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Larry Kotlikoff discovers insidious SS trap
Old 06-23-2015, 07:54 AM   #1
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Larry Kotlikoff discovers insidious SS trap

For those of us who are delaying our benefits (e.g., file-and-suspend) until 70, the dept of Social Security has a trap waiting for us.

The latest Social Security horror story—commentary

"Now, the agency is trying to force some people to accept a six-month retroactive payment when what the person wants to do is defer their benefits instead. "

"Instead of accepting their application for benefits to begin at age 70, the agency's representative instead gives the person a six-month retroactive payment! This act resets the person's entitlement back to what it was six months prior and wipes out half a year of Delayed Retirement Credits (DRCs). The person loses 4 percent off their monthly benefit check in exchange for a six-month lump-sum payment they didn't ask for and don't want. "

A former SS technical expert reviewed the SS operations manual to find that "Based on SSA regulations, retroactivity is automatically applied to applications filed after FRA unless retroactivity is expressly restricted by the claimant..."

Be aware.

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Old 06-23-2015, 07:59 AM   #2
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Scum buckets.
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Old 06-23-2015, 08:04 AM   #3
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That is awful. At least it can be undone according to the linked article...
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In the meantime, Social Security beneficiaries have to be vigilant and put down in writing their decision and preference not to receive retroactive benefits. Make sure Social Security provides a written statement acknowledging its receipt of this request. And if you do get a lump-sum retroactive payment you did not want, keep in mind that you have a one-year window to require the SSA to let you repay this amount, request a do-over, and claim the benefits you originally intended.
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Old 06-23-2015, 08:07 AM   #4
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Good article and worth reading. On another forum, I encountered a former SS manager who was adamant that file and suspend was not an allowable option and that one could not draw spousal benefits while waiting for age 70.
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Old 06-23-2015, 08:08 AM   #5
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Perhaps that is why they are a former SS manager.
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Old 06-23-2015, 08:10 AM   #6
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Perhaps that is why they are a former SS manager.
Retired and drawing at 62.
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Old 06-23-2015, 08:26 AM   #7
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Wow - what kind of arm-wrestling is required at the SS office to get what you ask for
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Old 06-23-2015, 08:32 AM   #8
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Counting down the months (quite a few, actually) until the biggest "raise" of my life (when I take SS at 70). I will keep the "horror" story in mind - Saw that story when I turned on the computer this AM.

When DW applied at 62, I was NOT impressed with the people at the SS office. They used nothing but jargon and never really answered a single question to my satisfaction. Since all she really wanted to accomplish was to begin benefits, and we got that done, I let it go. When I apply, I will insist on understanding - and verifying - that my benefits will actually start at 70 without the retro payment. I DO wonder why they would find it advantageous to pull such a trick. If they believe their own rhetoric, it should make no difference to them. Since they have so "little" money left in the trust fund, I would think they would not like pulling out an extra 6 months of payments just to lower future payments by 4%. Seems to fly in the face of any logic our gummint is capable of having. Probably more along the lines of "lets make this as complicated as we possibly can so folks won't know that we haven't a clue!" But I'm not bitter!

In any case, I'm kind of (semi) excited about the big raise a-coming! YMMV
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Old 06-23-2015, 08:37 AM   #9
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This is another good tip. It seems to me most people who waited until age 70 to file would notice, after all, they did wait for a reason. I'd like to hear the what the SSA has to say on this, not just the view of the guy selling the book.
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Old 06-23-2015, 09:31 AM   #10
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This is another good tip. It seems to me most people who waited until age 70 to file would notice, after all, they did wait for a reason. I'd like to hear the what the SSA has to say on this, not just the view of the guy selling the book.
I want to agree and give SS the benefit of the doubt, but I can't because:

1) I spent some time searching SS POMS and can't find the language. It should not be that difficult.
2) I can think of no reason a retroactive 6 month lump sum and reduced credits/income should be the default for someone filing after FRA, and that the applicant must request otherwise. Assuming an applicant filing after FRA would want any reduction in benefits seems counterintuitive to put it kindly. Further, for an SS rep to "insist" or otherwise steer applicants to the retroactive lump sum and reduced benefits seems ______ (choose your own word).
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In another instance, a client told me that she had gone into social security approximately 3 months prior to turning age 70 in order to ready her paperwork so that she could commence receiving her maximum eligible benefits when she turned age 70. The social security agent instead insisted that she take retroactive benefits (6 months of back payments, lump-sum) and that she would start her benefit amount based on a start date as if she had filed 6 months earlier.

The problem with doing that is she would also be permanently reducing her lifetime monthly benefits going forward by approximately 6% per year. This is because she would forfeit the option to increase her benefit amount by an 8% annualized delayed retirement credit (DRC) to age 70. By starting her benefits 9 months prior to age 70 she would be forgoing a 6% permanent increase in her benefits (i.e. 9 months worth of DRC's to her age 70).

