Why Social Security's Advice Is Often Wrong

Social Security advice is always well-intentioned, usually helpful—and often wrong. That was one of the most eye-opening findings of doing two years of research on Get What’s Yours, the recent book on Social Security that I co-authored.

In trying to provide advice that is easily understood and applies to most people, the agency often glosses over complex program rules and claiming scenarios. Unfortunately, if people make bad claiming decisions as a result, they are the ones who pay the price, not some representative at a Social Security office or on the other end of the phone line in a huge call center.

Most recently, I came across this online advice in the frequently asked questions section of the Social Security website:

“How far in advance can I apply for Social Security retirement benefits?"

“You can apply for Social Security retirement benefits when you are at least 61 years and 9 months of age.

“You should apply three months before you want your benefits to start.

“Even if you are not ready to retire, you still should sign up for Medicare three months before your 65th birthday.”

On first glance, what could be wrong with these statements? After all, the earliest age at which retirement benefits begin is 62. So coming in three months earlier makes sense, right? And every Baby Boomer has known for a long time that Medicare, the federal health insurance program, begins at age 65. So what could be wrong with reminding people to sign up when they turn 65?

In fact, there are lots of Social Security benefits that do not start at age 62. Broadly defined, “Social Security retirement benefits” include all benefits provided by the agency, not just a worker’s own retirement benefits. Retirement and spousal benefits generally can’t be started younger than age 62. But survivor benefits may be taken as young as age 60.

Social Security Disability Insurance benefits can be triggered at any age for the disabled person. Disabled persons also can collect survivor benefits as young as age 50 if they are disabled and either their spouse or divorced spouse dies.

Waiting until 61 years and 9 months is thus not the right advice for everyone. Applying three months before you want benefits to start may be accurate but, as we’ve found, many people have no idea about the earliest age they may begin benefits. Often, they also have no idea of the latest or best age at which they should begin benefits.

Social Security does address many of these issues elsewhere, including providing an extensive questionnaire to help people know the various benefits to which they are entitled. But, of course, you have to know where to look. And if you have already made an ill-informed claiming decision, you won’t be motivated to even look.

Likewise, in the case of Medicare, following the agency’s advice can be very costly. To most people, signing up for Medicare at 65 means exactly that. Basic Medicare consists of Part A for hospital care and Part B for doctor and other outpatient expenses. Part A premiums are steep—more than $400 a month—but are waived for anyone who has paid Social Security payroll taxes for 40 or more quarters of work during their lifetime. The Part B monthly premium is $104.90 a month in 2015 for most people but can be a lot higher for big wage earners.

If people reach age 65 and continue to be covered by an employer group health insurance plan, they usually do not need to sign up for Medicare. (People covered by plans at small employers with 20 or fewer employees normally do need to sign up.)

What happens to people who do sign up, even though they have an employer plan? Usually, nothing. Either Medicare or their employer lets them know that they do not need Part B, so they save that premium. For a long time, however, people have been told to sign up for Part A anyway. Even if they never use it, it’s free, so what’s the harm?

Well, the harm is that signing up for Part A of Medicare prevents a person from participating in a health savings account, which is offered in increasingly popular high-deductible health plans. Most people are unaware of this rule. But once it’s been triggered, they not only can lose a valuable tax benefit but also face penalties for unintentionally continuing to participate in their HSA.

Social Security often explains its benefits in a “one size fits all” way. But this is not a one-size fits all program. It entails a complex mix of multiple benefits, claiming decisions, and penalties for not following the rules—rules that Social Security needs to do a much better job of explaining.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and is working on a companion book about Medicare. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.