Your Social Security statement explained
Key Points
- Social Security — Just One Piece of the Retirement Pie
- About Your Current Year Earnings...
- Assess Your Retirement Readiness
- Can You Count on Your Benefits?
- Knowledge Is Power
- Points to Remember
On October 1, 1999, the Social Security Administration (SSA) began mailing new annual Social Security Statements of estimated benefits to over 125 million workers. More than 300,000 statements are mailed each day. If you are age 25 or older and are not currently receiving Social Security benefits, you can expect to receive your statement near your birthday.
The SSA also has an online, interactive calculator on its Internet site. You can use this calculator to estimate your Social Security benefits. This calculator is available at the Social Security Web site at www.ssa.gov.
Social Security — Just One Piece of the Retirement Pie
Many people may not realize that Social Security benefits will likely provide only a portion of the income needed each year in retirement. The rest must come from other sources, such as company pension plans, personal savings, and perhaps part-time earnings. Your individual Social Security Statement of estimated benefits could help you assess whether you are adequately preparing for retirement.
The information in your statement includes estimates of your future retirement, disability, and survivor benefits. The statement offers you an opportunity to determine whether your earnings are accurately posted on your Social Security records. Because Social Security benefits are based on an individual's career record, this is an important feature.
When you receive your statement, you'll want to check to see that your record of earnings is correct. For example, if you have begun using a different name on your employment records and have not notified the SSA of the name change, some of your earnings may not have been posted to your Social Security account. If there are errors in your earnings record, follow the instructions included in the statement to notify the SSA of discrepancies.
About Your Current Year Earnings…
You should know that your most recent calendar year earnings may not be accurately reflected on your statement. For instance, if you receive a statement in 2009, your 2008 earnings may not yet be posted to your account. The SSA processes information throughout the year for the previous year's earnings based on information received from employers and the IRS. If you worked for more than one employer during 2008, all of your earnings for that year may not be posted to your account at the same time.
Assess Your Retirement Readiness
Your Social Security Statement will provide an estimate of your retirement benefits if you have already earned at least 40 "credits" during your working life. Each year, the SSA calculates the number of credits that you earned that year based on your reported income. For example, in 2007, you earned one credit for each $1,000 in earned income, up to a maximum of four credits.
Your statement also includes the following: a yearly breakdown of your recorded earnings to date; the total amount of Social Security taxes paid by you and your employers over your career; and an estimate of the monthly benefit you could receive if you become disabled.
You can use your estimated monthly retirement benefit (if provided) to get a rough idea of how much of your monthly retirement income your personal retirement plans and savings will need to provide. There are many retirement savings worksheets available that can help you calculate your estimated retirement income needs. The nonprofit American Savings Education Council offers a free online retirement savings calculator on the Internet at www.asec.org. As a rule of thumb, financial experts typically assume that you will need about 70% to 80% of your last working year's salary each year in retirement.
Keep in mind that your estimated monthly benefit is based on your current wages. If your income increases in future years, your estimated Social Security benefits may also increase. In addition, Social Security and Supplemental Security Income (SSI) benefits automatically increase annually based on the rise in the Consumer Price Index (CPI) for Urban Wage Earners and Clerical Workers, from the third quarter of one year to the third quarter of the next year.
Can You Count on Your Benefits?
According to the SSA, your benefits will be there for you when you retire. However, the SSA acknowledges that some changes to the present system may be required. Most people today are living longer, healthier lives, but when Social Security was created the average life span was less than 65 years. Over the next decade, 76 million Baby Boomers will start retiring, and in about 30 years there will be nearly twice as many older Americans as there are today. Currently, Social Security takes in more in taxes each year than it pays out in benefits. But in ten years, according to estimates by the SSA, the amount of benefits paid out will begin to exceed the amount collected in taxes. Based on SSA projections, by 2041 the Social Security trust fund will be exhausted and payroll taxes collected will be enough to pay only about 74% of benefits owed. Recognition of these issues is growing and legislators are now looking at funding and investment options to resolve them.
Your Social Security benefits are an important piece of the retirement income pie. You should not rely solely on Social Security for your retirement income, however. Your employer-sponsored retirement savings plans, company pensions, and personal savings will likely provide the major portion of your income in retirement.
Knowledge Is Power
A Gallup Organization survey found that Social Security Statements have a positive effect on increasing the American worker's understanding of how the Social Security system works. According to the survey, those who receive the statements are much more likely to understand that:
- an individual's Social Security benefits are based on his or her earnings;
- disabled workers can be eligible for Social Security benefits;
- Social Security provides benefits to survivors of deceased workers; and
- Social Security was not developed to fund an individual's entire retirement, but rather to be just a part of total retirement income.
Points to Remember
- If you are not already receiving Social Security benefits, you should receive your Social Security Statement within three months of your next birthday.
- If you have accumulated 40 credits based on your work history, your statement will include an estimate of your monthly retirement benefit based on your current annual earnings.
- Check your statement carefully to ensure that your earning history is accurately reflected, and contact the SSA to correct errors. Note that your previous year's earnings, however, may not be up-to-date, due to delays in receiving and processing information at the SSA. No correction is required for missing information for the previous year unless you have reason to believe that information may not have been properly provided to the SSA by your employer.
- Your estimated benefit is only an estimate. As your income increases, so may your retirement benefits. Your benefit will also increase automatically over time due to inflation adjustments.
- Your personal savings, pensions, and retirement plans will likely be your primary source of income in your retirement.