The issue here is that POMS assumes someone filing for benefits after FRA intends to file for any eligible retroactive benefits unless that applicant specifically declines retroactive benefits in order to preserve their DRC's. Unfortunately, applicant's are not typically told what their options are and these default provisions may often lock them into permanently lower lifetime benefits.
Blog Archives - National Social Security Partners
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Old 06-23-2015, 09:38 AM   #11
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It sounds like the SSA is banking on retirees not wanting to turn down a "windfall"....
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Old 06-23-2015, 10:04 AM   #12
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So, do you see your monthly benefit before signing off? Most around here would know what to expect at age 70 and balk at the 6 month DRC clawback if the process is transparent enough.

If on the other hand you have to sign off before seeing the monthly benefit then this would be truly insidious..

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Old 06-23-2015, 10:07 AM   #13
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Do online applications avoid this scenario?

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Old 06-23-2015, 10:39 AM   #14
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My interactions with the SS Admin have been, shall I say, disconcerting.
My FRA is this August, my Birthday is August 1st and SS says I attain FRA for the entire month according to the way SS determines age. I filed my online Application on 4/16/2015 and printed the App and the Confirmation number for my records. I have not received their so-called Award Letter now 2 months later. A couple of phone calls produced two different answers to the same basic question.

My intention is to "File and Suspend" benefits, and I filed at FRA because it takes at least 3 months to get in their System. Once I am instantiated, I will Suspend to build up Delayed Retirement Credits. I'm not sure I'll wait the full 4 years til 70 -- I may decide to start drawing benefits at some earlier point. But that can be started with a phone call (or visit to nearby SS Office) without the 3 month lagtime.

The message here is to get everything in writing, know the rules (and the terminology), and "Get What's Yours" to quote Larry K.
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Old 06-23-2015, 10:54 AM   #15
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I visited our local SSA office last month to get Medicare ready to start later this summer for me. DH has started his at FRA and I told the SS rep I expected to start collecting next summer at my FRA. The SS rep had pulled my records and immediately said I would want to start my spousal benefit next summer and suspend collecting on my own record until I am 70 (God willing), when it would have increased a couple of hundred dollars beyond the spousal benefit.

He was actually suggesting the strategy I had already decided (thanks to the many threads over the years on this forum), but for our fourth visit to this office, with four different agents, I have to say we are most impressed by this staff's knowledge and we are glad to live close enough to stop in when necessary, and I am hopeful that there won't be the surprises described by Kotlikoff when I actually file.
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Old 06-23-2015, 11:34 AM   #16
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Quote:
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I want to agree and give SS the benefit of the doubt, but I can't because:
The link you included doesn't address the issue I raised. My point was not in defense of the SSA - if I wanted to do that I would have written that the SSA payment stream is age neutral, the employees have no interest in changing the value of the payment stream, and if there really was an institutional bias against deferring the start date it would probably apply to all cases beginning at FRA and not just people at age 70. After all, from that view, age 68 is just as bad. It might also be that the applicant indicated a lump sum was needed for some emergency and the SSA was offering one alternative.

We have no way of knowing, but accepting the existence of this at face value from someone who benefits financially from the confusion it generates seems a little premature.
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Old 06-23-2015, 11:44 AM   #17
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Not sure I'm understanding this correctly. It seems to me that the retroactive payment means that you are effectively applying for benefits at age 69 1/2, rather than at 70. How is this different, in principle, from the debate over taking SS at FRA (or earlier) vs waiting until 70?

While it's certainly annoying that SSA has this rule, the net effect must be very slight, given that delaying from 62 to 70 is argued pro and con on a seemingly perpetual basis.

Or am I missing something?
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Old 06-23-2015, 11:49 AM   #18
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Applied for SS several months ago well before my 62nd birthday and the caseworker said she could start my payments retroactively to the month I was applying. I smiled and reminded her it was a couple months before my birth date.
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Old 06-23-2015, 12:28 PM   #19
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Seems to me the retroactive 6 month payment could really mess up a person's tax planning.
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Old 06-23-2015, 12:35 PM   #20
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Not sure I'm understanding this correctly. It seems to me that the retroactive payment means that you are effectively applying for benefits at age 69 1/2, rather than at 70. How is this different, in principle, from the debate over taking SS at FRA (or earlier) vs waiting until 70?

While it's certainly annoying that SSA has this rule, the net effect must be very slight, given that delaying from 62 to 70 is argued pro and con on a seemingly perpetual basis.

Or am I missing something?
Yes, you are missing that the person had done the calculation and determined that 70 is the best age for THEM.... and now you have SS coming in and saying 'no, you are going to get 69 1/2 because of our rules'...
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