Social Security is complicated, with plenty of different ways to claim benefits. Yet the people who turn to the Social Security Administration for help have a reasonable expectation that the information they receive will be complete and accurate. Unfortunately, that's not always the case, and one recent mistake has cost more than 9,000 Americans an estimated $131.8 million -- and counting.
The SSA has an inspector general's office that looks at the procedures that the agency's workers follow to help benefit recipients get the information they need. A February report (opens a PDF) from the SSA Inspector General detailed one area in which the SSA is falling short: providing information to surviving spouses about the rights they have to claim either survivor benefits or their own retirement benefits. The report's conclusion was that by providing incomplete information, the SSA is leading people to make costly mistakes that result in lower benefits for the rest of their lives.
The unusual choice surviving spouses have
The idea behind survivor benefits is quite simple: When your spouse passes away, you have the right to claim survivor benefits based on your spouse's work history. Yet where things get complicated is in the interaction between those survivor benefits and any retirement benefits that you've earned through your own work. Unlike most other benefits, surviving spouses don't have to claim survivor benefits and retirement benefits at the same time. Instead, they can claim one while delaying the other.
There are situations in which that option can be highly beneficial. For instance, take a situation in which a surviving spouse has just turned 62 and has a work history that will provide retirement benefits of $1,500 per month at full retirement age. Based on the deceased spouse's work history, the surviving spouse could also claim survivor benefits of $1,500 per month at full retirement age.
If the surviving spouse claims both benefits now, then both will be reduced to account for filing for benefits early. The reduced survivor benefit will be $1,100 per month, while the reduced retirement benefit would be $1,100 per month. Social Security wouldn't combine them. It only has to pay the greater of the two, and since they're equal in this case, it would make just a single $1,100 payment per month.
However, if the surviving spouse claims only the reduced survivor benefit, the retirement benefit can keep growing. The SSA would still pay the $1,100 per month now. But the surviving spouse could claim retirement benefits at full retirement age and get $1,500 per month, or wait until age 70 and get $1,940 per month thanks to delayed retirement credits. In other words, payments could be as much as $840 per month higher in the future -- with no loss of benefits now.
A problem within the SSA
One challenge that beneficiaries face is that applications for Social Security benefits are assumed to be for all benefits to which a person is entitled. To overcome that assumption, a person must specifically restrict the Social Security application to the benefit desired.
Yet the Inspector General's report found no evidence that SSA employees inform claimants of the option to delay their retirement benefits when they apply for survivor benefits. Indeed, after taking a sample of 50 beneficiaries out of the roughly 13,000 surviving spouses eligible for dual benefits, 41 could have gotten a higher monthly benefit if they'd waited before claiming their retirement benefit. Limiting the scope of their application to their survivor benefit would have given them more money. In the case of those 41 people, the report said that underpayments to those already getting benefits amounted to $486,000, and for those who haven't yet reached age 70, underpayments will be $36,300 per year. In only a single case did the person actually make the right move by delaying filing for retirement benefits while claiming survivor benefits.
Extrapolating those numbers out to the entire population led the Inspector General to conclude that 9,224 beneficiaries received $131.8 million less than they should have in benefits. Moreover, another 1,899 beneficiaries haven't reached age 70 yet, and once they do, their decision will result in underpayments of another $9.8 million annually thereafter.
Check your sources
The Inspector General concluded that the SSA needs to improve its controls to ensure that its employees inform beneficiaries of their rights accurately and completely. By putting systems in place to ensure that employees should alert recipients about their options, the SSA could remedy this situation.
Yet the more important takeaway for Social Security recipients is that you can't count on information that you get from Social Security Association representatives to be 100% accurate. Remedies for receiving inaccurate or incomplete information are limited. The better choice is to check the answers you get from the SSA against other independent sources to make sure you're getting consistent information. Otherwise, you could end up making a mistake that will cost you for the rest of your life.