[Senate Hearing 114-841]
[From the U.S. Government Publishing Office]
S. Hrg. 114-841
MAXIMIZING YOUR SOCIAL SECURITY
BENEFITS: WHAT YOU NEED TO KNOW
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HEARING
BEFORE THE
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
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SEPTEMBER 14, 2016
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Serial No. 114-28
Printed for the use of the Special Committee on Aging
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
47-693 PDF WASHINGTON : 2022
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SPECIAL COMMITTEE ON AGING
SUSAN M. COLLINS, Maine, Chairman
ORRIN G. HATCH, Utah CLAIRE McCASKILL, Missouri
MARK KIRK, Illinois BILL NELSON, Florida
JEFF FLAKE, Arizona ROBERT P. CASEY, JR., Pennsylvania
TIM SCOTT, South Carolina SHELDON WHITEHOUSE, Rhode Island
BOB CORKER, Tennessee KIRSTEN E. GILLIBRAND, New York
DEAN HELLER, Nevada RICHARD BLUMENTHAL, Connecticut
TOM COTTON, Arkansas JOE DONNELLY, Indiana
DAVID PERDUE, Georgia ELIZABETH WARREN, Massachusetts
TOM TILLIS, North Carolina TIM KAINE, Virginia
BEN SASSE, Nebraska
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Kevin Kelly, Majority Staff Director
Derron Parks, Minority Staff Director
C O N T E N T S
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Page
Opening Statement of Senator Susan M. Collins, Chairman.......... 1
Opening Statement of Senator Claire McCaskill, Ranking Member.... 3
PANEL OF WITNESSES
Charles Jeszeck, Director, Education, Workforce, and Income
Security, U.S. Government Accountability Office................ 5
Virginia P. Reno, Deputy Commissioner for Retirement and
Disability Policy, U.S. Social Security Administration......... 7
William Meyer, CEO, Social Security Solutions, Inc............... 8
Sita Nataraj Slavov, Professor of Public Policy and Visiting
Scholar, Schar School of Policy and Government at George Mason
University and American Enterprise Institute................... 10
APPENDIX
Prepared Witness Statements
Charles Jeszeck, Director, Education, Workforce, and Income
Security, U.S. Government Accountability Office................ 33
Virginia P. Reno, Deputy Commissioner for Retirement and
Disability Policy, U.S. Social Security Administration......... 44
William Meyer, CEO, Social Security Solutions, Inc............... 64
Sita Nataraj Slavov, Professor of Public Policy and Visiting
Scholar, Schar School of Policy and Government at George Mason
University and American Enterprise Institute................... 69
Statements for the Record
GAO Report: Improvement to Claims Process Could Help People Make
Better Informed Decisions About Retirement Benefits............ 77
MAXIMIZING YOUR SOCIAL SECURITY
BENEFITS: WHAT YOU NEED TO KNOW
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WEDNESDAY, SEPTEMBER 14, 2016
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The Committee met, pursuant to notice, at 2 p.m., in Room
562, Dirksen Senate Office Building, Hon. Susan M. Collins,
Chairman of the Committee, presiding.
Present: Senators Collins, Heller, Scott, Tillis,
McCaskill, Casey, Gillibrand, Donnelly, and Warren.
OPENING STATEMENT OF SENATOR
SUSAN M. COLLINS, CHAIRMAN
The Chairman. Good afternoon. This hearing will come to
order.
If someone offered me $100 today, no strings attached, I
would be tempted to accept it and say thank you, but if I were
told that if I just waited until next week I could receive $200
instead, I think most of us would agree that it might make
sense to wait.
Of course, I have way oversimplified with my example, but
essentially this is how our Social Security system works for
those who qualify for retirement benefits. Retirees are
entitled to claim benefits as early as age 62, and for many
retirees that makes sense. Either their health may be poor or
the job is too physically demanding for them to continue to
work, but those who are able to work and, nevertheless, claim
their benefits at age 62, will see their annual benefits
permanently reduced by nearly one-third compared to what they
could have received by waiting until they are older. In fact,
few people realize that their benefits can go up by 8 percent
annually for each year they delay claiming benefits, up to age
70.
Deciding at what age to begin claiming Social Security
retirement benefits is the single most important financial
decision that many Americans will ever make. Few, however,
understand that making the wrong choice for them can end up
costing them tens of thousands of dollars or more during their
retirement years.
To illustrate how this works, take a look at this chart.
The average person in my State of Maine earning $42,000 a year
would receive $1,200 a month from Social Security if he or she
retired when they first became eligible at age 62, but if this
person is able to keep working until the age of 66, he or she
would receive $1,600 a month, and if the person remains in good
health, can work, and is fortunate enough to be able to wait
until age 70 to begin claiming benefits, this senior could
receive a check for $2,112 a month. That is nearly $1,000 more
each and every month, and $12,000 more every year than if the
senior had started to receive benefits 8 years earlier.
As we have explored in prior hearings, we face a retirement
crisis. The simple fact is far too many Americans have not
saved enough money to live comfortably in retirement. Many of
these retirees will rely on Social Security for nearly all of
their income. For them, a Social Security check that is at the
maximum level for which the senior is eligible could make the
difference between a secure retirement and living in poverty,
but Social Security is a complex program. I was reminded of
this just this week when I happened to receive my own statement
in the mail, of projected benefits, and believe me, it is
pretty opaque. Its rules are difficult to understand, and that
is why it is critical that those who are approaching their
retirement years have the information they will need to decide
when to begin claiming their benefits and what will work best
for them and for their families.
Last year, Senator McCaskill and I asked the Government
Accountability Office to look into the Social Security claiming
process. Our goal was to identify ways that the process could
be improved and more information made available to help people
make the best decisions given their circumstances.
The GAO found that many individuals do not fully understand
key details of Social Security's rules that can affect their
retirement benefits, nor do they understand how spousal and
survivor benefits are determined. Many may not realize just how
long their financial assets may need to last. For example, a
65-year-old today can expect to live for another 20 to 25 years
and 1 in 4 will live past to age 90.
As the GAO details, the Social Security Administration does
make a great deal of information available to the public.
Unfortunately, this information is not always easy to digest
and is sometimes conflicting. Field offices do not consistently
provide the information that claimants need to make well-
informed decisions about their benefits.
Now let me be very clear. There are many reasons why
someone might want to begin receiving Social Security just as
soon as they become eligible. They, or a spouse, may be in poor
health, or their jobs may require physical labor that they can
no longer perform. Certainly the decision on when to begin
claiming Social Security is highly personal. We also know that
Social Security is designed in a way that it provides greater
replacement income for lower-income workers, a structure that I
support.
I am hopeful that the GAO's report and our hearing today
will help highlight the steps that the SSA should take to
present vital information that claimants need in a clear, easy-
to-understand manner, so that they can make the best possible
decision for themselves.
I thank our witnesses for appearing today and I look
forward to discussing this important topic.
I now am delighted to turn to our Ranking Member, Senator
McCaskill, for her opening statement.
OPENING STATEMENT OF SENATOR
CLAIRE McCASKILL, RANKING MEMBER
Senator McCaskill. Thank you, Chairman Collins. As you have
indicated, many financial experts consider the Social Security
claiming decision to be the most important financial decision a
person can make in retirement. I find it ironic that financial
experts say this but the American public is clueless that this
decision is so important.
It is staggering that so many Americans do not even realize
that this is a decision at all. Many think you just claim at 62
or when you stop working, or when you claim Medicare, or when
you hit full retirement age at 66 or 67. In fact, fewer than 1
in 3 people in a recent AARP study knew that 70 was, in fact,
the magic age at which you could get the most out of your
Social Security benefits. I do not know how we can describe
this other than a fail for the Social Security Administration.
Another study found 1 in 3 people did not even realize they
could get a larger benefit by simply waiting to claim. How much
more? Eight percent a year. Eight percent a year. That is a
very attractive return in today's market. It is really the best
deal in town. You cannot invest in a risk-free, inflation-
protected annuity, which is what Social Security is, in your
60's and expect to see any return like that, so why don't more
people know about this? That is what Chairman Collins and I
wanted to find out when we sent the GAO online and into field
offices to see what prospective beneficiaries were being told.
This was supposed to be a two-part investigation. The first
part was focused on what the field office employees told
claimants, when a GAO investigator was sitting right there, in
the room. The second part was going to be an undercover portion
where we were going to hear what people were being told when a
third party was not watching.
