Short-changing elderly widows is behavior normally associated with movie bad-guys and the worst financial scammers, but it appears the Social Security Administration has done just that, by failing to give appropriate advice.
An audit by the administration's Office of the Inspector General highlighted the problem in February, and it's just the latest reminder that Social Security benefits are unfortunately complicated.
Here's what happened, according to the OIG report.
Widows and widowers are eligible to collect Social Security benefits. They are also able to collect retirement benefits based on work history.
Often, widows and widowers can maximize their Social Security benefits by delaying their retirement benefit payments until age 70, while collecting widow or widower benefits until then. Retirement benefits grow when they are delayed — by 8 percent yearly, for those born during or after 1943, until full retirement age — resulting in larger checks for the remainder of the recipient's life.
But here's the problem. The Inspector General checked to see if the administration was informing widows and widowers of their option to delay retirement benefits. In many cases, it was not.
As a result, according to an estimate in the report, the administration "underpaid about $131.8 million to 9,224 beneficiaries who were age 70 and older" and would underpay another 1,899 more.
That's a lot of widows and widowers, not to mention a lot of money.
And decisions about collecting Social Security can't be changed after 12 months have passed, so no do-overs.
Decisions about when to start collecting Social Security are complicated enough for people who aren't widows or widowers. Does it make sense to give up several years of checks in order to collect higher benefits for life? Often, the answer is yes, but many people can't give up years of benefit checks on the front end, and who knows how long they will live?
However, when it's possible for a widow or widower to collect spousal death benefits until they claim retirement benefits, waiting until full retirement age is a clear win — and there's little excuse for not making sure people know that.
Here's a specific example, from the OIG report, looking at a woman who applied for retirement and widow's benefits in January 2011:
"She was eligible for a $1,403 widow’s and $1,140 retirement monthly benefit. SSA paid a combined widow’s and retirement monthly benefit amount of $1,403, consisting of $263 as a widow and $1,140 as a retiree. By limiting the scope of her application, she would have received the widow’s $1,403 monthly benefit and retained the option to apply for higher retirement benefits at a later date."
So, the widow locked in her lifetime Social Security retirement benefit, the $1,140 monthly, when she could have let that amount grow while meanwhile collecting the same $1,403 monthly benefit she received by claiming both widow's and retirement benefits. The OIG found no evidence that administration employees informed her of her options.
"As a result, SSA underpaid the widow $13,000" just from 2011 to 2017, the report said.
"SSA employees must explain the advantages and disadvantages of filing an application so claimants can make an informed filing decision," said the OIG report.
Decisions about collecting Social Security benefits can't be changed once a year a passed, but the financial impact of those decisions can last for decades.