Social Security Is Shortchanging Widows And Widowers
In a recent report, Social Security's Inspector General formally accused Social Security Administration staffers of reducing the benefits of thousands of widows and widowers — to the tune of $132 million and counting.
The method? Forcing, cajoling, suggesting or even just letting widows and widowers file simultaneously to receive both their survivors benefits (also known as widows benefits or widowers benefits) and their retirement benefits. Doing so, however, prevents widows and widowers from taking one Social Security benefit first and the other later, after it has grown.
Once you file for a Social Security benefit, it can no longer grow even if you aren’t effectively receiving it. Yes, that's hard to follow, but I'll explain.
The Outrageous Social Security Practice
I've written about this outrageous practice over the years in my Ask Larry column and in my book — Get What's Yours — which I co-authored with Paul Solman and Phil Moeller. Back in July, 2015, I wrote a whistleblower article for PBS NewsHour based on my contact with John McAdams, a Social Security claims authorizer. McAdams risked his job to make this Social Security fraud public after repeatedly asking his supervisors to identify people whom the system had underpaid and then reimburse them or their heirs (if the widows or widowers had died).
When I say fraud, I want to be careful. No one in Social Security has, to my knowledge, ever explicitly instructed the staff to cheat anyone.
But many senior-level people in the Social Security Administration knew the staff had not been formally trained to prevent them from costing widows and widowers potentially huge amounts of lifetime benefits. Nor did anyone in the staff fix their computer system to ensure that the practice could not continue. Finally, no one on the staff used the computer system to search for widows or widowers who had been defrauded and then compensate them or their heirs for the fraud.
Fraud is defined in the dictionary as "wrongful deception intended to result in financial gain." I think not telling people what they need to know, not telling staff what they need to tell widows and widowers and, thereby, saving the system money fits that definition.
What Could Happen to Sue's Social Security Benefits
Let me illustrate the size of the problem, using my software company's Maximize My Social Security program.
I'll take the case of a hypothetical retired widow named Sue who just turned 62 and whose husband just died. Sue's full retirement benefit from Social Security, at 66 (her Full Retirement Age), is $2,500 per month. Her monthly widows benefit, if she were to take it starting at Full Retirement Age, is $2,700.
Sue's best strategy is to file just for her reduced widows benefit now, equal to $2,208 per month, and take her retirement benefit starting at 70 when it will be $3,049 per month. But if one of these happens…
Sue is told by Social Security that she must file for her retirement and widows benefit at the same time
Sue thinks she must file for both benefits at once or reads the misleading application form that suggests you need to file for all benefits at once
A Social Security staffer mistakenly or maliciously files her for both benefits
A Social Security staffer does the wrong thing and isn't told better
…then, Sue will receive $2,208 per month for the rest of her life.
If Sue files for her retirement benefit at 62, it will be reduced due to her taking it early (before Full Retirement Age) and won't grow after she reaches Full Retirement Age due to what’s known as Social Security’s delayed retirement credit. The only way she can collect the credits would be to suspend her retirement benefit at Full Retirement Age. But doing so would lead her to lose her widows benefit while her retirement benefit is in suspension.
Here's the truly nasty piece: If Sue files, or is made to file, for both benefits or is filed by a staffer for them, she never actually collects her retirement benefit. Instead, she collects the larger of her reduced widows benefit and her reduced retirement benefit, which, in this case, is the reduced widows benefit of $2,208. But, because the paperwork for receiving her retirement benefit has been filed, Social Security pretends she's receiving it and subjects this phantom benefit to an early benefit reduction and does not augment it with Delayed Retirement Credits.
Kafka could not have devised a more mendacious bureaucratic Catch 22.
She'd Lose Nearly $250,000 in Social Security Benefits
How much does this "mistake" cost Sue in lifetime benefits? Hold onto your hat: It's $249,797! That's the value of the lost benefits due to a one-page piece of paper being sent to some office requesting a benefit that Sue ends up never getting and whose transmission may have been done by a staffer without Sue's knowledge!
The Inspector General identified 13,514 widows and widowers who may be owed money. It only carefully examined the case of 50 of them; of those, 44 were owed money — a lot of money. But there may be more than 13,514 widows and widowers who were mistreated.
Social Security focused on widows and widowers who should have filed for their survivor benefit first and their retirement benefit later. But there are other widows and widowers who should have filed for their retirement benefit first and their survivor benefit later. And there are others who took their retirement benefit and then experienced the death of a spouse prior to their reaching Full Retirement Age. They may have taken their survivor benefits too early. Yet another group are those who spouses had terminal illnesses and were incorrectly advised that they could take their retirement benefit or file and suspend their retirement benefit (this was feasible under the pre-2016 law) with no impact on their widows or widowers benefits. (I ran across this situation just the other day.)
What we have here is the making of a class-action suit, unless Social Security acts quickly to fix its mistakes.
These mistakes potentially apply to every widow and widower collecting benefits. To press their cases, widows and widowers need to have information about the dates they filed for particular benefits and the amounts of each type of benefit awarded. This will require asking Social Security to supply this information. Sorting things out based on this information is a matter for Social Security software companies like my own, so I'll be getting to work on this problem.
Laurence Kotlikoff is a Boston University Economist, a NY Times Best Selling Author, President of maxifi.com, and Author of Money Magic.