What Social Security Isn't Telling You

Social Security may be one of the country’s most popular programs, but that doesn’t mean Americans understand it. Unfortunately, the agency itself may not be giving workers all the information they need to make smart decisions.

Claims specialists helping people file for Social Security often leave out key information or don’t explain choices clearly, according to a new study from the Government Accountability Office. The online claims process also leaves out some information or could inadvertently sway people’s decisions about when to claim, the study found.

It’s no surprise that people of all ages are confused by the program, given that its handbook has more than 2,700 entries on topics ranging from remarriage to black lung benefits. Yet when it comes to the basics -- such as how monthly payments change depending on when a worker first claims benefits -- Americans are already woefully under-educated, the GAO found. Several surveys by groups such as AARP and the Financial Literacy Center have found that many Americans don’t understand how many years of work their Social Security benefits are based on, for instance.

“The American public is clueless that this decision is so important,” Senator Claire McCaskill (D-Missouri) said about the report, which she commissioned with Senator Susan Collins (R-Maine), according to ThinkAdvisor. “It is staggering that so many Americans don’t realize that this is a decision at all. Many think you just claim at 62, or when you stop working. Or when you claim Medicare. Or when you hit full retirement age at 66 or 67.”

While claims specialists are generally professional and helpful, they are often falling short when it comes to providing workers with all the information they would need to make an informed decision, the GAO found, based on observing 30 in-person interviews.

For instance, in only eight of the 30 interviews did claims specialists tell the worker that benefits are based on 35 years of earnings and that working longer could potentially increase their monthly benefits by raising their average lifetime earnings, the report noted.

And when a worker claims Social Security earlier, he or she may be inadvertently influenced by claim specialists, the report noted. This is especially damaging for seniors’ financial health given that the closer a worker waits until age 70 to claim, the bigger their monthly benefit.

The GAO’s observations found that in eight of 26 claims interviews where the worker could have received higher monthly payments by waiting until they were older, the claim specialist didn’t bring up the pros and cons of holding off on filing.

In six interviews, claims specialists presented workers with their “breakeven age,” or the age at which their total higher monthly payments from filing at a later date would equal the total lower payments by claiming earlier. This is a topic that the Social Security Administration’s Program Operations Manual System tells its workers to no longer discuss. That’s because research has indicated the breakeven calculation can influence workers to file for benefits earlier than they otherwise would have, the report found.

“While our observations are not generalizable, they suggest that SSA may be inadvertently influencing people’s decisions on when to claim and lowering claimants’ monthly benefit amounts,” the report noted.

Perhaps one of most important issues is “longevity risk,” or the risk that you might live longer than you expect. Most people tend to underestimate their life expectancy, which raises the risk of running out of money in retirement.

Understanding this risk may play into a worker’s decision to hold off on filing, but only two out of 30 claimants raised the issue of family health and longevity, even though the agency’s manual notes that longevity risk and life expectancy should be provided, the report found.