Social Security Continues to Underpay Beneficiaries

There is more evidence that you can’t depend on the Social Security Administration (SSA) to give good advice or ensure you receive all the benefits the law allows.

The latest evidence for this comes from the SSA itself, through two audit reports from its Office of Inspector General (OIG).

One audit report focused on Social Security retirement beneficiaries who continued to work after claiming their benefits before the full retirement age.

Under the law, someone who is receiving Social Security retirement benefits before full retirement age loses some of the benefits when earned income during the year exceeds certain levels. But the loss in benefits is supposed to be temporary.

Once the beneficiary reaches full retirement age, the SSA is supposed to adjust the monthly benefits by providing a credit for each month the beneficiary did not receive full benefits because of the earned income limit. This increases the beneficiary’s monthly payments.

The OIG looked at a sample of beneficiaries to determine how well the SSA applied these rule. It found that the SSA didn’t do well.

In the sample of beneficiaries the OIG examined, it found that the earnings were not adjusted properly for 53% of the beneficiaries. About 71% of those mistakes were the underpayment of benefits. The SSA overpaid the remaining beneficiaries. When the results are extrapolated over all beneficiaries who had benefits withheld because of the earnings limit, the OIG estimates that the SSA made improper payments of about $1.4 million over 12 months.

In another report, the OIG examined how the SSA calculates survivors’ benefits for widows and widowers who also receive pensions from federal, state and local governments for work that was not covered by Social Security. These individuals are subject to the government pension offset (GPO), which reduces their Social Security benefits based on the amount of their pensions.

In addition, surviving spouse benefits can be claimed as early as age 60. But benefits will be reduced if they are claimed that early. Higher survivors’ benefits are paid if they are claimed at a later age, up to full retirement age.

The result is that some surviving spouses who receive government pensions will not be eligible for any survivors’ benefits if they claim at an early age. But, if they delay the claim until a later age, when their Social Security survivors’ benefits are higher, they’d be eligible for some survivors’ benefits.

The SSA’s policy is that SSA representatives must explain all of this to the beneficiaries and advise them on the best age at which to claim benefits.

The OIG examined cases of survivors who did not receive any survivors’ benefits because their government pensions were too high. It found that about 9% of these widows and widowers would have been eligible for some survivors’ benefits if they had waited until the full retirement age to claim their benefits. On average, the survivors would have been eligible for an additional $26,400 in lifetime benefits. In aggregate, they would have received more than $40 million over their life expectancy.

As I have said before, you cannot depend on the SSA for the right answers, especially with regard to the more complicated areas of the program. You need to educate yourself about the benefits you are entitled to receive. A good place to start is my new book, “Where’s My Money? Secrets to Getting the Most Out of Your Social Security.” You can order it here or here.

Estate and Retirement Planning Lessons from The Late Tony Hsieh

The recent death of the former leader of the online shoe retailer Zappos received a lot of media attention. Well-known as an innovative and unconventional leader, Hsieh might also become known for key mistakes he made in his retirement and estate planning.

Most of the media attention was directed at the mystery surrounding his death at age 46, allegations of substance abuse and his unusual lifestyle, especially since retiring in August.

Reports are that he was a heavy partier throughout his career, and his drug and alcohol use increased during his retirement. Other allegations state that, during retirement his lifelong fascination with fire increased and he experimented with extreme diets and other challenges to his physical endurance.

Hsieh’s retirement life also included a move to a new city. A result of the move, coupled with the COVID-19 pandemic, was that Hsieh became isolated from long-time friends and associates.

While Hsieh’s case is extreme, difficulty adjusting to retirement isn’t unusual, especially for someone who was a very busy, high-level performer during his career.

Financial security is only part of a successful retirement. Too many people don’t plan how they will spend their time in retirement. They have to fill the time they used to spend working and commuting. They also need a structure for their days, weeks and months to replace the structure they had during their careers.

Replacing the social contacts and interactions of the workplace also are important to a successful retirement. Numerous studies have concluded that friendship and social interaction are important to maintaining both physical and mental health. Other studies have shown that many retirees become isolated and lack sufficient contact with friends and family.

Hsieh apparently was one of the many retirees who did not develop a plan for how he would spend time during retirement. He also moved away from longtime friends and family, requiring him to develop new contacts. The reports are that his new contacts largely took advantage of him and encouraged his worst instincts.

As Hsieh demonstrated, financial security doesn’t guarantee a successful retirement. The non-financial aspects of retirement are at least as important and must be planned as thoroughly as one’s retirement finances.

