How to Make the Most of Your Social Security Statement

Over the years, I’ve noticed a surprising trend: many people don’t review their Social Security benefit statements on a regular basis. That’s a missed opportunity, because these statements are among the most important financial documents you’ll ever receive. They not only help you track your earnings history but also project the benefits you may rely on in retirement. Considering that Social Security replaces, on average, about 40% of a retiree’s pre-retirement income, it’s essential to understand what the statement is telling you and make sure the information reported is accurate.

Where to Find Your Most Recent Statement
Social Security used to mail benefit statements every year, but today the system is different. Currently, statements are mailed out every five years to those under age 60, and annually once you turn 60. If you haven’t received one recently, don’t worry — you can easily access the most up-to-date version online by visiting the Social Security Administration’s website.

How do I register online?

Now that you are on the Social Security Administration’s website, click on either Create an Account or Sign In.

You can then create an account by entering the information that is requested. Now comes the fun part! You will be required to answer a few security questions based on your credit file history. I can’t tell you how many clients and seminar attendees I have spoken with who have been locked out of their accounts because they are unable to answer their own security questions. For some reason, Social Security enjoys asking questions that don’t pertain to you, so don’t be afraid to select the answer, “This does not apply to me”. Once you have made your way through this fortress, you will be able to view your most recent Social Security benefit statement.

How are the benefit estimates calculated?

Now that we have our up-to-date statement, let’s review the benefit statement. The statement is a four-page document, but we will focus on pages 2 and 3 as they contain most of the information. For individuals who qualify for Social Security retirement benefits, the top of the second page provides monthly benefit estimates at three different ages.

The benefit listed at full retirement age (FRA) is calculated based on your top 35 years of earnings. If you have not paid into Social Security for 35 years, then zeros will be used in the benefit calculation for those years you didn’t pay into the system. The good news is that these benefit estimates are recalculated each year based on your most recent earnings. If you are making more now than you did in the lowest of your 35 years of earnings (adjusted for inflation), your benefit will likely increase because the lower earnings amount will be replaced with the higher amount you are making now. In the same light, if you didn’t have a full 35 years of earnings, then each additional year you earn will replace one of the zeros used in the calculation.

The age 70 benefit estimate is calculated based on the benefit increase received when waiting to file. For every month you wait to file for benefits from full retirement age to age 70, you receive a 0.67% increase (8% annually) on your full retirement age benefit.

The age 62 benefit estimate reflects the reduction you receive when claiming Social Security before full retirement age. For each month you file early, your monthly benefit is reduced by approximately 0.5 percent of your full retirement age benefit.

What assumptions are being made to calculate the benefit estimates?

Now that we have discussed how the estimated benefits are calculated, I want to draw your attention to the assumptions being made in the calculation of your benefit estimates. On the second page, you will see a section that looks like this:

The dollar amount shown on the second line is the amount that was last reported to Social Security on your behalf. In our case, we will assume this was the amount the individual made in 2017 since we are looking at a 2018 benefit statement. The importance of this number cannot be understated. Your benefit estimates are based on a calculation that assumes you will continue to make $46,770 per year between now and your full retirement age. If that is not an accurate assumption, your benefit estimates may not be accurate. For example, if an individual is planning to retire at age 62 but not take Social Security benefits until their full retirement age, they will have four zeros over those upcoming years instead of the assumed $46,770. Given that the benefit estimates are based on the top 35 years of earnings, as previously discussed, this could mean that the benefit estimates shown on your statement are inflated due to these assumptions being incorrect.

How do I change the assumptions?

If the assumptions being made do not align with your current plans, the easiest way to update the benefit estimates is to use the retirement calculators provided on www.ssa.gov. Once you are on the website, click on “Retirement,” and then on the right-hand side, click on “Benefit Calculators.”  I suggest you use the “Online Calculator,” which can be run directly on the website. This calculator will provide an updated benefit estimate based on the earnings you plan to make between now and full retirement age.

Do I need to review my reported earnings?

The final area that is important to review is the earnings being reported to Social Security each year. It is important because the earnings listed are used to calculate your retirement benefits. This information can be found on the third page of your benefit statement and looks like this:

It is ideal if you review this information each year so that you can catch and fix any errors in reporting as soon as they happen. We are not too concerned about small differences between what is reported and what is on your tax return for a given year, but instead are looking for big errors.  A common example of this is no earnings being reported to Social Security in a year when the individual was working.  In these cases, you will want to contact Social Security as soon as possible to determine what documentation they will need to update your earnings.  In the past, they have typically asked for a tax return to verify the earned income, which is why it is helpful if you catch these errors as soon as possible, while you still have a copy of your previous tax returns available.

Where do I go for more information on Social Security?

The Social Security Administration’s website is full of helpful information if you want to explore any of these topics further. For those interested in diving deeper into Social Security filing options for single individuals, married couples, divorced individuals, or survivor benefits, we regularly host seminars at convenient locations. You can find upcoming events and register on our events page.