Social Security For Dummies - Peterson Jonathan

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may expect, more career earnings means a bigger benefit. Highly paid workers who contributed more taxes throughout their working careers end up with bigger Social Security payments (although the benefit formula is skewed to provide low earners a larger share of their working wages in retirement than high earners receive).

      Social Security benefits rise because of cost-of-living increases that are meant to help retirees keep up with inflation. Congress may debate whether to modify the cost-of-living formula to save money or even to increase payouts, but the importance of inflation protection is widely recognized, and it remains one of the most popular features of Social Security.

      

Other things affect your benefit amount as well, including the following:

      ❯❯ How old you are when you start collecting benefits: You can start receiving Social Security as early as age 62, but your payment will be larger the longer you wait to claim, potentially to age 70. (See Chapter 3 for a discussion of when to begin receiving retirement benefits.)

      ❯❯ If you worked in any jobs that weren’t covered by Social Security: Your full benefit may be reduced by any periods of your working career in which your job wasn’t covered by Social Security, a reality for many government workers. (See the earlier sidebar “Which jobs aren’t covered.”)

      ❯❯ If you’re working while drawing benefits: Social Security may withhold a portion of your retirement benefits if you earn above a certain amount while receiving benefits and you haven’t yet reached the full retirement age, which is currently 66. (See Chapter 13 for a detailed explanation of how benefits may be affected by earnings.)

      

Social Security also takes money off the top of your retirement benefit to pay for Medicare coverage if you’ve reached 65 and you’re enrolled in Medicare. The monthly premium for Medicare Part B, supplementary medical insurance (doctors’ and some other services), is deducted automatically if you’ve reached 65 and entered Medicare. The standard Part B premium paid by most Medicare enrollees was set at $134 for 2017. Premiums – and the Medicare deduction – generally rise with inflation.

      In the following sections, I cover how to estimate your benefit, and how much your spouse and children can expect to receive based on your work history.

       Estimating your retirement benefit

      The average monthly retirement benefit is about $1,360 (in early 2017), but the amounts vary. Higher-paid workers who start benefits at full retirement age and have paid the maximum taxable amounts for their entire careers receive almost twice that amount ($2,687). If you wait beyond full retirement age, you can get a lot more.

      

So, what’s your number? If there were a quick and easy way to do the math yourself, I’d tell you right here. But there isn’t. Fortunately, Social Security makes it easy to get a ballpark estimate by using one of its online tools: the Social Security Quick Calculator (www.ssa.gov/oact/quickcalc) or the Retirement Estimator (www.ssa.gov/estimator). (See Chapter 6 for more discussion about Social Security calculators, including a helpful tool from AARP.)

      

Make sure that your employer’s records match up with Social Security. Every year your employer sends a copy of your W-2 to Social Security, which relies on the name and number on that form to put credits on your earnings record. That record determines whether you qualify for benefits and how much you’ll get. If your employer and Social Security are using different names or numbers, it could cost you money, so it’s smart to pay attention. It’s also your responsibility to correct mistakes. If you’re incorrectly identified on your work records or if your income is reported incorrectly, let your employer know. You can contact the SSA (see Chapter 1) to correct an error in the name on your Social Security card.

      

You have 3 years, 3 months, and 15 days from the end of the year in which you earned money to correct errors that may turn up on your earnings record. If you don’t bring errors to the attention of the SSA within that time, it may not fix them.

      Your employer is the one who points out W-2 errors to the SSA. If your employer refuses, you should bring the matter to the attention of the Internal Revenue Service (IRS). You can contact the IRS at 800-829-1040.

      THE WINDFALL ELIMINATION PROVISION: IF YOU QUALIFY FOR A PENSION AS WELL AS SOCIAL SECURITY

      Have you spent part of your life working for an employer who wasn’t part of the Social Security system, and are you earning a pension from that employer? If so, you could get hit by the Windfall Elimination provision, which means that the SSA uses a different formula to compute your benefit, and your benefit is reduced. The Windfall Elimination provision is complex and has various exceptions, but be aware that it may apply if you turned 62 or became disabled after 1985 and you first qualified for a pension based on work in which you didn’t pay Social Security taxes after 1985. Importantly, this provision doesn’t apply to federal workers hired after December 31, 1983.

      Although the Windfall Elimination provision may cost you, it’s capped at 50 percent of your uncovered pension. If you have an uncovered pension of $1,000 per month, the most that your Social Security benefit can be reduced by is $500, and depending on the specific facts of your situation, that amount may be a lot less.

      Want to find out more? A good place to start is the Social Security website. You can find out more about the impact of a pension from uncovered work on your benefits at www.ssa.gov/pubs/10045.html.

      THE GOVERNMENT PENSION OFFSET PROVISION

      Say you qualify for spousal or survivor’s benefits in Social Security, but you also get a pension because of your own work in local, state, or federal government. If so, your Social Security may be reduced under the Government Pension Offset provision. The reduction is significant: It comes to two-thirds of the amount of your government pension. Suppose you have a government pension of $900 per month, and you’re eligible for a Social Security widow’s benefit of $1,200 per month. In this case, Social Security may reduce your widow’s benefit by $600 (two-thirds of $900), leaving you with a Social Security benefit of

.

      Congress enacted the Government Pension Offset provision to make sure that Social Security benefits for government workers are reduced in a similar manner as for individuals who have worked entirely within the Social Security system. For example, if you qualify for a Social Security spousal or survivor’s benefit, but your own work record makes you eligible for an even larger benefit, you get only the benefit you’ve earned yourself. You can’t receive both your larger benefit and the smaller spousal or survivor’s benefit. In practice, several factors can preserve your full Social Security benefit, such as the following:

      ● Your government pension isn’t based on earnings.

      ● Your government pension is based on a job in which you paid Social Security taxes and you filed for Social Security benefits before April 1, 2004, or your job ended before July 1, 2004, or you paid Social Security taxes on your earnings during the last five years of government work.

      ● You’re a federal employee who switched from civil service retirement to the Federal Employees Retirement System (FERS) after December 31, 1987, and you filed for Social Security spousal or widow/widower benefits before April 1, 2004; your job ended before July 1, 2004; or you paid Social Security taxes on five years of earnings for government employment between January 1988 and when you become entitled to benefits.

      You

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