Social Security Shortchanges Some Spouses

Spouses are losing thousands of dollars annually because Social Security is not paying the maximum payouts for which they are eligible. The Office of Inspector General of the Social Security Administration said in a recent report that about one-third of spouses ages 70 and older who had their own earnings records weren’t receiving their maximum allowed benefits. On average, they were losing over $7,000 in benefits.

These underpayments generally happen when a person files to receive reduced benefits (before full retirement age) or for spousal benefits. If the person hasn’t filed a “restricted application”, Social Security is supposed to automatically determine the highest benefit for which the person is eligible and pay that.

But Social Security doesn’t always have all the facts when receiving an application and doesn’t know that it doesn’t have all the facts. Or the staff simply might not apply the rules properly and determine the maximum benefits.

Most often, the shortchange happens when a person was not eligible for higher benefits at the time of application but becomes eligible for higher benefits later. A person might become eligible for higher benefits by hitting a benchmark age (such as full retirement age or 70) or by having a spouse file for benefits. Social Security doesn’t have a program to identify these situations and doesn’t send letters to beneficiaries at key ages informing them that they might be eligible for higher benefits.

Six years ago the Inspector General issued a similar report in which it advised Social Security to send letters to spouses informing them of their potential for higher benefits. The agency declined, saying it didn’t have the resources. Social Security does send such letters to widows and widowers who might be eligible for higher benefits.

You don’t depend on the IRS to tell you how to pay the lowest tax bill, and you shouldn’t rely on Social Security to ensure you are receiving the highest possible benefit. Instead, have a general grasp of the rules and be ready to check for higher benefits at key benchmarks, such as turning full retirement age or age 70 or when your spouse files for benefits. Also, consider working with a financial advisor who is on top of Social Security’s rules and reviewing my report, Secrets to Boosting Social Security Benefits, available through the Bob’s Library tab on www.RetirementWatch.com.

RW May 2014.