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Can you be unemployed and retired . . . and collect benefits for being both?

One New York woman who was laid off in 2009 after a 40-year career in philanthropy filed for unemployment while continuing to look for a new job. A year later, at age 65 and jobless, she applied for Social Security retirement benefits. She now collects both a monthly Social Security check and weekly unemployment benefits totaling nearly $3,000 a month, as well as a pension she earned during her career.

With the nation's fragile economy leaving millions of older workers unemployed, growing numbers of these Americans are double dipping -- collecting unemployment insurance benefits, which extend for 99 weeks, and Social Security benefits. Or, in the case of government workers, collecting unemployment benefits and state, local or federal pensions. Double-dipping is not illegal. And many would feel like suckers if they didn't take advantage of all the benefits that are available to them through the federal and state governments. But, is this any way to run a country at a time of fiscal crisis?

As long-term unemployment sets records -- 6.2 million out of work for at least 27 weeks and 2 million jobless for more than 99 weeks -- the line between unemployment and retirement is blurring. About 2.1 million of the nation's 14 million unemployed are 55 or older, although this probably underestimates the number who have retired due to joblessness. Some are so desperate for income that they are turning to multiple benefit streams just to make ends meet. Others are simply taking advantage of cashing in on the extended unemployment benefits. But the generous length of unemployment benefits may actually have backfired by extending joblessness, not just benefits, and ultimately fueling the so-called "jobless recovery."

"There is no conflict between collecting a Social Security pension benefit and unemployment compensation at the same time, as long as each agency is apprised of the income received from the other," says James Cushing, a Pennsylvania lawyer specializing in unemployment compensation. A little more than half of the 14 million Americans officially counted as unemployed collect UI benefits, and about one-tenth of these are eligible for Social Security retirement benefits, according to the Bureau of Labor Statistics. The federal-state UI program administered by the states, paid out more than $160 billion last year.

The ease of electronic filing for unemployment benefits has changed the game. Are people really looking for work when they click once on Monster.com to see if there's a job in their area of expertise? Although the software does ask whether one is receiving private pension income, the long lag time for agencies to cross-check applicants' income makes it possible for unemployed, retired Americans to draw significant benefits that may actually be a disincentive to finding work. Still, most of the UI system's estimated $17 billion in annual fraud instead results from people who are working and claiming benefits.

Why working doesn't pay
Ages 62-65Working vs. UI and Social Security
Weekly income Salary: $1,000
Less forgone benefits $750 (Average $450 a week for unemployment, $1,200 per month for Social Security
Less extra taxes $114 ($76.50 in SS on $1,000, plus 15% of the extra $250 per week, or $37.50)
Incremental net income from working $136 ($1,000 minus $750 minus $114)
Effective tax rate on working 86.4% (The sum of incremental taxes and lost benefits)

Assumptions: The individual is a middle manager making $1,000 per week. Unemployment benefits are based on an individual working for 35 years or longer, earning between $50,000 and $75,000.

The entitlement seduction

Americans typically turn to government benefits as their first recourse when times are tough. For example, many unemployed workers who exhaust their UI benefits file for disability. In fact, the number of beneficiaries of Social Security Disability Insurance has risen by 67% since 2000, even though the workforce has grown by only 10%. People diagnosed with osteoarthritis, one of the most common conditions among people 55 and over, can probably get away with claiming disability even though they're perfectly capable of walking, typing and handling most nonphysical jobs.

Although most experts doubt that UI abuse is widespread, Dalmer Hoskins, the director of the program studies division at the Social Security Administration, said, "By the time that record gets to SSA, it could be a year or two. So there is room for fraud. It is then up to the UI system to go after them. But, if someone moves from state to state, I doubt how vigorously it can be tracked."

The temptation to draw upon two or more benefit programs is particularly great for unemployed workers in their early-to-mid-60s. This calculus plays in the mind of Cindy White, a 60-year-old association management professional who has been out work and collecting unemployment since December 2009.

"I'm too old to be hired and too young to be retired," she said before a meeting of the 40-Plus group for older, long-term unemployed workers in Washington, D.C. "If I didn't have enough current income I'd consider going on Social Security when I turn 62. When you hit 60, your options narrow so much."

Although Social Security and UI are social insurance programs intended to respond to different, even contrary, needs, the relative lack of coordination among benefit programs allows more and more Americans to draw benefits from both simultaneously. These programs are also straining federal and state budgets. The average Social Security pension benefit is about $1,200, a month (and could be considerably higher for high lifetime earners), and the average unemployment benefit is about $300 a week. More than 5 million Americans 55 and older collect UI, workers' compensation, or veterans' benefits, and 42 million collect Social Security benefits, according to the Employee Benefit Research Institute. However, neither the Institute, the Department of Labor, nor the SSA disaggregate data to count how many receive both Social Security and unemployment compensation.

While most fraud occurs when individuals collect UI while working or when they collect Social Security Disability Insurance when they are able-bodied, eligibility to claim both UI and Social Security actually has been expanded in recent years. Because unemployment compensation is a federal-state program, each state can set its own terms for benefits, and all but five states allow an individual to collect a full Social Security pension and UI. However, in Illinois, Louisiana, South Dakota, Utah, and Virginia, 50% of the monthly Social Security retirement benefit, converted into weekly terms, is subtracted, or "offset," from unemployment benefits.

"Over the last 15 to 20 years, states have been moving to allow full retirement benefits while collecting UI," Wayne Vroman, an Urban Institute economist, said. "The elderly lobby has been reasonably successful in getting rid of offsets." Nearly 20 states have repealed their offsets since 2002, although Virginia reinstated its offset last year because of budget shortfalls.

This long-term change in public policy regarding Social Security pensions and UI -- which enables double-dipping -- has occurred because "unemployment policy experts assert that it is good for the economy for older workers to stay in the labor force, qualify for unemployment, and be encouraged to go back to work," Hoskins said.

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Just as private-sector workers may be counted as both unemployed and retired, collecting UI and Social Security, state and local government workers who have retired -- often at ages 50 or 55 -- and then gone back to work and been laid off, can collect generous state pensions and unemployment benefits. Several hundred thousand of the 2 million to 3 million Americans under age 65 receiving public pensions also are out of work and may qualify for UI, an analysis of EBRI data suggests.

In California's Sacramento County, for example, retired state workers collecting generous pensions also qualified for UI for an additional $450 or more a week, the Sacramento Bee reported. Public outrage has also been stoked by reports that New York state teachers who retire with full benefits can draw pensions of up to $71,000 a year, and cases of former police chiefs earning six-figure pensions are not uncommon.

Steven Malanga, a senior fellow at the Manhattan Institute who has written extensively on "double dipping" by retired government workers, says it is legal for state government employees to retire at 50 or 55, collect a state pension, take another paying job and qualify for unemployment if they are laid off. He also noted well-publicized cases in Rhode Island, New Jersey, California and elsewhere where retired public-sector workers have gone back to work for another state or local government agency, thus drawing both a government pension and a salary. "This isn't fraud, but they're costly loopholes," he added. "This illustrates how poorly we've designed some of our government worker retirement programs."

Ultimately, the arguments are not so much about legality or fraud, or even government oversight. They come down to philosophical questions about how America's safety net should function and how to balance social need and fiscal responsibility.

"I question the propriety when unemployment insurance trust funds are hemorrhaging red ink," James Sherk, senior policy analyst in labor economics at the Heritage Foundation, said. "If you lose a job, you get UI benefits. But if you already have another government program providing for you, you shouldn't be drawing both, or at least the income from one should offset the income from the other. The taxpayer shouldn't be responsible for providing individuals with two streams of income."