There also are lessons to be learned from what we know about Hsieh’s estate.

Hsieh committed the common mistake of not having even a basic will. Among other consequences, that left doubt as to who should serve as the executor of his estate.

In July, a cousin was granted power of attorney for Hsieh, according to news reports. The cousin petitioned a court to be named guardian of Hsieh and his estate after he was injured and before he died.

But, in December, a Las Vegas judge appointed Hsieh’s father and brother to act as special administrators and representatives of the estate. It is possible that there will be court battles in the future regarding who should be in charge of the estate.

Hsieh also left a mess for his family to clean up. The Wall Street Journal described walls in his mansion that were covered with color-coded sticky notes representing financial commitments Hsieh had made to employees, friends and local businesses. Now, the administrators of his estate must sort through these notes and determine what they mean and whether the terms are legally enforceable against the estate.

Hsieh also didn’t leave a master list or inventory of his assets and liabilities. Now, his administrators will spend months, and perhaps years, simply identifying his assets and liabilities. In addition, some of the assets are likely to lose value in the time it takes to determine that they are part of the estate and need to be managed.

I’ve often said the best gift a person can leave his or her heirs is a guide to the estate. The guide would be a document or computer file that fully identifies all financial accounts and other assets, including where to locate important documents and how to access the accounts.

These days, an inventory of access information for all online accounts, subscriptions and other electronic assets and liabilities is essential. This type of roadmap for the estate administrators is almost as important as an up-to-date will.

For help, you can use my workbook, To My Heirs: A Book of Final Wishes and Instructions. Details are here.

The Data

New unemployment claims unexpectedly increased for the second week in a row and rose to the highest level since the first week of September.

New claims increased by 23,000 to 885,000. The previous week’s claims were revised higher by 9,000.

A total of 20.6 million Americans are receiving some form of unemployment compensation.

Retail sales declined 1.1% in November from October’s level. Over 12 months, retail sales increased 4.1%.

Also, October’s sales level was revised down to a 0.1% decline from September’s level instead of the initially reported 0.3% increase.

The largest sales declines in November were in restaurants, department stores and vehicles. There were increases in online sales, groceries and building materials.

Optimism among home builders finally declined. The Housing Market Index from the National Association of Home Builders (NAHB) fell to 86 in December, down from 90 in November. The index had hit new record highs each of the three previous months.

Builders say demand for new housing is strong. But affordability for buyers will be a challenge because of a low inventory of homes for sale and rising construction costs.

Housing starts increased in November by 1.2% above October’s level. That’s a 12.8% increase over 12 months. Single-family home starts, which are believed to help economic growth more than multi-family home starts, increased 0.4% in November and 27% over 12 months.

Building permits increased 6.2% in November and increased 8.5% over 12 months.

Consumer sentiment, as measured by the University of Michigan, increased to 81.4 in December from 76.9 in November. The December number is just below the October level, which so far is the highest level since the pandemic began.

The current conditions segment of the index increased to 91.8 from 87 in November. The December number is the highest level in nine months.

The December increase occurred because post-election optimism increased among Democrats more than it declined among Republicans.

The Empire State Manufacturing Index declined to 4.9 in December from 6.3 in November. That indicates the sector continues to grow but at a slower rate.

The Philadelphia Fed Manufacturing Index for December was 11.1, down from 26.3 in November.

Industrial Production increased another 0.4% in November, following a revised 0.9% increase in October. The manufacturing sector output increased 0.8% in November, following a revised 1.1% increase in October.

The PMI Composite Flash Index for mid-December indicates overall growth slowed in the first weeks of the month.

The overall composite declined to 55.7 from 58.6 at the end of November. The manufacturing index declined to 56.5 (from 56.7), and the services index declined to 55.3 (from 58.4).

Wholesale prices didn’t change much in November. The Producer Price Index increased 0.1%, compared to a 0.3% increase in October.

Over 12 months, the index increased 0.8%. That’s the largest 12-month increase since 1.1% in February.

The Markets

The S&P 500 rose 0.91% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 0.42%. The Russell 2000 increased 2.73%. The All-Country World Index (excluding U.S. stocks) added 1.37%. Emerging market equities edged up 1.62%.

Long-term treasuries rose 0.36% for the week. Investment-grade bonds increased 0.64%. Treasury Inflation-Protected Securities (TIPS) added 0.40%. High-yield bonds gained 0.27%.

In the currency arena the U.S. dollar declined 0.77%.

Energy-based commodities increased 3.17%. Broader-based commodities rose 3.46%, while gold gained 1.31%.

Bob’s News & Updates

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I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.