Social Security quietly backtracks on 100% clawback plan

The Social Security Administration is revising its March plan to withhold 100% of certain beneficiaries' monthly payments to recover alleged overpayments.

The agency will now default to withholding 50% of old-age, survivors and disability insurance benefits instead, according to an "emergency message" issued to SSA staff late last month. 

In March, SSA Acting Commissioner Lee Dudek said that the agency was returning the withholding rate to 100% of a retiree's monthly benefit in order to "properly safeguard taxpayer funds." The agency projected that the higher rate would help recover $7 billion in overpayments over the next decade.

So-called "improper payments," which typically result from inaccurate earnings reporting, administrative errors or changes in eligibility, made up less than 1% of the total Social Security benefits paid out from 2015 to 2022, according to a 2024 report from the agency's inspector general.

These payments included both under- and overpayments, with the majority being overpayments. Of the roughly $8.6 trillion in benefits distributed during that period, approximately $71.8 billion were improper payments, according to the report.

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The SSA, which did not issue a press release about the change and declined requests for comment, did not provide a reason for the rate reduction.

Former SSA commissioner Martin O'Malley, who was nominated for the role by President Biden in 2023 and stepped down in late November 2024, has described the 100% withholding rate as "clawback cruelty." Under O'Malley, the agency put an end to the practice by capping the overpayment withholding rate at 10%.

Retirees contend with a burdensome withholding rate

Financial advisors say that the reduced rate, which went into effect on April 25, is a step in the right direction for retirees who are heavily reliant on income from Social Security. But they say that retirees could still feel a heavy burden from a 50% withholding rate.

"The decision to lower the default withholding rate is a humane step forward in the right direction, right? Like, 100% was very, very punitive," said Aaron Cirksena, founder and CEO of MDRN Capital in Annapolis, Maryland. "Fifty percent, you know, still is going to put pressure on, frankly, people that really depend significantly on Social Security as a large means to their retirement."

For roughly one in three Americans age 65 and older, Social Security benefits make up nearly a third of their income, according to the Social Security Administration.

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Advisors say that retirees who have additional savings can navigate any potential withholdings by temporarily leaning on other sources of income. But not all retirees have such flexibility. Roughly one in 10 Americans age 65 and older rely on their Social Security benefits for 90% or more of their total income, according to the SSA.

"It's going to impact everybody, but for people where the vast majority of their income is not coming from Social Security, and is probably coming from their assets, it's just much less of a substantial change to them," Cirksena said. 

"But for those people where Social Security makes up the vast majority of what they bring in, it's not just an irritation. It's a true life change that could occur," he added.

Policy shifts threaten to 'erode public confidence'

Advisors say that the rate reduction is welcome news, but it also underscores broader concerns over the back-and-forth policy decisions that have come to characterize the Trump administration.

"Any abrupt policy swings, especially those affecting core retirement income, threaten to erode public confidence in the SSA's decision-making processes," said Patrick Huey, founder of Victory Independent Planning in Camas, Washington. "Clients may already feel the ground shifting under their feet, struggling to understand what benefit level they can rely on month to month."

While news of the rate reduction was welcomed by some, the Trump administration may be reluctant to highlight the policy change, Cirksena said. By ratcheting up the withholding rate to 100%, the administration had sent a clear message: "The Biden-era government has been overpaying people. … We're going to get 100% of that money back, and we're going to get it back quickly," he said. 

Cutting that rate in half undermines the message of the initial announcement, Cirksena said.

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Navigating such a policy shift requires "clear, proactive communication," Huey said. That goes for federal agencies and financial advisors alike, although that can be difficult for advisors to practice in many circumstances, he said.

"Unfortunately for the latter, we are often in the dark, too," Huey said.

Though policy changes from the Social Security Administration may catch both advisors and their clients off guard, advisors should still be able to provide value to clients after the fact.

The withholding rate reduction is an opportunity for advisors to reach out to clients, talk about how the change may impact them and offer guidance, said Mike Lynch, managing director of applied insights at Hartford Funds in Wayne, Pennsylvania.

"Reach out and ask them if this is a concern," Lynch said. "Letting clients know you know, and care, goes a long way. Financial professionals should also think about reaching out to some of their younger clients, to see if they have parents or loved ones that may be dealing with this."

"Clients are looking for someone who can educate and connect them to resources, and extending that to family members can be a differentiator," he added.