Whether you are close to retirement, or in your early working years, there is a step that you need to take today. It can’t wait! If you ignore this it could cost you THOUSANDS of dollars in missed Social Security benefits. And its just a small little step that will take less than 5 minutes. I’ll tell you what this mistake is and the steps you need to take TODAY to avoid it.
So what is this little step that you can take that may help you avoid a big reduction to your Social Security benefits? It’s a mistake in your Social Security earnings record. This earnings record is a history of your lifetime earnings that will be used for the purpose of calculating your Social Security benefit.
Your Recorded Earnings
If your Social Security earnings have been recorded incorrectly, or worse…not at all…it could make a big difference in your benefit amount.
Why is this such a big deal? It all goes back to how your benefit is calculated. The Social Security Administration uses your highest 35 years of earnings as a cornerstone of the benefit calculation. If any of these 35 years are incorrect, or missing altogether, the average is skewed.
Mistakes in the Social Security earnings record are fairly common. For proof, look no further than the Earnings Suspense File. (This is where earnings reports are stored that have a mismatched name and SSN combination.) Since the inception of Social Security, there have been a total of $1.2 trillion in wages that could not be matched to an earnings record and thus were added to the Earnings Suspense File. In tax year 2012 alone, the Social Security Administration reported $71 billion added to the file!
Mistakes on Earnings
Why are there so many mistakes? Most of these mistakes are not the fault of the Social Security Administration. A good number of the mismatches are due to employer reporting errors or simple name changes after marriage or some other clerical error.
Thankfully, the Social Security Administration has a pretty good system for figuring these mistakes out and assigning the earnings to the correct record.
But nearly half of the mismatches are never corrected. Some of these are due to the fraudulent use of Social Security numbers where there simply is no fix. (For example, illegal immigrants using stolen SSNs to gain employment.)
The other mismatches are often legitimate earnings that just never get corrected. Unless you’re vigilant about monitoring your earnings record, you could have earnings gap that could have a substantial impact on your Social Security benefit calculation.
And there is a time limit for getting this corrected, too. Unless you meet an exception, you have 3 years, 3 months and 15 days to fix an error. I want to come back and talk about those exceptions later…
How This Can Affect Your Benefit Amount
Let me give you an example of how this can affect your benefit amount:
I used the actual online calculator from the Social Security Administration. I love this calculator. It does have some limitations but as far as I’m concerned it’s the best calculator on the SSAs website.
If you want to follow along you can just go to the Online Calculator.
In the example calculation I ran, I simply assumed the following:
Individual has 35 years of earnings that started in 1984 and ended in 2018. Instead of going for a really high annual earnings amount, which would have exaggerate the effect, I assumed that this individual started in 1984 with a salary of 35K and had a 2% raise every year. Now this video is all about doing this calculation for yourself, and to do that you’ll need your own earnings history.
Under that assumption, this individual would have a full retirement age benefit of $2,418 dollars. So that’s the baseline.
What happens if earnings are missing? At random, I started at 1990. For one missing year, the benefit would decrease to $2,385 dollars. For two missing years, it would decrease to $2,353 dollars. For three, it would be $2,322. For four, it would be $2,291 and for five, it would be $2,260…a difference of $158 dollars per month.
So you may be thinking…Devin…that doesn’t sound like such a crisis. But how would this affect you over your entire retirement?
If we take those same amounts and assume a annual cola of 2%, you’ll see that the effect is now measured by thousands of dollars. For one year, it’s nearly $8,000. For two, it’s over $15,000. For three, it’s slightly over $23,000. At four years, it’s more than $30,000, and at 5 years, it’s nearly $38,000. I don’t think anyone would willingly give up any of those amounts.
Hopefully you’ve seen the value of making sure this earnings record is correct…heres how you can check yours.
Go to ssa.gov/myaccount. Once you log in you should see “earnings record” in the right hand sidebar. Once you click that you’ll see a complete copy of your earnings history. It’s that easy. The hardest part is remembering the security questions when you log in.
So what happens if your earnings history isn’t right? If there’s a mistake, here’s how to correct it.
First, gather your proof of income. This could be from tax returns, W2s, 1099s and a few other documents. If you can’t find these…don’t let the SSA tell you that there’s nothing that can be done! In their manual, they state that an oral or written statement from the employer will serve as primary evidence of wages. Once you have this proof of income you simply need to contact the SSA. They may have you fill out a SSA-7008 or they may do it for you. Just call the main number or your local office.
Earlier, I referenced a time limit for correcting an earnings record mistake. Generally speaking, it is 3 years 3 months and 15 days. There are exceptions and there’s one BIG exception that covers almost everything. They will revise the record to correct a mechanical, clerical or other obvious error. About the only time I interpret when an exception doesn’t apply is when you didn’t file your taxes before the time limit. You’ll still have to pay the SS taxes, you just won’t get credit.
So you may be asking yourself, why all the fuss and urgency? Here’s why. Like many of the Social Security rules, the rule on time limits are broad and sometimes not completely understood by the technicians at the Social Security Administration. I’ve seen cases where there was a clear exception, but the technician refused to enter the earnings because they did not understand the rule. Thankfully, this client was able to get help from a financial planner who understood the rules and helped the client draft a request for review letter. A few weeks later, the earnings were back where they should be…on the client’s earnings history.
Listen…please do this small little step today. It could make a big difference to you and potentially your survivor benefits if you should pass away.
Before we go I want to thank you for taking the time to get informed. Being informed gives you choices – and can make a big difference in YOUR RETIREMENT! Please continue to stay informed!
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