Man looking at his social security information on a laptop.
technology and security

4 reasons your clients should create an online social security account

Have your clients created their online “my Social Security” accounts? Setup is easy, and besides being an effective way to do business with the Social Security Administration (SSA), here are four reasons to encourage your clients to do so today.

#1: Protection from fraud and identity theft. Thieves are now targeting people in their 60s who haven’t yet applied for Social Security and are fraudulently applying for their benefits. Up to six months of retroactive benefits can be granted, so this can be a huge windfall for thieves. Only one “my Social Security” account can be opened for each Social Security number. So, if a fraudster opens one up before your client does, they can start collecting benefits that belong to your client.

However, as retired CPA James Shambo discovered, some thieves have used a secondary Social Security website to hack into the system and steal benefits. By the time he was notified of the fraud, the thief had already absconded with more than $19,000. To add insult to injury, Shambo received an SSA-1099 for the funds taken by the thief. While he was able to sort the mess out, it took multiple trips to the local Social Security office before that happened. 

#2: Verify earnings records. Every year, Social Security is unable to verify about three to four percent of earnings reported to them. Over the years, that’s added up to $1.2 trillion in wages the SSA can’t tie to the right person. Maybe an employer transposed digits on a W-2, or maybe no W-2s were filed that year. By monitoring the account on an annual basis, it’s easy for your clients to verify whether Social Security has the right numbers. If there’s a discrepancy, it’s easier to fix it while tax returns and W-2s are in hand.

#3: Helps plan for retirement. Social Security benefits may make up a significant portion of your clients’ retirement benefits. Retirement benefits are calculated from the highest 35 years of earnings. If your client is younger than full retirement age (FRA), his or her benefits will be calculated using the most recent year as an estimate of annual earnings until FRA. Zeros are filled in for years with no earnings.

The earliest age for collecting benefits is 62, but those benefits will be reduced by 25 percent from what would have been received at FRA. For people born before 1955, FRA is 66. But, thanks to a legislation passed back in the 1980s, that age is creeping up by two months a year – starting with those born in 1955. This means that someone born in 1955 will have to be 66 and two months to reach FRA; someone born in 1956 will have to be 66 and four months, and so on, until 1960, when the FRA will be 67. If your client doesn’t start collecting benefits until after FRA, his or her benefits with grow by eight percent per year until they hit a max at age 70.

When your clients log in to their accounts, they’ll see an estimate of benefits at ages 62, 66 (or 67) and 70. They’ll also see how much they will receive if they’re disabled and what their survivors’ benefits will be.

Most experts recommend waiting until at least FRA to begin collecting benefits, unless the person is in poor health and is unable to work. Between age 62 and FRA, Social Security puts a strict limit on the income a beneficiary can earn through work. For 2018, that limit is just $17,040. Earn more than that, and Social Security will claw back benefits at the rate of $1 for every $2 above that limit.

After FRA, the earnings limit goes away, and many choose to keep working and wait until age 70 to start collecting benefits. However, there may be lifestyle or family reasons to start collecting before age 70. Perhaps having that extra check coming in every month will let your client travel or help out children or grandchildren financially.

#4: Print a misplaced SSA-1099. How many of your clients misplace or lose that document before they bring everything in at tax time? As a former tax preparer, this was my favorite reason to encourage older clients to set up an account. If your client has set up a “my Social Security” account, it’s a snap to log in and reprint it. Be aware that only your client can set up that account – you can’t do it for them. 

Put on your trusted advisor hat and help guide your clients so they understand Social Security and other retirement benefits.

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