Don't ignore your Social Security statement
The benefit estimates in your statement can help you plan for retirement.
I just received my Social Security statement in the mail and thought it would be a good time to write about this important document. Mailed once a year to workers and former workers 25 and older, a Social Security statement provides information that can help you plan for retirement.
It also provides information about disability and death benefits that many don't realize they have through Social Security.
A quick tour
The Social Security statement provides two important pieces of information. First, it includes a history of taxed Social Security earnings. In my case, it goes all the way back to my sophomore year in high school when I earned $673! Social Security benefits are based on your earnings, so the accuracy of this information is critical.
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Second, the Social Security Administration provides an estimate of your retirement, disability and death benefits. Social Security actually provides three different estimates of retirement benefits -- your benefits at your full retirement age, at age 70, and at age 62.
Your full retirement age depends on when you were born. For those born in 1960 or later, full retirement age is 67. It can be as low as 65 if you were born in 1937 or earlier. You can, however, begin receiving retirement benefits as early as 62, but the amount of your benefits will be reduced. Wait until age 70, and your monthly benefit increases.
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The statement also provides an estimate of benefits should you become disabled, and death benefits for your family should you die. You can also estimate your retirement benefits online at the Social Security Administration's website.
What to do with your statement
When you receive your annual statement, there are a couple of things to take note of:
- First, the benefit estimates in your statement can help you plan for retirement.
- Second, check your statement for the reported earnings to make sure there are no errors. If you find an error, you can contact the Social Security Administration at (800) 772-1213. You should have your W-2 and tax return in hand when you make the call.
When you review your statement, keep in mind that there is a limit to the amount of earnings subject to Social Security taxes each year. In 2009, for example, the limit was $106,800.
As a final sobering thought, Social Security is heading toward insolvency. On the front page of every Social Security statement you find the following:
In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits. We need to resolve these issues soon to make sure Social Security continues to provide a foundation of protection for future generations.
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For this reason, many do not factor Social Security benefits into retirement planning. While I suspect there will be some level of benefit when I retire in about 25 years, I take the conservative approach and exclude Social Security benefits from my planning. Either way, your Social Security statement should still be checked for errors each year, and used for retirement planning if you so choose.
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