Social Security: Providing More Information During Claims Process Would Help Individuals Making Decisions About Retirement Benefits
Published: 2016-09-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: This testimony summarizes the information contained in GAO's September 2016 report, entitled Social Security: Improvements to Claims Process Could Help People Make Better Informed Decisions about Retirement Benefits ( GAO-16-786 ).
section_title: What GAO Found
paragraphs: GAO's review of nine surveys and academic studies, and interviews with retirement experts, suggest that many individuals do not fully understand key details of Social Security rules that can potentially affect their retirement benefits. For example, while some people understand that delaying claiming leads to higher monthly benefits, many are unclear about the actual amount that benefits increase with claiming age. The studies and surveys also found widespread misunderstanding about whether spousal benefits are available, how monthly benefits are determined, and how the retirement earnings test works. Understanding these rules and other information, such as life expectancy and longevity risk, could be central to people making well-informed decisions about when to claim benefits. By having this understanding of retirement benefits, people would also be in a better position to balance other factors that influence when they should claim benefits, including financial need, poor health, and psychological factors.
The Social Security Administration (SSA) makes comprehensive information on key rules and other considerations related to claiming retirement benefits available through its publications, website, personalized benefits statements, and online calculators. However, GAO observed 30 in-person claims at SSA field offices and found that claimants were not consistently provided key information that people may need to make well-informed decisions. For example, in 8 of 26 claims interviews in which the claimant could have received higher monthly benefits by waiting until a later age, the claims specialist did not discuss the advantages and disadvantages of delaying claiming. Further, only 7 of the 18 claimants for whom the retirement earnings test could potentially apply were given complete information about how the test worked. SSA's Program Operations Manual System (POMS) states that claims specialists should explain the advantages and disadvantages of filing an application so that the individual can make an informed filing decision. The problems we observed during the claims interviews occurred in part because the questions included in the claims process did not specifically cover some key information.
Online applicants have more access to key information on the screen or through tabs and pop-up boxes as they complete an application. However, similar to in-person interviews, the online application process does not inform claimants that benefits are based on the highest 35 years of earnings or that life expectancy is an important consideration in deciding when to claim.

section_title: Letter
paragraphs: I am pleased to be here today to discuss our work on the information the  Social Security Administration (SSA) provides individuals to help them  decide when to claim retirement benefits. The decision of when to claim  benefits is one of the most important financial decisions most people and  households make. As of 2013, Social Security benefits account for at  least half of household income for 62 percent of retirees age 75 and over,  and at least 90 percent of household income for almost a quarter of these  retirees. Social Security benefits offer certain advantages: monthly  income until death, an annual inflation adjustment, some tax benefits, and  survivor and spousal benefits. These benefits have become increasingly  important for retirees as employment-based retirement plan coverage has  shifted from traditional defined benefit pension plans, which typically pay  lifetime annuity benefits in retirement, to defined contribution plans, in  which workers accumulate savings over their careers and manage  withdrawals in retirement.
Those eligible for Social Security benefits can generally elect to receive  them starting at age 62, but the monthly benefit amount increases,  permanently, the longer someone delays claiming, until age 70. Waiting  to claim offers the promise of higher monthly benefits—76 percent higher  for someone claiming at age 70 versus age 62, for current claimants.  However, 62 is the most common age to claim Social Security benefits,  and few people wait until 70. While there are sound reasons for taking  retirement benefits early, such as financial need or short life expectancy,  many people might benefit from claiming at a later age. Making an  optimal claiming decision requires individuals and households to  understand how multiple factors—such as claiming age, earnings, life  expectancy, and longevity risk—affect benefits. SSA, as the program  administrator, holds a unique position to provide information that can help  ensure prospective claimants make informed choices.
My statement summarizes our report, which addresses (1) the extent to  which people understand Social Security rules affecting their retirement  benefits and other factors that may influence when they claim them; and  (2) the information that SSA provides to individuals that enables them to  make informed claiming decisions. That report is being released today.
