The Social Security Administration likes celebrating your birthday. Well, every five years anyway. This is how often you could be receiving Your Social Security Statement, a document that in the past you may have accidentally tossed in the recycling bin. Last month I studied my statement more closely and have found it to be an invaluable financial planning resource for me and my family. Here’s a breakdown of each section and contents which you may also find helpful.
Page 1 – My Payment Amount
One of the first things I saw on my statement was my anticipated social security dollar amount per month once I retire. This number is based on several assumptions, such as taking Social Security at full retirement age, which I’ll discuss later. My payment amount gave me an initial feeling of relief. It seems like a decent chunk of money to receive each month for the rest of my life, especially if my home is paid off, my wife is receiving her benefit as well, and the kids are out of the house. Mid-page, however, is one of the most important sections of the entire statement:
“Social Security benefits are not intended to be your only source of income when you retire. On average, Social Security will replace about 40 percent of your annual pre-retirement earnings. You will need other savings, investments, pensions, or retirement accounts to make sure you have enough money to live comfortably when you retire.”
Knowing this is vital to anyone planning to rely on social security for retirement income. Most estimates of costs in retirement look quite foreboding, with some financial institutions estimating healthcare costs alone for a retired 65-year-old women to be above $100,000 over the remaining span of her life which translates to about $333 per month assuming she lived to the age of 90. Clearly a $1,200 Social Security check each month, which is the approximate average payment for 2015 recipients, can absorb some of the cost, but likely won’t be sufficient considering other costs of retirement living.
Page 2 – My Estimated Benefits
On page two is my anticipated dollar amount again, but it’s coupled with two additional numbers. The section lays out three different retirement scenarios and how my anticipated benefit could change depending on when I claim Social Security. The calculation for each scenario is complex and Page 2 contains some details of how it’s done. Using the SSA’s payment calculator and making some other assumptions your statement could look something like this:
If you continue working until…
This page also contains details of how my number was calculated:Notice the large disparity between these numbers. The benefit of waiting an extra three years after full retirement age before claiming your benefit is an estimated $514 a month! Claiming benefits earlier at age 62 rather than waiting until age 70 could cost over $1,200 per month. Eric Jacobsmeyer, a Wealth Planning Strategist with Zions Bank, discussed more about the potential advantages of postponing benefits here. Make no mistake, carefully considering when to claim Social Security will make a significant impact on your financial situation in retirement.
“We estimated your benefit amounts using your average earnings over your working lifetime. For 2015 and later (up to retirement age), we assumed you’ll continue to work and make about the same amount as you did in 2013 and 2014.”
Remember, it’s your average earnings that determine your benefit. Keep that in mind if you’re hoping to receive a larger benefit or if you’re thinking of taking a few years off in the middle of your career. Also, as you get closer to your retirement age your payment amount should become more accurate due to fewer uncertainties such as changes in earnings.
Your Estimated Benefits section also provides useful information about surviving family member benefits, disability benefits, and Medicare qualifications.
Page 3 – My Earnings Record
Since your benefit is based on the average amount of earnings over your working life, you should make sure your earnings are accurate. To help, Your Social Security Benefit Statement contains a record of all past earnings for the years you worked. This was fascinating to review, watching my earnings move from my early high school years as a shoe salesman, on into college and through my professional career. If you notice any disparity between these amounts and what you thought you had earned, contact the Social Security Administration (SSA). Inaccuracies or amounts that are completely missing will put a dent in your actual retirement income.
Page 4 – Some Facts about Social Security
Even the most basic elements of Social Security can be difficult to grasp. Page 4 contains some additional information about what constitutes full retirement age and warns of the reduced benefit of claiming Social Security before full retirement age (worth repeating!), as well as added details for disability and survivor benefits. The SSA also offers a list of free publications to help you decide the best time to retire.
All in all, I found this statement incredibly helpful as I start thinking more tactfully about Social Security. Creating an account at www.ssa.gov/myaccount will allow you to take a closer look at this and other information, including developing your own what-if scenarios depending on how your income might change. The SSA YouTube channel shows a clever video titled “What’s Your ‘Someday’” reminding viewers that “someday” many of us hope to do the things we’ve had to put off during our working years. Using Your Social Security Benefit Statement as part of your broader financial plan can get you on a path to make your “Someday” a little more within reach.
My personal statement