4 reasons not to trust Social Security’s benefit estimates

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out maximizemysocialsecurity.com/ask-larry.

Boston University economist Larry Kotlikoff has spent every week, for over two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.

Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) will be published in February by Simon & Schuster.

Social Security used to send annual statements showing us they had correctly credited our past covered (taxable) earnings. Then in 2011, to save money, they stopped sending the statements. Now they are starting to send them again, but only to some of us and, at most, every five years. This said, we can go to Social Security’s website, at any time, to retrieve our benefit statements.

I recommend that you retrieve your statement each year and check that Social Security has correctly credited your covered earnings. But don’t trust the statement’s projection of your retirement benefits or the benefits available to family members based on your work record. For many, if not most workers, the projection is wrong. It’s wrong for four reasons.


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First, Social Security assumes no future economy-wide growth in average wages. In so doing, it assumes no change in the future covered earnings ceiling or the “bend points” (dollar amounts) in Social Security’s full retirement benefit (PIA) formula.

Second, Social Security assumes no future inflation.

Third, Social Security benefit statements assume you work right up to the point you begin taking your retirement benefit.

Fourth, the benefit statements assume you earn the same amount, in today’s dollars, every year that you work in the future.

(By the way, there’s nothing in the benefit statement that acknowledges these first two assumptions. Nor is there any such acknowledgement provided when using Social Security’s Quick Calculator.)

The first​ two assumptions produce understatements of our future retirement benefits. The third ​assumption produces overstatements of our retirement benefit. The fourth assumption can produce both under or over estimates.

How big is the bias? This depends on your age, how much you will earn through age 60, and how much you will earn after age 60. But it’s easy to construct examples, using Social Security’s Quick Calculator, in which your retirement benefit is under or overstated by 20 percent.

For those who are married, using Social Security’s benefit estimates can wreak particular havoc on your optimal Social Security collection strategy. If you and your spouse differ in age or have different levels of future earnings, your benefit levels will be differentially biased and you can come up with the wrong benefit collection strategy — one that leaves money on the table.

Whether this happens will depend on what software program you use to calculate your optimal strategy. A proper program will not let you enter a retirement benefit estimate if you have future covered earnings for fear of the source of that estimate. And if you don’t have future covered earnings, it will correct Social Security’s retirement benefit estimate to account for future average wage growth and inflation.

Anonymous — Zurich, Switzerland: Can I collect my Social Security income if I cancel my green card?

Larry Kotlikoff: Assuming that you’re a citizen of Switzerland, the answer is yes, but otherwise I’d check with the U.S. Embassy in Zurich as well as Social Security. This SSA publication may also be helpful.

Anonymous — S.D.: I have been married three times — for 13 years to the first husband, for 12 years to the second and six years to the third. I am currently single, receiving ex-widow benefits from my second, who is deceased, and I am working a full-time and part-time job. I am 61 years old now. What would you recommend I do when I decide to retire and what will my benefit options be?

Larry Kotlikoff: Paul Solman, Phil Moeller and I discuss this kind of situation in detail in our new book “Get What’s Yours — The Secrets to Maxing Out Your Social Security Benefits.”

You need to keep an eye on whether the first ex is still alive because if he dies, you may be able to collect an even larger divorced widow’s benefit on his work record. If you wait until 70 to collect your own retirement benefit, it may exceed your divorced widow’s benefit, in which case your monthly payment will rise. This said, precisely what you should do depends on the size of your own retirement benefit compared to your current divorced widow’s benefit, as well as the size of the potential divorced widow’s benefit on your first spouse and his maximum age of life. I’d have to know these details before making any specific suggestions.

Anonymous — Port Collins, Md.: I was married for 22 years, then divorced. One of my daughters became disabled six years ago. I quit work at age 62 and filed for Social Security, as she needs full-time care.

I did not have the information regarding ex-spouses, so I filed under my own. This year, at age 66, I called and was told I could not collect ex-spousal benefits, which would be higher, because I collected under my own too early. Do I have any recourse?

Larry Kotlikoff: When you filed for your own benefit you were thrown into what I call “excess benefit hell,” where you can only collect an excess auxiliary benefit, not a full one. In your case, it sounds like your excess divorced spousal benefit is zero. This would be the case if your full retirement benefit exceeds half of your ex’s full retirement benefit. This said, if you ex dies, you should file for a divorced widow’s benefit. It may be that the divorced widow’s benefit exceeds your own retirement benefit, in which case your monthly payment will go up.