Social Security: The biggest threat to your benefits

America faces a retirement crisis, and Social Security is the one source of funds that millions of retirees will count on to make ends meet once they quit their jobs once and for all. Yet with all the discussion and controversy surrounding when to claim Social Security benefits for maximum effect, along with worries about the financial challenges that the system faces, few people know about one danger that could result in much lower Social Security checks than they deserve. Fortunately, once you know about this threat, it's easy to meet it head-on. Let's take a closer look at this often-overlooked aspect of Social Security and why it can make a big difference to your benefits.

The importance of checking your Social Security statement

The Social Security Administration has the monumental task of tracking the work histories of hundreds of millions of current and former American workers. The benefit calculations that the SSA makes are based on the information the agency collects, but its Social Security payouts are only as accurate as the data that the SSA has in its systems.

Back in 2009, the SSA did an internal audit of its data collection processes to see where potential problems could get into its data. Although the agency's Master Earnings File holds a considerable amount of data, it isn't all-inclusive; Social Security also keeps what it calls its Earnings Suspense File to hold unposted items that haven't yet been correctly assigned to a work record. Despite attempts to cross-check earnings data as it becomes available, about 10% of wage reports that the SSA receives each year don't get posted to its Master Earnings File without at least some effort, and even computer routines designed to scrub the data and resolve issues still leave about 4% of wage items needing further attention. Some of the biggest culprits are employers that get names and Social Security numbers wrong, along with name changes that are not reflected correctly in earnings records.

The result is that in some cases, the SSA may not have the right numbers to reflect your actual work history. When calculating your benefits, Social Security takes your wages and indexes them for inflation, and then it picks the 35 highest-earning years to come up with average your earnings. That average then gets plugged into a formula that determines your primary insurance amount. Depending on whether you claim benefits early, late, or at full retirement age, your PIA can get adjusted upward or downward to reflect your decision.

If your wages are understated in your earnings record, then the SSA will produce a lower benefit amount than you deserve. In order to get what you deserve, therefore, you need to tell the SSA about any errors you find.

Getting it right: How to fix mistakes

Fortunately, there's a process for correcting errors in your Social Security work history. But that process can be tougher than you'd think. If you see problems in your Social Security statement, the first thing you should do is collect information about the problem. The best proof of earnings is your employer W-2, but additional resources like your tax return, pay stubs, direct-deposit records, or other evidence of your pay can also be helpful.

Even if you don't have any documentation to prove your wages, it can be helpful to provide the SSA with information about where and when you worked, your employer's name, how much money you made, and whether you used the same name and Social Security number at that time as you use now.

Once you gather that information, contact the SSA to get the ball rolling on correcting your work history. The SSA warns that the process can take time, as the agency will cross-check your version of events with your employer's. In time, though, getting errors corrected could help you get all the benefits that you've earned throughout your career.

As important as Social Security is to many Americans, it's essential not to allow potential errors hurt your retirement prospects. By ensuring that your work record is accurate, you'll give yourself the best chance to get all the Social Security benefits that you deserve.

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