Sadly, we did not even need to do the second part of the
investigation, because what these investigators heard in their
official visits was so disturbing and so disheartening that
there was no need for the GAO investigators to go undercover,
as secret shoppers.
Multiple people were told they could claim their benefits
retroactively and get a big check today, without the incredibly
important warning that this would reduce their benefits for
life. Others were given outdated information like break-even
analyses that we know pushes people to claim benefits earlier,
many times to their financial detriment.
Now I know this is not a scientific significant sample, but
the idea that so many mixed and inconsistent message occurred,
in just 30 interviews, is startling, and it, unfortunately, is
not surprising to those who do business in field offices on a
regular basis.
This is not an attack on field office workers. These people
are dealing with understaffing and underfunding while seeing an
increasing volume of retired baby boomers. There is a price we
pay for cutting the budgets for customer service, and I am very
sensitive to that.
This Committee has explored the difficulties faced around
the country due to closing field offices, and just this week
the Center on Budget and Policy Priorities released a report
showing a nationwide reduction of 6 percent of field office
staff and more than 20 percent in seven different states, so
this is not on the field workers. This is on the agency as a
whole. Until 2008, the Social Security Administration used to
advise seniors on when to claim, using a break-even analysis,
which told people how long they would have to live to make up
for the fact that they were claiming later. As I mentioned
earlier, research has shown this advice prompted people to
claim earlier. Now the agency claims to be agnostic, but this
lack of any real position creates a void, and the public is
getting mixed signals.
SSA claims it does not want to be a financial advisor, but
that is not what we are asking. All we want--and this goes back
to Bowles-Simpson and Domenici-Rivlin, all the way to the
Bipartisan Policy Center report we examined in last week's
Committee hearing--is for the SSA to provide information. It is
not hard to ask people a few simple questions. Do you know that
for every year you wait you get an 8 percent increase in your
benefits for life? Why is that a hard question to ask?
Certainly it would be an easy question for someone to answer.
Yes, I know that and I have reasons I need to claim now, or,
no, I did not know that; thank you for giving me that
information.
Did you know you do not even have to file for Social
Security when you stop working or when you claim Medicare, or
even when you hit 62, 66, or 67? What an easy question to ask.
It does not require huge revamping of the system. It just
requires a new mindset.
Stop telling people about the break-even analysis. Tell
people that if you make it to 65, odds are you are going to
live 20 more years. That is actuarially sound. That is
statistically valid, and at that point, for most Americans,
your only income will be that Social Security check. That is
it. The disappearing of defined benefits is paying a huge
penalty on so many Americans and Social Security is all they
have got.
Tell them the decision you make in your 60's, you will live
with the rest of your life.
We have experts here today to talk about the benefits of
waiting, and they will also explain that waiting is not for
everyone, and we certainly acknowledge that, and I do not want
that idea to get lost here. Waiting does not make sense for
people in poor health, or who could no longer work and have no
other choice, but for a secondary earner in a couple, the
research is somewhat mixed on whether that person benefits by
waiting.
Professor Slavlov and Bill Meyer will delve deeper into
these ideas. I am especially pleased to welcome Bill, even
though he lives in dreaded Kansas--it is right across the
border, in Leawood--but he has a satellite office in Missouri
so we are happy to see him here and we are going to claim him
as ours today. Bill is actually here to say things that could
hurt his business, but the very point he is trying to make is
that a lot of the information companies pay him for is
information that the Social Security Administration should be
providing for free, and that is the thing. While people of
means who work for large companies may be able to pay financial
advisors to help them crunch the numbers, not everyone has or
needs a financial professional, and it should not take a
financial professional to impart the basic message we are
talking about today. Every person who claims benefits must
interact with the Social Security Administration, so this is
our last stop to inform people about the advantages of waiting.
We hope, after banging the table, and having this hearing,
and all of the professional recommendations, we hope that SSA
will finally see it is in all of our interests to make sure
that the public, being fully educated on this issue, should be
one of their very top priorities.
Thank you, Madam Chairman.
The Chairman. Thank you very much, Senator McCaskill.
Now we turn to our panel, and first I want to welcome all
of our members who are here today as well. First we will hear
from Charles Jeszeck. Mr. Jeszeck is the Director of Education,
Workforce, and Income Security Division at the Government
Accountability Office.
Next we will hear from Virginia Reno. She is the Deputy
Commissioner for Retirement and Disability Policy at the Social
Security Administration.
Then, as Senator McCaskill has indicated, we will hear from
William Meyer, who is the CEO of Social Security Solutions,
Incorporated.
Finally we will hear from Sita Slavov, the Professor of
Public Policy at the Schar School of Policy and Government at
George Mason University and also a Visiting Scholar at the
American Enterprise Institute.
Thank you all for joining us. We look forward to hearing
your testimony and we will start with you, Mr. Jeszeck.
STATEMENT OF CHARLES JESZECK, DIRECTOR,
EDUCATION, WORKFORCE, AND INCOME SECURITY,
U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Jeszeck. Thank you. Madam Chairman and members of the
Committee, thank you for inviting me here today to discuss one
of the most important financial decisions many of us will ever
make during our lifetimes--when to claim our Social Security
retirement benefits.
Social Security is the cornerstone of our retirement
system, accounting for over half of the total income received
by our Nation's seniors. My testimony, and the Committee-
requested report that is being released today, focus on the
extent to which people understand key program rules regarding
their Social Security benefits, and the information SSA
provides to enable seniors to make prudent claiming decisions.
In summary, our review found that while many have some
basic knowledge about Social Security benefits, many older
Americans do not understand important program rules and
details. We also found that SSA provides broad claiming
information on its website and publications. However, despite
the clear concern displayed by its staff, our analysis of 30
face-to-face claims interviews we observed in 7 local SSA
offices in 3 states, found that people do not always receive
the information they may need during the claims process.
Our analysis of surveys, academic studies, and expert
interviews indicate that many people do not understand key
details about Social Security retirement benefits.
Specifically, they are unclear on how claiming age affects the
monthly benefit amount, how earnings both before and after
claiming affect benefits, the option of spousal benefits, and
other aspects of the claiming decision.
For example, seven surveys we reviewed found that many
people do not understand the tradeoffs of claiming early versus
claiming later. This is important information for people to
consider as they engage the Social Security claiming decision,
as some could permanently raise their monthly benefits by 6 to
8 percent per year by delaying when they take benefits.
Nevertheless, in one study, 36 percent of the respondents
indicated that they did not understand either how their
benefits would change with different claiming ages or thought
that their monthly benefits would be the same no matter when
they claimed.
SSA provides comprehensive information to help people
decide when to claim retirement benefits through various
sources, including web pages, online calculators, the periodic
earning statement, and publications.
For the almost 40 percent of people claiming benefits at
SSA offices, claims specialists follow an automated, step-by-
step process for reviewing basic information from prospective
claimants to determine their eligibility and benefits. This
process includes prompts for specialists to confirm basic
information on claimants and inform them about their benefit
amount, and often to discuss spousal benefits and other key
program rules.
However, during the in-office claims interviews we
observed, the discussion often did not include questions or
prompts about key information that could inform the benefit
claiming decision. For example, we observed the multiple claims
inquiries concerning the retirement earnings limits. In only 7
of 17 cases where the limit could apply did the claims
specialist accurately explain that the limit is not a penalty.
Any benefits withheld because of above-limit earnings are
returned through higher benefits later. This could have
important consequences, both for people's claiming and work
decisions.
In another example, in 13 of 26 claims we observed, we
found that claims specialists did not provide at least three
different benefit amounts that the claimant may be eligible
for: at the earliest possible month of claiming, at the full
retirement age, and at age 70. They also did not inform people
that monthly benefits would be higher if the person waited to
claim. Both actions are required by SSA's Field Manual. In one
case, a 62-year-old claimant stated she wanted to claim
benefits and the claimant specialist simply proceeded with the
claim.
Given how many retirees rely so heavily on Social Security,
the complexity of the claiming rules, and the permanence of the
decision, it is essential that they have the information that
they need to make wise claiming choices. Thus, our report makes
a number of recommendations that we believe will help seniors
make decisions regarding the Social Security benefits that are
in their best interest.
That concludes my statement, Madam Chairman. I will be
happy to answer any questions you or any other members may
have.
