Social Security • July 1st, 2020

How to Read Your Social Security Statement

Brian Borchert, J.D., MBA, CFP®, CLU®

Key Takeaways
  • Social Security income plays a large role in most people’s retirement scenarios.
  • Your Social Security Statement is the official record from the SSA on your career earnings history and your projected Social Security Benefits.
  • Your benefits are based on current federal law and may change based on action by Congress.

Retirement planning can be a confusing landscape. People considering retirement typically have a number of moving parts in their planning potentially including investment accounts, pensions, annuities, Medicare, and Social Security benefits. Understanding the integration of your accounts and benefits, offers you a better understanding of what your future entails.

Social Security benefits, in particular, can be misunderstood and like other governmental programs can be potentially overcomplicated. But, have no worries, this article will help you to walk through your Social Security Statement and hopefully leave you feeling more confident on what your benefits look like when you’re considering retirement.

Understanding your Social Security Statement

The first step to reviewing your prospective Social Security benefits is to log on to the SSA and create a “my Social Security” account. This is your go to resource to review your future benefits as you continue to work and it allows you to check how your benefits are changing as your earnings history evolves over your ongoing career. If you haven’t created a “my Social Security” account and you reach age 60, the SSA will mail Social Security Statements to you three months prior to your birthday each year.

Your Social Security Statement is full of useful information about your benefits and potentially the benefits available to your family depending on your personal circumstances. At the top of the first page, the statement details your expected monthly retirement benefit at your Social Security Full Retirement Age. Page two delves further into the details related to your estimated benefits especially those related to retirement that we’ll focus on for the remainder of the article. The SSA’s fictional worker, Wanda Worker, will help us to dissect those benefits.

Wanda has enough Social Security credits to qualify for a retirement benefit. Her earnings history projects expected Social Security retirement benefits as detailed below:

Your Estimated Benefits

Drilling down into these figures, we can see that if Wanda continues her current earnings rate and waits until her Full Retirement Age she could expect about $1,986/month in Social Security benefits. Those figures begin to change as Wanda considers different benefit election dates including receiving benefits as early as age 62 or as late as age 70.

You’ll note that if Wanda elects to take her retirement benefits early (at age 62) she receives a permanently reduced monthly benefit for the remainder of her life, in this case a reduction of over 30% for life. Conversely, if Wanda delays receiving benefits until age 70 (the Latest Retirement Age in the Social Security system) she’d see a 24%+ increase in benefits over her Full Retirement Age benefit. Obviously, this is an individual decision based on individual circumstances but working with these numbers along with a qualified Certified Financial Planner® can offer a more solidified retirement plan.

Your Social Security Statement further breaks down how your benefits are estimated, the assumptions built therein, and documents your career Earnings Record. Because your earnings history directly ties into the calculation of your retirement benefits, it is crucial to verify that your earnings information is accurate. You can do so by cross-referencing previous years’ W-2s or tax returns and if any inconsistencies arise you can contact the SSA to rectify the information.

The Statement includes additional valuable information. Within the ‘Your Estimated Benefits’ section on page two, there is a notification on your qualification status for Medicare and a reminder that even if you do not retire at age 65, you should contact the SSA three months prior to your 65th birthday to enroll in Medicare.

Tip: It is crucial to verify that the earnings record shown on your Social Security statement is correct, since this ties directly into the calculation of your retirement benefits.

There are also numerous reminders that these benefit figures are calculated off of current federal laws including the payroll tax rates paid by you and your employer for both Social Security and Medicare benefits. These rates and figures are all subject to change with any later changes in the legislation. The remainder of the Social Security Statement offers additional background information on the Social Security system, things you should consider, and who to contact in the event you have additional questions.

Next Steps

Part of planning for retirement is making sure that you have accurate information on your finances. Creating and monitoring your “my Social Security” account during your working life helps you and your financial professional to more accurately tie in what role Social Security benefits might play in your overall picture. Are your Social Security benefits and other retirement savings going to be enough? We can help you identify whether or not you’ll have income in retirement to cover your expenses. Sign up for Retirable today to get an affordable, professionally prepared retirement plan.

Author

Brian Borchert, J.D., MBA, CFP®, CLU®

Brian Borchert is an independent consulting professional with a transferable financial planning, business planning, and legal practice background. He has led high performing teams in both the traditional financial services space as well as product development and rollout in a FinTech start-up environment. He is a passionate lifelong learner that enjoys solving problems with a resourceful data-driven approach.