My Dear Friend Forgot to Apply for Social Security

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Minty
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My Dear Friend Forgot to Apply for Social Security

Post by Minty »

A cautionary tale. A couple of months ago, I discussed personal finances with my Dear Friend (early 80s) as we evaluated the amount of a contribution to a community nonprofit we both serve as board members. DF has a pension from a government job where he did not contribute to Social Security, but since retiring decades ago operated a small business and maxed Social Security contributions annually through that. DF was under the misapprehension that he was not entitled to Social Security retirement benefits, but after checking at my suggestion, SSA confirmed that he missed out on years of benefits (although they likely would have been reduced by the Windfall Elimination Provision). DF's highly compensated tax advisor and investment advisor never paused to wonder why SE taxes were going out, but no SS retirement benefits coming in. DF is reasonably comfortable, and this income would have raised charitable contributions, not provided for foregone necessities. But still. While I subscribe to the Boglehead philosophy of not sticking ones nose uninvited into the financial affairs of friends and family, does anyone have thoughts on how to help avoid losses like this?
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Exchme
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Exchme »

Part of the reason I hate "investment advisors". For many, it's just a sales job, so nothing but the next client matters to their bottom line. Spending any time talking to you or reviewing your situation after the sale is a cost that doesn't give them an obvious return, so why bother?
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Big Dog »

I'd find a new financial advisor. It's been my experience that FA's routinely 'suggest' that you file for SS early so that you spend down less of the assets that they have to manage (and on which they receive a commission).

I'd also file a complaint against the FA for SS lost. They/their professional practice insurance will probably settle.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Dottie57 »

Big Dog wrote: Mon May 03, 2021 10:38 am I'd find a new financial advisor. It's been my experience that FA's routinely 'suggest' that you file for SS early so that you spend down less of the assets that they have to manage (and on which they receive a commission).

I'd also file a complaint against the FA for SS lost. They/their professional practice insurance will probably settle.
This. It is malpractice on the part of FA.
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Mlm
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Mlm »

Your DF still needs to have Social Security figure out his benefit and the WEP offset which can be substantial. It often can result in no SS benefit. It's worth finding out the facts first.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by LilyFleur »

Mlm wrote: Mon May 03, 2021 11:34 am Your DF still needs to have Social Security figure out his benefit and the WEP offset which can be substantial. It often can result in no SS benefit. It's worth finding out the facts first.
Yes, the WEP offset can be significant, and so can the social security penalties for having a job. It's complicated.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by nisiprius »

I suspect that "forgetting to apply for Social Security" is more common than you might imagine. And one reason I am skeptical about getting too clever with sophisticated "claiming strategies" is that the most important thing is not to forget to claim.

My story is that I had a former colleague who was age 73, was teaching at a small college, and I assure you was in good cognitive shape. He was still publishing research papers. He was just rather otherworldly about money. I was shocked to find he had never claimed Social Security, and I said, "OK. You are sitting in front of your computer terminal, I am standing behind you, and I am not moving from this place until you go to Social Security online and claim. Right now. It takes about twenty minutes." He did, and it was just that easy. He basically had irretrievably lost two years of benefits, but was able to get a retroactive payment for the last year, for almost a full year.

The fact that your friend had a "financial advisor" makes it particularly terrible, though. From a bad experience I had with a CFP who told me something flatly wrong about Social Security, I suspect Social Security may not be financial advisors' typical area of expertise, even though of course it ought to be.
Last edited by nisiprius on Mon May 03, 2021 1:36 pm, edited 2 times in total.
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123
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Re: My Dear Friend Forgot to Apply for Social Security

Post by 123 »

We have known a co-worker who, at age 72+ has never filed for Medicare or Social Security. She continues to work and has high earnings. We have pointed out to her that at her age any SSA she gets (after considering all tax issues) is just gravy. We suspect that her rationale for not-filing is that she gave a younger DOB to our employer and doesn't want to make any waves. We have told her that SSA doesn't care what you tell your employer, they just go by the birth certificate. Maybe she just doesn't want to acknowledge her age.
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Soon2BXProgrammer
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Soon2BXProgrammer »

Dottie57 wrote: Mon May 03, 2021 11:00 am
Big Dog wrote: Mon May 03, 2021 10:38 am I'd find a new financial advisor. It's been my experience that FA's routinely 'suggest' that you file for SS early so that you spend down less of the assets that they have to manage (and on which they receive a commission).

I'd also file a complaint against the FA for SS lost. They/their professional practice insurance will probably settle.
This. It is malpractice on the part of FA.
The FA's agreement might be "investment management only" and not "financial planning". if this is the case, then while they might have a fiduciary duty with respect to Investmenet Management, they might not be in the details of the rest of the finances. One could argue they should know better under the basic know your customer rules, but Investment Only agreements do not require detailed personal financial understanding... They require big picture, and if the person said they have 60k of income and it mostly covers their expenses, that might be detailed enough
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Re: My Dear Friend Forgot to Apply for Social Security

Post by bsteiner »

It happens. I know someone who retired at 73 and didn't realize that she could receive Social Security before then even while working and that deferring beyond 70 didn't provide any additional benefits.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by pshonore »

Mlm wrote: Mon May 03, 2021 11:34 am Your DF still needs to have Social Security figure out his benefit and the WEP offset which can be substantial. It often can result in no SS benefit. It's worth finding out the facts first.
I doubt it will eliminate an SS benefit all together. I believe the most severe net effect is to reduce the first bend point benefit from 90% to 40% of average indexed earnings. For 2021, the maximum WEP reduction at full retirement age (FRA) is $498, up from $480 in 2020.
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celia
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Re: My Dear Friend Forgot to Apply for Social Security

Post by celia »

Minty wrote: Mon May 03, 2021 10:14 am DF has a pension from a government job where he did not contribute to Social Security, but since retiring decades ago operated a small business and maxed Social Security contributions annually through that. DF was under the misapprehension that he was not entitled to Social Security retirement benefits, ...
I don’t see how the advisor can be blamed at all if DF told the advisor(s) that he was not eligible. And even if eligible, there would be many years of zeroes.

