In Part 1 of this series we reviewed how to obtain your Social Security statement and looked more closely at some of the items that appear on page 1. In Part 2, we focused on Page 2 of the statement, with particular emphasis on how your retirement benefit estimates are calculated. Now, we are ready to proceed to:
Part 3. The highlight of Part 3 is your Social Security Earnings Record. In Wanda’s statement, her earnings record is fairly short, as she did not begin her working career until 1989. Also notice that the two columns – Your Taxed Social Security Earnings and Your Taxed Medicare Earnings – are exactly the same in Wanda’s case. This is because all of her earnings were below the Social Security wage base, which was $110,100 in 2012 and grew to $113,700 in 2013.
For a high wage earner approaching age 66 in 2013, the earnings record might show that Medicare taxes began to be assessed in 1966 and became “decoupled” from the OASDI (Old-Age, Survivor, and Disability Insurance) wage base beginning in 1991. In that year, the OASDI wage base was $53,400, but the Medicare wage base was set at $125,000. In 1992 the maximum amount of earnings subject to Medicare taxes rose to $130,200, and in 1993 increased to $135,000. Beginning in 1994, all earnings became subject to Medicare tax.
Some individuals might review their earnings history and find that in some years a zero appears in the Social Security earnings column, while for the same year a positive number appears in the Medicare Earnings column. This may be a mistake, or more likely it may represent a period of time during which you received wages that were not subject to Social Security taxes, but were subject to Medicare taxes. If you expect to receive a pension based on the wages you received from such employment, you will want to find out how your Social Security benefits might be affected by the Windfall Elimination Provision and the Government Pension Offset. These concepts are introduced on Page 2 of the statement, and were discussed briefly in Part 2 of this series.
As discussed in Part 1 of this series, the Earnings Record is a primary place to look for mistakes. On Page 1 of the statement you will find this language:
“Please read this Statement carefully. If you see a mistake, please let us know. That’s important because your benefits will be based on our record of your lifetime earnings.”
If you notice any aberration in the pattern of Social Security earnings – such as a zero where substantial earnings should appear, or a number that is lower than the years immediately before and after – it may be important to contact the SSA to explore the issue. Don’t be deterred by the fact that you may no longer have records of your earnings for the year in question, as the SSA has access to employer records and may even accept affidavits and circumstantial evidence if the earnings pattern appears aberrant.
Do not be surprised if the most recent year is not shown on your statement. This may be simply because the SSA has not yet received tax information from your most recent tax year. For example, the statement I obtained online on February 7, 2013, does not yet report my 2012 earnings. These issues are discussed in the last section on Page 3, entitled Help Us Keep Your Earnings Record Accurate.
In the middle of the page, you’ll see an estimate of the taxes both you and your employer have paid, based on your earnings, for Social Security and Medicare. On Wanda’s statement this appears innocuous enough, but that’s because she is years away from benefit eligibility. If you’ve worked for forty years and your average earnings have been at or close to the wage base, the combined Social Security taxes paid in your behalf might total between $250,000 and $300,000!
Page 4. In the first paragraph you’ll find the cautionary statement that “Medicare does not pay for long-term care ….” This is a true statement. If you are concerned about the possibility of you or your spouse becoming chronically ill and thus seriously straining your family’s financial resources, you should consult your financial advisor to discuss strategies to protect against this risk.
The Retirement section reminds you of two important things: that your Full Retirement Age (FRA) is either 66, 67, or somewhere in between depending on the year in which you were born; and that your benefits will be reduced if you claim before FRA, or increased if you delay past FRA.
Disability. This section will be important if you, your spouse, or your child is already disabled. If not, it is important to remember that Social Security disability benefits can provide important benefits if someone in your family does become disabled.
Family. This concepts introduced in this section can lead to some significant opportunities in the appropriate circumstances.
“If you’re eligible for disability or retirement benefits, your current or divorced spouse, minor children or adult children disabled before age 22 also may receive benefits. Each may qualify for up to about 50 percent of your benefit amount.” [emphasis added]
If you have young children, pay particular attention to this section. Many people are aware of disability and survivor benefits for children, but if you begin receiving Social Security retirement benefits at a time when one or more of your children is under 18 (or under 19, but still in high school), that child may qualify for dependent benefits under your Social Security record. In fact, if the child is under 16 and your spouse is not working, or not earning significant income, your spouse may qualify for “child-in-care” benefits as well.
If you are divorced (and currently unmarried), have reached age 62, and your ex-spouse has reached age 62, you may wish to investigate the possibility of filing for divorced spouse retirement benefits. This is a complex area, as is most of Social Security, and you would be well advised to consult with a Social Security expert before making any irrevocable claiming decisions.
Survivors. Pretty much the same categories of people that may qualify for benefits on your record when you begin receiving retirement benefits may also qualify for survivor benefits when you die. In fact, the opportunities are even broader for a divorced spouse when it comes to survivor benefits.
Receive benefits and still work … This is the last section I will address specifically. After you reach your Full Retirement Age, you may work to your heart’s content and earn unlimited amounts while receiving Social Security benefits without any negative impact. In fact, depending on your Earnings Record, additional years of high earnings can actually cause your benefit to increase. Before FRA is another story. An earnings limit applies if you receive any type of benefit before FRA. For many people, earnings above the limit will reduce current benefits, but those amounts may be recaptured over time after FRA. Again, this is an area that calls out for some good advice and sound planning.
The balance of the statement leads you to some potentially useful resources in the form of phone numbers, the SSA web address, and links to various publications. There is even a link to the Retirement Estimator, which we discussed in Part 1 of this series. Several of the links on page 4 did not work for me, but you can certainly go to www.ssa.gov and search for any of the publications mentioned on page 4.
This ends our three-part series on How to Read and Understand Your Social Security Statement. My intention is not to teach you everything you need to know, but rather to raise your awareness of both the complexities and the many opportunities to be found in the Social Security system.
For assistance in understanding your own Social Security options, please contact me through www.socialsecuritymaven.com.
Peter M. Weinbaum, JD
The Social Security Maven®