Social Security Mistakes Can be Costly
Kay Dobson is 68, and it’s time to retire from her job as the jack of all trades at the Augusta Circle Elementary School in Greenville, South Carolina.
But she isn’t quite as ready for her June retirement as she could’ve been. She recently learned that an admitted unfamiliarity with Social Security’s arcane rules cost her about $31,000 for two years of foregone spousal benefits based on her husband’s earnings.
“I had not the vaguest idea that I would be eligible for that,” she said.
Dobson is hardly the first person to make a painful mistake like this. People have all kinds of misconceptions about Social Security, or they lack a basic understanding of how it works – that the government calculates benefits using their 35 highest years of earnings, that the size of the monthly checks depends on the age the benefits start, and that working women, like Dobson, are often entitled to a spousal benefit based on their husband’s work record and earnings.
Two years ago, Dobson could have applied for this benefit, because she’d reached her full retirement age – 66. But since she didn’t know this at the time, Social Security recently sent her a check for $7,800 for only six months retroactively – typically the maximum period for retroactive spousal benefits.
Her $1,300 monthly checks are starting to come in now too. When she turns 70, she’ll start collecting a larger benefit based on her own earnings from a long-time career in the school system.
This particular strategy – file for spousal benefits and delay your own – is now available only to people who turned 62 prior to Jan 2, 2016. The unintended loophole was eliminated, because it subverted the original intent of the spousal benefit, which was designed with an eye to retired households with a low-earning or non-working spouse. (The spousal benefit, in and of itself, remains intact and can be a big help to older households in which a working wife earned less than her husband. If that’s the case, her Social Security benefit would be increased until it is equal to half of his full retirement benefit if she claims at or above her own full retirement age.)
The central point here is that ignorance of program rules can mean substantial losses for retirees. For low- or middle-income retirees, the consequences can be especially dire since they’re already scraping by.
Dobson had to do her retirement planning all on her own, after her husband, Dan, was diagnosed with a neurological condition. She only happened to learn about the spousal benefit during a pension consultation with W. Dave Erwin, a Greenville financial adviser and consultant that the school district has made available to employees who want help with their retirement finances.
The mistake isn’t going to make or break the Dobson’s finances. Kay describes herself as upper middle class – her husband was a banker – and they have savings and a good long-term care policy, which few people do. But it would’ve been nice to have enjoyed that extra money or put it in the bank.
Erwin said that his experience advising other clients confirms what the research shows: big gaps in older Americans’ Social Security knowledge – even among smart, well-educated people like Dobson. “They know 25 percent of what they need to know,” he said.
To prevent lost opportunities and get the most out of Social Security, it’s critical to know all the rules that apply to you.
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It is so surprising that so many people are unaware of their options and the value of them, when making one of the most important financial decisions of their retirement.
Since everyone’s situation is different, researching all the possibilities can take some time, but you can start out with something free like the SSA website, as well as AARP and analyzenow.com which also include calculators.
Several books have been written about Social Security (my foremost and favorite form of research). Your local library may have these. Just be sure they are up to date as rules do change. For a good review of the latest books, check the Amazon site.
If you feel you may have claimed too early and later regret it, you can re-consider your choice. You have 12 months to pay back the total amount of any monies you received, interest free, to Social Security and withdraw your claim. Where else can you get a do-over at no cost?
A caveat…don’t depend solely on what a Social Security Representative may tell you. (Not beating up on them but some are more knowledgeable than others.). When we visited our SSA office we were told tat the claiming option we elected did not exist, which was totally wrong. I won’t go into the fiasco we encountered. Get your information from a reliable source first. And too many times people get their information from friends who are well meaning but who may not, themselves, be aware of all the possibilities.
Research and take notes, check the Social Security website, talk with more than one representative to verify information. If you are not a do-it-yourselfer, or are still flummoxed, a visit to a financial planner who is fee based and has done Social Security analysis can be well worth your time. Your diligence will be rewarded with lifelong benefits.
Great advice, Majorie.
Thanks!
Very kind of you to acknowledge, Alex. You are most welcome.
Does the fact that she was able to get her spousal benefit mean that she was part of the Social Security System? Many teachers have their own retirement system which I thought severely reduced the amount they could get from Social Security in this type of situation.
I am not surprised “…that so many people are unaware of their options and the value of them.” It is an opaque, complicated subject. Why do you think you can’t “…depend solely on what a Social Security Representative may tell you.” That was my wife’s experience when she initiated file and suspend and a restricted claim. It spite of this, she was able to file and suspend, and is claiming 50% of my benefit until age 70. Our reading about the process and then the pending changes in rules plus the assistance of our independent advisor made this happen.
Many of the representatives are poorly trained and do not know all the possible claiming strategies. Know what you want before you go, and do not allow them to be dismissive toward you. Ask to speak to a supervisor. We, too, were given completely wrong information.
Also, insist on filing for a benefit to which you believe you are entitled. That filing date sets the origination date for your benefit.
If the staff at your local Social Security balks at your claiming strategy, ask them to confirm it with Social Security headquarters in Baltimore.
The complexity of Social Security claiming can be overstated. If you’ve always been single or, along with a spouse, remain in a first marriage, it couldn’t be simpler. My guess is that Ms. Dobson, as a public employee, was never enrolled in Social Security and was thereby unaware that she could claim a spousal benefit. That’s not a consequence of arcane rules. Unless it’s that file and suspend thing (at her age, she would fit into it), in which case I can’t fault SSA for failing to be attentive enough to showing people how to game the system. (Paul: Good on ya, but you gotta admit…)