The Chairman. Thank you very much. Ms. Reno.
STATEMENT OF VIRGINIA P. RENO, DEPUTY
COMMISSIONER FOR RETIREMENT AND DISABILITY
POLICY, U.S. SOCIAL SECURITY ADMINISTRATION
Ms. Reno. Thank you, Chairman Collins, Ranking Member
McCaskill, and members of the Select Committee.
I am Virginia Reno, Deputy Commissioner for Retirement and
Disability Policy at the Social Security Administration and I
am pleased to be here to explain how we provide information to
help workers make the decision when to take retirement
benefits.
I would like to start by emphasizing workers and their
employers, as we know, pay for Social Security by financing out
of 6.2 percent of their wages, matched by employers, and in
return they get disability and life insurance protection as
well as a foundation of retirement security for themselves and
their families. We recognize that these benefits are paid for
out of workers' wages.
When to take benefits is an important decision that affects
what you get for the rest of your life. As we have emphasized,
seniors now get full benefits starting at 66, but the benefits
are reduced if they take them as early as 62, by 25 percent. If
they delay beyond 66, the benefits increase by 8 percent for
each year of delay until 70. Delaying the start of benefits
from 62 to 70 permanently increases the benefits per month by a
total of 76 percent. In brief, it pays to wait to take Social
Security and it pays much more to wait than it used to.
Married couples have two lives to plan for. If you are the
higher earner, delaying Social Security also means higher
survivor protection for your spouse if she or he should outlive
you.
The amount of monthly benefits, however, is not the only
factor people need to consider. As the Chairman has pointed
out, they also must consider their health, how long they might
live, their other income, their living expenses in retirement,
savings they can draw on, and whether they expect to work and
will be able to work in retirement. Consequently, the decision
of when to start benefits is unique to each individual. Our
role at SSA, as we understand it, is to explain the program
rules and the benefits so that people have the facts they need
to make an informed decision that fits their own situations.
Our Social Security statement, which we mail to workers,
beginning with their 25th birthday, is a very valuable tool to
explain what you can get from Social Security. It shows your
earnings history, it estimates your disability and survivor
protection, and the retirement benefits you could expect to
receive at 62, at full retirement age, and at 70.
We also provide user-friendly information and publications
via our website, and some of the most highly rated online tools
in the Federal Government are those at SSA--the Retirement
Estimator, the iClaim, which allows people to apply for
benefits online, and My Social Security, where you can get your
personal benefit estimates, your own Social Security account.
By the time people come to our offices to apply for
benefits they often have made their decision to claim, so we
believe it is very important for people to get the information
they need well before they come to our office, if we can. That
is why we have put such a high premium on our public education
and the statement.
Still, when someone contacts our field offices, our
employees are there to provide full information and our policy
is to provide full and complete information on what you can
expect to receive at the earliest age available to you, at full
retirement age, and at 70.
We appreciate GAO's recent review of how we inform the
public about their claiming choices. We are pleased that GAO
recognized the professionalism and helpfulness of our employees
and the value of our online services, and we generally agree
with GAO's recommendations and are looking into how to
incorporate them and reinforce the messages where they may not
be as fully implemented as we believe they should be, and as
are spelled out in our policies.
Before I finish I want to stress that our ability to
provide excellent service, as you have already mentioned, is
tied directly to our appropriations. When workers pay into the
Social Security Trust Funds they are paying not just for
benefits for themselves and their families but also for the
customer service we provide. Yet, we can use the Trust Fund
money to serve our customers only to the extent that Congress
appropriates it. The last several years have been very
challenging in this regard. Since 2010, the number of
beneficiaries we serve has grown by 12 percent, yet we have
reduced our core operating budget, from appropriations, by 10
percent, after adjusting for inflation.
If funding levels in the House or Senate appropriation
bills become law, the situation will be worse. We need the $13
billion recommended, and requested in the President's budget,
to provide the quality of service that the public, the GAO, and
this Committee expect from us, and that older Americans have
already paid for through the deductions from their paychecks
throughout their lives.
I thank the Committee for commissioning the GAO report, and
I look forward to the discussion and will be happy to answer
any questions.
The Chairman. Thank you for your testimony. Mr. Meyer.
STATEMENT OF WILLIAM MEYER, CEO,
SOCIAL SECURITY SOLUTIONS, INC.
Mr. Meyer. Thank you. Thank you, Chairman Collins. Thank
you, Ranking Member McCaskill, other distinguished Committee
members.
I am Bill Meyer. I am founder and CEO of Social Security
Solutions. It is important to know that we are the largest
provider of Social Security help after the Social Security
Administration, and we do provide our services for a fee, but
the majority of our services are for free.
I am going to deviate from the testimony I submitted
because I think there are a number of remarks at the very
beginning that were spot-on and really important.
First, Social Security is the most important financial
decision 99 percent of Americans make in their lifetime. There
is no doubt, mathematically, that is right. The second comment,
from Ms. Collins, was the best outcome is really to give people
all the data they need to come up with the best decision
possible, and Ms. McCaskill saying that it should be clear and
simple. Just give people the information so they can make an
informed decision, and then this has nothing to do with rich or
poor. This is not about gaming the system. This is about
getting information to make a good decision. That is it, and
unfortunately I disagree with some of the last comments that
there is not full and complete information that is given right
now. We have seen this from the studies that were done and the
statements, which I will comment in a second. Let us just give
people the information and a tool, and then they will be able
to make better decisions.
With that as context, I have four simple suggestions. I
will probably only get to two of them within my time. My
partner is Bill Reichenstein from Baylor--he is down in Texas--
and we have written more about maximizing Social Security than
anyone else in the country. He is at Baylor University and we
have written research on singles, married, widow, whether you
have a non-covered pension, whether you die early, whether you
work part-time. The rules are overwhelming. They really are
overwhelming.
The point I do want to make, which I agree with, is Social
Security agents and the people that work in the field offices
and on the 800 number, they are awesome. They do the best job
they can, but there is a fail. Those words are strong but there
is a fail.
I will start by suggestion No. 1, and it has to do with the
statement. We are not giving the right information and we are
not giving enough information, so the slide that was shown on
the bar charts before were monthly benefits. That is just one
dimension, and if I am making a tradeoff between $1,000 or
$500, that does not incorporate what I call the cumulative
benefits.
Now everyone focuses on break-even. It is almost a dirty
word. Let us put that aside. Showing two bar charts, showing
the tradeoff if I add up all those monthly benefits going
early, or all of them going late, can be $100,000 or more for
many, many people. We have to show people not the monthly
amount, that is a small amount. You show them the larger
amount, it changes claiming decisions. We have seen the
behavior in our company. This is just a view that can be done
on the statement. We have this data.
The second dimension--and I have an example in my
testimony; I will not have time to go over it--is that it does
not include spousal or survivor, or any other benefits. It is
just about that single person's benefits, so I could in my
example, I am finding another $100,000 in addition to the
cumulative benefits that are shown just about that single
individual statement.
We are not giving the full and complete data to people. We
are just not, and again, I am not trying to disparage. I
believe in Social Security. I would do anything to help Social
Security do a better job. This is too important of an issue.
My recommendation is make improvements to the statement.
Get realistic data in there so people can make information. My
second suggestion--there is a current policy that agents or
people that work for Social Security in the field offices and
the 800 cannot give any guidance. This is controversial, and
when I give speeches--you spoke about it at the beginning--is
that it is--I do not want to be a financial advisor. It is not
about being a financial advisor. It is about giving people the
information they need to make a good claiming decision. We are
currently not doing it, and the Social Security Administration
cannot have a policy where they cannot give people the
information they need. It is ludicrous. It has to change.
Now what I get when I talk to Social Security are quotes
like, ``It is too complicated,'' ``It adds too much risk,''
``We will not be able to implement it,'' things like that. What
I would say is I have hired people with no financial background
and from Missouri and Kansas, and in 1 week with our software
training them to be experts. This can be done. If we can do it
and other institutions can do it, Social Security can do it
too. There are processes and protocols that are available.
My suggestion and recommendation is review how Social
Security can give guidance, not advice, or not be a financial
advisor, but give them, as Ms. Reno said, the full and complete
information so that they can understand the tradeoffs between
the decisions they are making. It is too important.
