Deciphering a cryptic letter from Social Security

When the mail arrived the other day, my husband Mike announced that he'd received a letter from the Social Security Administration that seemed to indicate that his monthly retirement benefit would be slashed in half. What was going on?

He was understandably upset, and after reading the letter, I could appreciate his confusion. It was a standard form letter from SSA containing personalized information, and it was legitimate. This was no scam.

[More: Determining if a message from Social Security is a scam]

“We are writing to you about your Social Security benefits,” the letter began. “We changed your monthly benefit to $1,533.00 as of January 2022. We found that your prior amount was incorrect.” There was no mention of what that prior amount was.

Mike was horrified. He's currently receiving Social Security benefits of more than $3,200 per month. Did the letter mean his benefits would be cut, and if so, why?

“Your monthly benefit is $1,533 for January 2022 and February 2022,” the letter continued. “We cannot pay you monthly benefits at this time.” Huh? Did that mean his monthly benefits would stop completely?

No, not at all. In fact, the cryptic letter was actually a notice that his benefits were retroactively increased by about $100 per month for both January and February. But it would be hard to deduce that from the letter he received.

It took a bit of investigating to decipher the meaning of the letter. Luckily, I keep a file of all of our correspondence from the Social Security Administration.

I unearthed a previous letter from SSA sent about this time last year saying Mike’s gross Social Security benefit would be $1,430 per month starting in January 2021. That’s before deductions for monthly Medicare Part B premiums and federal income tax. That means his gross monthly benefit would increase by roughly $100 to $1,533 retroactive to January 2022.

Why is Mike’s Social Security benefit so low, you might wonder? It’s because he was collecting a spousal benefit on my earnings record until this past March, when he turned 70 and switched to his maximum retirement benefit on his own earnings record.

Spousal benefits, like Mike’s, are worth half of a worker’s (mine) full retirement age amount if the spouse claims Social Security at full retirement age or later. And because Mike was born before 1954, he is part of a small and shrinking group of beneficiaries who are able to restrict their claim to spousal benefits while allowing their own retirement benefits to continue to grow up to age 70. The last group of people who are able to take advantage of the restricted claim strategy will turn 70 next year in 2023.

People who were born after Jan. 1, 1954 — including me — can't use this valuable claiming strategy. When we file for Social Security, we receive the largest benefits to which we are entitled at that age, whether it's on our own earnings record or as a spouse. We don’t get to choose.

The fact that Mike switched to his own maximum retirement benefits in March 2022 explained the second part of the confusing letter. He was receiving benefits as a spouse in January and February based on my earnings record. That meant if my benefits increased, so would Mike’s.

The answer to that piece of the puzzle was contained in a separate letter that I received from SSA about the same time as Mike got his.

“We changed your monthly benefit to $3,066 as of January 2022,” my letter said. “We found that your prior amount was incorrect.”

At least my letter explained why.

“We changed your benefit amount to give you credit for your 2021 earnings,” it said. “We did not include these earnings when we figured your benefit amount before.” It then detailed how much I would receive to make up for the shortfall from January through September 2022 and how much I would receive each month for the remainder of the year.

What’s the lesson here for financial advisers and their clients? It’s a good idea to hold on to correspondence from the Social Security Administration to be able to keep track of your benefits and understand any changes in the monthly amount.

It also demonstrates that each year you continue to work affects your earnings record. If your current earnings replace a lower-earning year in the 35 years of lifetime earnings that are used to calculate your benefit, your future benefits could increase. This recalculation is ongoing and automatic. And it occurs regardless of your age and whether — like me — you are already receiving benefits.

The ongoing earnings record update is particularly important for people with sporadic work records, often women who took a break from the workforce to raise their kids or care for an elderly family member. If they worked fewer than 35 years, those years in which they earned nothing that are included in the 35-year calculation would reduce their average lifetime earnings and the benefits based on those earnings. Continuing to work and earn is one way to boost your future benefits.

But wait, there’s more. All Social Security beneficiaries will receive an 8.7% cost-of-living adjustment in January, the biggest annual increase in more than 40 years. In December, personalized COLA notices translating that 8.7% increase into dollars will be available online to most beneficiaries through the message center at www.ssa.gov/myaccount.

(Questions about new Social Security rules? Find the answers in Mary Beth Franklin’s 2022 ebook at MaximizingSocialSecurityBenefits.com.)