Have you noticed that it’s been a while since you received a paper Social Security statement in the mail? Do you remember when you used to get one of those every year? You would look it over to make sure that your earning history was correct and dream about those future monthly checks in retirement!
Well, due to budget cuts back in 2011, and to save the trees, the Social Security administration decided to stop mailing out those paper statements annually to everyone. Now, instead, you need to go to ssa.gov and create a “My Social Security” account in order to access your annual statement.
The process to set up your account is fairly quick and easy and requires that you answer a few questions about yourself in order to verify your identity. Within a few minutes you will be logged in and able to see a digital copy of your statement that you can download if you like.
The first page of your statement indicates that Social Security benefits are meant to be a supplementary source of income in retirement. You should be planning to have other sources of income as well once you reach retirement age as the average Social Security check in 2021 is only $1,543 per month. And that is before Medicare deductions and taxes are taken out! If you didn’t realize you might owe taxes on up to 85% of your Social Security, watch my video about that as well as how to avoid paying tax on your Social Security one day. There is a link below for that video.
On the second page of your statement, you will find a summary of all your benefits, including: Retirement, Disability, Family Survivors, and Medicare. These are all important benefits and should be included in your overall financial plan. This page also shows how much your reduced benefit would be should you take it at 62, which is the earliest age you are allowed to claim Social Security. You can also see how much your benefit will grow if you wait till age 70 to claim, which is the longest you can wait to start.
Many people don’t realize that your projected retirement benefits are based on the assumption that you will continue to earn what your prior year reported earnings were until you reach your full retirement age. Depending on when you were born, this is somewhere between 66 and 67 years old. If you retire, or stop working earlier than this age, your benefits will likely be lower. Your benefit is based on an average of the highest 35 years of reported income and you need to have worked and paid into Social Security for at least 10 years in order to be eligible to receive a benefit in retirement one day.
It is no secret that the Social Security program is quickly running out of funding and that without major changes to how it is run, and the benefits it provides, it will be soon depleted. It is unlikely that lawmakers will allow this to happen in the future, as so many Americans depend on this program, but it is likely that changes to the system are coming, especially for the younger generations that are just starting their careers now.
If you would like to see how your Social Security benefits fit into your overall financial plan, or you would like to learn more about how to maximize this benefit and not pay tax on it someday, from a fiduciary financial advisor who cares, shoot me an email or give me a call.