Many people that we advise on their Social Security benefits have not paid much attention to their Social Security statements. They look at it and toss it. BIG MISTAKE! If you are not retiring anytime soon, what is the big deal? The big deal is that we have found many mistakes in the Earnings Records of clients….and this earnings history is how your Social Security benefit is calculated.
We share in all our seminars that people should review their statements every year and compare it to your W-2 for accuracy. It is very difficult to correct an error in arrears, especially if you haven’t kept accurate records.
The amount of Social Security benefits you and your family will receive is based on your top 35 years of earnings. The Social Security Administration has a complicated formula they use to calculate the amount, but it is based on those 35 numbers – right or wrong. You, your employer and Social Security share responsibility for the accuracy of your earnings record. The agency updates your record each time your employer – or you, if self-employed – reported your earnings. But you are the only person who can look at this entry and verify whether it is complete and accurate.
On your statement there are two separate columns for each year of reported earnings. The first column indicates your earnings up to the taxable maximum for the year – in 2015 that amount was $118,500. If you earn more than this amount, it is not included for purposes of the Social Security formula. The second column lists total earnings that are subject to the 1.45% portion of the payroll tax used to finance Medicare.
According to the Social Security Administration you cannot correct your earnings after three years, three months and 15 days from the end of the taxable year in which wages were paid; however, you can correct your record after that period of time if you have proof of your earnings such as a tax return, W-2, or a pay stub. You will need to contact the Social Security office to handle any discrepancies.
How could this happen? Easy – your employer may have reported your earnings incorrectly or reported your earnings using the wrong name or Social Security number. Did you get married or divorced and changed your name but did not report this to the Social Security Administration?