I will conclude by saying I published some research in the
``Journal of Financial Planning,'' and we showed, by maximizing
Social Security that we could add between 2 to 10 years of
longevity to someone's savings--2 to 10 years. This is not just
a gigantic decision about how to claim. It is a gigantic
decision on how it will make someone's savings, whether it is a
lot or a little, last longer. We need to do more on education
and helping people in this area.
Thanks for your time.
The Chairman. Thank you so much for your testimony.
Professor.
STATEMENT OF SITA NATARAJ SLAVOV, PROFESSOR OF
PUBLIC POLICY AND VISITING SCHOLAR, SCHAR
SCHOOL OF POLICY AND GOVERNMENT AT GEORGE
MASON UNIVERSITY AND AMERICAN ENTERPRISE INSTITUTE
Ms. Slavov. Good afternoon, Chairman Collins, Ranking
Member McCaskill, and members of the Committee, and thank you
for the opportunity to speak to you today about Social Security
claiming decisions.
I will start by talking generally about the gains from
delaying Social Security. Social Security benefits can be
claimed at any age between 62 and 70, with higher monthly
benefits paid for later claims. Delaying Social Security does
involve a tradeoff, that is sacrificing benefits today in
exchange for higher benefits in the future. However, my recent
research with Professor John Shoven of Stanford University
shows that that tradeoff appears to be a favorable one for many
people.
The gains from delay depend on individual circumstances and
life expectancy, but my calculations suggest that typical
couples can gain more than $80,000 and singles can gain more
than $35,000 over a lifetime by using the optimal claiming
strategy versus claiming at age 62, and beyond this monetary
gain, the increased Social Security annuity provides additional
insurance against both inflation and outliving one's savings.
Despite the large gains from delay, most people claim
Social Security at or before their normal retirement age. Very
few people delay to age 70. One possible explanation for this
is that individuals want to stop working and do not have the
retirement savings to pay for living expenses while they delay
benefits. That explanation might be applicable to some people
but my research suggests that around a third of those who claim
before normal retirement age have individual retirement account
assets that would allow them to delay Social Security by at
least 2 years.
Delay may not have a high payoff to some people with a
relatively low life expectancy, but that also cannot explain
why most people do not delay beyond normal retirement age. In a
recent survey that my co-authors and I conducted, the most
common reasons individuals cited for claiming Social Security
early were that they needed the money or that they had stopped
work and assumed that Social Security should be commenced upon
stopping work. Another sizable group cited the fear that Social
Security benefits would be cut in the future.
I hesitate to say that claiming Social Security early is
definitely a mistake, as delaying does generally involve a
tradeoff between current and future benefits, but given the
amount of money that people appear to be leaving on the table,
it is worth ensuring that the claiming decision is an informed
one.
To that end I have several suggestions. First, it could be
worth referring individuals to the various online calculators
that inform them of the lifetime resources they would have
under different Social Security claiming strategies. Second, it
is worth encouraging people to think carefully about different
options for using their various retirement resources. In
particular, some people may want to draw down on private
retirement assets or take a lump-sum payment from a defined
benefit pension in order to delay Social Security.
Third, to most people, the term ``retirement'' means
stopping work. That term should not be used to describe
claiming a Social Security benefit as it sometimes is. Making a
clear distinction between retirement and claiming lets people
know that it is possible to stop work and then wait a few years
before claiming.
Fourth, for individuals who are afraid that their Social
Security benefits will be cut if they do not claim right away,
it is worth reassuring the public that any credible Social
Security reform plan is likely to protect the benefits of
people close to retirement. It is also worth undertaking Social
Security reform sooner rather than later.
Finally, it might be worth considering alternative ways to
frame the claiming decision. One suggestion might be to simply
start calling 70 the normal retirement age and informing people
that claiming earlier results in a benefit reduction, without
actually changing the benefits payable at any age.
In conclusion, I hope that any changes that are made to the
way information is presented are done in a way that makes them
easy to evaluate, for example, by using randomization. That
could greatly improve our understanding of people's retirement
and claiming decisions and help inform better policy.
Thank you again for the opportunity to speak to you today.
I will be happy to take any questions.
The Chairman. Thank you very much.
Mr. Jeszeck, as I mentioned, by sheer chance, I just
happened to have received in the mail my personal Social
Security statement, and at the top it estimates what my payment
would be per month at ``full retirement age.'' The other term
that we hear frequently is ``normal retirement age.'' Studies
that have been done by the professor and others show that
individuals tend to claim benefits at whatever age is
designated as the normal or full retirement age.
Do you--does GAO have any views on the use of those terms
and how they may cause people to make decisions that may not be
in their financial interests?
Mr. Jeszeck. Well, Senator, first--and I will defer to
Virginia on this, but I think the agency has moved away from
the term ``full''--I am sorry, from ``normal'' to ``full''
retirement age, because I think the normal retirement age,
right, was--did--might give misleading impressions.
We have not really looked at this issue. In the past, the
full retirement age was relevant because there were a number of
strategies that claimants could undertake after the full
retirement age that were not available prior to that, like, for
example, file-and-suspend and restricted claiming. Some of
those were eliminated in the budget act in 2015, so there might
be less relevance to the full retirement age now than there was
in the past, but it is not something that we have really taken
a look at, what it should be called.
The Chairman. Mr. Meyer, do you have any comments on the
use of, as it says on my statement, ``full retirement age''? To
me, full retirement age means full benefits.
Mr. Meyer. Yes.
The Chairman. It means maximum benefits.
Mr. Meyer. Yes, and I think the professor said it. Some of
how you frame it and the words that are used can misrepresent
things, and that is why I am a proponent of more data. You
know, for the average person, you know, it is very similar to
your example, showing full retirement age and what I get if I
start early or late. Well, I have calculated the same numbers.
The difference between the cumulative benefits at 62 versus 70,
at a 2 percent COLA, which is below the average, is $198,000.
Let us round that up to $200,000, so if you knew that there is
a $500 difference between full retirement age and going early,
but, as a result, there are hundreds of thousands of dollars of
swing, does that change your claiming behavior? And again, this
is the average. We are not talking about rich people. We are
talking about the average, so all I am a proponent of is what
you--both of you said in your opening remarks--more data. I
think proper framing changes claiming behavior. We have seen it
with thousands and thousands of people.
The Chairman. Well, I thought that your idea of showing the
annual amount is an excellent one. Most of us do not do the
math when we see the monthly, and when you take it over time it
would make a big difference.
Ms. Reno, is there any reason why, when you come in to
claim benefits, the Social Security Administration could not
give a printout that would show how much your annual benefit is
going to be over a 10-year period, with the proviso that
obviously to be adjusted for some sort of COLA some years--some
years not--for different ages, so that people could see that?
Is that routinely done, and is there any obstacle to doing
that?
Ms. Reno. That is an excellent question. Thank you.
To be perfectly frank, our most user-friendly tool for
having printed information before you is the Social Security
statement. What is available to the people in the field
offices, and the claims specialists who are helping members of
the public, is a computer printout that is not terribly user-
friendly. It is, in fact, quite ugly. It looks something like
this. Having a more accessible document would certainly be
ideal, but that is a major IT investment that we have not been
funded to do yet, so what we can do in the office is help an
individual file for their statement. Most people who--we send
statements, the user-friendly statement to people on their
birthday and when they are 25, 30, 35, 40, 45, 50, 55, 60, and
from 60 on every year until they are beneficiaries. If I person
has not yet seen a statement or needs help interpreting it, the
person in the field office could help them access one by
setting up a system so that they have their own Social Security
account and can look at it. That is the most user-friendly
printed document, unfortunately, that we have at this point.
The Chairman. I am going to followup on that but a vote has
started so I want to yield to Senator McCaskill.
Senator McCaskill. I went on the Social Security website. I
am assuming at what age is it best for me to retire would be a
frequently asked question. Wouldn't you, Ms. Reno?
Ms. Reno. Probably.
Senator McCaskill. I looked at the frequently asked
questions and guess what? It is not on the list--what age
should I retire? I mean, I cannot imagine that that is not the
most frequently asked question, because it is one that
everybody--I am--you know, I will be honest here. I am 63 years
old and it is the talk of my peers, about what age, and the
notion that it is not a frequently asked question is mind-
boggling to me, so now I go back to the home page, because it
is not on frequently asked questions, so I go back and I see,
on the home page, that you have got Retirement Estimator. Now I
look on Retirement Estimator and, yes, somewhere in here it
says ``what is the best age to start receiving retirement
benefits.'' I click on that. I am dying to know what age I
should retire.
