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Will This Be the Silly Reason Your Social Security Benefits Are Slashed?

By Maurie Backman - Dec 22, 2018 at 6:48AM

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Losing out on lifetime benefits can hurt you in retirement, so don't fall victim to this avoidable trap.

Millions of retirees look to Social Security as a critical source of income, which means that a large number of seniors can't afford to take a hit on their benefits. But unfortunately, it's fairly common for workers to experience a reduction in benefits when they're older, and it all boils down to when they file.

Though eligible recipients are allowed to file for benefits as early as age 62, doing so means taking an automatic reduction. That's because seniors don't get to collect their full monthly benefits until they reach full retirement age, and that doesn't happen until somewhere between the ages of 66 and 67. Since 62 is the most popular age to file for Social Security at present, it's clear that millions of retirees will be looking at a lower income stream than necessary if this trend continues.

Person holding Social Security card.


Of course, sometimes older workers have no choice but to file for benefits at 62. Those who lose their jobs, encounter costly medical bills, or get hit with other financial emergencies often fall back on their benefits in the absence of near-term savings. And in reality, it's generally smarter to take a hit on benefits than to rack up costly credit card debt to cover life's immediate expenses. But while claiming Social Security early is a common and often unavoidable reason for reducing one's benefits, there's a lesser-known cause of lowered benefits that many seniors might inevitably fall victim to: not checking their earnings statements.

It pays to be vigilant

Your Social Security benefits are calculated based on your 35 highest years of earnings. As mentioned earlier, the age at which you initially file for benefits could impact your monthly payments, and filing ahead of full retirement age could result in a potentially permanent reduction. But if the Social Security Administration (SSA) has erroneous information about your earnings history on file, your benefits could take a hit as a result. That's why you must review your annual Social Security earnings statements and make sure they're on point.

How might an earnings statement error hurt you? Let's say you earned $68,000 in 2016, but the SSA only has $58,000 on file. That lower figure could wind up permanently factored into your benefits calculation, thereby reducing the amount you collect in Social Security each month.

That's why you must be vigilant about checking your earnings record once a year. If you're 60 or older, the SSA will send you an earnings statement in the mail. Once you receive it, review it to make sure the income it has listed is correct.

If you're not yet 60, those statements won't be mailed to you automatically. Rather, you'll need to create an account on the SSA's website to access them.

If you do spot a mistake, contact your local Social Security office and report the error. You may need to schedule an appointment during which you'll present proof of that error, whether it's in the form of old pay stubs or tax forms. In some cases, you might need to reach out to your employer at the time to obtain proof of your claim, but it's a worthwhile step to take.

Don't wait to report mistakes -- you only get three years, three months, and 15 days to correct errors following the year they're made. Granted, that's a pretty decent time frame, but if you've previously slacked on checking your earnings statements, consider this your wake-up call to immediately dig up the past few years' records and give them a thorough look.

In some cases, a reduction in Social Security benefits is unavoidable or at least warranted. But it would be a true shame to lose out on valuable retirement income because of a simple reporting error.

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