Breaking news on an article in production for the AAII Journal doesn’t happen often. It did this time. A week before our deadline for this issue, Social Security Administration (SSA) commissioner Martin O’Malley told KFF Health News that he would propose changes to the agency’s approach to clawing back overpayments. It is a welcome step.

An untold number of letters demanding repayment of incorrect Social Security benefits have been sent to beneficiaries. These letters demand repayment with no explanation of why the SSA believes the recipient was paid too much. Many of these letters go to retirees. Some are sent to the adult children of deceased parents who filed for benefits on their youngsters at some point in the past.

When those who receive such letters ask for more information, the SSA has failed to provide it, according to syndicated columnist Terry Savage. Appeals don’t provide any relief either. Instead, the agency automatically reduces monthly benefits or stops paying them altogether—a disaster for the many retirees who depend on the income.

As I was editing our interview with Savage, I went through some of the SSA’s financial reports. One number jumped out at me: The agency spent just $0.08 on every $1.00 it clawed back in 2023. That low number suggests that the SSA has been highly efficient at collecting the overpayments it has gone after.

If these were amounts that were fraudulently received, then the SSA should do what it can to get the dollars back. The problem is that the agency is clawing back overpayments based on what appear to be mistakes—mistakes the SSA cannot explain and likely has either made or contributed to. The U.S. Government Accountability Office previously found that Social Security applicants have been given incomplete, not enough and, in a few instances, incorrect information about their benefits by the SSA (“Social Security Administration Accused of Giving Incomplete Information,” November 2016 AAII Journal Dispatches).

Some of you might have seen Savage and Laurence Kotlikoff—coauthors of the book “Social Security Horror Stories: Protect Yourself from the System and Avoid Clawbacks”—talk about the problem on “60 Minutes” in November 2023. Cynthia McLaughlin and I went into more detail with Savage for this month’s issue. We discussed the problem, which types of Social Security beneficiaries are most likely to receive a clawback letter and what steps individuals can take to protect themselves. 

An Update on How Defined-Maturity Bond Funds Have Fared

Defined-maturity bond funds have grown in popularity due to the current interest rate environment. They allow investors to lock in yields at prevailing rates and/or build ladders of different maturity dates without having to buy individual bonds. Unlike traditional exchange-traded funds (ETFs) and mutual funds, defined-maturity bond funds liquidate during the year listed in their name (e.g., 2032).

We last covered these funds in September 2019 (“A Fresh Look at Defined-Maturity Bond Funds”). In the prior article, we provided detailed data showing what these funds paid out at liquidation relative to their starting net asset value (NAV). Both Invesco and iShares generously provided updated data on their defined-maturity bond ETFs that were liquidated in the last five years, which we share in this issue.

The two datasets show that investors who have bought these funds at or close to their inception price and held them through liquidation have mostly fared well. In addition to receiving regular distributions, investors have realized modest capital gains. The notable exception is the high-yield defined-maturity bond ETFs offered by both Invesco and iShares. Many of these declined in value at liquidation relative to their starting value. (See the online version of this article for data on fund liquidations published in the 2019 article.)

We did not ask for updated data from Fidelity because it appears to have ceased launching new defined-maturity bond mutual funds. The Fidelity Municipal Income 2025 fund (FIMSX) and its adviser and investor class counterparts appear to be the last of their kind for the company.

Overall, these have been good hybrid investment vehicles. They don’t offer the potential capital gains of bond funds or the control and customization of holding individual bonds, but they have so far accomplished what they are designed to do.

Wishing you prosperity and good health,