For our issued report, we reviewed nine surveys and academic studies  that assessed the public’s understanding of Social Security benefits and  identified the factors that influence claiming. We also interviewed Social  Security experts from academia, public policy organizations, and financial  firms to obtain their views on how SSA provides information about  claiming benefits. We reviewed applicable federal laws and regulations,  and SSA’s Program Operations Manual System (POMS), a primary  source of information used by SSA employees to process claims for  Social Security benefits. We also interviewed SSA headquarters officials  to learn how Social Security benefit claims are to be processed. We  observed a nongeneralizable sample of 30 face-to-face claims interviews  at 7 SSA local offices in 3 different regions of the country. We selected  these offices, taking into consideration regional geographic diversity,  income level, urban and rural composition, and the number of new claims  each office processes. In our observations, we noted the information SSA  claims specialists provided to claimants during this process and evaluated  what we observed against POMS guidance and to determine how fully  specialists were addressing key information categories we identified from  our literature review and expert interviews. We interviewed managers and  claims specialists at these offices about the process for completing  retirement benefit claims, training on completing claims applications, and  how claims specialists’ performance is evaluated. SSA also demonstrated  the online claims process for us, showing the information on each screen  that a claimant might see when filing a claim. A more detailed explanation  of our methodology is available in our full report. Our work was performed  in accordance with generally accepted government auditing standards.
subsections: section_title: Lack of Understanding of Key Social Security Information, Along with Financial Need and Other Factors, May Contribute to Individuals Claiming Benefits Early
paragraphs: Our review of surveys and academic studies, and interviews with people  with Social Security expertise, suggest that most individuals do not  understand key details of Social Security rules that could potentially affect  their retirement benefits or the benefits of their spouses and survivors.  Specifically, many people approaching retirement age are unclear on how  claiming age affects the amount of monthly benefits, how earnings (both  before and after claiming) affect benefits, the availability of spousal  benefits, and other factors that may influence their claiming decision. For  example, while some people understand that delaying claiming leads to  higher monthly benefits, many are unclear about the actual amount that  benefits increase with claiming age. The surveys also showed that many  people do not understand the implications of the retirement earnings test,  under which SSA withholds benefits for some claimants earning above an  annual income limit but which are, on average, paid back later with  interest. Understanding these rules and other information, such as life  expectancy and longevity risk, could be central to people making  informed decisions about when to claim benefits. With an understanding  of Social Security benefits, people would also be in a better position to  balance other factors that influence when they claim benefits, including  financial need, poor health, and psychological factors.
section_title: SSA Provides Key Claiming Information on Its Website and in Publications, but Not Consistently during the Claiming Process
paragraphs: SSA makes comprehensive information on key rules and other  considerations related to claiming retirement benefits available through its  website, publications, personalized benefits statements, and online  calculators. The information provided includes many of the items  identified from our literature review and expert interviews, including how  claiming age affects monthly benefit amounts, how benefits are  determined, details on spousal and survivor benefits, the retirement  earnings test, information about life expectancy and longevity risk, and  the taxation of benefits. In particular, SSA’s website provides access to  information on available benefits, key program rules, and interactive  calculators that can be used to get estimates on what future benefits  would be. Additionally, the Social Security statement is the most  widespread piece of communication that SSA provides to individuals  about their future benefits. It is a 4- to 6-page summary of personalized  information that includes an estimate of the individual’s future benefit  payable at age 62, full retirement age (FRA), and age 70, as well as  estimates for the individual’s current disability and survivor benefit  amounts. In May 2012, SSA made the statement available electronically  for those establishing an online account. Since September 2014, SSA  has mailed printed statements to workers age 25, 30, 35, 40, 45, 50, 55,  and 60 or older who have not created a personal online Social Security  account. At age 60, SSA sends the statement annually.
While important information is provided through SSA’s website and  publications to help people make informed decisions about when to claim  retirement benefits, our observation of 30 claims interviews in SSA field  offices and of a demonstration of the online claims process found that  some key information may not be consistently provided to potential  claimants when they file. POMS states that claims specialists are to  provide information, and avoid giving advice, to claimants. The POMS  also specifies that when taking an application for Social Security benefits,  the claims specialist is responsible for explaining the advantages and  disadvantages of filing an application so that the individual can make an  informed filing decision. The SSA protocol has claims specialists follow a  screen-by-screen process of questions and prompts to collect basic  information from claimants, but does not prompt questions or discussion  of some key information.
The following summarizes key information that was not consistently  covered during the in-person claims process. We discuss additional areas  of key information in our full report.
