Social Security confusion needs clearing up

A depressing Government Accountability Office study recently showed that Social Security Administration field-office workers are as confused about benefits as those they are trying to help, and there's even confusion about the confusion:

Observing in-person interviews between field-office workers and people getting ready to claim benefits, GAO researchers said claimants were not told that their lump-sum retroactive benefits would lower their future ones.

Social Security Administration representatives also often failed to mention that monthly checks are based on the highest 35 years of earnings, so that working longer before claiming might increase lifetime benefits.

More than half the time when people may have been eligible to claim restricted benefits or file for benefits and then suspend them, they weren't told about those options.

Across all 30 observed field-office interviews, not a single representative brought up the idea, unprompted, that family health and life expectancy play a role in the claiming decision. (There were two cases when the claimant raised the subject.) This, despite the fact that Social Security benefits are lifetime benefits with some survivor options, similar to annuities and pensions.

"Claims specialists did not consistently provide key information to potential claimants, or ensure individuals were aware of such information when they applied for benefits," the report said.

Adding to the confusion, at least one of their failings is actually probably a positive, according to at least one noted Social Security expert.

In six of the 30 field-office sessions, claims specialists broke protocol by discussing the break-even age at which it begins to pay off for beneficiaries to have delayed claiming their benefits beyond full retirement age. Generally, Social Security Administration officials have for years been promoting the idea of claiming later in just about every circumstance.

Specialists "should no longer discuss [break-even points] with claimants," GAO quoted SSA procedures as saying.

"Break-even analysis can influence people to claim benefits earlier than they might otherwise," GAO concluded in the study. "In some interviews, however, claims specialists not only offered a break-even year, they added their conclusion that the analysis showed that claiming earlier was preferable. One claims specialist showed the claimant that it would take 11 1/2 years to make up the difference for waiting to claim, and added that 'according to the actuaries, that (early claim) is a reasonable choice.' "

But here's the rub: Break-even calculations should be part of the discussion when figuring out a retiree's benefit strategy, said William Reichenstein, a Baylor University professor and research principal at Social Security Solutions, a private company that offers claiming strategies.

"Break-even calculations are absolutely a useful analysis for maximizing lifetime benefits," Reichenstein said.

He offered a simple example of a single, working woman whose full retirement age is 66, when she'll collect $2,000 per month for life.

If she waits until age 70 to collect benefits, she'll get 32 percent more, or $2,640. But, of course, she gives up four years of benefits waiting for the bigger payday. So it's not until she reaches age 82.5 that the strategy of waiting begins to pay off.

If she dies before that, the decision looks like a bad one. Going forward, however, that extra $640 (plus inflation) ramps up quickly, and can be hugely important for people who don't have much income other than Social Security.

In very general terms, he said, moderate- and lower-income people who will be cutting it close to make ends meet in retirement are the ones best served by delaying claims if they can - and that's a big if.

By contrast, many couples who are coordinating benefits and simply trying to maximize their total Social Security haul over their lifetimes may be better off with a combination strategy of delaying one benefit and taking another one early.

"I just think it's wrong not to discuss this with people," Reichenstein said.