Social Security: Advisers must stay current on regulations

Imagine finding​ out that your widowed mother’s monthly Social Security benefit check was less than she was entitled to. You’d likely be furious and more than a little ashamed for not having watched out for her best interests more closely.

A new report from the Inspector General of the Social Security Administration indicates that thousands of widows and widowers have been shortchanged by the SSA. Apparently, the agency failed to inform these retirees of all their claiming options when it was time for them to file for Social Security benefits.

While the Bipartisan Budget Act of 2015 curtailed the ability of people born after Jan. 1, 1954, to claim spousal benefits while delaying their own benefits until age 70, when they would be higher, the law allowed surviving spouses and eligible surviving ex-spouses to continue to use this option regardless of when they were born. By delaying their own benefits until they turn 70, spouses can collect 32% more in benefits than they would receive at normal retirement age.

As reported by InvestmentNews​ contributing editor Mary Beth Franklin, the Social Security inspector general found that, based on a random sample of 50 beneficiaries, 41 — or 82% — could have taken advantage of this option and would have received a bigger benefit had they been informed of their ability to delay their own retirement application until they turned 70.

Significant shortages

How much are these retirees being underpaid? In one case, the inspector general found a widow who was receiving a combined survivor benefit and retirement benefit. Between August of 2015, when she turned 70, and September 2017, she received benefits totaling $39,708. Had she delayed filing for her own benefits until she turned 70, she would have received benefits of $52,708 over the same period, a difference of $13,000, or about $6,000 a year.

How can this happen? Apparently, if a widow or widower goes to a Social Security office to file for benefits, the application normally covers all benefits the person is eligible for. In the case of a widow or widower, that would mean a combined retirement benefit and survivor’s benefit. The problem with that option is that it may pay only an incremental amount above the person’s own benefit.

(More: An adviser’s guide to Social Security survivor benefits)

The report gave an example of a widow who was eligible for a survivor’s benefit of $1,403 or her own retirement benefit of $1,140. The combined benefit was $1,403, the same amount as the survivor’s benefit alone: $1,140, plus an extra $263 in survivor’s benefits. If she had opted to delay her own retirement benefit, she could have collected the same amount in survivor benefits only, while building up credits to collect a larger benefit starting at age 70.

The report found that people were routinely not being told about the option of delaying their own retirement benefit until age 70, even if it could result in a substantially bigger benefit.

To correct this situation, the report recommended that the Social Security Administration improve controls to make sure retirees are being fully informed of their claiming options. In addition, the report recommended that the agency take appropriate action regarding the 41 beneficiaries in the random sample that it knows were underpaid and determine whether it needs to review another 13,500 beneficiaries who also may have been underpaid.

Apart from the shortcomings of the SSA, the report underscores the need for advisers to stay abreast of Social Security regulations to make sure they are maximizing benefits for their clients. The report is a rude reminder that we can’t depend on the government to always do the right thing.