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.
Imagine that you’re married (or divorced), 63 years old, and going about your business as usual. Suddenly you receive an official notification from SSA. It is labeled “Important Information,” and although it kind of looks like a form letter, the heading contains a “Claim Number,” the first nine digits of which are identical to your Social Security number. Here are some actual excerpts from the letter one of my clients received from SSA:
“We are writing to let you know that you may be eligible for Social Security benefits. Before we can make a decision about your possible entitlement to Social Security benefits, you must file an application.”
“You should get in touch with us right away because the date you file an application can make a difference in the amount of benefits we can pay.”
“If you file the application within 6 months of the date of this letter, we will use June 6, 2016, the date of the original request, as the filing date.”
“Call or visit any Social Security office. We will help you fill out the application for Social Security benefits.”
If you received a letter like that, what would you do? Many folks would simply do as instructed: contact SSA and file an application for benefits. If you did that, here are some of the likely consequences:
- Your benefits will be reduced by about 20% from what they would be if you claimed them at 66, and by about 60% from what they would be if you waited until age 70.
- By claiming before age 66, any spousal (or divorced spouse) benefits for which you might have been eligible will be reduced or totally lost.
- If maximizing total lifetime benefits or monthly benefits at older ages are high priorities for you, filing now practically ensures that you will not achieve those objectives.
- You are guaranteed to lose out on tens of thousands over normal life expectancy.
I don’t know why SSA sends out such letters, as there seems to be little reason for most people to claim benefits before they reach Full Retirement Age unless they absolutely need the money to survive. This (true) story underscores the importance of becoming informed about your claiming options and developing a claiming strategy before anyone – especially the Social Security Administration – attempts to drive you toward a cookie-cutter solution.