MONEY Generation X

Why Gen Xers May Be More Prepared for Retirement Than Boomers

alarm clock
Erik Dreyer—Getty Images

In the face of future hardship, some Gen Xers are actually improving their savings habits.

It is generally acknowledged that Gen Xers are hugely disadvantaged when it comes to retirement security. Gen Xers entered the workforce just as companies began to abandon traditional pension plans for 401(k)s, which shift the burden of saving and investing from the employer to the employee. And while baby boomers still stand to collect their full Social Security benefits, Gen Xers are retiring just as the program’s trust fund is forecast to run dry—around 2033, according to the latest report. That could cut their payout by about a third.

And yet Gen Xers have one big advantage over boomers: time. Not only do they have more working years left to save in those 401(k)s, but their investments have longer to grow tax-deferred. According to projections from the Employee Benefit Research Institute, both Gen Xers and Baby Boomers face significant deficits in the amount of money that they need to retire comfortably, but the more years workers keep contributing to a 401(k), the more those shortfalls decrease.

For example, a Gen Xer assumed to have stopped saving in a 401(k) faces a current shortfall of $78,297, while one with at least 20 years of continued contributions could find the average shortfall at retirement reduced to only $16,782. (EBRI’s retirement savings shortfalls are discounted back to a present value of retirement deficits at age 65.)

Other research suggests Gen Xers are fully aware of the challenges they face and are taking steps to overcome them. In a recent survey by PNC Financial Services, 65% of Gen X respondents said that they believed that they were solely responsible for their own retirement with no expectation of Social Security, employer pension or inheritance, while only 45% of boomers believed that they were solely responsible.

The PNC survey polled more than more than 1000 “successful savers”—those ages 35 to 44 had a total of $50,000 in financial assets, or at least $100,000 if age 45 or older. Compared to boomers, Gen Xers have more aggressive portfolios, are more heavily invested in stocks, and worry more that their savings may not hold out for as long as they live.

Even the financial crisis seems to have affected the two generations differently. When asked the ways in which their thoughts about retirement planning have changed over the last six years, 51% of Gen Xers said that they planned to save more to reach their goals, compared to only 37% of Boomers. And in what’s the most encouraging finding I’ve yet seen about Gen X, 28% said that they have increased the amount that they typically save and invest since the recession, as opposed to 22% of baby boomers.

In other words, the financial crisis seemed to have served as something as a wake-up call for Gen Xers. In the face of future hardship, some are actually adjusting their behaviors instead of burying their heads in the sand. Despite the odds stacked against them, Gen Xers just might get pushed into habits of thrift and rise to meet the financial challenges ahead. The good news: time is on their side.

Konigsberg is the author of The Truth About Grief, a contributor to the anthology Money Changes Everything, and a director at Arden Asset Management. The views expressed are solely her own.

Read next: Why Wary Investors May Keep the Bull Market Running

MONEY Social Security

This Little-Known Pension Rule May Slash Your Social Security Benefit

teacher in lecture hall
Gallery Stock

If you are covered by a public sector pension, you may not get the Social Security payout you're expecting.

Some U.S. workers who have paid into the Social Security system are in for a rude awakening when the checks start coming: Their benefits could be chopped up to $413 per month.

That is the maximum potential cut for 2015 stemming from the Windfall Elimination Provision (WEP), a little-understood rule that was signed into law in 1983 to prevent double-dipping from both Social Security and public sector pensions. A sister rule called the Government Pension Offset (GPO) can result in even sharper cuts to spousal and survivor benefits.

WEP affected about 1.5 million Social Security beneficiaries in 2012, and another 568,000 were hit by the GPO, according to the U.S. Social Security Administration (SSA). Most of those affected are teachers and employees of state and local government.

These two safeguards often come as big news to retirees. Until 2005, no law required that affected employees be informed by their employers. Even now, the law only requires employers to inform new workers of the possible impact on Social Security benefits earned in other jobs.

The Social Security Administration’s statement of benefits has included a generic description of the possible impact of WEP and GPO since 2007; for workers who are affected, the statement includes a link is included to an online tool where the impact on the individual can be calculated. People who have worked only in jobs not covered by Social Security get a letter indicating that they are not eligible.

Many retirees perceive the two rules as grossly unfair. Opponents have been pushing for repeal, so far to no effect.

Why WEP?

To understand the issue, you need to understand how Social Security benefits are distributed across the wealth spectrum of wage-earners.

The program uses a progressive formula that aims to return the highest amount to the lowest-earning workers—the same idea that drives our system of income tax brackets.

It is a complex formula, but here is the upshot: Without the WEP, a worker who had just 20 years of employment covered by Social Security, rather than 30, would be in position to get a much higher return because of those brackets.

Where is the double dip? The years in a job covered by a pension instead of Social Security.