How claiming age affects monthly benefits: POMS states that  claimants filing for benefits should be advised that higher benefits may  be payable if filing is delayed. It also states that claimants should, if  applicable, be provided with at least three monthly benefit amounts at  three different claiming ages—at the earliest possible month for  claiming, at FRA, and age 70. In 18 of 26 in-person interviews we  observed in which delaying claiming was a potential choice, the  claims specialist mentioned that the claimant’s benefit amount would  be higher if he or she delayed claiming. However, the remaining 8 did  not discuss this option. Of the 18 interviews that mentioned delayed  claiming, 13 claims specialists presented at least the three benefit  amounts per POMS, while 5 did not. Surveys have shown that most  individuals do not know how much monthly benefits can increase by  waiting to claim, so offering benefit estimates at different ages is likely  to provide information many claimants do not have. This information  can influence the age at which they claim, and expert opinion and  past GAO reports have found that delayed claiming can be an  important strategy to consider for most retirees. In contrast, the online  claims process includes screens that provide information on how  claiming at different ages raises or lowers monthly benefits.
How taking retroactive benefits affects monthly benefits: SSA  allows for up to 6 months of retroactive benefits when a claimant is at  least FRA or has a “protective filing date”—a documented date within  the 6 months prior to a claims appointment when a claimant first  contacted SSA about filing a retirement claim. In 10 of the 30  observed interviews, claims specialists offered the opportunity to  claim up to 6 months of retroactive benefits as a lump sum. While  retroactive benefits offer an attractive lump sum, taking it essentially  means applying for benefits up to 6 months earlier, and results in a  permanent reduction in the monthly benefit amount. POMS provides  eligibility criteria for retroactive benefits. However, it does not instruct  claims specialists to inform claimants that taking lump-sum retroactive  benefits will result in permanently lower monthly benefits, compared to  not taking retroactive benefits, a tradeoff claimants may not be aware  of. The claims specialist explained this tradeoff in only 1 of the  interviews we observed. In another interview, a claimant who initially  said he wanted benefits to start later in the year changed his mind to  start 6 months earlier after being offered a lump sum. In the online  claims process, if a claimant has the option of starting benefits  retroactively and chooses not to, the claimant is asked to provide a  reason. This step runs the risk of making the claimant believe he is  making an unusual decision, or a mistake, by choosing a later  claiming date.
How lifetime earnings affect monthly benefits: We observed only 8  interviews in which a claims specialist mentioned that benefits are  based on 35 years of earnings and that working longer could  potentially raise benefits by boosting average lifetime earnings. While  POMS does not require claims specialists to explain how earnings  affect benefit amounts, the claims process could be modified to  include prompts for claims specialists to inform claimants that benefits  are based on 35 years of earnings—information that SSA already  makes available on its website. By discussing how years of earnings  are calculated to determine one’s benefit amounts, claims specialists  might better inform claimants who are deciding when to claim,  especially for those who have fewer than 35 years of earnings.  Similarly, the online application process does not inform claimants  that benefits are based on the highest 35 years of earnings.
How the retirement earnings test affects income before and after  FRA: Individuals who claim benefits before their FRA but continue to  work for pay face a retirement earnings test, with earnings above a  certain limit resulting in a temporary reduction of monthly benefits. In  the 18 interviews we observed in which a potential claimant was  younger than FRA, most of the claims specialists explained,  accurately, that the claimant would have benefits withheld if he or she  earned more than the retirement earnings limit. However, in fewer  than half of applicable interviews (7 of 17) did the claims specialists  explain that any benefits withheld due to earnings would be  recalculated and result in higher benefit amounts after FRA. Some  claims specialists mentioned only that earnings may result in lower  benefits, or that the claimant cannot earn above the limit, perhaps  inaccurately suggesting the earnings test would result in a permanent  loss of benefits. In one interview, a claims specialist told the claimant  she would be “penalized” if she earned over the limit. POMS states  that, when applicable, the claims specialist should explain to  claimants that earnings could be withheld based on the annual  earnings test, but does not instruct claims specialists to explain that  the earnings test is not a penalty or tax, or that withheld benefits are  repaid. However, if claimants do not understand the full implications of  the earnings test, they could erroneously think it will result in a  permanent loss in benefits and, as a result, unnecessarily stop  working or reduce their working income. This was made clear in one  interview in which a claimant with earnings likely to be above the limit  said she might have to quit one of her two jobs unless she waited until  FRA to claim. In the online application process, screens provide  information explaining that any benefits withheld because of the  retirement earnings test will raise monthly benefits after FRA.
