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Catch Social Security earnings mistakes before time runs out

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Errors in Social Security wage reports are common and can reduce benefits if not corrected, so advisers need to be on the ball to catch mistakes.

Studies have found that about 25% of earnings reports contain errors, says Scott Tucker, founder and president of Scott Tucker Solutions in Chicago.

And the clock is ticking.

People only have up to three years, three months and 15 days after the year in which the income was earned to have their Social Security earnings history corrected, Tucker says.

The Social Security formula uses the highest 35 years of inflation-adjusted wages, which makes the accuracy of each year’s reported income crucial.

Errors can pop up years and even decades after they were made and affect recipients’ benefits.

“We discovered that one client had a blank year in the early 1980s, although he had made over $100,000 that year,” says Larry Luxenberg, managing partner and chief investment officer at Lexington Avenue Capital Management in New City, New York.

“His earnings records showed a long sequence of high earnings with only that one year showing zero earnings. He never noticed the discrepancy until I asked about it while reviewing his Social Security statement last year,” Luxenberg says.

“The mistake was so long ago and the records difficult or impossible to find, so we haven’t bothered to correct his record. His earnings record was so strong that it won’t affect his ultimate benefits, but it might have more of an impact on other people,” Luxenberg says.

“It’s an easy step to review the earnings record on a timely basis, and I would encourage everyone to do so,” he says.

Sometimes, the client’s neglect of their Social Security statements causes an error.

Nick Spagnoletti, a partner at MACRO Consulting Group in Parsippany, New Jersey, said that one longtime client who is in her 70s had inadvertently failed to correct a change in her name.

The client had been receiving correspondence from Social Security with the name “Lynn” during that time, but she had been receiving her returns from the Internal Revenue Service with the name “Madeline,” Spagnoletti says.

“The problem went undiscovered for years, because when she applied for Social Security benefits they weren’t using an electronic system,” which would have pointed up the error, instead filling out paper forms, he says.

“We’ve had to change all her investment accounts, including her [individual retirement accounts] and non-qualified accounts, over to her real name, and we’re still trying to correct her information with her Social Security records,” Spagnoletti says. “If this isn’t corrected, I suspect it would cause even more problems with her widower if something were to happen.”

This story is part of a 30-30 series on Social Security.

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