On November 16, 2023, Laurence Kotlikoff, the author of "Social Security Horror Stories," mentioned four key points about Social Security in an interview with CNN. I wrote this article incorporating his interview content and my explanations.
Early Application
Although you can claim Social Security benefits starting at age 62, if you apply at this age, you will receive about 30% less than the amount you would get at the full retirement age. Conversely, if you wait until age 70 to apply, you will receive a whopping 76% more than if you had applied at age 62.
For example, if your monthly benefit is $1,500, you would receive $1,050 if you start at age 62 and $1,980 if you start at age 70. Assuming you live for another 30 years after retirement, a person retiring at 62 would receive $334,800 less than someone retiring at 70.
Survivor Benefits for Widows/Widowers
Survivor benefits for widows, widowers, and dependents are one of the 12 types of benefits provided by the Social Security Administration. A widow or widower can apply for Social Security benefits based on their spouse's income starting at age 60. However, problems arise when applying for both survivor benefits and personal retirement benefits simultaneously.
The Social Security Administration only pays the higher of the two benefits, so if survivor benefits are higher and you apply for both, your retirement benefits will be fixed at the age you applied, and you won't receive the higher amount you could have received by waiting until full retirement age or age 70.
If you have applied for both survivor benefits and personal benefits, you must correct this within one year.
Earnings Test Rules
The "earnings test" rule means that if you continue working after claiming benefits before reaching full retirement age and exceed a certain income threshold, your Social Security benefits will be reduced. In 2024, if you exceed the earnings test threshold of $22,320, your Social Security benefits will be reduced by $1 for every $2 earned.
Many retirees are afraid of this and choose not to continue working. However, according to the lesser-known rule called the "adjustment of the reduction factor," once the claimant reaches full retirement age, they will receive back the benefits they did not receive during the reduction period. Since the missed $1 is returned as $1.20, there is no loss in continuing to work after early retirement.
The Trap of Overpayments
It is estimated that due to mistakes by the Social Security Administration, about one million Social Security beneficiaries receive overpaid benefits annually. Overpayments usually occur due to errors by Social Security staff, but they can also happen if beneficiaries do not properly report changes in income or benefits that affect their payments.
Typically, beneficiaries only find out about the overpayment months or years later when they receive a letter from the Social Security Administration. In 2021, the Social Security Administration sent letters to 223,500 people asking them to repay the overpaid benefits. Beneficiaries must refund the overpaid amount within 30 days. Historical cases show that if this issue is taken to court, it can take several months or years to resolve, with beneficiaries rarely winning.
To avoid the trap of overpayments, you should carefully review information sent by the Social Security Administration and related agencies. Additionally, it is essential to habitually compare your income and expected benefits through your "My Social Security" account annually.
If you are receiving overpaid benefits, it is wise to set aside the overpaid amount in savings. If the Social Security Administration discovers the overpayment months or years later, they will send you a letter demanding repayment of the full amount within 30 days. If you cannot repay it in a lump sum, you may also have to pay interest. If you fail to refund, your wages or Social Security benefits may be garnished. If you die before repaying the full amount, the Social Security Administration may recover the overpayment from the funds or assets you would have left for your children.
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