Now I want to read you the first paragraph under ``Monthly
payments differ substantially based on when you start receiving
benefits.'' Listen to this sentence: ``If you live to the
average life expectancy for someone your age, you will receive
about the same amount in lifetime benefits. It does not matter
if you start receiving benefits at age 62, full retirement
age''--it does not say what that is--``or age 70, or any age in
between.''
Is that a true statement, Ms. Reno?
Ms. Reno. It is true in the sense that those adjustments
for age are based upon actuarial estimates that, at the time
they were created, are designed to be actuarially neutral.
Senator McCaskill. That is not my question.
Ms. Reno. Right.
Senator McCaskill. Mr. Meyer, is that a true statement?
Mr. Meyer. No, it is not, and I can----
Senator McCaskill. Okay. We have, right here, on the source
for someone who is retiring, on your web page, a sentence that
is flatly false.
Now I do not get--I do not get the reluctance of the Social
Security Administration. For years, bipartisan groups have been
asking you to give more data. In fact, you have blogged about
it. Before you took your job you blogged about, you know, the
reality of when you get retirement. I mean, we could pull up
this screen for the person coming in, getting retirement
benefits, could we not? That would not take an IT adjustment,
would it? Could we not put information on this screen that we
could pull up? I am sitting here, and you are helping me, and
you pull up this screen, and you show me this information. That
would not take an IT adjustment, would it?
Ms. Reno. You are talking about the publication that is on
the screen?
Senator McCaskill. I am talking about what is on your
website.
Ms. Reno. Exactly.
Senator McCaskill. I am sure that your field officers have
access to a computer----
Ms. Reno. Yes.
Senator McCaskill [continuing]. and to internet, and they
could pull up a screen that could be easily programmed--I can
get you some folks over there to program it if you cannot find
any--that would actually give accurate information on this
screen.
Why can't you do that?
Mr. Meyer. That is exactly what our company does, for free.
You can put in your basic information and we will show you how
to maximize, and the difference between if you claim early or
late, for free.
Senator McCaskill. Why can't you do that, Ms. Reno?
Ms. Reno. We can tell people what their benefits will be at
any age that they wish to begin receiving benefits, and we can
explain that at early retirement age, or at the so-called full
age, at age 70, at any age in between, we can provide that
monthly benefit, and we are happy to do so.
We do not try to suggest to a person which of those ages is
best for them.
Senator McCaskill. No. You suggest to them that it does not
make any difference when you claim it. The information says if
you live to the average life expectancy, for someone your age,
you will receive about the same amount in lifetime benefits. It
does not matter when you get it. That is what you are telling
them.
Ms. Reno. I hear you.
Senator McCaskill. I hope so.
Ms. Reno. I hear you.
Senator McCaskill. I swear, I am going to raise a ruckus
about this until this website gets fixed. It is outrageous that
it says that on this website, because it is simply not true,
and hundreds and thousands of dollars that seniors deserve are
going unclaimed, and there is no reason this website cannot get
fixed, and it ought to get fixed in the next 30 days, and we
are going to--my office is going to continue to track it until
it does.
Mr. Meyer, I have 25 seconds left.
Mr. Meyer. To Ms. Reno's credit, though, it is very
complicated. There are 10,000 permutations for a married
couple, so the logic to be able to in real-time deliver this is
complicated. We have solved it. Other people have solved it.
Information that is bad--you are correct. That should be shored
up right away, but she is right. It is a very hard math
problem, but it is solvable.
Senator McCaskill. I get it that it is a really hard math
problem, and I do not mean to be--I am killing you because you
are here--you are the only one I can kill--and I apologize to
you for that, but we can certainly correct misinformation. We
can certainly remove the idea from people's minds that it does
not matter when you retire, you are going to get the same
amount of money, and that is what that sentence says, and the
only place I can find on the website that answers the question,
when should I claim, and that is what I want to see some real
energy behind in terms of fixing.
Thank you.
The Chairman. Senator Warren.
Senator Warren. Thank you, Madam Chair, and thank you. I
think this is really an important hearing and these are
important points.
I want to ask in a different direction now. As we have
talked about, because of the way Congress set up the formula
for calculating the amount of Social Security benefits that
people will get on retirement, people who start claiming at age
62 receive about 25 percent lower benefits than those who wait
until 66, and about 76 percent lower benefits than those who
wait until they turn 70, when their benefits will max out. This
formula was obviously designed to incentivize workers to delay
collecting their benefits and save Social Security some money.
According to a recent survey from AARP, 9 out of 10
Americans know that claiming later results in higher benefits,
yet almost half of Americans begin collecting at 62, and only
about 3 percent of seniors wait until they are 70, when
benefits would be the highest, so most Americans who say that
they know that claiming early will cause them to end up with
smaller benefits do it anyway.
Mr. Jeszeck, you are the Director of Education, Workforce,
and Income Security at the U.S. Government Accountability
Office, so if anyone is an expert on what is going on here it
should be you. Can you explain to us some of the reasons that
Americans begin collecting Social Security benefits before age
70, even though they know it will result in permanently lower
benefits?
Mr. Jeszeck. Yes, Senator. We did a report, I believe 2
years ago, where we looked at the characteristics of early
claimants, and we found a number of things, as I think, as we--
as has been mentioned earlier. A lot of early claimants are
blue-collar workers with very long careers, and so they are
worn out. They may be physically debilitated, although not
disabled.
Another key characteristics is health, of course. Another
area is an economic shock. We did some work earlier, in the
aftermath of the Great Recession, and what we looked at there,
we actually saw people--I mean, the labor market for older
workers has some real challenges for them. While they are less
likely to be laid off, if they are, they are unemployed for a
much longer period of time, and if they are lucky to get new
employment it is at a much lower wage.
We found people during that work who basically have been
unemployed for about 4 years, were basically using their 401(k)
as a bridge to make it to age 62, so there are certainly cases
like that. If you have a factory that closes in a town where it
is the large employer, you are an older worker, you may face
similar circumstances, and regarding health shocks, health
issues, it is not only the primary worker claimant but also it
could be a caretaker. I know from personal experience of a
close family member, his wife was very ill. He had to quit his
job in his late 50's. He was, again, a blue-collar worker. He
had to use his 401(k) as a bridge to take care--because he had
to stay home to take care of his wife--as a bridge, until
retirement.
There are a lot of cases where it is a necessity, that
people----
Senator Warren. Yes, and I think that is the key. You are
saying that people need the money. I mean, that is what it
comes down to for many of these, different reasons, but that is
where it all comes in. It seems pretty clear that most
Americans would like to wait until their benefits are higher
but they simply do not have the luxury of doing that.
Now, Ms. Reno, you are the Deputy Director for Retirement
and Disability Policy at the Social Security Administration.
Are there changes that Congress could make to the benefits
formula so that Americans who are forced to start collecting
benefits early because of a job loss or the loss of a spouse or
because of health reasons, are not being penalized permanently
with lower benefits?
The Chairman. Excuse me. Before you respond, Senator
Warren, Senator Casey, I just want you to know that there is 1
minute left in the vote, so you may want to complete, but after
that we will do a recess and resume the hearing upon the
completion of this vote and the next.
Thank you.
Senator Warren. Thank you, Madam Chair. Please, Ms. Reno?
Ms. Reno. [Off microphone.]
Senator Warren. [Presiding.] I was asking about are there
changes that we can make in the benefits formula so that
Americans who are forced to start collecting benefits early,
because of a job loss or loss of a spouse, are not being
penalized with permanently lower benefits for doing so.
Ms. Reno. Well, certainly there are many ways. It is
important that the benefits be adequate and be adequately
financed, and there are many options that could be used to
address that question. President Obama himself has recognized
that Social Security is more important than ever because fewer
people have pensions that they can count on.
Senator Warren. Okay. Actually, let me just put it this
way. I will just pull it together because we are going to have
to go and vote here.
You know, it is harder than ever for Americans to save for
retirement. As a result, Social Security is now the principal
lifeline for two-thirds of all people who are collecting it.
For 50 millions Americans, Social Security is all that stands
between them and poverty, and this means that the squeeze is on
people to start collecting the very minute that they turn 62,
even though it means large, permanent cuts.
