Don’t let Social Security steer you wrong regarding benefits
Few retirement decisions are as critical, or as easy to get wrong, as when and how to take your Social Security benefits. The rules can be so convoluted that many people rely on what they’re told by Social Security employees, but that could prove to be an expensive mistake.
Certified financial planner Kate Gregory of Huntington Beach, California, uses sophisticated Social Security claiming software to recommend strategies that maximize clients’ lifetime benefits.
“Most people are going to say, ‘Well, that’s what the government told me’ and let it drop. And that’s unfortunate,” says CFP Mary Beth Franklin, author of “Maximizing Social Security Retirement Benefits” and a contributing editor for Investment News.
The cost of mistakes
A lot of money is potentially at stake. The difference between the best claiming strategies and the worst could add up to $100,000 over the lifetime of a single person and $250,000 for married couples, says William Meyer, CEO of Social Security Solutions, a claiming strategies website.
Even seemingly small decisions can have outsize consequences. People who apply for benefits may be told they’re eligible for six months of back payments and that claiming the lump sum reduces their monthly benefits only slightly. Over time, though, that reduction adds up, especially when cost-of-living increases are factored in.
A 2016 study by the U.S. Government Accountability Office found that applicants “were not consistently provided key information that people may need to make well-informed decisions.” A 2018 report from Social Security’s Office of the Inspector General estimated that 9,224 widows and widowers age 70 and older were underpaid by about $131.8 million because they weren’t properly informed of their options.
Education, not advice
Social Security employees aren’t supposed to give advice, just education, Franklin says. But she and other financial planners can relate many stories of people being encouraged to sign up early when waiting was a better strategy, or receiving bad information such as being told they weren’t eligible for certain benefits or that they couldn’t take actions that were in fact allowed.
To be fair, many people have no idea how complicated the claiming decision can be and may not understand what they’re being told by Social Security representatives, Franklin says.
Social Security administers several different types of benefits — retirement benefits based on your own work record; spousal and survivor benefits based on the work record of a current or former spouse; child benefits for the minor children of people receiving Social Security; and various kinds of disability benefits. Each benefit comes with its own regulations, and the best strategy may depend on your marital status, your longevity, your tax situation and many other factors.
Where to get information
People can educate themselves by visiting Social Security’s recently redesigned site and learning how the various benefits work, Franklin says. AARP has a free Social Security claiming calculator that allows people to model different strategies.
Or you can spend $20 to $40 and up to use paid software, such as Social Security Solutions or Maximize My Social Security, that allows you to model more complicated situations, including those involving a minor child or a pension from a job that didn’t pay into Social Security. Consulting a financial planner who uses similar software also can be a smart move.
Franklin urges people to learn as much as they can before approaching Social Security, then keep a record of all interactions with the agency, including the names of representatives and their direct phone numbers, in case they need to appeal or correct a decision.