“If you had worked in non-covered employment for a significant portion of your career, there should be a shared burden between the pension you receive from that period of your employment and from Social Security in providing your benefit,” says SSA Chief Actuary Stephen C. Goss. “Just because a person worked only a portion of their career with Social Security-covered employment, they should not be benefiting by getting a higher rate of return.”

If you are already receiving a qualifying pension when you file for Social Security, then the WEP formula kicks in immediately. The SSA asks a question about non-covered pensions when you file for benefits, and it also has access to the Internal Revenue Service Form 1099-R, which shows income from pensions and other retirement income.

If your pension payments start after you file, the adjustment will occur then.

If you have 30 years of Social Security-covered employment, no WEP is applied. From 30 to 20 years, a sliding WEP scale is applied. Below 20 years, your benefit would drop even more. (For more information, click here.)

How does this affect your checks? The SSA offers this example: A person whose annual Social Security statement projects a $1,400 monthly benefit could get just $1,000, due to the WEP.

Your maximum loss is set at 50% of whatever you receive from your separate pension, so if that is relatively small, the WEP effect will be minimal.

You can still earn credits for delayed filing, and you will still get Social Security’s annual cost-of-living adjustment for inflation, but the WEP will still affect your initial benefit.

The WEP formula also affects spousal and dependent benefits during your lifetime. However, if your spouse receives a survivor benefit after your death, it is reset to the original amount.

Can you do anything to avoid getting whacked by WEP? Working longer in a Social Security-covered job before retiring might help. Remember, you are immune to the provision if you have 30 years of what Social Security defines as “substantial earnings” in covered work. That amounts to $22,050 for 2015.

So if you have 25 years, try to work another five, says Jim Blankenship, a financial planner who specializes in Social Security benefits. “That’s money in your pocket.”

Read next: The Pitfalls of Claiming Social Security in a Common-Law Marriage

Update: This story was updated to reflect that Social Security Administration gives little advance warning to beneficiaries, instead of no advance warning, and a description of Social Security benefits statements was added.

MONEY identity theft

Why We Need to Kill the Social Security Number

Social Security card with no number
Getty Images

SSNs were never designed to be a secure key to all of our personal data.

While tax season is still producing eye twitches around the nation, it’s time to face the music about tax-related identity theft. Experts project the 2014 tax year will be a bad one. The Anthem breach alone exposed 80 million Social Security numbers, and then was quickly followed by the Premera breach that exposed yet another 11 million Americans’ SSNs. The question now: Why are we still using Social Security numbers to identify taxpayers?

From April 2011 through the fourth quarter of 2014, the IRS stopped 19 million suspicious tax returns and protected more than $63 billion in fraudulent refunds. Still, $5.8 billion in tax refunds were paid out to fraudsters. That is the equivalent of Chad’s national GDP, and it’s expected to get worse. How much worse? In 2012, the Treasury Inspector General for Tax Administration projected that fraudsters would net $26 billion into 2017.

While e-filing and a lackluster IRS fraud screening process are the openings that thieves exploited, and continue to exploit, the IRS has improved its thief-nabbing game. It now catches a lot more fraud before the fact. This is so much the case that many fraudsters migrated to state taxes this most recent filing season because they stood a better chance of slipping fraudulent returns through undetected. Intuit even had to temporarily shut down e-filing in several states earlier this year for this reason. While the above issues are both real and really difficult to solve, the IRS would have fewer tax fraud problems if it kicked its addiction to Social Security numbers and found a new way for taxpayers to identify themselves.

Naysayers will point to the need for better data practices. Tax-related fraud wouldn’t be a problem either if our data were more secure. Certainly this is true. But given the non-stop parade of mega-breaches, it also seems reasonable to say that ship has sailed. No one’s data is safe.

Identity thieves are so successful when it comes to stealing tax refunds (and all stripe of unclaimed cash and credit) because stolen Social Security numbers are so plentiful. Whether they are purchased on the dark web where the quarry of many a data breach is sold to all-comers or they are phished by clever email scams doesn’t really matter.

In a widely publicized 2009 study, researchers from Carnegie Mellon had an astonishingly high success rate in figuring out the first five digits for Social Security numbers, especially ones assigned after 1988, when they applied an algorithm to names from the Death Master File. (The Social Security Administration changed the way they assigned SSNs in 2011.) In smaller states where patterns were easier to discern the success rate was astonishing — 90% in Vermont. Why? Because SSNs were not designed to be secure identifiers.

That’s right: Social Security numbers were not intended for identification. They were made to track how much money people made to figure out benefit levels. That’s it. Before 1972, the cards issued by the Social Security Administration even said, “For Social Security purposes. Not for Identification.” The numbers only started being used for identification in the 1960s when the first big computers made that doable. They were first used to identify federal employees in 1961, and then a year later the IRS adopted the method. Banks and other institutions followed suit. And the rest is history.

