I always encourage everyone who has yet to claim social security benefits to check their SSA statement at least annually to make sure earnings have been properly credited. Now, there's another very important reason to check this information. Crooks are filing bogus claims for benefits.
In both my FPA (Financial Planning Association) and CPA professional circles, there's a growing chorus of stories where clients are getting unexpected notices that benefits have been claimed, but they never claimed benefits and there certainly aren't benefit deposits being made into their personal checking accounts. While it isn't known for sure, there's reason to believe the Equifax breach that occurred between May and July of 2017 has contributed to these fraudulent claims. Also, the Social Security Administration has been slow to fully react to this threat.
My first exposure to this issue was when James Shambo, who is a retired certified public accountant in Colorado Springs, Colo., went public with his story in a February blog post on the AICPA's website. He received a Form SSA-1099 for $19,236 in Social Security benefits in January even though he never submitted an application for Social Security benefits. Shambo, 67, plans to collect at age 70.
Shambo received a letter from Social Security on Sept. 11, 2017 congratulating him for claiming benefits. But the money was disbursed as of Sept. 1, he said, so when he contacted Social Security the lump sum was already paid out. He said his benefits were deposited onto a prepaid debit card. See the lump sum explained below.
He questioned why he didn't get a letter before the money was paid out so he could alert the agency to the fraud. So, he is stuck with a double whammy. His benefits have been paid to someone else and the IRS believes that the $19,236 reported to him on Form SSA-1099 should be reported on his tax return. Needless to say, Mr. Shambo has been busy sorting this out with both the SSA and the IRS.
Who is at risk?
Those most vulnerable to social security benefit fraud are those who are eligible for benefits but who have not yet filed. Here are more specifics on various groups that may meet this criterion:
- Anyone who has reached age 62. This is the social security "early" retirement age. Many people would fall into this category since a lot of folks are between ages 62 and 66 (current full retirement age) and have not claimed benefits.
- Anyone between ages 66 and 70. Those in this group who have not claimed benefits face the same basic issue as the younger group, with one notable exception. Once you are beyond full retirement age, a claim filed for benefits can include up to six months of retroactive (lump sum) benefits, which is what happened to Mr. Shambo.
- While there could be other situations, such as those eligible for survivor benefits or children's benefits, such cases would be harder to perpetrate fraud. That's because of the additional levels of documentation needed to claim such benefits as compared to claiming normal retirement benefits.
Steps to Take
First, a reminder on how social security benefit statements are sent. Only those age 60 and over, who aren't receiving benefits and who don't have a My Social Security account online will get paper statements. So, by definition, if you receive papers statements via mail you don't have an online social security account.
The advice here is pretty basic. Everyone should review their social security record at least annually. This review now includes both a confirmation that previous years' earnings have been properly posted to your account AND that no one has filed for benefits on your record. HOWEVER, that review should not be limited to a review of the statement only.
I believe everyone who has not yet claimed benefits should create an online account at My Social Security. This way, not only will you be able to review your earnings statement, but you will also be able to verify whether a benefit claim has been filed. It will also make it much harder for someone to setup a bogus account using your social security number since you will have already done so. If you believe your personal ID may have already been compromised or you just want to learn more about protecting your social security, you can visit Protecting Your Social Security.
A Final Word
One temptation is such situations is to throw up your hands and just claim benefits as soon as possible to reduce the risk of a fraudulent claim. As I have written or spoken about extensively in prior posts, claiming early is rarely the optimal strategy. Therefore, don't let the risk of a fraudulent claim pressure you into a sub-optimal decision. As always, we welcome questions on this or any other financial planning topic.
Any information presented here is general in nature, believed to be reliable as of the date published and is not intended to be and should not be taken as legal, tax, investment or individual financial planning advice. Competent, licensed professionals should be consulted when implementing any kind of financial, estate, tax or investment strategy.