There is so much misinformation about the Social Security program and the conduct of the Social Security Administration that I simply cannot keep up with it. I feel bad because I'd like to write my normal columns in which I help my readers understand the intricacies of the program so that they can make the right choices when they file for Social Security benefits. But because of all the misinformation out there right now, I just feel compelled to respond. Besides, more than a few readers have asked me to help them sort through all the craziness.
Today I’m going to address two recent allegations of supposed fraud or malfeasance. One involves alleged direct deposit fraud. The other involves incorrect payments to Social Security beneficiaries. As you will see, in both instances, the allegations have been blown way out of proportion.
Let’s start with the direct deposit issue. I want you to read the following statements and tell me which one you think is true.
“Government officials report there is $100 million in Social Security direct deposit fraud each year.”
“Government officials report Social Security direct deposit fraud is at a low rate of only one-sixteenth of 1 percent.”
Both statements are correct, because they both say the same thing. In other words, yes, there was $100 million in Social Security direct deposit fraud last year. But that represents only 0.00625 percent of Social Security’s $1.6 trillion annual payments to beneficiaries, almost all of which are made through direct deposit.
You would think that government officials would be patting themselves on the back for having such a tiny amount of fraud in the direct deposit processes, but not in today’s world of Department of Government Efficiency oversight. The acting commissioner of Social Security, a DOGE disciple, citing the “$100 million” fact is claiming there are big problems with the Social Security Administration’s current policies for requiring people to identify themselves when calling the agency’s 800 number or using its online services when doing any kind of business with the agency. Beginning at the end of March, he will be requiring most people who want to file a claim for benefits or conduct most other businesses with the agency (such as changing their direct deposit account) to go into their local Social Security office and provide proof of identification in person.
Even though $100 million is a tiny fraction of Social Security’s overall budget, it’s still $100 million. Steps should be taken to fix the problem, but these are too drastic. It would be as if your car had issues and needed a simple tune-up, but instead, you replaced the entire engine.
The second recent accusation of fraud involves an alleged $9 billion in incorrect payments to Social Security beneficiaries. Once again, I will have you read two statements.
“Officials report $9 billion in incorrect Social Security payments made last year.”
“Officials report less than 1 percent of Social Security payments are made incorrectly.”
Once again, both statements are correct. More than 99 percent of the time, Social Security benefits are sent to the right person and in the right amount. But because the Social Security budget is so huge (it makes up about one-fourth of all federal spending), even a less than 1 percent error rate involves a lot of money.
And of course, $9 billion is a lot of money. (I’m reminded of former Republican Senate Minority Leader Everett Dirksen’s quote about the federal budget: “A billion here and a billion there and pretty soon we’re talking about real money.”)
But here is the deal about those $9 billion in incorrect payments each year. Most of it is not the result of bureaucratic incompetence. Rather, most of the incorrect payments happen because beneficiaries fail to report important information to the Social Security Administration which affects the amount of their monthly benefits.
And most of that is the result of one antiquated law—the “retirement earnings penalty.” This is the law that puts a limit on the amount of money a Social Security beneficiary under full retirement age can earn. The rules are complex, but here they are in a nutshell. “For every two dollars you earn over an annual limit ($23,400 in 2025), one dollar must be withheld from your annual benefits.” Sounds simple, right? Believe me, it’s not. Here is a typical example of how that law plays out and why it leads to so many incorrect payments.
Bob files for Social Security at age 62 in early 2025. He is working part-time but says he will make less than $23,400. So the SSA starts paying him regularly. Then halfway through the year, Bob starts working overtime and now expects he will make about $30,000. After a few months, he finally tells the SSA about this. So now he has been paid incorrectly. He is charged with an overpayment and his future benefits are adjusted. But then Bob gets laid off and now his anticipated earnings are back to less than $23,400. So once again, Bob has been paid incorrectly and his benefits are adjusted a second time. Then at the beginning of 2026, Bob calls the SSA and says, “Oh, I forget to tell you that I got hired back around the holidays and I ended up making $31,000 in 2024.” So once again, Bob has been paid incorrectly and for a third time, his benefits are corrected.
And guess what? There are millions of “Bobs” out there being incorrectly paid every single year. If Congress would simply repeal the “retirement earnings penalty” law, a big chunk of the $9 billion in annual incorrect Social Security benefits would be eliminated.
