National Average Wage Index. In 2017 that ceiling has been raised to $127,200 – the largest year-over-year dollar increase in the history of Social Security. Translation: if your earnings as an employee are at or above the new wage base you will pay $539 more in Social Security taxes than you would have paid in 2016 with identical earnings.
Social Security Earnings Test. In 2016, the “exempt amount” under the Earnings Test was $15,720; in 2017 the exemption increases to $16,920.
Credits or Quarters of Coverage. 40 credits are needed to qualify to receive retirement benefits under one’s own record. In 2016, a credit required earnings of $1,260; in 2017, $1,300 of earnings is required to accumulate a credit.
Maximum Primary Insurance Amount. The highest possible benefit for a person retiring in 2016 at Full Retirement Age was $2,639, which was down from $2,663 the previous year. The maximum benefit for someone retiring at FRA in 2017 is $2,687.
Peter M. Weinbaum, JD
The stated mission of the Social Security Administration (SSA) is to “Deliver Social Security services that meet the changing needs of the public.” While that is a nice thought, it often seems as though SSA’s primary objective is to get people to begin benefits as early as possible without regard to the long term impact that early claiming might have. Here’s what I mean. (more…)
Although RMDs are outside my area of expertise, thoughts about beginning Social Security benefits at age 70 are often accompanied by musings about the need to do something about IRAs and other qualified retirement accumulations around age 70½. Recently I had occasion to help a Social Security client consider some of the issues related to the timing of his first RMD. (more…)
With all the media attention centered on the demise of file and suspend, you might have gotten the idea that it no longer matters what you do regarding Social Security claiming decisions. Not true! File and suspend was utilized by a surprisingly narrow range of Social Security claimants, sometimes inappropriately and to a couple’s detriment. However, it was a very “cool” technique that often made me look like a genius, so I regret that it no longer has a place in the claiming toolkit. That being said, the particular claiming strategy that you and your spouse choose can still make a substantial difference in the benefit dollars you will collect. (more…)
Since the enactment of the Bipartisan Budget Bill of 2015, much has been made in the public media of the imminent demise (on April 30, 2016) of the popular file and suspend technique. Meanwhile, the SSA was busy trying to wrap its bureaucratic head around the new regime and had little to say on the matter until well into February. For the most part, what all of this publicity has produced is CONFUSION!
The following email I received is a perfect example:
“I will turn 66 in June; my husband has already started taking his benefits. I was planning to take spousal benefits and wait till 70 to take mine, but the law has changed and my birthday is about a month after the cutoff date. This sudden change in the law is distressing and confusing. What should I do?” (more…)
Shortly after 12:00 noon on Monday, November 2, 2015, the President signed the two-year budget bill into law. The bill contained some amendments to the Social Security Act that will curtail some claiming strategies that have been both useful to and popular among individuals and couples across the socioeconomic landscape. (more…)
Just a week ago I was casually telling audiences in Philadelphia, as well as individuals who asked, that I wasn’t very worried about the file and suspend technique going out of style anytime soon. After all, the primary noise had come out of the Obama administration budget proposal for fiscal year 2015, and it seems as though nothing that the administration proposes gains any traction in Congress. Moreover, our dysfunctional legislators in Washington seemingly cannot agree on anything, so I had little concern over the disparate factions getting together on something so lower and middle class friendly as Social Security.