Here’s a new wrinkle many may not have heard about until now. Apparently officials from the Social Security Administration are calling people who are delaying benefits until age 70, offering them a cash incentive if they’ll file for benefits early.
Does that sound like a scam to you? It does to a lot of people, and it did to syndicated columnist and Social Security expert Laurence Kotlikoff. But writing in this article that just appeared in the Seattle Times, Kotlikoff says the call and the offer are real – however, that doesn’t mean people should be sucked in by this lure of a lump sum payment. Apparently Social Security is offering cash now in an effort to save more money in the long run.
Kotlikoff writes about a man who was planning on commencing Social Security benefits when he turns 70 this coming August. Last fall this gentleman received a call from the Social Security Administration (SSA) telling him that if he filed for benefits as of November 2016 instead of August 2017 the government would pay him a lump sum incentive check of almost $19,800, in essence paying him for six months’ worth of benefits. The caller from the SSA explained that if the man declined the offer and stuck with his plan to delay benefits until 70 it would take him until age 80 to make up the difference. Based on this assertion the man agreed to start his benefits earlier than planned and claim his one-time cash incentive.
So far this sounds like one of those too-good-to-be-true hoaxes, but apparently it’s not. This man received his $19,800 check in the mail and his benefits commenced as promised. So it was a good deal, correct? No, it wasn’t a good deal for this particular gentleman, and if you get a call from Social Security under similar circumstances it might not be the best for you, either. What was going on here?
“This is, indeed, a scam being run by the Social Security Administration,” writes Kotlikoff. “Social Security appears to be calling everyone who is trying to maximize their retirement benefit by filing at 70 and bribing them to file early.” There are several reasons why he uses the word “scam” to describe this incentive plan. But before we get into the details, let us strongly advise you that deciding when to begin Social Security benefits can be a complex matter with many individual factors to consider. We at AgingOptions will be happy to provide you with expert counsel, based on our many years of experience with this complicated decision.
So why does Kotlikoff call this a scam, and why should someone be hesitant about accepting the offer of a cash bonus for filing early? First, the SSA is failing to fully disclose that filing early permanently lowers monthly benefits. For a person this man’s age, born between 1943 and 1954, benefits grow by 8 percent for every year the beneficiary waits to start payments, topping out at age 70. If this man in the article starts his benefits 9 months before age 70, his payments will be reduced by 6 percent, permanently.
Second, not only are monthly benefits reduced, but the family’s lifetime benefit would drop fairly dramatically. Using a computer model, columnist Kotlikoff estimated that taking the early payment would actually end up costing this man and his family more than $22,000.
Finally, not only does this man lose out on monthly cash in his Social Security check, but so will his wife if she outlives him. Under the regulations, the surviving lower-earning spouse will receive the benefit of the higher-earning spouse. In this case, the difference for the surviving wife could amount to several hundred dollars monthly, a significant amount that could dramatically affect her quality of life for years to come.
So why, asks Kotlikoff, is this happening? “Is Social Security intentionally scamming the public?” he asks. “Possibly. Getting people to file early saves the system money” – even with a lump sum bonus as an incentive. He speculates that government officials may be gambling that it will be cheaper for the SSA to make these lump sum payments and getting beneficiaries to lock in lower payments, playing the odds that many beneficiaries won’t do the math. There are exceptions, but for most people in good health, delaying until age 70 pays good dividends. If you live past your early 80s, you’ll earn significantly more than those who started benefits at age 66 or 62.
What about the man who was subject of this column – the one who accepted the offer of a lump sum check and a lower benefit? His advisers reminded him of the wisdom of sticking with the original plan, so he decided to file a form withdrawing his application for retirement benefits. He mailed back the check and chose to hold out until age 70.
Planning for your retirement future is not only complicated, it’s also multi-faceted. Here at AgingOptions we frequently encounter people who have made careful financial plans involving Social Security, savings and pensions, only to find that when a crisis hits those plans often prove inadequate. Finances alone simply cannot ensure a safe and secure retirement! If your desire is to protect your assets as you age, avoid becoming a burden to your loved ones, and escape the trap of being forced into a nursing home against your wishes, you need an AgingOptions LifePlan – a blueprint for your future that connects your financial, legal, housing, medical and family plans into one seamless whole.
We invite you learn more at one of our free LifePlanning Seminars. There are several of these fast-paced information-packed sessions planned for this month at locations throughout the area. Click here for details and online registration, or call us during the week and we’ll gladly assist you.
(link to www.seattletimes.com)