Checking Social Security Now Benefits You Later

Every year after the age of 40, you receive your Social Security benefit statement about two months before your birthday. You probably add it to the "to do" pile in your home office. But maybe you should spend a little time reading it to make sure Uncle Sam has his facts straight.

There's a lot riding on those facts, now and in the future, and it's up to you to make sure they're correct.

You see, the Social Security Administration calculates your Social Security benefits -- retirement, dependent and survivor -- based on your 35 highest-earning years. "If it turns out that for a couple of years, your Social Security earnings have not been properly recorded, that could bring your average down, sometimes significantly, and with it, your Social Security benefits," says Joseph Matthews, an attorney and author of Social Security, Medicare and Government Pensions (NOLO, 2006).

For example, suppose you've been working since 1972, starting at $40,000 a year and ending at $110,000 in 2006, with regular increases throughout your career. You expect that you'll earn about $115,000 in 2007 and $120,000 or more each year thereafter. And you plan on retiring at age 66. Using a Social Security benefit calculator, you'll find that your monthly retirement benefit at age 66 will be approximately $3,195, the maximum benefit allowable.

Effects of Missed EarningsBut what if you haven't been paying attention? Say you look at your next benefit statement and notice that for some reason, it shows no record of earnings for the years 2001 through 2004, the years you worked for a different employer. Guess what? Your projected monthly benefit falls by $40 per month.That doesn't seem like much until you take your calculator out and discover that if you are 55 now and live until age 85 and earn just 6 percent on the invested difference, you'd have a $16,943 nest egg to pass on to your children. And that doesn't take into account cost-of-living increases in the monthly benefit. "What would be a $40 benefit shortfall in year one, 10 years later would be in the hundreds," says Matthews. "That imaginary investment account could build up to $30,000 or more over a lifetime."And that's not all. Those missing working years also affect your monthly disability benefit ($50 less), survivor's benefits ($40 to $53 less) and the maximum family benefit ($93.40 less). That last number, invested monthly at 6 percent, amounts to $39,562 at age 85, money left in Uncle Sam's pocket when it could be in yours."Bottom line, if your benefit statement doesn't accurately reflect your earnings, you're not going to get the full benefit that you're entitled to," says Craig Copeland, senior research associate at the Employment Benefit Research Institute.
Or you may get no benefit at all, because as far as Social Security knows, you don't qualify. According to the Social Security Web site, you need 40 "credits" to qualify for benefits. You can earn up to four such credits per year; therefore, you need 10 years of covered employment in order to qualify for benefits.Since 1978, the number of credits you earn per year is based on how much you make that year, rather than the number of quarters you actually worked. For example, in 2007, you need to earn $1,000 to get one credit. If you earn four times that, you get all four credits, even if you earned it all on the last day of the year. href="">Next: "What to do about mistakes ..." >href=" is the Web's leading aggregator of information on financial products including mortgages, credit cards, new and used automobile loans, money market accounts, certificates of deposit, checking and ATM fees, home equity loans and online banking fees. Visit to get the tools and information that can help you make the best financial decisions. Look into these six FAQs about Social Security. Avoid these Social Security tips and traps. Don't get left behind. Subscribe to the Best of ThirdAge newsletter to get the stories that matter most.
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Source: Money & Work

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