I understand that everyone who can wait, should wait, but
the long-term solution here is for Congress to expand Social
Security, to make sure it works for those who depend on it, no
matter what age they have to begin claiming, and that is not
just my view. It is the view of the Bipartisan Policy Center,
who was here just last week, and even some House Republicans
who want to make changes to the program, and I see that as the
real task in front of us here, to make sure that Social
Security benefits are big enough so that after a lifetime of
hard work, all people have the opportunity to retire with
dignity.
I am going to run and vote. I think we will just put you
all on hold for a minute and the rest will be back, and I have
to gavel out, so I am on the run. Thank you.
[Recess.]
The Chairman. The hearing will come back into session. My
apologies to our witnesses. We unfortunately cannot control
when votes occur, but you can be assured that if the two
leaders of this Committee were in charge that they would be
scheduled at more logical times.
Senator McCaskill. Yes, they would.
The Chairman. Senator Casey, I believe you left before you
got an opportunity to question, so I would call upon you now,
if you were settled enough to begin your questions.
Senator Casey. Thank you very much, Madam Chair. We are
grateful we have some votes today. I cannot say that we are
exhausted because you only have to put your hand up or down,
but it is good we are voting, but thanks for reconvening.
I wanted to go back, Ms. Reno, to your--not to your
responsibilities, necessarily, but some of the services or
information that is offered now. I realize that you had to
break it down. It is either online or in person or by way of
telephone. I know a lot of folks in a State like mine, because
we are a very rural State between the two big cities or two big
urban areas, we have--and I wish it were just tens of thousands
but I am afraid it is a much higher number of people living in
rural areas that have no access to the internet at all. I just
heard a story today about one county that--where it is more
than 70 percent, so it is very high.
You do not have a lot of places where people are online,
the further away you get from urban areas. That is number one,
and two is, they have every right to the--both complete
information as well as accurate information, so I guess what we
are trying to figure out, are there better ways for you to both
standardize the information that you are providing--or
standardize those services, I should say--or better integrating
those services into the real lives of a lot of communities?
What can you tell us about both standardizing as well as
integrating those services?
Ms. Reno. That is a very good question and I am glad you
asked it. We need to think seriously about that, and certainly
mailing the Social Security statement that is personalized to
each individual, again, on their 5th year birthdays--35, 40,
45, 50, 55, 60--and after 60 every year until people have filed
for benefits, is one way to at least get information in their
hands that is about their own particular situation, their own
work record, wage record, as it shows up in our records, and
what their benefit would be in case they become disabled, and
what their benefit would be as a disabled worker, what would be
available to their spouse and children if they died, and then
what their retirement income would be if they took it at 62, at
the so-called full retirement age, or at 70. That is
personalized information that is available, and one can use a
telephone to contact SSA if you have questions about that or if
you think the record is wrong, the wage record is wrong,
because part of the purpose is to fix people's wage records if
they are not correct.
I guess that would probably be the best way, is to have
this personalized information that comes to them through the
mail and they can contact us by telephone if they do not have
access to the Internet.
Senator Casey. Well, I hope you will be committed to
standardizing those services because as we have heard today,
sometimes people are getting information that does not answer
their question, number one, and number two, there should not be
a variance between either the accuracy or the reliability of
information, depending on whether you access SSA through the
phone--by way of the phone or by way of an online engagement,
or even in person, so we expect that the next time we meet that
you will have some changes that have been implemented.
Thanks very much.
The Chairman. Senator Donnelly.
Senator Donnelly. Thank you, Madam Chair.
Ms. Reno, the GAO has made six recommendations for SSA to
improve the in-person claim application process. Implementing
these changes would likely require resources for training or
updated materials, and it is important to note that SSA
disability claims process is also in need of additional
resources. There is a large shortage of administrative law
judges. It has created a significant backlog for disability
claims.
I have heard from many of my constituents about significant
delays at the Valparaiso and the Indy hearing offices in
Indiana, with some delays running over 2 years in length.
How would you prioritize the resources, if you decide to
make changes, and what can we, on this end, do to ensure that
people are receiving their retirement benefits and disability
benefits in an effective and timely manner?
Ms. Reno. I would say the most important thing--and we kind
of reiterate our--my testimony, it is absolutely--our capacity
to deliver the quality of service that the American people are
entitled to expect is directly tied to our appropriations for
our administrative budget, and it has been less than we have--
than the President's request, repeatedly, in the past years,
while our funding has declined in real terms, while our
caseloads are rising, and even in the retirement area, and we
need the full appropriation, the $13 billion that has been
requested in the President's budget, to provide the quality of
service that we think needs to be delivered.
Senator Donnelly. The GAO also surveyed your print and
online materials, and also observed 30 face-to-face claims
interviews, and found that the information was presented in an
inconsistent fashion across the board. Can you tell us more
about how you train your claims specialists?
Ms. Reno. Yes. The claims specialists--before one becomes a
claims specialist they get 4 months of very in-depth training
on how to take benefit claims, how to explain eligibility ages,
the benefit calculations, the benefit of rights of that are
available to family members as well as to an applicant for
retirement benefits.
After the 4-month intensive training period there is
another full year in which claims--a trainee, a claims rep, is
closely supervised by a journeyman claims supervisor to help
them complete their education. Only when a person is really
fully versed in all of the aspects of taking claims are they--
do they become an independent claims rep. Even then, there is
refresher training that goes on periodically in the field
offices, as we find that for one reason or another refresher
training is needed, and finally, there is always new training
as the laws changes, as regulations changed, or as policies, we
find that we need a more clear way to do something.
Senator Donnelly. That brings two questions to mind to me.
Number one, how do you plan to respond to the GAO findings, and
if we do all those things, how do we have so many different
presentations given?
Ms. Reno. We are going back and figuring out exactly how we
are going to do all of those things, but we do agree with the
GAO's, the thrust of their recommendations, and much of that
can be done through refresher training of our field office
staff, as well as reviewing, again, the materials--the written
materials that are available to the public for areas of
clarification.
Senator Donnelly. Mr. Meyer.
Mr. Meyer. Yes. It was brought up before--technology spend.
Ms. McCaskill said it. I mean, we helped, on Veterans Day,
10,000 veterans for free. We offered an updated, detailed
statement and we had six people on the phone, so I think with
technology and very discrete protocols on training we can serve
people better. Small firms like mine, in the middle of nowhere,
Kansas, have done it before. It can be done.
Senator Donnelly. Thank you very much. Thanks, Madam Chair.
The Chairman. Thank you very much.
I do want to clarify a point before I go to my additional
questions, and that is that the Social Security Administration
is, in fact, still using the term ``normal retirement age.'' I
have it in a publication that just came out in June of this
year. SSA may be phasing it out but it is right here in black
and white, and I think the term ``normal retirement age'' or
even ``full retirement age'' implies that that is the age you
are supposed to be getting---at which you are supposed to be
getting benefits.
Ms. Reno, you are not the one who said that. It was Mr.
Jeszeck, but would you like to comment?
Ms. Reno. Yes. I would very much like to comment. One of--I
could not agree more that we need to rethink the labels that
are given to the ages--62, that 66 now, and 70. They have--they
had historical relevance and appropriateness, but the law has
changed and the names have not changed to keep pace.
I think it is important to give real serious thought and
some empirical testing to what names work better, and we are
collaborating with AARP, which I know is very interested in
this. They are doing some focus groups. We are also consulting
with a social and behavioral sciences team in the White House
that are very thoughtful about how messaging and labels
influence how people think about those ages. They are helping
us both with how to describe the retirement earnings test. It
is not a penalty. It means that if your benefits are reduced at
one point they will be recouped at a later point.
These are things that we have active research going on, and
we recognize there is a need for fresh thinking and new
labeling.
The Chairman. I have to say that I am glad to hear that you
are looking at that, but your last statement was confusing to
me when you said if the benefits are reduced at one point they
will be recouped at another point, because I think there is a
misconception among some claimants that if they claim at age
62, that as they grow older there is going to be some sort of
automatic adjustment beyond the COLA that is age-related.
Ms. Reno. I am sorry. What I said was not clear. When I was
talking about the retirement earnings test, where if you work
prior to that so-called full retirement age, your benefit--and
earn above a certain level, your benefit will be withheld for a
month. The fact that that benefit was withheld will be
reflected in an adjusted benefit amount when you get to full
retirement age, so that foregoing a benefit under the
retirement earnings test is not a penalty. It is a delay in a
benefit adjustment.
