Why Understanding All Your Social Security Options is Important

Don’t you just hate when you’ve purchased something—a flight, a vacation, a new car—and later discover could have saved hundreds, maybe even thousands of dollars on it?

But imagine finding out you could have gotten a better deal on your Social Security. That you lost out on hundreds of thousands of dollars in benefits…and that there is no “do over.” For some reason many people remain poorly informed about the complexities of the Social Security program. And the price we pay for our ignorance can be severe indeed.

Continuing our series on Social Security claiming traps, today we’ll talk about the third and final trap: Inadvertently filing for more than one benefit.

Paula and Eric are high earners who will each be eligible for the maximum Full Retirement Age (age 66) benefit when they retire. Eric passes away right around the time Paula turns 62. Paula hears that she is eligible for a survivor benefit. She had been thinking about claiming her own benefit since she had just turned 62, the earliest age at which she can collect based on her work record. But now with this survivor benefit on the table, she makes an appointment with the Social Security Administration (SSA) to sort it all out…

At the meeting, the SSA agent looked up Paula’s eligibility based on the information she provided about herself and Eric. The agent informs her that she is indeed eligible for a survivor benefit and that it would be somewhat higher than what she would receive based on her own work record. On that basis, the agent printed out an application for Paula to sign showing the survivor benefit amount she would begin to receive: $2,138 a month.

For Paula—and many others like her—this may be the end of her interaction with the SSA and she will go on collecting this benefit adjusted annually, for the rest of her life. She will never know that she left $258,000 on the table because of the way that the SSA agent completed the benefit application for her.

Why? Well, when we are eligible for more than one benefit we are commonly considered to be applying for both and the SSA awards us the higher of the two benefits. However, there are some circumstances under which we have the option—though this is not automatic—to elect to only apply for one of the benefits.

In Paula’s case, she could have—and should have—restricted her application to consider only her eligibility for the survivor benefit. In this way, she could collect that benefit for eight years and then switch to her work-based benefit at age 70 which would pay $3,483 a month for the remainder of her life. That’s a big pay raise…a $258,000 pay raise!

There are actually two traps here.

  • The first is when she signs up at 62 and fails to restrict the application to survivor benefits only. If the SSA agent records her applying for both benefits, Paula cannot reapply for the higher work-based benefit later.
  • The second trap arises if a better-informed agent decides to restrict the application without bothering to explain what or why he is doing this. Paula turns 70 and could apply for the higher benefit; because she isn’t aware she is eligible for it, she fails to apply and leaves it on the table.

Either way, Paula can avoid these traps by investing some time into getting educated about her benefit options before she applies.

Image: ©iStock.com/Courtney Keating

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