Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.
Every day, these days, it seems like another frustrating Social Security story comes my way.
Today, I had two.
Social Security’s mistakes with retirement benefits are notoriously difficult to set straight. Below, you can learn from other people’s frustrating tales.
Talking to Social Security can cost you big time
My first story for you involves a widow I’ll call Jamie, who appears to have fallen victim to precisely the malfeasance that Social Security whistleblower, John McAdams, wrote us about.
Jamie took her widow’s benefit at age 60 and has waited 10 years to take her own retirement benefit at its highest age-70 level. But when she filed for her widow’s benefit at age 60, the Social Security staffer told her to call the office when she reached 62.
GOT SOCIAL SECURITY QUESTIONS?
She had no idea why, but did as she was told. She asked why she was asked to call, and the person she spoke with said he didn’t know, and they hung up. However, that person appears to have initiated Jamie’s early retirement benefit.
Now this is Jane’s recollection of what happened eight years ago. Jerry Lutz, the former Social Security Technical Expert, who reviews my columns tells me that Jamie would have had to verbally agree to file for her retirement benefit over the phone for this to have happened. Jerry said that there are a string of questions that Social Security needs to ask over the phone or in person before they can file someone to collect their retirement benefit.
Here’s what Jerry wrote me:
In order to become entitled to RIB [Retirement Insurance Benefits] at 62, Jamie would have to have filed an application. This would require answering a series of questions, and either signing or attesting over the phone that the information given is correct. Granted, she should have been advised not to file for RIB if it was disadvantageous, but she could not have been signed up for RIB based on a very short phone call as she describes.
I can’t tell you how many times I had similar cases when a widow could get an extra $100 a month or so at 62, and insisted on filing even though I explained how much better off they’d be if they waited until age 70. If I had a dollar for every time I heard, “I’ll probably be dead before then,” I could have retired much sooner.
Regardless of what precisely went down eight years ago in that phone call, Jamie was, from what she tells me, signed up for her age-62 retirement benefit.
But since her age 62 reduced retirement benefit was less than her age-60 reduced widow’s benefit, she continued to get the same check, namely just her widow’s benefit and had no idea that, internally, Social Security was calling her check the sum of her reduced retirement benefit plus her excess widow’s benefit (equal to the difference between her reduced widow’s benefit and her reduced early retirement benefit). She is still today getting this same total payment, leaving aside the annual cost of living adjustments (COLAs). But she would be getting far more had it not been for that errant telephone call.
Why? Because Social Security is claiming she intentionally and willingly took her retirement benefits early (even though there was nothing to gain financially and a heck of a lot to lose), she can’t collect her 76 percent higher age-70 retirement benefit that she’d now receive had she had never filed.
To truly understand this, let’s assume Jamie’s age-60 reduced widow’s benefit was $1,001 a month and her reduced age-62 retirement benefit was $1,000. (These numbers aren’t too far off from the actual ones.) So apart from the annual cost of living adjustments, Jamie’s been receiving $1,001 a month for ten years. She thought this $1,001 reflected one thing only: her age-60 application for her widow’s benefit. But since age 62, it’s reflected her age-62 reduced retirement benefit, which she never actually requested, of $1,000 plus $1 in excess widow’s benefits.
What she thought she’d be able to collect, now that she has just turned 70, is $1,760 per month, that is, her highest possible retirement benefit — her full retirement benefit inclusive of four years of delayed retirement credits. So thanks to the secret behavior of one Social Security staffer eight years ago, Jamie is facing the prospect of spending the next 30 years (if she makes it to 100) receiving a check each month that is $1,001 per month instead of $1,760 per month.
Of course, all of this comes from my conversation with Jamie, but if it is indeed as she says it is, it is deeply troublesome.
I’m having Jamie contact Social Security to procure in writing a statement as to when they initiated her retirement benefit and the amount of that benefit. But if what Jamie told me is correct, every widow(er) in the country between the ages of 62 and 70 who thinks they are getting just their widow’s benefit and are waiting till 70 to collect their own higher age-70 retirement benefit, should head over to their local office and check that Social Security hasn’t started their retirement benefit for them without their knowledge. If they have been treated like Jamie, they should contact their members of Congress to help correct this injustice. If they haven’t been treated like Jamie, they should have the Social Security staff at the local office provide a written confirmation of their stated desire not to start their retirement benefits until age 70 as well as an acknowledgment that no one in Social Security is authorized to file for them without their express written permission.
Don’t assume that a receipt from Social Security for a repayment will be honored
Here’s an email that came today from someone named Mark. As you’ll read, Mark took his retirement benefit early last January at age 64. He then very quickly found a job and went back to the office and withdrew his retirement benefit. He did so by paying back the one month of retirement benefits he had received. He made his payment with a credit card and received a receipt. But Social Security cannot, it seems, correctly process credit card transactions. Read on and wince.
Mr. Kotlikoff: I saw your recent NYT Op-Ed and wanted to tell you about my own Social Security nightmare that would be interesting to any of the millions of Americans who pay into the system and could be snagged in a similar trap someday. Please see the appeal letter below, which I have sent to the Social Security Administration, along with a check in the hopes of escaping the quagmire. Thank you. – Mark
To Whom It May Concern:
This letter is to appeal your decision to resume paying me monthly Social Security benefits.
This decision by you is the latest in a series of mistakes by the Social Security Administration that has been costly for me and threatens to penalize me financially for years to come. The program that I have paid into my entire working life, that should be offering me some peace of mind and security as I age through my 60s instead has manufactured a Kafka-esque nightmare that I’m pleading with you to stop.