In fact, according to a Javelin Research study last year, 80% of the top 25 banks and 96% of the top credit card issuers provide account access to a person if they give the correct Social Security number.

There are moves to fix related fraud problems elsewhere in the world, in particular India where, in 2010, there was an attempt to get all 1.2 billion of that nation’s citizens to use biometrics as a form of identification. The program was designed to reduce welfare fraud, and according to Marketwatch, 160 similar biometric ID programs have been instituted in other developing nations.

In 2011, President Obama initiated the National Strategy for Trusted Identities in Cyberspace, a program that partnered with private sector players to create an online user authentication system that would become an Internet ID that people could use to perform multiple tasks and aid interactions with the federal and state governments. There may be a solution there — but not yet.

The first Social Security card was designed in 1936 by Frederick Happel. He got $60 for it. It was good enough for what it had to do (and was clear that the card wasn’t a valid form of identification). That is no longer the case. That card is nowhere near good enough. Perhaps one solution is a new card design — one with chip-and-PIN technology. Just how something like that might work — i.e., where readers would be located, who would store the information & support authentication, etc. — would have to be a discussion for another day.

The point is, we need to do something.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More from Credit.com

MONEY Ask the Expert

The Pitfalls of Claiming Social Security in a Common-Law Marriage

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. I lost my WWII husband on January 14, 2014. It was a common-law marriage. I worked for over 50 years in the fields of education and medicine. However, many of the places where I worked did not have Social Security. I have turned in all the evidence required to prove that we presented ourselves as husband and wife. Texas recognizes common-law marriages. I am confined to a wheelchair. I served our country, as a civilian commissioned as a 2nd Lt., in the Air Force and Army overseas. Please help me as I am going to be homeless. – Joan

A. In the six weeks since Joan wrote me this note, she found a place to live. But she is no closer to resolving her problems with Social Security. It is easy to paint the agency as a heartless bureaucracy preventing an impoverished, 80-year-old veteran from getting her widow’s benefit. But there’s nothing about Joan’s story that is easy, and her problem is one that is becoming all too common.

Today more and more couples are living together without getting married, especially Millennials and Gen Xers. And many of them are having children and raising families. More than 3.3 million persons aged 50 and older were in such households in 2013, according to the U.S. Census Bureau.

There can be sound reasons for avoiding legal marriage. But when it comes to Social Security, you and your family may pay a high price by opting for a common-law union. Quite simply, it may be difficult, if not impossible, to claim benefits. And that can damage the financial security of your partner, children and other dependents. If you are in a common-law marriage, here are the three basic requirements for claiming benefits:

1. Your state recognizes common-law marriage. And yours may not. Only 11 states plus the District of Columbia recognize these marriages—among them, Colorado, New Hampshire, and Texas, which is Joan’s state of residence.

For your partnership to qualify, these states generally require that you both agree that you are married, live together and present yourselves in public as husband and wife. But the specifics of these rules are different in many states and usually complicated.

Social Security rules follow state laws when determining eligibility for spousal and survivor benefits. (The same policy applies to same-sex marriage.) If you do qualify, you will be able to receive the same benefits as you would with a traditional marriage, including spousal or survivor benefits.

2. You’ve got plenty of documentation. Social Security requirements for claiming survivor benefits call for detailed proof of the union. For an 80-year old, wheelchair-bound person like Joan, that’s a challenge to provide, especially in the case of a deceased spouse. Among other documents, she must complete a special form, plus get similar forms filled out by one of her blood relatives and two blood relatives of her late partner, John.

3. You’re prepared to fight bureaucratic gridlock. Joan has had multiple meetings with Social Security postponed for reasons she does not understand. She has been told she does not qualify as a common-law spouse under Texas laws. But the reasons she has been given may be incorrect. She says, for example, a Social Security rep told her that she and John needed to own a home to qualify. This is not true. She needs only to document that they lived as husband and wife and held themselves out to be married. Beginning in 2003, Texas made it harder for couples to qualify as common-law spouses, which could complicate Joan’s case.

Making matters even more difficult, Social Security has other convoluted rules that can change or even invalidate her benefits. Joan, it turns out, took a lump-sum payment from her government pension decades ago. That triggers something called the Government Pension Offset rule, which may prevent her from receiving a survivor’s benefit based on John’s earnings record. (For more on that rule, click here.)

Clearly, older Americans need more help than we’re giving them to navigate Social Security, Medicare, Medicaid and other highly regulated and complicated safety-net programs. This is hard stuff even for experts. It is not possible for the rest of us to understand without more knowledgeable assistance.

Meanwhile, for those in common-law marriages it’s important to plan ahead now. If you can’t qualify for Social Security benefits, you will need to save more while you’re still working. If your state does recognize common-law marriage, find out what documentation you’ll need, so you’ll have it when you file your claim. The last thing you’ll want to do in retirement is struggle with the Social Security bureaucracy.

