Personal Finance

What Social Security Isn’t Telling You About Your Money

The agency isn’t doing the best job of communicating crucial information, the GAO finds. Like how much do you gain by delaying your claim?

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Source: Creativ Studio Heinemann/Westend61 via Getty Images

Americans getting ready to claim their Social Security benefits may not be getting crucial information they need to make the best decisions for their retirement, according to a new study by the Government Accountability Office. That could mean tens of thousands of lost dollars.

Many people are in dire need of any extra bit of retirement money they can get. The report notes that for those age 65 and older, Social Security benefits made up an average of 52 percent of household income in 2013. It made up at least half of income for 62 percent of retirees 70 and over. For almost a quarter of these older retirees, it made up at least 90 percent of household income.

While a ton of information about claiming your Social Security benefits is online, and you can set up an account to check your own Social Security status for benefits, some important points aren't being adequately communicating in face-to-face meetings between agency staff and claimants, according to the GAO. It analyzed nine surveys and studies, interviewed retirement experts, and observed the handling of 30 in-person claims at Social Security Administration field offices. 

“The report doesn’t begin to suggest the magnitude of Social Security’s mistakes,” in Laurence Kotlikoff’s reading of it. Kotlikoff is co-author of a best-selling book on maximizing your Social Security benefits and an economics professor at Boston University. (He’s also running for president, but who isn’t?)

For example, it’s critical to know how much more your monthly benefit will be if you delay claiming it beyond full retirement age, which is 67 for anyone born in 1960 or later.

“While some people understand that delaying claiming leads to higher benefits, many are unclear about the actual amount that benefits increase with claiming age,” according to the report. In 8 of the 26 meetings in which higher monthly benefits could have been achieved if the person meeting with the SSA representative had waited, the pros and cons of holding off didn’t even come up, although the SSA’s current policy instructs claims processors to address the topic.

Worse, the GAO report notes that "in both face-to-face and online application methods, we found claimants were sometimes provided information that could inadvertently influence them to claim earlier than they might have otherwise."

So know this: For those born after 1943, the benefit rises 8 percent a year if you delay your claim, up to age 70. After 70, there’s no further financial benefit to holding off.

The GAO found that information given to claimants about how their earnings’ track record factors into their monthly benefit amount was also incomplete. “Only 7 of 18 claimants for whom the retirement earnings test could potentially apply were given complete information about how the test worked,” it reported.

Important strategies about claiming spousal benefits also got short shrift. And other crucial information didn’t pop up in the online application process, such as how benefits are tied to your highest 35 years of earnings, as well as the importance of factoring life expectancy into your decision on when to claim.

The SSA’s reply to the report, which is included in the report itself, notes that a lot of factors go into deciding the best time to claim.

“There is no one age that is best for everyone; claimants must select the age that is best for them based on their individual circumstances, including other income, assets and obligations, health and family longevity, and the Social Security benefits available to dependents,” the agency said. It also noted that the GAO’s “small sample is not reflective of the millions of retirement claims and related discussions we have with the public every year.”

The SSA did agree with many of the GAO’s recommendations for improving the process, with some tweaking. They include making sure claims specialists ask people if they know the benefits of delaying claims and at least show them what estimated benefits would be at their current age and at age 70; tell claimants that additional years of work could boost their future benefit1; and provide information about how life expectancy factors into when it may be best to claim benefits. 

Kotlikoff offers his own recommendation: “So let me speak directly to the 40,000 Social Security staff across the country. An easy way for you to learn the rules is to buy a copy of my book (co-authored with Paul Solman and Phil Moeller) called Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security. Please ignore the jokes. They aren’t directed at you.”

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  1. 1 The SSA said, “We agree that information regarding the 35 base-years of earnings in the primary insurance amount formula is useful to some individuals—namely, those who have gaps in their earnings history, who are not retired from work, and/or who plan on returning to work. At the same time, we believe this information could be confusing or misleading to other claimants.”