The Chairman. Mr. Meyer.
Mr. Meyer. Education on this topic is so critical. The
research shows more people need to work part-time, and there is
confusion, so in our software, you actually can put in how much
you are going to work and what the impact of your benefit is,
and then we recalculate what your benefit is at full retirement
age, so you can see, what is the impact if I work or not. These
are the sorts of real-time things that someone can see on a
computer or on a piece of paper, and we need to get it to real
Americans and impending retirees.
The Chairman. I could not agree with you more, but what is
frustrating to me, this is not something we need to invent.
This is--the software is there. It is not something that--I
realize that the system is complex, but it sounds like----
Mr. Meyer. It can be built, or, again, we have it. We are
happy to partner with Social Security or have them use it, and
it has been vetted by the largest institutions in America--
Vanguard, Northern Trust. The largest retirement provider--I
cannot say their name--uses our software, so it works.
The Chairman. It works.
Mr. Meyer. We have these interactions that clients--or,
consumers get better information, to make informed decisions.
That is all----
The Chairman. That is our goal.
Professor, I want to talk a little bit about whether a
senior's behavior changes depending on how--and the decisions
that he or she makes change, depending on how the information
is displayed? For example, Mr. Meyer was very compelling to me
when he said if I received a statement showing either my
projected, cumulative, lifetime benefits, or even an annual
benefit versus the monthly benefit difference compared to what
age I choose to claim Social Security.
Have you done any research looking at whether
decisionmaking changes depending on what information is
presented on Social Security benefits, and how it is presented?
Ms. Slavov. I have not personally done research on this.
The research I am aware of, there is the study that you cited,
showing that break-even framing tends to encourage early
claiming. That same study showed that it matters what you use
as kind of the benchmark age to show how benefits are adjusted,
whether that is 62 or 66 or 70. People tend to delay if you
kind of frame it as, you know, so these are the benefits you
get at age 70, and you State everything else kind of relative
to that. People tend to delay more.
It also matters whether this is framed as a gain or a loss,
so you gain by delaying versus you lose by claiming early, so
these are the things that seem to matter. I think there is
actually a lot that we still do not understand about this,
which is why I would support, you know, if changes are made to
the way in which information gets presented, it be done in a
way that we can actually study it to see how that changes
people's decisions, so we can present the information in the
best way possible.
The Chairman. Thank you.
Ms. Reno, I am just going to ask one more question for you,
prior to turning it over to my Ranking Member, and that is the
SSA's online application requires claimants to provide a reason
for not choosing the lump-sum payment option, if that applies.
GAO suggests that asking applicants to provide a reason for
that choice may lead them to believe that they are making the
wrong choice, or an unusual choice, and so for that reason GAO
recommends removing that question from the online form.
In response, your agency has suggested that it will
``evaluate removing or revising the question.'' Why not just
remove the question?
Ms. Reno. [Off microphone.]
The Chairman. The question asking for a reason.
Ms. Reno. I believe the way that online application works,
the question applies whether you--whatever age, whether you
backdate the application or whether you put it forward for up
to 4 months, which you can do, and I think that the question
there--rather than now--and I think the question was, the
reason for asking the question is that the answer may lead the
claims representative to want to call the person on the
telephone and just make sure they understand what the
consequences of each choice is.
That same question is asked not just about the retroactive
claim but also about the forward-dated claim--forward-dated
choose month of entitlement. We want to just look at it more
closely and make sure that there are not unintended
consequences of getting rid of that question.
The Chairman. Of course, the problem with the retroactive
claim, which I wonder if seniors, most seniors realize, is it
locks them into that lower benefit level for the rest of their
lives.
Ms. Reno. Absolutely. We want to make sure that they
understand that.
The Chairman. Why not say that instead of asking them their
reason? Why not have sort of a red flag go up, to say, ``Do you
understand that if you choose this retroactive lump-sum
payment, that you will be receiving a lower benefit level?''
Ms. Reno. It is absolutely--I could not agree with you more
that that information also needs to be very clear.
The Chairman. Do you think it is clear now?
Ms. Reno. I think the reason for asking this question was
to be able to find out if more clarification is needed, for a
further conversation with the individual, and if there is
nothing more to it than that, it does make sense. The
application should be clear that, yes, there is a permanent
reduction if you take retroactive benefits. We need to make
that clear.
The Chairman. Senator McCaskill.
Senator McCaskill. One out of three--I know this is not
statistically valid--but one out of three agents, who were
being watched by the GAO--that is one-third--suggested a
claimant retire earlier and get a lump-sum payment. Acceptable?
Is that acceptable to you, Ms. Reno? Isn't that financial
advice?
Ms. Reno. I think it is certainly important that the
applicant know they have a choice of back-dating up to 6 months
and they have forward-dating up to 4 months, and that the
consequence of that is a permanent reduction in their benefit.
Senator McCaskill. Well, but--I think--I am--you know, I am
confused because there seems to be a stubbornness about giving
certain information out, because--the stated reason being that
we do not want to be financial advisors, but the GAO witnessed
1 out of 3 of the field agents that were being watched by them
suggest they--the claimant retire earlier and take a lump-sum
payment. Is that a problem that needs to be solved?
Ms. Reno. That is definitely not our current policy and we
definitely are going to go back and make sure that if refresher
training is needed, if clarification is needed for the
personnel, we will be doing that.
Senator McCaskill. I know I am making you defensive, but I
think part of the problem is that we are all wanting the Social
Security Administration to say, ``We can do this better. We are
going to make changes. We are not giving out enough
information. We are not even giving accurate information.'' If
we could hear those words coming from the Social Security--but
it is always, like, ``Well, we are going to look at it,'' and
``We will consider it,'' and ``Well, we heard you,'' and
meanwhile, every day--we are in a demographic bump right now.
Every day thousands of people are making this decision. There
just does not seem to be a sense of urgency.
How would you suggest that we do a better job in Congress
making the Social Security Administration feel that this is an
urgent situation?
Ms. Reno. The Administration does feel that it is urgent
that people get accurate information about their retirement
claims. Absolutely.
Senator McCaskill. I just thought that the responses to the
suggestions--I used to be an auditor, so I know about responses
to audit findings, and there are three ways you can respond.
You can make excuses and disagree, you can say, ``We will think
about it,'' or you can say, ``You know, thanks. You are right.
We are going to change this.''
Ms. Reno. I think----
Senator McCaskill. I am going to tell you, you are not in
the third category.
Ms. Reno. I think our response--the gist of our response to
GAO is, by and large, ``Yes. Thank you. This is helpful and
we--"
Senator McCaskill [continuing]. we are going to change it.
Ms. Reno. ``--we are going to change it or we are going to
go back and look and take a closer look.''
Senator McCaskill. That is my problem, is going back and
look--and taking a closer look, because we have had three
bipartisan commissions telling you the same thing, and you have
just been taking a look. Meanwhile, thousands of people are
leaving money on the table. That is why I think I am animated
about this, because I do not sense animation on the part of the
Social Security Administration about how important this is.
Why don't you put on Senator Collins' letter what her full
retirement age is rather than say ``full retirement''? In the
front of my statement, at the very top--you do a monthly; you
do not do an annual--you say, ``Your monthly benefit will be''
blank, blank, blank, and then underneath it - it says, ``at
full retirement age.''
Why doesn't the Social Security Administration say ``at 66
years'' or ``at 65 years'' or--well, obviously, if it's 65,
they have obviously, long ago, made the decision, but for those
of us that are in the bubble--I mean, at 66, from 1943 to
1954--so, you know, for people now that are getting them
annually, some of them it is 66 and 2 months, some of them it
is 66 and 3 months--why don't you--and even on the website, it
says ``full retirement age.'' In order to find out what your
full retirement age, you have got to hunt down the table.
Ms. Reno. Mm-hmm.
Senator McCaskill. You know, you have got to go click-
click-click-click and find the table. Why don't you say ``62,
66, 70''? Is there a reason? I mean, is there a good reason?
Ms. Reno. I think once the--the retirement age is different
for different birth cohorts. The so-called full ``retirement
age'' is different for different birth cohorts. We are now at
age 66. It begin to begin phasing in to age 67, that is fully
phased in sometime----
Senator McCaskill [continuing]. 1960, when people--people
who were born in 1960 or later.
Ms. Reno. Right.
Senator McCaskill. I am looking at the table. I found it.
