Archives for February 2019

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Can You Trust Information from the SSA?

A reader writes in, asking:

“I’ve heard from a few different acquaintances that they received bad information or advice from the SSA. Is it really true that you can’t even trust information coming directly from the Social Security Administration?”

It’s true that SSA employees sometimes provide inaccurate information. SSA representatives are dealing with a complex set of rules regarding a broad range of topics. And they only get a limited amount of training before being put on the front line, answering people’s questions. Mistakes happen, despite best efforts and good intentions.

It’s also important to recognize that Social Security rules use very specific terminology. I have encountered many situations in which an SSA employee provided an answer that was 100% correct — but the person asking the question misunderstood the answer. I’ve also encountered numerous situations in which a person accidentally asks something other than what they meant to ask (e.g., they ask whether they are entitled to a benefit, when they really wanted to know whether they’re eligible for that benefit), and the SSA employee correctly answers the question asked. And, again, the net result is that the person comes away with a misunderstanding, even though the SSA employee provided a correct answer to the question that was asked.

The key takeaway here is that, if you want to be truly sure of something, you have to look at the official rules. I know that stinks, because they can be challenging to read. But before relying on something somebody tells you (whether that somebody is an SSA employee, me, or anybody else), try to find confirmation from an official source. Here are the three official sources to check, in order of authority (from highest to lowest):

A few points about the above sources:

  1. The Regulations have not been updated for the changes made by the Bipartisan Budget Budget Act of 2015. (If you need information relating to deemed filing or voluntary suspension, I would go to the POMS.)
  2. The POMS is by far the most thorough of the sources above. It does not, however, have any legal authority. So if, for example, something in the POMS contradicts something in the Act, the Act wins.
  3. Other than the three above sources, most pages on the SSA website are akin to IRS publications in that they’re intended to be plain-english explanations of the rules, but they may use imprecise language or omit exceptions that could be relevant to you.

Finally, let me offer two related tips about dealing with the SSA:

  1. Remember that SSA employees are not financial planners. They are not really trained for giving advice, because that’s not their job. Rather, they are essentially “order takers” whose job is to process the application that you file and to answer questions about what benefits you are/aren’t entitled to (or eligible for).
  2. When you apply for Social Security, apply online. In all the time I’ve been working with Social Security, I’ve only ever heard from one person whose online application was processed incorrectly. Conversely, I have heard from I have-no-idea-how-many people about their in-person or phone applications being processed incorrectly.

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Investing Blog Roundup: Why Delaying Social Security Doesn’t Provide an 8% Return

It’s common to see articles stating that delaying Social Security is a great deal, because it gives you an 8% return per year. Delaying Social Security is indeed a good deal, in a majority of cases. But it doesn’t give anything close to an 8% return — not usually anyway.

Recommended Reading

Thanks for reading!

Using an Advisor or a Target Retirement Fund

A reader writes in, asking:

“Would the average investor be better off using the services of a financial advisor or just buying and holding a Vanguard Target Retirement Fund in their IRA and their 401K?”

Target-date fund by a mile. Not even close.

To be clear though, that answer is the result of the way the question has been phrased.

First, Option #1 — buying and holding target-date funds — is actually quite a good plan, in most cases. It’s almost a best-case scenario for a DIY investor. The average DIY investor is not likely to do as well as this plan (either because they would construct a worse portfolio than they’d have with the target-date fund(s) or because they would not properly execute the “and hold” part of the plan).

Second, Option #2 — using a financial advisor — has a questionable outcome. The average investor is likely to end up using a typical financial advisor. And the typical financial advisor is poorly informed and up to his eyeballs in conflicts of interest.

For every well informed, fee-only financial planner who charges a reasonable price, there’s another advisor who’s going to tell the client to stop contributing to their Roth IRA and 401(k) so that they can throw money into a fixed-indexed annuity or cash-value life insurance policy when there’s no need for life insurance.

The typical/median/”middle of the road” advisor is the Edward Jones sort of guy — no real experience in broader financial planning and probably just going to sell the client a portfolio of reasonably diversified yet semi-expensive actively managed funds.

Relative to the “buy and hold target-date funds” plan, an investor using a middle-of-the-road advisor will end up with a portfolio that’s a) considerably more expensive when considering all the applicable costs, b) no better diversified (and possibly worse), and c) no better allocated. And to the extent that the investor receives any advice other than portfolio recommendations (e.g., incidental tax planning advice), it’s going to be questionable at best.

But good advisors are out there. And many investors (most, even) would benefit from using them, because:

  • Most people taking a DIY approach will not do as well as the DIY approach outlined above, and
  • Most people could use financial planning advice with regard to topics other than just their portfolio.

Investing Blog Roundup: Open Social Security (improved WEP/GPO functionality)

The Open Social Security calculator now has some new functionality for people affected by the Windfall Elimination Provision and/or Government Pension Offset.

Specifically, it allows you to enter a date on which your pension from non-covered employment will begin (so that the calculator knows not to apply the WEP/GPO until that date), and it allows you to enter what your PIA would be without the effect of the WEP (so that the calculator can account for the fact that survivor benefits are calculated based on a PIA that hasn’t been reduced by WEP).

Special thanks go to Brian Courts who not only offered the separate-PIAs suggestion but also provided code to implement the idea!

Recommended Reading

Thanks for reading!

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My new Social Security calculator (beta): Open Social Security