“I am pushing 80 and this has been going on now for two years,” said Joan, a former special-needs educator, in a recent email. “I hope my health holds up as I have no life. What a way to treat an American citizen in a wheelchair who can teach the deaf to talk, the dyslexic to read and the stuttering to talk. I am just useless living in a room.”

Joan has another Social Security appointment scheduled this week.

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: The One Investment You Most Need for a Successful Retirement

TIME Chris Christie

Chris Christie to Propose Changes to Social Security, Medicare

Chris Christie
Mel Evans—AP In this April 8, 2015 file photo, New Jersey Gov. Chris Christie addresses a gathering as he announces a $202 million flood control project for Union Beach, N.J.

He'd raise the retirement age and means-test benefits

New Jersey Gov. Chris Christie will unveil a proposal to change Social Security and Medicare Tuesday in a speech in New Hampshire, as he seeks to inject new life into his presidential ambitions.

The outspoken Republican’s political fortunes soured after last year’s controversy over the political closure of approach lanes to the George Washington Bridge and a tough fiscal picture at home. But Christie is hoping that by embracing the third rail of American politics with two hands he can bolster his credentials as a truth-teller.

“Washington is afraid to have an honest conversation about Social Security, Medicare and Medicaid with the people of our country,” Christie will say in a speech at New Hampshire’s St. Anselm College Institute of Politics. “I am not.”

Christie will propose raising the retirement age for Medicare to 67 and for Social Security to 69, arguing that entitlement programs must be fair for all Americans, including the next generation that is paying into the programs while questioning whether they will ever see benefits.

In a controversial move, Christie would means-test Social Security, reducing or cutting payments entirely for those who continue to earn income in retirement. He will argue that he wants to return the program being a social insurance program, where only those who need the outlays will receive them.

“Do we really believe that the wealthiest Americans need to take from younger, hard-working Americans to receive what, for most of them, is a modest monthly Social Security check,” Christie will say. “I propose a modest means test that only affects those with non-Social Security income of over $80,000 per year, and phases out Social Security payments entirely for those that have $200,000 a year of other income.”

To incentivize work as more Americans continue to hold jobs later into life, Christie would eliminate the payroll tax at 62.

Christie’s political identity stems from his willingness to take on powerful interests, such as his home state’s teachers unions, altering the calculus in favor of what for most other politicians would be an undeniably risky move. But Christie’s proposals stop short of radically altering either Medicaid or Social Security as some conservatives have proposed, staying away from the 2000s-era privatization debates.

MONEY

4 Retirement Mistakes That Can Cost You $250,000 Or More

Sometimes the costliest errors are ones we make ourselves, often without realizing how much damage we're doing.

We tend to think the mistakes that derail retirement are the ones that are inflicted on us: an investment that implodes; an adviser who dupes us; a market crash that decimates our nest egg. In fact, the costliest errors are ones we make ourselves, often without realizing how much damage we’re doing. Here are four of the biggest, plus tips on how to avoid them.

Mistake #1: Stinting on saving. Asked by researchers for TIAA-Cref’s Ready-to-Retire survey what they could have done differently to better prepare for retirement, nearly half of the near-retirees polled said they wished they’d saved more. Good answer. Because over the course of a career, failing to push yourself to save can cost you big time.

To see just how much, let’s take the case of a 25-year-old who earns $40,000 a year, gets 2% annual raises and contributes 10% of salary to a 401(k) or similar plan each year—a good effort, but hardly Herculean. Assuming our hypothetical 25-year-old folows that regimen over a 40-year career and his investments earn 7% a year before fees of 1.5% a year for a 5.5% net return, he would end up with a nest egg of just under $740,000.

That’s a tidy sum to be sure. But look how much more he could have with a more diligent savings effort. By stashing away just two additional percentage points of pay each year—12% vs. 10%—his nest egg at retirement would total just under $890,000. That’s an extra $150,000. And if he can pushes himself to save 15%—the target recommended by many pros—he would be sitting on a nest egg of roughly $1.1 million, fully $360,000 more than its value with a 10% savings rate.

Of course, some people are so squeezed financially that they simply can’t save more than they already are, or for that matter save at all. But unless you’re one them, then you may be effectively giving up hundreds of thousands of dollars in future retirement spending by not pushing yourself to be a more committed saver. To avoid that, look for as many ways as you can to save at least 15% of your income consistently.

Mistake #2. Getting a late start. Call this mistake “the price of procrastination.” It’s the potential savings balance you give up by failing to get going early with your savings regimen. To put a dollar figure on this error, let’s assume that our fictive Millennial above takes the advice of retirement pros, saves 15% a year, earns 5.5% after expenses annually on his savings and ends up with that $1.1 million nest egg at 65.

