Social Security is arguably the most important social program in this country. Each and every month, around 62 million people receives a check from the Old-Age, Survivors, and Disability Trust, 42.4 million of which are retired workers. Of these retirees, 62% rely on their monthly stipend to account for at least half of their monthly income, while slightly more than a third lean on the program for 90% to 100% of their monthly income.
Yet in spite of Social Security's clear importance, most folks don't have a good grasp of what this social program can do for them. A relatively straightforward 10-question true-false quiz on Social Security administered by MassMutual Financial Group in 2015 on more than 1,500 people found that just 28% received a "passing grade," defined as seven out of 10 questions correct, or better. Keep in mind that even with a passing grade, missing just one or two questions could mean that retirees leave money on the table when they enroll for benefits.
The rarest Social Security rules
But there are also subtle nuances and rules to Social Security that don't fall among what many would call "the basics." Here are two of what could very well be defined as the rarest Social Security rules.
1. The mulligan
One of the most interesting Social Security rules is the do-over clause tied to benefits, known as Form SSA-521 (officially, "Request for Withdrawal of Application"). If, for example, you enroll for Social Security benefits at an early age, say 62 or 63, and you soon regret your decision and the permanent reduction to your monthly payout, you have the option of undoing your claim and once again allowing your benefits to grow at roughly 8% per year. The incentive to wait to enroll is great, with your payout growing with each passing month, beginning at age 62 and ending at age 70.
Before December 2010, the Social Security Administration (SSA) allowed beneficiaries the option of undoing their benefits at any point between ages 62 and 70. The catch was that these recipients had to pay back every cent they'd received from Social Security, including any funds that may have been paid to their spouse or children based on their earnings history. Assuming their application was approved and they paid back the funds, the result was the ability to enroll at a later date and receive a bigger monthly payment. Given that seniors had years to see if their financial situation improved (i.e., their investment portfolio soared, or they landed a well-paying job), this mulligan proved useful for many.
In December 2010, though, the SSA altered this rule to only allow beneficiaries the opportunity to request a withdrawal of their application within 12 months of first receiving benefits. This significantly reduced the wiggle room to determine if it was worthwhile to undo their benefits and pay back what they'd received in order to net a higher monthly payout later. Though the SSA doesn't list the number of recipients who file Form SSA-521 annually, I'd be inclined to think it's shrunk dramatically over the past decade, possibly making it one of the least-used options today.
2. Survivor benefits... for parents
Folks often overlook that Social Security is about more than just providing a financial foundation for retirees. It also protects workers against long-term disabilities and provides for the spouses and children of eligible workers in the event of an untimely death through survivors insurance protection.
Yet what's most interesting about survivors protection is that it covers pretty much any immediate dependents of eligible workers. As of November 2017, according to the SSA, just shy of 6 million people were receiving survivor benefits each month, averaging $1,129 per paycheck. Essentially one out of every 10 checks from the SSA was for a survivor of a deceased worker. As you might imagine, non-disabled widows and widowers (3.71 million), along with the children of deceased workers (1.89 million), make up a bulk of these survivor payouts. But other dependents can receive benefits as well.
As noted in the November SSA snapshot, around 1,000 of the 6 million survivor beneficiaries are the parents of deceased workers. Just as parents are the providers of their children while growing up, some parents become the financial dependents of their children as they age. In the rare instance where children precede their parents in death, it's possible these previously financially dependent parents could be the recipients of an eligible workers' survivor benefit. It's worth noting that this survivor benefit would have to be higher than what the parents would receive from their own work and earnings history.
Based on sheer numbers alone (approximately 1,000 persons out of almost 62 million), dependent parents receiving survivor benefits is quite possibly the rarest Social Security rule.