The Screwed-Up Social Security System

Based on what you earn throughout your lifetime, you become eligible for Social Security retirement benefits when the time comes. That time can vary from person to person for many reasons, because once you hit age 62 you become eligible to get it, but you can wait for years if you choose to, even up to age 70.

When it comes to the Social Security system, there are a few things that can keep you from maximizing your benefits. Here are some of the gotchas to beware.

But despite the success and importance of the Social Security plan, the system suffers from problems and mistakes. Sometimes mistakes are made by the Social Security Administration (SSA). And sometimes you make them yourself. Why?

In cases where you don’t provide accurate information to the authorities so they can calculate your Social Security value properly, you could end up receiving smaller benefit payments. It does happen and that’s why you must periodically check your Social Security statements to make sure they are accurate!

my Social Security Statements

You can provide all the information the government needs from you by creating a my Social Security account here: https://www.ssa.gov/myaccount/.

Among other things, you can use your my Social Security account to receive personalized estimates of future benefits, view your latest Social Security statement, and review your earnings history. You can also set up or change the direct deposit details for your benefit payments and request a replacement card if you’ve lost yours. All good reasons to check it out before you actually file, but believe it or not millions never do. That could spell trouble if you don’t!

How Can You Screw Up Your Payments from the Social Security System?

1. Claiming your retirement benefits too early or too late

Retiring early and enjoying the perks and benefits that come with it is what every worker dreams of. But claiming your Social Security benefits earlier than you should (namely before the age determined by SSA) is not always the best decision, financially speaking.

While the SSA sees no problem in sending you your monthly checks at age 62, the value of your monthly payments could drastically decrease by up to one-third or more. Unfortunately, the change is permanent, so it won’t make a huge difference when you do reach your full retirement age.

There are pluses and minuses to filing for benefits early or waiting as late as possible to do it. It really depends on your individual situation because if you live long enough and file very early, you will eventually lose out in this game of payments. On the other hand, getting smaller checks for as long as five years is money you’d have to wait for and not have if you actually need it at age 62 to survive.

The government has been changing the retirement age goalposts and does not plan to stop anytime soon. Therefore, age 65 is no longer considered the full retirement age.

The rules for making a claim

For example, for those born between 1943 and 1954, the retirement age is 66. Two months are added to this number every year (for example, 66 and 6 months for those born in 1957) until those born in 1960 or afterward reach the retirement age of 67. Job situation, health, and other factors make this decision important, so think about it before you do anything foolish about your claim.

2. Missing the Medicare application window

Considering the constant changes in the retirement age goalposts for Social Security, there is some good news. The age for Medicare eligibility remains the same, which means you need to apply for this program three months before you’re 65 years old.

Should you miss this opportunity, you might need to pay late enrollment penalties. Given that money is usually taken from your Social Security to pay for most benefits such as Medicare, you might end up having a lower Social Security benefit.

3. Medicare…and its rising premiums

Since we’re still discussing Medicare, you should also know that even if you’ve managed to apply for Medicare within the application window, your Social Security could still undergo some changes. This is mostly due to Medicare premiums. Who said retirement is easy?

Let’s do some simple math and understand the situation. In 2012, Medicare Part B was $99.90 per month. In 2020, the same service costs $144.40 for most people and a little bit more expensive for high earners. This means couples that earn $170,000 per year or more have to pay a monthly amount of up to $500.00 or even more, depending on their income.

4. Owing taxes or child support

Your Social Security is used by the government as a source to pay for a lot of taxes and services, including back taxes and child support.

In the case of taxes, garnishments are limited to 15% of the monthly benefits while in the case of child support, your monthly benefits could take a serious hit. You might have to pay as much as 65% for this type of obligation.

5. Receiving pensions

Depending on the type of job you have, not all people are eligible for Social Security. This is especially valid if you receive some sort of pension.

Not every worker pays into the Social Security system. In certain states, public employees are not covered by Social Security due to receiving a pension. That can include employees of state and local government agencies, including school systems, colleges, and universities. In some states, they may also include police officers and firefighters. Make sure you know what your own situation is before you retire.

6. Outliving the Social Security Trust Fund

Here’s the situation that has many people worried and even panicked about Social Security.

Unfortunately, Social Security funds are not infinite. More than that, according to the 2019 Trustees Report, by 2035, the Old-Age and Survivors Insurance Trust Fund, which covers Social Security retirement benefits, as well as the Disability Insurance Trust Fund will run out of the money that’s need to fully fund the program!

The reason for the shortfall is that the working-age population cannot keep up and cover for the growing benefits of future retirees, such as the largest generation in U.S. history, namely mine, the Baby Boomers. Starting in 2035, only 75% of the Social Security benefits will be covered by employed workers, and that will last only up to 2039.

So here are the facts. Even if you are age 50 right now, and plan to retire when you are age 67 in 2037, you will be facing reduced benefits and the end of the program by the time you are age 69!

Unless legislation is passed before 2035 and more money is allocated for these benefits between now and then, SS recipients will be facing serious financial problems.

Final Thoughts

Just in case you haven’t thought about retirement decisions like when you will draw Social Security, it’s a good time to do it now. You should also be concerned about what the government is or is not doing to keep the Social Security system alive and well for you when you do need it.

If you are planning to earn and save for your retirement and think that you can do it without SS, I hope you do. But know this, almost everyone counts on SS for a big part of their retirement and even that is often not enough as it exists. It was never meant to pay for your life in retirement. But without it entirely, well, good luck is all I can say because it doesn’t bode well!

How are you planning for retirement? Are you saving now and will you need Social Security to supplement it? When will you retire and have you ever checked your SS statement to see if it is accurate?

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