Social Security and the fear of missing out

Fear of missing out, or FOMO, is generally associated with millennials who worry that something exciting is happening elsewhere when they’re not there.

But baby boomers are not immune from FOMO — a word officially added to the Oxford Dictionary in 2013 — when it comes to collecting Social Security benefits. Many think they should be getting a bigger benefit.

Just this week I fielded questions about three different scenarios including a widow, a disabled worker and an aspiring early retiree. Each thought they deserved more from Social Security and in each case, they were wrong.

Perhaps this is the dark side of advising clients about how to maximize their Social Security benefits. It leaves them hungry for more. Here are some guidelines to help set them straight.

Social Security was designed to replace some lost earnings when a worker retires or can no longer work as a result of illness or injury and to help eligible family members cope after the loss of a breadwinner. It is not a lottery ticket to unlock hidden wealth.

For example, a woman contacted me asking for help collecting her rightful survivor benefits after her husband had died a few years ago. When she went to her local Social Security office upon turning 66 to claim her maximum survivor benefits, the agency representative said she was not eligible.

I thought it might be a plausible situation given SSA’s spotty track record when it comes to informing widows and surviving ex-spouses about their right to choose when to claim their own retirement benefits and their survivor benefits. So I asked her to send me the official denial letter.

Aha! The woman had neglected to mention a crucial detail: She had remarried before age 60. The Social Security rep was right. The woman is not entitled to survivor benefits while married to her current husband. But if she had waited until age 60 or later to remarry, she could collect survivor benefits even while married to someone else.

In another example, a man had been collecting Social Security benefits for 15 years and was convinced, after discussing his situation with a well-meaning adviser, that his family was being shortchanged.

Although his two sons each had collected dependent benefits worth up to half of the amount of his disability benefit, the father wanted to know why his wife couldn’t get benefits, too, and whether she was entitled to 15 years of retroactive payments. My answer was no and no.

I explained that there is a family maximum limit that caps the total benefits a family can receive based on a disabled or retired worker’s earnings record. Generally, the limit ranges from 150% to 180% of the worker’s benefit, with the worker’s portion counting for 100%. The eligible dependents share the remaining benefit.

With two children collecting benefits, the family likely reached that limit with no money left over for a caregiving parent. Often when one child ages out of the program at age 18, the remaining child steps up to a larger benefit and possibly leaves room for a spouse to also collect a benefit if caring for a child under age 16. But in this case, the younger child had already turned 17, so the wife was not eligible for a benefit as a caregiving parent and will have to wait until at least age 62 before she can claim on her husband’s earnings record.

Finally, an adviser reached out to me for some Social Security claiming advice for his clients. The husband had just turned 66 and based on his birth date would be eligible to file a restricted claim for spousal benefits and allow his own retirement benefits to continue to grow up until age 70. But to do so, his wife would have to claim her retirement benefit.

The problem? The wife is still working and earns too much money to claim benefits. Anyone who claims Social Security before their full retirement age loses $1 in benefits for every $2 earned over the annual limit. In 2018, that limit is $17,040. Next year it increases by $600 to $17,640. If the wife claimed Social Security now, her benefits would be wiped out due to excess earnings and so would his.

I suggested the wife claim her retirement benefits next January and then her husband could file a restricted claim for spousal benefits. With about $10,000 in excess earnings, the husband and wife would forfeit about $5,000 of benefits during the first few months of the year to satisfy the earnings cap reductions. After that, they both would receive benefits for the rest of the year.