Social Security underpays thousands of widows and widowers

A vast majority (82 percent) of beneficiaries entitled to receive survivor benefits and their own benefits weren't informed of an option to claim a larger benefit. That's according to a recent audit report issued by the Social Security Administration Office of Inspector General. The audit estimated that the Social Security Administration (SSA) underpaid about $131.8 million to 9,224 widows and widowers who were age 70 and older. 

When Congress passed the Bipartisan Budget Act of 2015, it ended the "file-and-suspend" claiming strategy that activated a spouse's monthly benefit while the other spouse suspended his or her benefit, allowing it to increase the longer it was delayed (up to age 70). Congress believed that provision to be a loophole that was giving married couples more in benefits than they should receive.

But another claiming strategy, known as "filing a restricted application" for survivor benefits, wasn't affected and is still allowed. Based on the results of the audit, the SSA is failing to inform widowers and widowers to consider filing for it. Here's how it works:

Typically, when claiming Social Security retirement benefits, your application covers all benefits for which you're eligible. That's unless you specifically request to limit the scope of the application, which is known as filing a "restricted application." 

When a widow chooses to file a restricted application, she's electing to initially claim her survivor benefits and delay applying for her own benefits until age 70. Remember, when you delay claiming your own benefit, your benefit payment increases by 8 percent annually from full retirement age (65 to 67, depending on when you were born) up to age 70. Survivor benefits do not increase.

When a widow files a restricted application to initially claim survivor benefits at full retirement age, she would initially receive a survivor benefit. But doing this preserves her right to claim the increased retirement benefits of her own at age 70, which can be substantially more and which she would continue to receive for life. The problem is, if she isn't informed of this strategy, she wouldn't know about it.

The SSA Inspector General's report identified 13,555 widows and widowers who were entitled to claim survivor and retirement benefits before age 70. In a random sample of this group, it found that 82 percent could have gotten a higher monthly benefit if they had claimed survivor benefits and delayed claiming their own retirement benefits until age 70. The audit also found no evidence that SSA employees informed the people about their option to delay their retirement benefits to age 70, which is required. 

The additional benefits can be substantial. The report cited a widow who turned 70 in August 2015, whose combined Social Security retirement and survivor benefits through September 2017 totaled $39,708. If she had been informed of her option to delay her retirement benefits to age 70 and elected it, she would have received benefits totaling $52,708. In this specific case, the SSA underpaid the widow $13,000.

As a living spouse, you're also still eligible to use the restricted application strategy, if you were 62 by Jan. 1, 2016. When you turn 66, you can file the restricted application to activate spousal benefits if your spouse has also activated his benefit and is receiving his own Social Security payment. When the spouse receiving spousal benefits turns 70, she can then activate her own benefit, which may be larger, resulting in a higher lifetime income. 

The report concludes that the SSA needs to improve how it informs widows and widowers of their option to delay an application for retirement benefits and initially claim survivor benefits until age 70. It was recommended that the SSA take appropriate action for the beneficiaries identified in the audit sample and determine whether it should do the same for the entire population of 13,564 widows and widowers who may have been underpaid.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.