Social Security Recipients Are Getting Short-Changed
/Top Of Mind...
What a difference one week makes, am I right?
The U.S. stock market had a resilient week, rallying all five days to rebound nicely from the previous dip/drop/fall/correction or whatever you want to call it. The S&P 500 has now recovered 6% of the 10% it lost during the recent losing skid. More on this in the MARKET section below. But first...
A Social Security bombshell: Last week I suggested checking your earnings history that is recorded by the Social Security Administration (SSA) for accuracy -- the same earnings history that determines your eventual monthly benefit in retirement. Part of the reason I recommend doing this is because the SSA has been prone to make mistakes.
I have also known that the SSA is not the most helpful either when it comes to filing for the highest benefit available, which makes what I'm about to share, uh, timely...
The SSA conducted an internal audit, in which it found that a staggering 82% of widowed retirees currently receiving Social Security were earning less than they were eligible to receive based on how they originally filed for benefits. Even worse, the audit found that the SSA personnel who had helped process these applications had unanimously neglected to mention it to these retirees as they filed for benefits.
Before I go further, let me provide some background. Most retirees begin receiving Social Security benefits when they reach their "normal retirement age", currently 67 years old. You start the process by applying for benefits. Age 67 is when you receive your full benefit amount. If you take benefits prior to age 67 your payments are reduced. If you delay them past age 67, they grow by an additional 8% per-year until age 70, when they start to pay out no matter what. These "delayed credits" mean a whopping +24% increase above your normal amount if you wait the three additional years before taking them.
Remember that last point about the delayed credit because I'll come back to it in a second.
If you are a widow or widower, you are eligible to receive Social Security benefits based on your deceased spouse's earnings history. This is called a "survivor" benefit and you are eligible to it if you meet one of the following:
- If you yourself have reached your full retirement age (likely 67), you can receive 100% of your deceased spouse's monthly benefit
- If you are between ages 60 and 67 you can receive 71%-99% of your deceased spouse's monthly benefit (the closer you are to age 67 the higher that percentage gets).
- If you have a child under 16, regardless of your age, you can receive 75% of your deceased spouse's monthly benefit
If you worked, you have an earnings history from which you can likely receive Social Security benefits. When you apply for benefits, the SSA will automatically apply you for ALL eligible benefits, which in the case of a widow/widower who also worked would mean two separate Social Security benefits -- one based on your earnings history and the other based on your spouse's earnings history. The SSA will provide you the higher of the two benefits.
Seems reasonable enough, right? Think again.
When you apply for benefits you have the option to restrict which benefits you are applying for. Meaning, you don't necessarily have to file for your own benefit. As a widow/widower you could choose to only file for your survivor benefit.
"But wait, why wouldn't I just want whichever benefit is higher? Why does this matter?"
It matters if your survivor benefit is greater than your own benefit, because you would be leaving 24% on the table. Remember what I said about delayed credits and the ability to postpone taking your own benefit in order for it to grow by 8% yearly from age 67 to 70. If your survivor benefit is higher than your own, you should initially only claim the survivor benefit, thus allowing your own benefit to grow by 24% until age 70. Then, once you reach 70 and your own Social Security benefit has peaked, switch and begin receiving your own benefit (provided your own benefit is bigger than the survivor benefit after it grows by that additional 24%).
Everything I said in that last paragraph was omitted by SSA personnel when they were helping retirees file for Social Security benefits. Even if some of the personnel did not know the rules (scary, but plausible) there were surely plenty of them who did and simply said nothing. They failed to tell these Social Security recipients that they were leaving money on the table. Once you file for a certain benefit, it cannot be undone. So sadly, there was/is no recourse.
As I have said for a long time, the SSA is not there to help you maximize your benefits options. They are there to process new claims. But still, even I am stunned to see that 82% of widows or widowers were found to be receiving a benefit amount that was lower than what they were eligible to receive and that no one in the SSA department was willing to say anything.
It really does pay to know the rules surrounding Social Security and especially the options available to you when it comes time to file for benefits. If you want to read the 15-page audit report, you can do so here.
In The Market...
The S&P 500 gained +4.3% this past week. Here is how the individual sectors performed:
(Price data via stockcharts.com)
Every sector was in the green, led by Technology, which looks again to be the strongest sector moving forward. As mentioned, U.S. stocks have recouped more than half of the losses incurred in the prior two weeks. The good news is that stocks continued the momentum that started back on Feb. 9th when the S&P 500 fell to its 200-day moving average. Here is the exact same chart I showed last week, but updated to include this week's market movement (the shaded area on the right):
(Created in stockcharts.com)
I wanted to share this again to hammer-home evidence, albeit one instance, of why the 200-day moving average (the pink line) is so important. Here it was pretty clear that investors were primed to buy if/when stocks fell to their 200-day moving average prices. The S&P has rallied nearly +9% in the 5 days since that happened.
Moving forward the key will be whether stocks get back above previous highs. The S&P 500 needs to gain another +5% or so to get back to its most recent record high. I suspect the rally will continue into next week but hit trouble the closer it gets to that mark. The -8% market decline in a matter of days was likely enough to shift some investors away from having a buying mentality and more toward looking for opportunities to sell. So just be prepared for what could be a choppy few weeks ahead.
In Our Portfolios...
What's New With Us?
The market is closed on Monday, in observance of President's Day. I will start gearing up for our office move that is taking place at the end of this month. We are moving from the World Trade Center building here in Belltown to a more downtown location at 2nd & Columbia St.
Enjoy your weekend,
Brian E Betz, CFP®
Principal