Social Security is, for tens of millions of Americans, the most important social program in this country. Data from the Social Security Administration (SSA) shows that more than three out of five seniors rely on the program for at least half of their monthly income, with 34% leaning on Social Security for practically all of their income (90%-100%).
It's also a program that the long-term disabled and survivors of deceased workers have come to depend on over the decades. As of January 2018, almost 10.4 million people were receiving disability insurance benefits, while just shy of 6 million folks were being paid a monthly survivor benefit.
With Social Security divvying up stipends for more than 78 years, it's presumed by many that the program, and federal government, are looking out for the best interests of its citizens. But what if that weren't the case?
Is Social Security drastically underpaying dually entitled widows and widowers?
A new case study from the Office of the Inspector General (OIG), which was released on Valentine's Day no less, found the SSA's controls for informing dually entitled widows and widowers severely lacking. By "dually entitled," I'm referring to an individual who has the right to claim a survivor benefit based on their deceased spouse's work and earnings history, while at the same time being eligible to claim a retirement benefit based on their own work history.
For those unaware, Social Security benefits grow by approximately 8% for each year you hold off on signing up, beginning at age 62 and ending at age 70. All things being equal (birth year, earnings, and work history), signing up at age 70 as opposed to age 62 could net up to a 76% higher monthly payout. Social Security employees are expected to explain the advantages and disadvantages of filing an application so claimants can make an informed decision. But make no mistake, this decision lies entirely up to the claimant.
What the OIG report found was that a large number of dually entitled widows and widowers could have benefited by delaying their application for retirement benefits based on their own work history, but weren't informed of this option by the SSA. The report identified 13,514 dually entitled beneficiaries via the Master Beneficiary Record and randomly chose 50 to more closely examine. In 41 out of those 50 instances, or 82%, the OIG "did not find any evidence SSA had informed claimants of the option to delay their retirement application when they applied for benefits, as required." In addition, it "also found that SSA did not have system controls in place to alert its employees when they should inform widow(er)s of their option to delay their applications for retirement benefits."
Though this is a small random sampling, the implication is that 11,123 of the 13,514 identified in the case study may have been underpaid by an estimated total of $131.8 million. More than 9,200 of these individuals were over the age of 70.
This isn't the first time the SSA may have underpaid survivors
Considering how much implicit trust is placed in the SSA by the American public, I wish I could say the OIG's Valentine's Day report was an anomaly. But, unfortunately, it's not.
In August 2017, the OIG set out to examine whether the SSA had adequate controls in place to "establish a correct months of entitlement for widow(er) beneficiaries." Usually, the initial month of entitlement benefits begins the month that individual applies for benefits. However, "a widow(er)'s initial month of entitlement could be earlier than the month of application if it does not reduce the widow(er)'s monthly benefit amount. A widow(er)'s initial month of entitlement may be up to 6 months before his/her application filing date or 12 months if he/she is disabled."
The OIG identified 218,052 widows and widowers who may have been entitled to earlier initial benefits, based on the above rules. After taking a random sampling of 200 cases, it found that 50.5%, or an estimated 110,116, were eligible for early benefits but weren't properly informed of this right. The OIG audit report summary suggests that these widows and widowers were underpaid by an estimated $285 million.
Two things need to happen to correct these deficiencies
Truth be told, over time these payout deficiencies can add up and put low- and middle-income retirees, disabled folks, and survivors behind the proverbial eight ball. There are only two ways this problem can be fixed.
The first, as suggested by the OIG during both of its audit summaries in the case studies described above, is that Social Security employees need to have a better understanding of how important these decisions are and be trained so they can properly inform seniors, survivors, and the disabled of their options. To be clear, this doesn't mean that SSA employees are going to make a decision on behalf of beneficiaries that they believe are right -- that still remains 100% the claimant's call. However, it does mean employees need to be able to present both the advantages and disadvantages to claimants so they can make a completely informed decision.
Secondly, and most importantly, eligible beneficiaries need to understand how Social Security impacts them. If you're divorced, disabled, a survivor of a deceased worker, or even a single retired worker or working American, you should understand the ins and outs of how claiming can impact your payout. With so many people counting on Social Security, the last thing you want to do is leave money on the table that could rightfully be yours.
Take action, be informed, and stay vigilant!