Does Social Security ever make mistakes on benefits?

Dear Rusty: Can or does the Social Security Administration occasionally make mistakes in determining the benefits due? I’m now 72 but I retired early at age 61 and knew that my benefits would be reduced. I’ve always wondered if my monthly benefit calculation was incorrect but did not know how to address my concerns. If it is possible, could you direct me in how to handle with the SS Administration? Signed: Skeptical of My Benefit

Dear Skeptical: Can the Social Security Administration ever make mistakes? Of course they can, and do, but not really very often considering that they are dealing with tens of millions of beneficiaries, and especially when it comes to computing benefit amounts. Since nearly all benefit computations are done by computer, the usual source of any error is almost always from using incorrect input data. The actual benefit computation formula, while complex, is very standard and well proven; if an error occurs in a basic benefit computation, it is usually because a person’s lifetime earnings record contains an error. Having said that, let’s explore why you feel your benefit may not be correct.

When you say you “retired early at age 61” I assume that means you claimed your Social Security early at age 62 (the minimum age). Since your full retirement age is age 66, that means that by claiming at age 62 your benefit was cut by 25% from what it would have been at age 66. Also, any benefit estimate you had from Social Security prior to claiming made the assumption that you would continue to earn at your current level until you reached your full retirement age. If you “retired” and stopped working and earning at age 61, the benefit you are entitled to is less than that estimate you had from Social Security at age 61.

So, how can you address your concerns? I suggest the first thing you do is get a copy of your lifetime earnings record from Social Security. You can do this by calling them and requesting it or, if you have a “My Social Security” personal account, you can obtain it online. You should verify that all of your lifetime earnings are properly reflected in Social Security’s records (SS gets your earnings data from the IRS). Note that only your earnings up to the maximum payroll tax for each year count because that’s all you paid SS FICA tax on; if your actual earnings in any year were more than the annual payroll tax cap, only the amount up to that year’s tax cap is used. Be aware that if you find an error, you will need to prove it to Social Security by showing them a copy of your W-2 or your Federal Income tax return for the year(s) in question. If your lifetime earnings record is in order, then you are almost certainly getting the correct benefit. When computing your benefit, Social Security adjusts each year of your lifetime earnings to today’s dollar value, so inflation shouldn’t be a factor either. The highest earning 35 years over your lifetime (adjusted for inflation) are used to determine your benefit amount.

If you’re still uncomfortable that you may not be getting the correct benefit, you should call Social Security directly and ask them to review your benefits to make sure you are receiving the correct amount. Social Security has all of your lifetime earnings data immediately available and can quickly determine if your benefit amount is correct based upon the earnings history shown in your record.

Dear Rusty: I will turn 66 in June of next year. I do not plan to stop working but I do plan on starting to collect my Social Security. How soon can I start to collect without having to give it back because my income is too high? And after I start collecting will I still have to pay into the program with deductions from my current salary, and if I do, will those payments from me help to increase what I will be able to collect from SSA? Signed: Planning Ahead

Dear Planning Ahead: Social Security’s earnings limit goes away when you reach your full retirement age (FRA), which for you is 66. So, if you claim Social Security benefits to start in June of next year you do not need to worry about your earnings causing Social Security to take back benefits – you’ll have reached your full retirement age (FRA) and the earnings limit disappears at your FRA. But, whether you can claim any earlier in the year without it affecting your benefits depends on your earnings level.

Starting next year, because that will be the year you reach your FRA, the usual earnings limit ($17,640 for 2019) will be about 2.5 times greater, or a little more than this year’s limit of $46,920 for those in their FRA year. So, if you claim benefits to start before June when you reach your FRA, you’ll be subject to that higher 2020 annual limit and – depending on the month you claim – perhaps a monthly limit (the annual limit divided by 12). Exceeding the annual limit will cause Social Security to take back some of your benefits, and If you exceed the monthly limit you won’t be entitled to benefits for that month. However, if your income starting next year won’t exceed those limits you can claim earlier in the year without having benefits withheld. And if you don’t start your benefits before June of next year you won’t be subject to an earnings limit at all next year, nor for any year thereafter. And just to be sure you’re aware, you can apply for Social Security about 3 months before you want your benefits to start – but if you want to start benefits at your FRA just be sure to specify June 2020 as your benefit start month. For clarity, you can get benefits for the full month of June, the month you reach your FRA, regardless of the day of the month you were born.

As to your question about continuing to pay into the program, yes, for as long as you continue to work you will need to pay Social Security FICA payroll taxes – everyone who works and earns must pay that tax. But paying Social Security FICA, by itself, doesn’t increase your benefit. What may affect your benefit is if your current earnings are more than the inflation-adjusted earnings in any of the 35 years used to compute your benefit when you start Social Security. Each year, Social Security will look at your annual earnings and, if an increase is appropriate because you have more recent higher earnings, they will automatically make that adjustment for you.