But look how much that nest egg shrinks if he postpones his savings regimen. For example, if he puts off contributing to his 401(k) for five years until he hits age 30, his age-65 nest egg would total about $875,000 instead of $1.1 million. So procrastination cost him $225,000. If he waits 10 years to age 35 to begin saving for retirement, his nest egg would weigh in at roughly $680,000, putting the cost of a late start at $420,000.

The way to avoid or at least cut the cost of procrastination is to start your savings regimen as soon as possible—and do your best to maintain that regimen despite the inevitable ups and downs you’ll experience during your career.

Mistake #3. Overpaying for investments. Many investors are simply unaware of how much high costs can dramatically reduce a nest egg’s growth. Consider: By getting an early start and saving 15% of income a year, the 25-year-old builds a $1.1 million nest egg. But that assumes he earns 7% a year before investing costs, and 5.5% a year net after annual expenses. If he cuts his annual expenses by half a percentage point to 1% a year, his nest egg would total just over $1.2 million at retirement. And if manages to whittle investing costs down to 0.5% a year, he’s looking at an eventual nest egg of $1.4 million. In short, higher-cost investing options are effectively costing him as much as $300,000 in potential retirement savings.

Granted, your potential savings from cutting costs may be limited if you do most of your savings through a 401(k) that’s short on investment options. Still, you can at least reduce the cost of this mistake by sticking as much as possible to inexpensive index funds and ETFs (some of which charge as little as 0.05% a year) in your 401(k), IRAs and taxable accounts.

Mistake #4. Grabbing Social Security without a plan. Many people put more thought into which breakfast special to order at Denny’s than when to claim their Social Security benefits. That’s a shame, because taking the money at age 62 (still the most popular age for claiming, according to a recent GAO study) or shortly thereafter can cost you tens or even hundreds of thousands of dollars. Each year you postpone claiming benefits between age 62 and 70, your payment rises roughly 7% to 8%, which can significantly increase the total amount you collect throughout a long retirement. Married couples have the biggest opportunity to boost their potential lifetime benefit by coordinating when they claim.

For example, if a 62-year-old man and his 59-year-old wife earning $75,000 and $50,000 respectively each take benefits at 62, they stand to collect just over $1 million in joint benefits, according to estimates by Financial Engines’ Social Security calculator. But if the wife takes the benefit based on her earnings at age 63, her husband files at age 66 for spousal benefits based on his wife’s work record and then switches to his own benefit at age 70, their projected lifetime benefit jumps to roughly $1,250,000. Or to put it another way, by taking benefits as soon as possible, this couple may be giving up $250,000 in lifetime benefits.

The potential increase for singles isn’t quite as impressive, as the benefit for only one person rather than two is at stake. But the upshot is the same: Whether you’re single or married, taking benefits without a well-thought-out plan can be a costly error. And, as with the other mistakes above, it’s one you can likely minimize or avoid with a little advance planning.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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MONEY Ask the Expert

How to Max Out Social Security Benefits for Your Family

Ask the Expert Retirement illustration
Robert A. Di Ieso, Jr.

Q. Does the family maximum benefit (FMB) apply only to one spouse’s individual’s work history or to both spouses in a family? That is, assume two high-earning spouses both delay claiming a benefit till, say, 70. Would the FMB rules limit their overall family benefits? Or does the FMB include just the overall family benefits derived from the earnings record of one particular worker? —Steve

A: Kudos to Steve for not only knowing about the family maximum benefit but having the savvy to ask how it applies to two-earner households. The short answer here is that Social Security tends to favor, not penalize, two-earner households in terms of their FMBs.

To get everyone else up to speed, the FMB limits the amount of Social Security benefits that can be paid on a person’s earnings record to family members—a spouse, survivors, children, even parents. (Benefits paid to a divorced spouse do not fall under the FMB rules.) The amount may include your individual retirement benefit plus any auxiliary benefits (payouts to those family members) that are based on that earnings record.

Fair warning: the FMB is far from user-friendly. Few Social Security rules are as mind-bendingly complex as the FMB and its cousin, the combined family maximum (CFM). And Social Security has a lot of complex rules. Unfortunately, you need to do your homework to claim all the family benefits you are entitled to receive.

To address Steve’s question, these FMB calculations may be based on the combined earnings records of both spouses. More about this in a bit, but first, here are the basics for an individual beneficiary.

The ABCs of the FMB

The FMB usually ranges from 150% to 187% of what’s called the worker’s primary insurance amount (PIA). This is the retirement benefit a person would be entitled to receive at his or her full retirement age. Even if you wait until 70 to claim your benefit, it won’t increase the FMB based on your earnings record.