How life expectancy and longevity risk could factor into the  claiming decision: While claims specialists are not specifically  required to discuss life expectancy and longevity risk, the POMS does  state that information should be provided to help claimants make  informed filing decisions. SSA also emphasizes the importance of  considering longevity and life expectancy in information made  available on its website. According to the American Academy of  Actuaries and the Society of Actuaries, understanding how longevity,  and in particular longevity risk, can affect retirement planning is an  important aspect of preparing for a well-funded retirement. However,  the subject of how family health and longevity might influence the  timing of benefit claims arose only twice in our 30 observations, and  both times because the claimant raised the subject. Similarly, the  online application process does not inform claimants that life  expectancy and longevity risk are important considerations in deciding  when to claim.
Potentially misleading use of breakeven ages: Additionally, in  contrast to providing potential claimants with key information to help  inform their claiming decisions, the POMS instructs claims specialist  not to provide a “breakeven age”—the age at which the cumulative  higher monthly benefits starting later would equal the cumulative  lower benefits from an earlier claiming date. Research shows that  breakeven analysis can influence people to claim benefits earlier than  they might otherwise. During our in-person observations, we saw 6  instances in which a claims specialist presented a breakeven age to  help a claimant compare claiming benefits now or waiting to claim. In  some interviews, claims specialists not only offered a breakeven year,  they added their conclusion that the analysis showed that claiming  earlier was preferable. One claims specialist showed the claimant that  it would take 11 and 1/2 years to make up the difference for waiting to  claim, and added that “according to the actuaries, that  is  a reasonable choice.” Another claims specialist said the breakeven  analysis showed “it pays to file early.”
section_title: Our Recommendations and Agency Response
paragraphs: Many American will rely heavily on Social Security for a substantial  portion of their retirement income, so it is imperative that they have the  necessary information to make informed claiming decisions. Though we  found SSA’s claims process largely provides accurate information and  avoids overt financial advice, certain key information is not provided or  explained clearly during the claims process. POMS specifies that claims  specialists should explain the advantages and disadvantages of filing for  Social Security benefits to help people make informed filing decisions.  However, because SSA is not fully operationalizing this guidance in the  claims interviews, some claimants do not receive all the information that  is critical to making informed claiming decisions. The claims process,  either in person with a claims specialist or online, allows for SSA to add  additional questions or prompts—potentially using language SSA already  provides on its website and in publications. Updating this information  would help each individual receive the information they need to make an  optimal decision. In our issued report, we make several recommendations  that would ensure potential claimants are consistently provided with key  information during the claiming process to help them make informed  decisions about when to claim Social Security retirement benefits.
Specifically, we recommend that SSA take steps to ensure that: when applicable, claims specialists inform claimants that delaying  claiming will result in permanently higher monthly benefit amounts,  and at least offer to provide claimants their estimated benefits at their  current age, at FRA (unless the claimant is already older than FRA),  and age 70;  claims specialists understand that they should avoid the use of  breakeven analysis to compare benefits at different claiming ages; when applicable, claims specialists inform claimants that monthly  benefit amounts are determined by the highest (indexed) 35 years of  earnings, and that in some cases, additional work could increase  benefits; when appropriate, claims specialists clearly explain the retirement  earnings test and inform claimants that any benefits withheld because  of earnings above the earnings limit will result in higher monthly  benefits starting at FRA;  claims specialists explain that lump sum retroactive benefits will result  in a permanent reduction of monthly benefits. For the online claiming  process, SSA should evaluate removing or revising the online  question that asks claimants to provide a reason for not choosing  retroactive benefits; and  the claims process include basic information on how life expectancy  and longevity risk may affect the decision to claim benefits.
SSA generally agreed with our recommendations.
Chairman Collins, Ranking Member McCaskill, and Members of the  Committee, this concludes my prepared remarks. I would be happy to  answer any questions that you may have at this time.
section_title: GAO Contact and Staff Acknowledgments
paragraphs: For further information regarding this testimony, please contact Charles  Jeszeck at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this statement. Individuals who make key contributions to  this testimony include Mark Glickman (Assistant Director), Laurel Beedon,  Susan Chin, Susan Aschoff, Alexander Galuten, Frank Todisco (Chief  Actuary), and Walter Vance.
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