The Social Security Statement: Your Most Important Retirement Planning Tool

Source: SSA.

Social Security is one of the most difficult programs to understand, yet millions of Americans rely on it as a major source of financial support during retirement, and millions more aim to use Social Security in the years and decades to come. Learning all the arcane rules to figure out what to expect from Social Security in retirement is too much to ask of many retirees and near-retirees assessing their options under the program. Fortunately, your Social Security statement can provide answers to your most important Social Security questions, making it easier to do smart retirement-planning.

How to find your Social Security statement
The Social Security Administration is well aware of how hard it is for many Americans to understand Social Security. That's why, until recently, it sent a paper-copy Social Security statement every year by mail to those who are entitled to benefits. Due to budget cutbacks, the SSA will now send them only on a five-year basis, but it has always made access available continuously through its mySocialSecurity website.

What your Social Security statement looks like. Source: SSA.

Whether you get a paper copy of your Social Security statement or look online, the same information is available. An overview will include basic information about Social Security, with a statement from the SSA commissioner going through some of the features of the program.

What you'll get from Social Security
But the meat of the Social Security statement is in your estimated benefits summary. There, you'll learn how much you'll receive in benefits at full retirement age, and you'll be able to see how much less you'll get if you claim early retirement benefits at age 62 and how much more you'll get if you delay further until age 70. For instance, in the example below, the recipient would get over $400 more in monthly benefits by waiting from 67 to 70 but would take a $520 monthly pay cut by claiming five years early at age 62.

Sample Social Security statement. Source: SSA.

In addition to information about yourself, you'll also get benefits estimates for what your surviving family members will receive after your death. In general, if you're married, your spouse will be entitled to survivors' benefits as early as age 60, with the Social Security statement showing benefit information assuming your spouse waits until full retirement age instead. In addition, if you have children, then even if you die long before retirement age, your minor children and your spouse who takes care of those children are entitled to survivors' benefits as well. As you can see from the sample, survivors' benefits for children and parents caring for children are less than what a surviving spouse typically receives after retirement.

Finally, the Social Security statement also includes information about disability benefits. The key number is what you'd receive if you became disabled now, based on your current work history. Depending on how your past earnings compare to your current earnings, your disability number could be higher or lower than your retirement benefit estimate.

What your Social Security statement can't tell you
Unfortunately, your Social Security statement has limitations on how much information it can include. In order to make things as simple as possible, the SSA makes some blanket assumptions in creating your Social Security statement, and that can make your actual numbers far different if those assumptions turn out to be incorrect.

The key assumption the SSA makes is that you'll continue to earn income at roughly the same level you have in the most recent past. That works well for most workers, whose salaries typically rise at modest rates over the course of a career. But if you work in an industry where earnings are lumpy, then you need to take into account whether your most recent earnings history is likely to remain consistent for the rest of your career. If not, then the numbers you'll see on your Social Security statement could be overly optimistic.

Your statement includes your earnings history on which benefits are based. Source: SSA.

In addition, the SSA doesn't always have accurate information about your past work history. You can review your earnings history on your statement, looking for errors that could lead to smaller benefits than you'd otherwise be entitled to receive. If you find mistakes, contact the SSA and have them corrected to make sure you won't take a hit in your benefits.

Given how important Social Security is in the financial lives of Americans, it's unfortunate that more people don't pay attention to what benefits they're entitled to receive as members of Social Security. Still, given how much easier it has gotten to check your Social Security statement on a regular basis, you can put yourself in a much better position to meet the challenges of retirement planning to ensure a financially healthy retirement for yourself and your family.

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