Now, I try to explain Social Security’s rules as simply as possible—but there are times when the system’s complexity needs to be seen to be believed. So, here is the four-part formula used in 2015 to determine the FMB for an individual worker:

(a) 150% of the first $1,056 of the worker’s PIA, plus

(b) 272% of the worker’s PIA over $1,056 through $1,524, plus

(c) 134% of the worker’s PIA over $1,524 through $1,987, plus

(d) 175% of the worker’s PIA over $1,987.

Let’s use these rules for determining the FMB of a worker with a PIA of $2,000. It will be $3,500, which equals (a) $1,584 plus (b) $1,273 plus (c) $620 plus (d) $23. The difference between $3,500 and $2,000 is $1,500—that’s the amount of auxiliary benefits that can go to your family. Got that?

And here’s a key point that trips up many people: Even if the worker claimed Social Security early, which means his benefits were lower than the value of his PIA, it would not change the $1,500 limit on auxiliary benefits. However, when the worker dies, the entire $3,500, which includes the PIA amount, becomes available in auxiliary benefits.

It’s quite common for family claims to exceed the FMB cap. When this happens, anyone claiming on his record (except the worker) would see their benefits proportionately reduced until the total no longer exceeded the FMB. If, say, those claimed auxiliary benefits actually totaled $3,000, or double the allowable $1,500, all auxiliary beneficiaries would see their benefits cut in half.

How CFM Can Boosts Benefits

Enter the combined family maximum (CFM). This formula can substantially increase auxiliary benefits to dependents of married couples who both have work records—typically multiple children of retired or deceased beneficiaries.

The children can be up to 19 years old if they are still in elementary or secondary school (and older if they are disabled and became so before age 22). Because each child is eligible for a benefit of 50% or even 75% percent of a parent’s work PIA, even having only two qualifying auxiliary beneficiaries—say a spouse and a child, or two children—can bring the FMB into play.

But with the CFM, the FMBs of each earner in the household can be combined to effectively raise the benefits to children that might otherwise would be limited by the FMB of just one parent. Under its rules, Social Security is charged with determining the claiming situation that produces the most cumulative benefits to all auxiliary beneficiaries.

Using our earlier example, let’s assume we now have two workers, each with PIAs of $2,000 and FMB’s of $3,500. A qualifying child would still be limited to a benefit linked to the FMB of a single parent. But the CFM used to determine the size of the family’s benefits “pool” has now doubled to $7,000 a month, permitting total auxiliary benefits of up to $3,000.

Well, they would have totaled this much—except there’s another Social Security rule that puts a cap on the CFM. For 2015, that cap is $4,912. Subtracting one of the $2,000 PIAs from this amount leaves us with up to $2,912 in auxiliary benefits for this family. That’s not $3,000 but almost.

So it’s quite possible that three, four, or possibly more children would get their full child benefits in this household. Even if they totaled 200% of one parent’s FMB, they would add up to a smaller percentage of the household’s CFM, and either wouldn’t trigger benefit reductions, or at least much small ones.

And if eligible children live in a household where one or both of their parents also has a divorced or deceased spouse, even more work records can come into play. This is complicated stuff, as borne out in some thought-twisting illustrations provided by the agency.

Before moving ahead with family benefit claims, I recommend making a face-to-face appointment at your local Social Security office. Bring printouts of your own earnings records, which you can obtain by opening an online account for each person whose earnings record is involved. I’d also print out the contents of the Social Security rules, which are linked in today’s answer, or at the very least, write down their web addresses so the Social Security representative can access them.

Good luck!

Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security,” and a research fellow at the Center for Aging & Work at Boston College. Reach him at moeller.philip@gmail.com or @PhilMoeller on Twitter.

Read next: Why Social Security Rules Are Making Inequality Worse

MONEY identity theft

These Are the Only Data Breaches You Really Need to Worry About

social security card breaking up into bits and floating away
Yasu+Junko—Prop Styling by Shane Klein

Every day seems to bring news of another hack that compromises your personal data. While you can't afford to get complacent, you don't need to panic about every leak. Here's how to know when to worry and what action to take.

At this point, you can bet a hacker has made off with some of your personal information. The number of data breaches hit an all-time high in 2014, according to the Identity Theft Resource Center. An estimated 86 million records—including credit card and debit card numbers—were compromised, with Kmart, Home Depot, and Staples among the companies that saw the greatest data spillage.

Perhaps the worst scare yet, however, came in early 2015, when health insurer Anthem reported that hackers accessed its customers’ Social Security numbers—pure gold to an ID thief. “This one is a nightmare,” says Ed Mierzwinski of advocacy group U.S. PIRG.

But you may be too weary to heed the wake-up call. Almost a third of Americans who receive breach notifications ignore them, privacy research group Ponemon Institute has found. While you can’t panic over every breach, you also can’t afford to get complacent. How much to worry and what action to take depend on what data you learn have been compromised.