Ms. Reno. Right.
Senator McCaskill. I clicked around.
Ms. Reno. Great.
Senator McCaskill. I found it, so--but you know all the
information about her----
Ms. Reno. Yes.
Senator McCaskill [continuing]. because you have printed it
all out here. This cannot be a hard thing to program in. You
know how old she is. I mean, why can't you put the age up
there? Couldn't you? Wouldn't that be a simple way of letting
everyone know that, you know, what your full retirement age is,
and, you know, the word ``full'' is, obviously, I think--you
have already acknowledged that the way we have labeled these
things are really, really unfortunate.
Ms. Reno. Well, they are accidents of history----
Senator McCaskill. They are.
Ms. Reno [continuing]. that have not been adjusted yet.
Senator McCaskill. Yes.
Ms. Reno. I think that is a very important issue that we
need to address.
Senator McCaskill. That would be terrific, and in the
meantime, if you could put the number, you know, it would be--
--
Ms. Reno. Well, we will certainly look into that.
Senator McCaskill. Well, what about on this--on the--when
you go to the one place where it says ``when you should
retire,'' when it says 62 and then it says, ``comma, full
retirement age, comma, 70,'' full retirement age could be a
click-through, and you could see that it is a link, and you
could click on that and get the table, because somebody reading
that does not know what that is. They are assuming full
retirement age might be when they actually retired. I mean,
they do not know that that is a set-in-stone number, based on
when they were born.
One out of every 6 of the field representatives were using
the break-even analysis, while they were being watched, 1 out
of every 6. Has there been a notification gone out to all the
field offices about advising retroactive with lump sum and
using the break-even analysis since the GAO study was
completed? Has there been a notification by electronic means to
all the field offices not to do that?
Ms. Reno. I do not believe it has been done yet. My
understanding is that the GAO report is officially out today,
and it is clear--we are clearly--that is high on our agenda to
do something about it.
Senator McCaskill. Would you let the Committee know when
the field offices have all been informed, not to use the break-
even analysis and not to advise that someone retroactively--not
to suggest that someone should retroactively claim for a lump
sum? Would you advise the Committee on the dates that you do
that?
Ms. Reno. Of course. Of course.
Senator McCaskill. That would be terrific.
I wanted to reiterate the off-the-shelf versus--in a
different committee and a different time I have spent way too
many hours on acquisition reform in the Federal Government, and
probably the biggest black hole of all black holes has been IT
acquisition, and one of the reasons it has been so expensive is
because every agency thinks they need to build what they need.
Now nobody is worse than the Pentagon. On your worst day,
Ms. Reno, you will never be as bad as the Pentagon, because the
Pentagon is at the apex of wasteful spending on IT acquisition,
because they think they always have to build it from scratch,
and they always have to have their own systems, but do you know
if there has been any analysis in the Social Security
Administration about what off-the-shelf products are available
that would make this kind of analysis much more simple for
average Americans?
Ms. Reno. I am sure we can--I will look into that.
Senator McCaskill. That would be terrific too, if you would
let us know--if anybody in your agency has looked into, what
could we buy off the shelf without putting out a scope, without
trying to build, because, believe me, there will be contractors
that will rush to the trough. ``We can build it. We can build
it. We can build whatever you want,'' and it will be very, very
expensive, and it will take a long time, and by the time it is
done it will not be flexible enough, it will be outdated, and
we will have wasted the money, but off-the-shelf now, there is
actually so many products, it would be so easy for you all to
use, and I am just anxious to know if you all are looking into
that. If you would share that with the Committee I would really
appreciate it.
Thank you. Thank you.
The good news, Professor, is that--finally, this is my last
one--that the trends in claiming age have relatively been
positive. Correct?
Ms. Slavov. [Off microphone.]
Senator McCaskill. So we are doing better.
Ms. Slavov. Yes. That is correct.
Senator McCaskill. The percentage of people who claim at 62
has declined over the last 15 years.
Ms. Slavov. It has declined.
Senator McCaskill. We still only have 2 percent of the men
and 4 percent of the women claiming at 70.
Ms. Slavov. That sounds reasonable, yes.
Senator McCaskill. Okay. Do you believe that the main
reason people are not waiting is lack of knowledge or lack of
resources?
Ms. Slavov. For most people--it is probably lack of
resources for some people, so as I mentioned earlier, my co-
authors and I did a survey, and about a third of the
respondents--and this was not a nationally representative
sample. It was a pilot survey but I think it is still
informative--about a third of the respondents said they needed
the money, so lack of money probably does play a role, but we
have also shown, in other research, that about a third of
people who claim before their full retirement age actually do
have resources to delay by a couple of years, so it is not
always lack of resources, and in those cases it is still
somewhat of a puzzle why they do not. Lack of information might
be an explanation.
Senator McCaskill. All right. Mr. Meyer.
Mr. Meyer. Yes. I published an article in the ``Journal of
Financial Planning'' a few months ago on what is called redo
strategies. There is so much confusion over the rules. I mean,
right now with the ending of file-and-suspend, people do not
realize if they, for unforeseen reasons, had to claim early--
let us say I lost my job--you actually can suspend your
benefits at full retirement age and get that 8 percent, so the
lack of information how to fix or improve your situation is a
black hole, and we can do a better job.
Senator McCaskill. I did not know that.
Mr. Meyer. Yes. Why--I mean, there are so many people who
claim early for bad circumstances who can get that 8 percent
after full retirement age, so it is--we just need to get more
education out to people. The awareness is low.
Senator McCaskill. That should be on----
Mr. Meyer. Redo strategies.
Senator McCaskill [continuing]. it should be on----
Mr. Meyer. I have an article on it.
Senator McCaskill [continuing]. it should be on the front
page of the website, too.
I thank you, Ms. Reno. I am so sorry that you took the
brunt of this, but we are agitated, for all the right reasons,
and I think you agree with us. I think you are in a difficult
position. You are representing the agency, but obviously, from
your writings, which I have looked at, you understand the value
of waiting, and we think that it is important that the Social
Security Administration bring their practices up to that
standard, and I want to really thank you, Mr. Meyer. We would
like you to move across the line, but if you do not, we still
appreciate your testimony today, and thank you, Professor, and,
as always, GAO. You guys have a special place in my heart. I
love the auditors.
Thank you, Madam Chairman.
The Chairman. Thank you. I want to thank all of our
witnesses for your testimony today.
I want to, in my closing comments, end where I began, and
that is with the statement that the decision on when to claim
Social Security benefits is, for most Americans, the most
important financial decision that they will ever make, and I do
not think that most people who are approaching the age where--
such as our generation--of making that decision, realize the
enormous implications of choosing one age versus another.
Now, obviously, that is why we are so insistent that there
be accurate and complete information. The decision of when to
choose Social Security benefits is a highly individual one, and
we recognize that, but I think it is important for the record
today, for me to indicate that if an individual is healthy
enough and wants to keep working, that postponing retirement,
postponing the decision to receive Social Security benefits,
makes sense, can make sense for low-income workers as well, not
just for middle-income workers or wealthy employees, and one
way to see this is to look at what happens to replacement rates
for individuals who postpone claiming their Social Security
benefits, and by replacement rate I mean the percentage of a
worker's wages that Social Security benefits will cover when
that worker retires.
Social Security data showed that the replacement rate for
low-income workers who postpone retirement will rise from 61
percent to nearly 75 percent, if that low-income employee or
employer postpones retirement to age 66. That could make such a
difference for that worker for the rest of his or her life,
particularly since we are now living far longer than ever
before. That is real money, and if I had Mr. Meyer's software,
I would have translated it into dollars to show the difference
that it would make.
I think, as we look at this issue, we have to remember the
implications for those that we are most concerned about, and
that is low-income Americans whose savings may be small, who do
not have defined benefit pensions, and who understandably worry
that what should be their golden years may be, in fact, years
spent in poverty, and that is why this debate and this hearing
is so important.
I want to thank Senator McCaskill for all of her work, and
our staff. Most of all I want to thank our excellent witnesses
for your contributions.
Committee members have until Friday, September 23rd, to
submit questions for the record, and I look forward to
receiving an update from the Social Security Administration in
response to this hearing.
Thank you very much, and this hearing is now adjourned.
[Whereupon, at 4 p.m., the Committee was adjourned.]
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APPENDIX
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Prepared Witness Statements
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Statements for the Record
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