Despite our best efforts, we continue to be shocked by new horror stories about the Social Security Administration (SSA) that our readers bring to our attention. The latest galling example is one of the worst we’ve ever seen, and involves how the agency decides what to do when someone wants to defer benefits.
Readers of our book know that we are big believers in delaying benefits where possible. If someone delays claiming their retirement benefit until it reaches its maximum value at age 70, their monthly benefit will be 76-percent higher — in inflation-adjusted terms — than if they claim at age 62, which is the earliest age at which normal retirement benefits may be taken.
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Now, we’ve just learned, to our amazement, that Social Security is denying the delayed benefit wishes of some applicants and is instead forcing them to accept six months of retroactive benefits and a lifetime of lower benefits thereafter. Some beneficiaries may not even be aware that this is being done to them. This is a colossal injustice.
Retroactive benefits, as we explain in our book, are designed to help out people who, for whatever reason, have missed their intended filing date. Say a person meant to file at their full retirement age (FRA) of 66 but did not actually file for their benefit until age 67. Under the agency’s retroactivity rules, such a person could receive up to six months of retroactive payments in a lump sum. They would still be out six months of foregone monthly benefits but they’d at least be somewhat better off. Retroactivity is only available to people who file on or after reaching full retirement age. And its maximum payment is six months of benefits except for some emergency extenuating circumstances, when it can be up to 12 months.
Now, the agency is trying to force some people to accept a six-month retroactive payment when what the person wants to do is defer their benefits instead. Say someone comes in to their local Social Security office a few months shy of their 70th birthday and, as we’re all told to do, gives the agency a head’s up on their filing intentions.
Instead of accepting their application for benefits to begin at age 70, the agency’s representative instead gives the person a six-month retroactive payment! This act resets the person’s entitlement back to what it was six months prior and wipes out half a year of Delayed Retirement Credits (DRCs). The person loses 4 percent off their monthly benefit check in exchange for a six-month lump-sum payment they didn’t ask for and don’t want. This is awful.
We brought this to the attention of Jerry Lutz, the former Social Security technical expert who has reviewed nearly everything Larry has ever written about Social Security. Jerry consulted the SSA operations manual that sets forth agency policies and came back as amazed as we were.
“Based on SSA regulations, retroactivity is automatically applied to applications filed after FRA unless retroactivity is expressly restricted by the claimant,” he wrote. “If this is a conspiracy, frontline SSA employees are not in on it, so I wouldn’t throw them under the bus. They just try their best to enforce the rules as written by the higher-ups.”
What Jerry is saying is something we didn’t know. Anyone who wants to get all of his or her DRCs must expressly tell Social Security not to provide retroactive benefits. Social Security’s default assumption is that you want to receive retroactive benefits.
This really takes the cake. It’s bad enough that staffers at Social Security don’t understand why people should and would want to delay their benefit receipt. But then, when you tell them you want to take your benefit starting at 70, they decide you should have taken it earlier and change your application to something you didn’t request. We’re wondering how many of these “mistakes” get made every day and how many of those making these mistakes ever get fired.
What we’d like to see is an independent audit (by people like us!) of Social Security’s handling of participant requests for information and commencement of particular benefits. Our guess is we’d find a 40-percent error rate. If we could, we’d force every member of Social Security’s staff to read “Get What’s Yours.”
In the meantime, Social Security beneficiaries have to be vigilant and put down in writing their decision and preference not to receive retroactive benefits. Make sure Social Security provides a written statement acknowledging its receipt of this request. And if you do get a lump-sum retroactive payment you did not want, keep in mind that you have a one-year window to require the SSA to let you repay this amount, request a do-over, and claim the benefits you originally intended.
Economist Larry Kotlikoff and journalist Phil Moeller are co-authors of the New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” along with PBS economics correspondent Paul Solman. Follow them on Twitter @kotlikoff @PhilMoeller @PaulSolman.