Social Security blocks clients' claiming strategies

Sometimes it is possible to reverse unintended claims.
MAY 09, 2017

I am detecting a pattern. Time after time, a financial adviser recommends how a client should claim their Social Security benefits in a way that will maximize their lifetime income, only to be thwarted by a well-meaning Social Security representative who talks the client out of their intended strategy by offering a bigger immediate benefit. During my recent appearance at the InvestmentNews Retirement Income Summit in Chicago, I talked to numerous advisers who shared their frustration over this situation. "We recommended that my client, who was 67 at the time, take her spousal benefit in February 2016," said Kelly Cartier, a financial adviser with Cartier Financial in Clearwater, Fla. "But when she went to Social Security office in March 2016, they suggested she take her full retirement age benefit instead and get a lump sum payment going back to full retirement age rather than taking the spousal benefit and letting her benefit grow to age 70." The client's husband died later that year. Now Ms. Cartier wants to know if the client could suspend her retirement benefit, switch to her survivor benefit and allow her own retirement benefit to accrue delayed retirement credits of 8% per year up until age 70. Then she would switch back to her own larger retirement benefit. (More: How Social Security treats remarriage) Sadly, that won't work. "It's unfortunate that the SSA rep thwarted your client's original claiming strategy," I replied. "Because she has already claimed her own Social Security benefit, once she claims her survivor benefit (assuming it is larger than her own), she can't later switch back to her own retirement benefit. Had the client claimed her spousal benefits as she had originally planned, she would automatically have stepped up to a larger survivor benefit when her husband died. In the meantime, her own retirement benefit would have remained unclaimed, growing by 8% per year for every year beyond her full retirement age up to age 70. At that point, she could have claimed her own retirement benefit if larger than the survivor benefit. But because she is collecting on her own earnings record, rather than as a spouse, she needs to apply for survivor benefits. It's not automatic. And assuming the survivor benefit is larger than her own benefit, there is no sense waiting any longer to claim it. Survivor benefits are worth the maximum amount when the surviving spouse collects them at her full retirement age. Survivor benefits do not qualify for delayed retirement credits. It's a great example of unintended consequences. But it is certainly not unique. Many Social Security beneficiaries who restrict their claims to spousal benefits with the intention of switching to their own retirement benefits later routinely receive form letters from the Social Security Administration advising them that "if you apply for retirement benefits on your own Social Security number, our records show you may get higher benefits." (More: Ric Edelman proposes Social Security fix: Allot $7,000 for each baby) Another adviser from New York City, who asked to remain anonymous, found her own Social Security claiming strategy blocked by a well-intentioned SSA rep. The adviser's husband had filed and suspended his retirement benefit in February 2016, before that claiming strategy was eliminated in April of that same year. When the adviser turned 66 in August 2016, she attempted to claim spousal benefits on her husband's earnings record. Because she was born years before the Jan. 1, 1954, birthday cutoff that allows people to file a restricted claim for spousal benefits at full retirement age, she was surprised when the SSA refused her claim request. A supervisor confirmed that she was not eligible to claim only spousal benefits. Frustrated, the adviser gave up. But after listening to my presentation on Social Security claiming strategies at the Retirement Income Summit, she asked me for help. "If you haven't applied for benefits yet, I suggest you do it online at www.ssa.gov," I told her. "The online application will recognize your birthdate and marital status and will give you the option of claiming only spousal benefits." I also suggested she contact Matthew Allen of Social Security Advisors, a resource for untangling messy Social Security claiming decisions. She did. Mr. Allen encouraged her to use his firm's Social Security filing service ($99.95) which detailed her claiming strategy request in the remarks section. "Unfortunately when applicants just use the radial buttons provided in the SSA application to elect spousal benefits, these applications get sent to a human representative for processing," Mr. Allen explained. "The representatives all too frequently make a mistake and incorrectly believe that applicant is not eligible," he wrote in an email. "When the appropriate and specific remarks are included in the remarks section, this makes the process much smoother." Within days, the adviser's request to receive monthly spousal benefits was approved plus a lump sum payment of the maximum six months' worth of retroactive benefits. (More: How to spot fake answers from Social Security Administration reps) I suspect it won't be the last time I might have to find help to straighten out a Social Security claiming strategy debacle. (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.

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