YOUR SOCIAL SECURITY NUMBER

How much to worry: A lot. A fraudster could apply for credit in your name, and you could spend years repairing your records, says Paul Stephens of the Privacy Rights Clearinghouse.

What to do: Check your credit reports ASAP for unusual activity. You’re entitled to one free copy per year from each of the credit bureaus (Equifax, Experian, TransUnion) via AnnualCreditReport.com. At minimum place a free 90-day fraud alert with one of the bureaus, which will inform the other two. This alert tells lenders to confirm your identity before extending credit.

A better move: Freeze your credit, preventing anyone from getting loans in your name. On the downside, you’ll pay up to $10 per credit bureau to place a freeze and up to $12 per bureau to lift it when you apply for new credit. A hassle, yes, and costly. “But for someone worried about ID theft, it’s the best $30 you can spend,” Stephens says.

A PASSWORD

How much to worry: Depends on what kind of site was hacked and whether you reuse passwords (61% of people do, identity protection firm CSID found).

What to do: Ideally, you’d change your password on the breached site and all others on which you used the same code. But if the idea of that much work leaves you paralyzed, the least you need to do is change codes for the most critical accounts (like email and financial sites), says Joseph Bonneau, technology fellow at the Electronic Frontier Foundation. And where it’s an option, set up two-factor authentication, which requires you to input an additional piece of information to log in. That will make it harder for hackers to break into your account next time a password is compromised.

YOUR CREDIT CARD NUMBER

How much to worry: Very little. When criminals steal just a credit card number, you’re not liable for any fraudulent charges, notes Chi Chi Wu of the National Consumer Law Center. With a debit number, you’re not liable for unauthorized charges you report within 60 days of getting your statement, and often banks will make you whole even if you don’t report until later. (The laws are different when a card itself is stolen, but, again, many issuers have zero-liability policies.)

What to do: Simply read your statements carefully, says U.S. PIRG’s Mierzwinski. Call the issuer if you see charges you don’t recognize, he says, “though usually your bank calls you first.” Don’t assume credit monitoring—which many breached businesses offer to customers for free—will do the job for you, Wu says. The services only tell you when a lender checks your credit, not when charges are run up on an existing account.

OTHER PERSONAL INFORMATION

How much to worry: Very little. Criminals can’t commit ID theft with just your name, birth date, or email—though they may try to “phish” for more info by posing as legitimate businesses.

What to do: Stay vigilant. Avoid clicking on links in emails. And when a financial institution calls, hang up and call back. Better to seem rude than get rooked.

 

MONEY Social Security

Why 6.5 Million Social Security Numbers Shouldn’t Exist

Social Security cards
Lane Erickson—Alamy

There are 6.5 million Social Security numbers assigned to people born before June 16, 1901, that have no date of death on record. Only 13 are alive.

An audit of the Social Security Administration found that about 6.5 million Social Security numbers assigned to people who would be 112 years old (and are likely deceased) did not have a date of death on their records. Thousands of these numbers may have been used to commit identity theft or another form of fraud.

The purpose of this audit from the Office of the Inspector General was to assess whether the Social Security Administration had an adequate system for adding death information to the SSA’s Numerical Identification System (aka Numident) for “numberholders who exceeded maximum reasonable life expectancies and were likely deceased,” the report reads. The answer: No, it does not.

The Audit Details

Here’s how the report outlined the problem: While the Social Security Administration may have information indicating a numberholder is deceased — like record of a death benefit having been claimed or a date of death in SSA payment records — the lack of a date of death in the Numident creates a significant information gap. Many federal agencies rely on the Death Master File to know whether a numberholder is dead, but if a numberholder’s date of death is not noted in Numident, it doesn’t appear on the Death Master File.

Almost all of the 6.5 million records without a date of death were not receiving payments from the SSA at the time of the audit, indicating they were deceased. Of the 266 numberholders receiving payments, just 13 were actually 112 years or older, and various record discrepancies explain the remaining benefits payments.

People use Social Security numbers for much more than receiving Social Security benefits. They are used to secure employment, apply for credit and file taxes, potentially claiming a tax refund. To look into potential abuse, the auditors compared the 6.5 million Social Security numbers against the SSA’s Earnings Suspense File (a database of earnings tax forms where the names don’t match the Social Security numbers) and the E-Verify System, which is used to validate whether a numberholder is authorized to work in the U.S.

The result of those cross-checks was significant: SSA transferred $3.1 billion in wages from 66,920 of the numberholders to the Earnings Suspense File from tax years 2006 through 2011. Between fiscal years 2008 and 2011, “SSA received 4,024 E-Verify inquiries using the SSNs of 3,873 numberholders born before June 16, 1901,” the audit report says.

What It Means

The report indicates that, if death dates were systematically entered into Numident, therefore included on the Death Master File, tens of thousands of instances of Social Security number abuse or fraud could possibly be prevented.