It started shortly after I requested payments from SSA when I thought I was retiring in January 2015 at age 64 — before full retirement age (my birthdate is Oct. 1950, so my FRA is 66). Almost immediately I withdrew my request because I was soon employed again. I withdrew my request well within 12 months. (http://www.socialsecurity.gov/planners/retire/withdrawal.html)
I received one check for $2,200 from SSA before payments were stopped.
On March 16 I was sent a letter saying I had to reimburse SSA $4,512 for two checks. Almost immediately I received a second letter saying SSA was able to stop the second check, but I still owed $2,820. (A copy of the letter is enclosed here.)
When I pointed out in a phone call to SSA that the amount was about $500 more than I received, I was told I had to also pay SSA for the amount of taxes that were taken out.
On April 13, I went to the SSA office in Newark, N.J., and paid the $2,820 on my AARP VISA credit card (on the assumption that at tax time I could recoup the $500 in taxes.) A copy of the receipt for that payment – number 15103188002 is also enclosed.
After about six weeks when the bill didn’t show up on my AARP VISA credit card statement, I called SSA and was told I should wait about three months to see if it would appear on my bill. Three months later, I called again and during that call your representative informed me that the letter dated August 4 reinstating my payments was on its way to my house. He told me the payments were being reinstated so they could deduct the $2,820. He said there was no record of my April 13 payment, even though I gave him the receipt #.
By reinstating my payments now while I am 64, SSA will significantly reduce the amount I will be able to collect each month when I do finally retire in a few years at FRA. I will also be heavily taxed for 2015 on the payments as I am currently employed full-time and earning a salary.
I have already tried to pay SSA $2,820 and now I am being penalized after SSA has lost track of my payment.
Enclosed is a check for $2,820 to settle this account. Can we please get this cleared up immediately?
I want SSA to accept this check for $2,820, acknowledge that my request for benefits before FRA was withdrawn within 12 months and cancel/take back any benefits sent to me after I paid back SSA on April 13. According to your website, I did everything necessary to properly withdraw my request for benefits before FRA, so that I can start the clock fresh when I reach FRA as if I never requested benefits in the past. Thank you for your immediate attention to this matter.
Mark did the right thing here by sending Social Security a written letter of his situation along with a copy of the receipt and the check. In addition to this, Mark should also contact his members of Congress to ask them to help.
Today’s Social Security puzzler — collecting on your ex while your hubby collects on you
Here’s an interesting case that recently came my way. It involves an age 67-year-old married woman, I’ll call Mary, who got married after age 60. Her ex to whom she was married for more than 10 years recently died.
Her husband is now 66, that is, at full retirement age. Mary’s ex was a very high earner, and Mary’s retirement benefit, even if she waits until 70 to collect it, will never exceed her divorcee widow’s benefit. How can Marry collect a divorcee widow’s benefit if she’s remarried? The answer is that she remarried after age 60.
Mary’s husband, who I’ll call Joe, earned more than Mary, but less than her ex. What should Mary do? She could have Joe file and suspend his retirement benefit, permitting her to collect a full spousal benefit on his work record equal to half of his full retirement benefit. And then at 70 she could start her own retirement benefit.
But doing this would forego receiving her divorcee widow’s benefit. So Mary should definitely take her divorcee widow’s benefit. But what else can she and Joe do to maximize their lifetime benefits?
Tic Toc, Tic Toc… OK, time’s up.
Mary should file for her retirement benefit. Doing so won’t mean a penny more in benefits ever. But by filing for her own retirement benefit, she’ll permit Joe to collect a full spousal benefit on her work record while waiting until 70 to collect his highest possible retirement benefit.
Hence, Mary and Joe’s best strategy involves have Mary collect on her dead ex and have Joe collect on Mary.
Bonus Social Security puzzler — How can state and local governments that are exempt from Social Security help their workers collect more Social Security benefits without costs to themselves?
Suppose you work for a state or local government that doesn’t participate in Social Security and that you will receive a pension from that government. But also suppose you worked enough in covered employment (jobs that do withhold Social Security FICA taxes) either before, during or after working in non-covered employment to qualify to collect Social Security retirement benefits. You’ll receive a Social Security retirement benefit, but it will be significantly reduced by what’s called the Windfall Elimination Provision.
Furthermore, whether or not you qualify for your own retirement benefit, suppose you have a spouse or a living ex to whom you were married for 10-plus years. In this case, you may be able to collect a spousal benefit (or a child-in-care spousal benefit if you have a child under 16 or a disabled child who became disabled before 22 and remained disabled after age 22) or a divorcee spousal benefit. These benefits will be significantly reduced and potentially totally wiped out by the Government Pension Offset provision.
So what can your state or local government do to help you avoid the WEP and GPO?
Tic Toc, Tic Toc… OK, time’s up.
They can let you take your non-covered pension later, but at a higher value to compensate you fully for waiting to collect and for the fact that you may die before you collect or shortly thereafter. The cost to the state or local government of actuarially increasing your benefit to make you whole is zero when calculated on an actuarial present value basis. That’s what an actuarial increase means. Yes, the government has to pay a higher benefit to you when you finally start collecting, but it makes out by getting to delay the payments to you and by the prospect of your dying before you collect or soon thereafter.
Now, for the rest of the story. Neither the WEP nor the GPO take effect until you actually start collecting your non-covered pension. So, if you, for example, were able to take your non-covered pension starting at 75, you could start your Social Security benefit at 62 and not be WEP’d or GPO’d for 13 years!