I know of a homeless man who frequents our neighborhood. He has taken it upon himself to sweep the sidewalks near the businesses and pick up trash and he is considered our “adopted” neighbor. There are/were occassional collections of money from the neighborhood to buy him gift cards for the fast food places. One neighbor in particular asked him if he was collecting SS and the reply was “no”. The homeless man thought he wouldn’t qualify since he didn’t work that much.

But I haven’t seen him around since the pandemic started so I suspect someone helped him apply and now he has enough for housing and a place to store his stuff.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Katietsu »

Minty wrote: Mon May 03, 2021 10:14 am DF's highly compensated tax advisor and investment advisor never paused to wonder why SE taxes were going out, but no SS retirement benefits coming in. DF is reasonably comfortable, and this income would have raised charitable contributions, not provided for foregone necessities. But still.
I am big on getting frustrated about people not doing their job well. It is regrettable that this was not picked up on sooner. However, I can see how this happened. If I saw a government pension and no social security, it would be easy to assume that the person did not qualify for social security. Also, I would not consider understanding social security, government pensions, and WEP offsets is not a mandatory skill for either an investment advisor or a tax advisor. Now, if you said that his certified personal retirement specialist, or even his CFP, did a Financial Plan and missed this, I would find that inexcusable.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by JoeRetire »

Minty wrote: Mon May 03, 2021 10:14 amBut still. While I subscribe to the Boglehead philosophy of not sticking ones nose uninvited into the financial affairs of friends and family, does anyone have thoughts on how to help avoid losses like this?
An individual can avoid losses like this by either educating themselves as best they can, or having competent professional help. This is particularly important as one approaches retirement age.

If your friend had the same highly-compensated tax and investment advisors before they reached retirement/social security age and they never asked the relevant questions, then it's time to find new advisors. Their communication simply wasn't effective.
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JoeRetire
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Re: My Dear Friend Forgot to Apply for Social Security

Post by JoeRetire »

Big Dog wrote: Mon May 03, 2021 10:38 am I'd find a new financial advisor. It's been my experience that FA's routinely 'suggest' that you file for SS early so that you spend down less of the assets that they have to manage (and on which they receive a commission).
How many FA's have you experienced?

The FA's with whom I have personal experienced didn't recommend this. In the case of my brother, they specifically warned against it when he explored starting his benefits early.
I'd also file a complaint against the FA for SS lost. They/their professional practice insurance will probably settle.
Unlikely.
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JoeRetire
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Re: My Dear Friend Forgot to Apply for Social Security

Post by JoeRetire »

nisiprius wrote: Mon May 03, 2021 11:44 amAnd one reason I am skeptical about getting too clever with sophisticated "claiming strategies" is that the most important thing is not to forget to claim.
I don't understand how the one follows the other.

It seems to me that anyone who would spend the time to investigate strategies designed to optimize their social security lifetime benefits would be more likely to remember to claim them than most.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by JoeRetire »

123 wrote: Mon May 03, 2021 12:06 pmWe suspect that her rationale for not-filing is that she gave a younger DOB to our employer and doesn't want to make any waves.
Ugh. Lying can be costly. It can also be illegal in the context of providing information to your employer.
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Re: My Dear Friend Forgot to Apply for Social Security

Post by nisiprius »

JoeRetire wrote: Mon May 03, 2021 1:24 pm
nisiprius wrote: Mon May 03, 2021 11:44 amAnd one reason I am skeptical about getting too clever with sophisticated "claiming strategies" is that the most important thing is not to forget to claim.
I don't understand how the one follows the other.

It seems to me that anyone who would spend the time to investigate strategies designed to optimize their social security lifetime benefits would be more likely to remember to claim them than most.
Good point.
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Freetime76
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Re: My Dear Friend Forgot to Apply for Social Security

Post by Freetime76 »

nisiprius wrote: Mon May 03, 2021 11:44 am I suspect that "forgetting to apply for Social Security" is more common than you might imagine. And one reason I am skeptical about getting too clever with sophisticated "claiming strategies" is that the most important thing is not to forget to claim.

My story is that I had a former colleague who was age 73, was teaching at a small college, and I assure you was in good cognitive shape. He was still publishing research papers. He was just rather otherworldly about money. I was shocked to find he had never claimed Social Security, and I said, "OK. You are sitting in front of your computer terminal, I am standing behind you, and I am not moving from this place until you go to Social Security online and claim. Right now. It takes about twenty minutes." He did, and it was just that easy. He basically had irretrievably lost two years of benefits, but was able to get a retroactive payment for the last year, for almost a full year.

The fact that your friend had a "financial advisor" makes it particularly terrible, though. From a bad experience I had with a CFP who told me something flatly wrong about Social Security, I suspect Social Security may not be financial advisors' typical area of expertise, even though of course it ought to be.
Regarding remembering to claim: a family member failed to claim her ex-spouse’s SS. She thought of it right after he died, but procrastinated because she had other concerns and didn’t need the income. Forgot all about it until a friend said something that triggered it...FIVE years later, she filed. It was about $500/month more. She still doesn’t need it, but after paying in for a lifetime...take the money!

As for actionable ideas, discuss SS with your peers...A tactful way might be to ask what their filing strategy was (if older) - did they wait, submit right away...
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