In a recent blog,
I wrote about what to do if a client gets a wrong answer from a Social Security Administration representative.
In that article, I suggested that the client ask to speak to a supervisor and check the agency's website to corroborate the information.
But I want to stress that this is an exception, not the rule.
SSA representatives go through years of rigorous training to learn the ins and outs of this very complicated program. Their No. 1 mission is to find the highest benefit to which an individual is entitled.
And therein lies the rub, I think.
As more consumers and financial advisers become familiar with sophisticated claiming strategies such as "file and suspend" or filing a "restrictive claim for spousal benefits," the initial claim may result in a smaller benefit which is counterintuitive to SSA guidelines of finding the highest benefits for an individual.
For example, if a wife is entitled to her own retirement benefit, but at 66 decides to file a restricted claim for spousal benefits only on her husband's earnings record, she would receive a smaller benefit initially in order to allow her own benefit to grow to a larger amount.
Let's plug in some number to illustrate the above scenario.
Let's say the husband claimed his full retirement benefit of $2,400 per month at his full retirement age of 66. And let's assume the wife has just turned 66 and is entitled to a benefit of $2,000 per month on her own earnings record.
Traditionally, she would claim her Social Security benefit of $2,000 per month. End of story.
But now that she has reached her full retirement age of 66, she could instead restrict her Social Security claim to spousal benefits. That would allow her to collect $1,200 per month, which is half of her husband's full retirement age benefit.
In the meantime, her own retirement benefit would accrue delayed retirement credits worth 8% per year up to 70.
At 70, she would switch to her own retirement benefits, now worth $2,640 per month, plus any intervening cost-of-living adjustments.
So initially, she would collect less than her full benefit amount in order to collect a larger benefit later.
I receive lots of e-mails from advisers and consumers complaining that a SSA representative gave them bad information. Often, the problem is that a consumer wants to file a restricted claim at 62.
This isn't allowed. Those who want to restrict their claim to spousal benefits, must wait until the full retirement age of 66 to claim benefits.
Ditto for those who want to exercise the strategy known as "file and suspend," which allows an individual to file a claim for Social Security benefits in order to trigger benefits for a spouse or dependent child and then immediately suspend their own benefit to allow it to accrue delayed retirement credits. Those who wish to file and suspend must wait until 66 to do so.
Many people wrongly assume that they can claim their reduced retirement benefits early at 62 and then exercise one of these claiming strategies once they reach 66. That isn't the case.
Once a final claiming decision is made, an individual is done.
I received an e-mail from an adviser in Minnesota the other day that echoes the point about SSA employees' considerable skills.
"I had a new client — a 66-year-old male — who was getting ready to start Social Security," Scot Hanson wrote. "I told him to delay Social Security until 70 and claim a spousal now so he could leave a higher benefit to his wife, should he die first."
Sounds like a good strategy.
Although the client was excited to learn about the value of filing a restricted claim for spousal benefits, he was even more excited after meeting with a Social Security representative who told him he could claim full survivor benefits from his first wife, who had died at 62.
"My error was not inquiring about second marriage," Mr. Hanson wrote. "We had only one meeting, and when we signed the paperwork, he never mentioned this was his second marriage or that his first wife had died."
But SSA reps are trained to ask lots of questions.
"The SSA office caught this and properly gave him a full survivor benefit at age 66 while his own SS benefit is growing to 70," Mr. Hanson said.
"SSA employees are very professional and competent for the most part," he said. "However, they can make mistakes, and we as advisers need to watch out and protect our clients."
I couldn't have said it better.
