Retirement Blog

Finance Blogs » Retirement » Picking Social Security nits

Picking Social Security nits

By Jennie L. Phipps · Bankrate.com
Thursday, July 18, 2013
Posted: 7 pm ET

One of the pluses of immigration reform is an increase in young workers whose payments into Social Security could shore up the system. Social Security and others estimate that if allowed to take legal employment, these workers would earn about 20 percent more than they do now, and they and their employers would pay a commensurately greater amount of wage tax.

The Senior Citizens League, a nonprofit that advocates for the rights of older Americans, is questioning what kind of impact illegal work will have on Social Security benefits after immigration reform. In a statement, the organization's Chairman Larry Hyland says, "These are costs that neither the Congressional Budget Office nor the Social Security Administration have fully disclosed to the public."

Social Security is already getting a boost from immigrants working illegally. In April, Social Security calculated that unauthorized immigrants contributed about $13 billion in payroll taxes in 2010, while receiving only $1 billion in benefit payments that year. Social Security says that most of these recipients had permission to work at one point in their working lives and are now living in their native countries and collecting retirement benefits they earned while working legally.

The remaining $12 billion, which were collected in 2010 primarily from workers with fraudulent Social Security numbers and from those who once had legitimate numbers but no longer do, were added to Social Security's available funds.

What happens when currently undocumented workers receive amnesty? While less than 5 percent of these immigrants are currently older than age 50 and the largest number are between 25 and 34, we all get old, and eventually these workers will do some retirement planning and collect Social Security benefits. To claim Social Security, you must have worked 10 years, although you can get it after less work if you're disabled. You need 35 years of work to receive full benefits. It is possible to accumulate 50 years' worth of benefits if you started working at 16 and don't retire until 66, which is currently full retirement age. Working those additional years only makes a difference if they erase lower-earning years.

The Senior Citizens League would like the immigration reform law to explicitly prevent immigrants who worked without authorization from getting any benefit from the wage taxes that they paid into the Social Security system during the time they weren't authorized to work.

Social Security estimates that 1.8 million immigrants in 2010 worked and paid into Social Security under a name and number belonging to someone else. If the names and numbers matched, then that person got the credit even though they didn't do the work. When the names and numbers don't match, the money goes into the Earnings Suspense File, where most of it is ultimately used to pay benefits for the rest of us. In order to claim benefits in either of these circumstances, immigrants have to prove they did the work and deserve the credit. Social Security says, "The requirement to document ownership of reported taxable earnings in the past is a high hurdle, and meeting this requirement seems to be more the exception than the rule."

I think if it makes lots of older Americans feel better about immigration reform to make sure that one-time unauthorized workers don't benefit from the Social Security they earned during that period, then by all means, include this rule in the immigration reform law. But in the long run, it won't make a scrap of difference.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
2 Comments
Tom
October 03, 2013 at 1:49 pm

"Reader", I looked into CFR 404.221, found the part you mention, and am certain you mis-interpret its meaning.

The wording in question applies only to calculating the "Number of years to be considered in finding your average indexed monthly earnings". This number is normally 35, although it can be less if you were born before 1929 or if you die or become disabled before age 62.

I verified all this by checking my own record. I am 62 now, but started working when I was 16, so I have lots of earnings before I turned 22. I dug up my actual year-by-year earnings and scoured the SSA website to find my year's actual "index factors" and "bend points".

I then created a spreadsheet (I'm retired and have time on my hands) and calculated my SS payment at age 66 both ways (including and excluding my earnings before the year I turned 22). There was a $32 difference between the two calculations. (If I start collecting at age 66, I would get $32 less if the early years were excluded because all of those years were--after indexing--among my 35 highest.)

Then I went to the SSA "Retirement Estimator" which tells me (based on my actual earnings history) what I should get at age 66. The number they provided was EXACTLY what my spreadsheet calculated if it INCLUDED the money I made before age 22.

Reader
July 28, 2013 at 2:36 pm

While it's not the point of this article, there is a misleading example in it. The fictional character who works from 16 to 66 may have worked and paid into social security for 50 years, but the SSA will only see it as 44 years for the purposes of calculating benefits. Federal Regulation 404.211 governs the years used by the SSA to determine benefits. Income earned before the year one reaches 22 years of age is NEVER considered by the SSA in its calcuations even though they have the data and even show it on the annual benefits form. (Income earned after one reaches age 62 will be considered, but is not indexed for inflation.)

Dropping these earlier years may have made it easier for the SSA to calculate benefits in the days before computers, but it has a negative impact on women who started work 18 or 20, then took time off to care for children or elderly parents. For every year taken off after age 22, they must work another year past 57 to avoid having a $0 year in the formula.

Add a comment

(Comments may take 5-10 minutes to appear)