A few weeks ago, I met with a potential new client about managing his portfolio. The client’s game plan was to retire at the end of September. At that point, he would then begin collecting his pension and social security. He figured between the two it would cover the bulk of his expenses. As I was discussing his strategy and his portfolio with him, something didn’t make sense to me. What didn’t make sense to me was that considering that he had a forty plus career, his social security seemed very low. When I asked him about it, he said he had no idea. At that point in time, I obtained a copy of his social security records and, sure enough, there was a glaring error.
As I was reviewing his social security records, there was a period of about a dozen consecutive years where it showed he either earned no income or his income was minimal. The client couldn’t explain it, but it appeared that the dozen or so years he worked for a certain employer, the employer incorrectly reported his social security earnings.
Unfortunately, the great majority of people never check to make sure that their earnings have been properly reported to social security. You would think that reporting social security earnings would be a relatively simple process, which it is, however, mistakes do happen. The problem is that it’s up to you and I to identify the mistake and take the necessary actions to correct the error. Typically, for social security, the statute of limitations is three years, three months and fifteen days from the time you filed your return. Like most rules, there are exceptions and it is possible with proper documentation that the social security administration will correct an error beyond the statute of limitations. That being said, it is important that every year you review your social security earnings to ensure they are accurate. You cannot assume that mistakes don’t happen. After all, you’re dealing with a government agency.
For those of you who are sixty and over, the social security administration does send you an annual statement typically three months from your birthday. If you are under sixty, you can obtain a copy of your earnings through social security. You can apply online to get your statement by going to www.ssa.gov.
One of the nice things about receiving a statement from social security is that not only can you review your year-by-year earnings, but social security will also guesstimate your social security benefits for you. Not only will they compute your social security benefits at age sixty-two, but also what your benefit would be at your full retirement age and also at seventy. What many people are amazed at is how much their benefit increases by delaying collecting on social security.
Whether you are going to depend upon social security in retirement or not is relatively immaterial. As far as I’m concerned, if you paid money into social security, you’re entitled to a benefit and why not get every dollar you’re entitled to. The one way to assure this, is to make sure that at least once a year you review your social security statement for accuracy. Like all mistakes, the sooner you can correct them, the better it is. The same applies to social security. The sooner you identify the error and contact social security, the easier it will be to correct.
According to social security, since its inception, there has been a total of 1.2 trillion dollars in wages that could not be matched to an individual’s earnings. In fact, in 2012 alone, the social security administration reported that 71 billion dollars of earnings were not credited to an individual’s account. These mistakes can make a significant difference in the benefits you receive. For example, one year of missed earnings can make a difference of a hundred dollars per month or more in the benefits you will receive. Over your lifetime, that can be nearly $30,000. As far as I’m concerned, that $30,000 looks better in your pocket than it does in anyone else’s.
If you would like Rick to respond to your questions, please email him at Rick@bloomassetmanagement.com.