This should come as no surprise to InvestmentNews readers, but a new study shows government representatives often dole out incorrect or misleading information when people visit their local Social Security Administration (SSA) office in person to apply for benefits. Those who apply for benefits online tend to have better outcomes.
In a new report, the Government Accountability Office (GAO) found that “certain key information is not provided or explained during the claims process” and “some claimants do not receive all the information that is critical to making informed claiming decisions.”
The report, which was requested by the Senate Select Committee on Aging last year, examines the extent to which people understand Social Security rules affecting their retirement benefits and what information SSA provides to individuals to enable them to make informed claiming decisions. In addition to conducting a comprehensive review of existing research on how to maximize Social Security benefits, the GAO observed a demonstration of the online claims process and sat in on 30 in-person claims applications in seven different field offices.
Initially, the GAO had planned to launch a second, undercover portion of its investigation to determine what people were being told when a third party was not watching, but the agency decided not to pursue it.
“What these investigators heard in their official visits was so disturbing and disheartening that there was no need for GAO investigators to go undercover as secret shoppers,” said Sen. Claire McCaskill, D-Mo., one of the two committee leaders who requested the report.
In eight of 26 claims interviews in which the claimant could have received higher monthly benefits by waiting until a later age, the GAO found that the claims specialist did not discuss the advantages and disadvantages of delaying claiming. And despite an official SSA policy against telling claimants how long they would have to live to make it worthwhile to delay their benefits, some claims representatives continue to use such breakeven analysis in their meetings with applicants, even though it has been demonstrated to push people to claim early.
“Deciding at what age to begin claiming Social Security retirement benefits is the single most important financial decision that many Americans will ever make,” committee chairman Susan Collins (R-Maine) said during a public hearing on the new GAO report last week. “Few, however, understand that making the wrong choice can end up costing them tens of thousands of dollars, or more, during their retirement years.”
Ms. McCaskill called the 8%-per-year delayed retirement credit earned by people who postpone claiming benefits beyond their full retirement age up to age 70 “the best deal in town.” “You can't invest in a risk-free, inflation-protected annuity — which is what Social Security is — in your 60s and expect to see a return like that,” she said.
During its observations of in-person claiming sessions, the GAO said several people were told they could claim their benefits retroactively and get a big check today — without being warned that lump sum would reduce their benefits for life. Anyone who applies for benefits after full retirement age can collect up to six months of retroactive benefits as a lump sum instead of receiving delayed retirement credits for that period. Retroactive benefits cannot be paid for periods beginning before full retirement age.
“Compared to the in-person process, online applicants have more consistent access to key information on the screen or through tabs or pop-up boxes as they complete the application,” the report said. “Even so, the online process also left out potentially important information that could improve an individual's decision to claim benefits.”
The GAO made six recommendations for improving how SSA delivers information to the public, including providing information on the value of delayed retirement credits, explaining how the earnings test works and emphasizing the fact that benefits are based on the top 35 years of earnings, which means many people could increase their future retirement benefit by working longer. The agency also said the claims process should include basic information on how life expectancy and longevity risk may affect the decision to claim benefits. The SSA generally agreed with the report's recommendations.
This candid report validates the complaints and concerns that I have heard from financial advisers and consumers over the past few years. Many applicants have received incorrect or misleading information during in-person meetings with Social Security claims reps, particularly since Congress approved changes to some key claiming rules in late 2015.
But the good news is the message about the need for improved communication seems to be getting through. SSA just issued an online update on the recent social security claiming changes. The document is one of the most comprehensive — and comprehensible — documents that agency has ever published. Check out everything you need to know about the new rule changes here.
(Questions about new Social Security rules? Find the answers in my new ebook.)
Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.