Auditors made four recommendations to the Social Security Administration, two of which the administration agreed to. SSA will explore options and ramifications of implementing an automated process to update Numident records on numberholders, and it has agreed to complete this analysis by the end of fiscal 2015 (Sept. 30). SSA disagreed with recommendations that it use old payment record information to update Numident, saying it could result in inaccurate death information in the Death Master File and would require too much time and resources.

Identity theft after death is a legitimate concern for families of the deceased, particularly in the time immediately following a death, when accounts remain open and taxes have yet to be filed in the the person’s name. For this reason, it can be helpful to plan ahead and leave instructions in your will, listing your financial accounts and designating someone to handle them quickly following your death, minimizing the amount of time a potential identity thief has to misuse your information.

If you’re worried about the theft or misuse of your own Social Security number, you should monitor your credit regularly for new-account fraud. You can get free annual credit reports from AnnualCreditReport.com and you can check two of your credit scores for free every month on Credit.com.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Social Security

Why Social Security Benefit Rules Are Making Inequality Worse

Laurence Kotlikoff, an economics professor at Boston University.
Jodi Hilton—The New York Times/Redux Laurence Kotlikoff, an economics professor at Boston University

Benefit rules are so complex that a new book on claiming strategies has become a best-seller. Here’s how to get it right.

If you find Social Security rules bewildering, don’t feel too bad; so do Social Security experts. As Boston University economics professor Larry Kotlikoff points out, the 2,728 Social Security rules, if you print them out, are longer than the federal tax code. Little wonder his new book explaining to how to max out Social Security benefits—Get What’s Yours, co-authored with MONEY contributor Philip Moeller and PBS journalist Paul Solman—landed on the New York Times and Amazon best-seller lists. Kotlikoff recently spoke to MONEY about the program’s shortcomings and the best way to claim benefits.

Q: Why are Social Security rules so maddeningly complicated?

A: The system was designed decades ago by older white males who may have had their own interests somewhat at heart. In any case, it awards benefits unfairly. Single people are at a disadvantage to married couples, who have more types of benefits available to them. Married couples with two earners are at a disadvantage to those with one earner. The disabled are also treated unfairly.

Worse, whether you get all the benefits you are entitled to is a random process. It all depends on whether you understand the complex system, and you get the right information from customer representatives, who aren’t well trained. Americans are leaving billions on the table as a result. But higher-income people are better able to take advantage of Social Security’s claiming options. This worsens economic inequality.

Q: You’re an advocate for entitlement reform, yet you’re also encouraging Americans to max out their benefits. Isn’t that contradictory?

A: I want to expose inequities wherever they are. I’ve written about the nation’s generational inequities [“The Coming Generational Storm“], and the expropriation of money that should go to our kids because of the ballooning costs of these programs. But Social Security rules are a disgrace and unfair to people of all ages. No one should get more benefits just because they know the rules.

Q: Given the program’s funding problems, should younger Americans count on Social Security?

A: The system is 33% unfunded, according to the last trustees’ report. So somebody has to pay to fix it. My co-authors and I don’t agree on how to fix things—there’s a debate about solutions in the book. I explain my preferred solution at the Purple Social Security Plan.

Still, I think people 55 and older will get their full benefits. It’s too difficult politically to change their treatment. Younger people will likely receive something, but they’ll probably pay for it with higher taxes.

Q: What is the biggest mistake people make when they claim?

A: For many households, the problem is claiming benefits too early. If you wait to claim till age 70, you can increase your benefits by 76%, compared with starting at age 62, the earliest age you can claim. By delaying, you have an opportunity to tap a source of guaranteed inflation-proof income at an incredibly low price. That said, many people can’t afford to wait, since they have no other means of support.

Q: Many financial planners recommend claiming based on your “break-even” age—how long it will take for higher benefits claimed at a later age to exceed what you’d get by claiming early at 62.

A: This is a fundamental misunderstanding. People mistakenly look at Social Security as an investment, and they try to figure out the break-even point, when they’ll make their money back. They don’t understand the economics of working longer, or how to value the extra income you get by waiting.

Social Security is insurance—an inexpensive, safe payout—not an investment. You don’t look at your homeowners’ insurance on a break-even basis. You look at the worst-case scenario, which is your house burned down, you have no place to live, and the insurance is there when you need it. The worst-case scenario here is living to 100 and running out of money well before then.

Q: Have you figured out your own Social Security claiming strategy?

In my case, it’s relatively straightforward—I can just look at my own book, and I don’t need to use my claiming software (MaximizeMySocialSecurity). I’m 64, and I’m older than my ex-wife and my fiancée. They’ll both be able to claim spousal benefits on my earnings record. I’m going to wait till age 70, and then collect my benefit.

Read next: The 3 Secrets to Maxing Out Social Security Spousal Benefits

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