Whether you’re planning to claim Social Security retirement benefits soon or you’re working at a first job, it’s important to understand the role and purpose of the Social Security Statement. This important document provides each Social Security-eligible beneficiary with details about Social Security retirement, family, and disability benefits. It records the beneficiary’s Social Security income and Social Security and Medicare tax contributions. Social Security and Medicare taxes are payroll taxes and usually referenced as “FICA” tax on paycheck stubs.
Social Security Administration (SSA) previously mailed an annual Social Security Statement to each U.S. taxpayer until 1995. In an effort to reduce costs, SSA stopped mailing annual benefits statements in 2011. In 2014, SSA began sending Social Security Statements to taxpayers, although less frequently than it had prior to 2011. Today, some people receive a Social Security Statement once per five-year cycle. It’s possible to access the Social Security Statement online by opening a free, secure My Social Security Account.
Social Security Statement and Retirement Planning
The Social Security Statement is used by most taxpayers as a financial and retirement planning tool. Most American workers rely on Social Security retirement benefits, and reviewing the Social Security Statement is one of the best ways for each beneficiary to estimate future retirement benefits. SSA.gov reports that Social Security retirement benefits account for an average of half the income received by retired workers. SSA never intended Social Security retirement benefits as retirees’ only source of income.
The American work place has changed since the 1960s. Most workers can’t count on a long-term job with an employer. The United States Bureau of Labor Statistics says that many industry workers average just two years at a job before down-sizing, layoffs, workforce reductions, or terminations require the need to find a new job. What’s more, employers don’t offer traditional pension plans to workers. With pension plans and prior employer benefits disappearing, more U.S. retirees need Social Security retirement benefits than ever to pay for life’s basic necessities.
For that reason, it’s even more important than ever for Social Security taxpayers to review the Social Security Statement on a regular basis. SSA.gov reports a three percent error rate. It’s up to each Social Security beneficiary to check and verify information on the Social Security Statement. An inaccurate or partial earnings record can mean less Social Security retirement benefits in the future. It’s essential to correct errors as soon as possible by contacting Social Security at 1-800-772-1213.
Social Security Retirement Benefits
The Social Security Statement offers each beneficiary his or her “Statement of Benefits,” showing an estimated monthly retirement benefit at Full Retirement Age (FRA). FRA is currently age 60 if the beneficiary was born before 1960 and 67 if he or she was born after 1960. In addition, the statement estimates Social Security benefits available at early retirement age (62) and delayed retirement age (up to age 70). Age 62 is the earliest date at which beneficiaries can claim Social Security retirement benefits.
In general, the beneficiary receives a larger monthly benefit by waiting to claim Social Security retirement:
Retirement benefits increase about 8 percent a year from ages 62 to 70.
By delaying Social Security retirement as long as possible (age 70), it’s possible to get about twice the retirement benefit available at early retirement (age 62).
Reviewing the Social Security Statement is an essential part of knowing how much additional money the individual and his or her family needs to save for retirement. If the Social Security Statement projects the beneficiary’s FRA benefit is USD 1,341—and that benefit amount is thousands less than what he or she needs to run the household—supplementing Social Security retirement income is required. It’s up to each employed person to use tax-advantaged retirement plans, including employer 401(k) accounts, personal Individual Retirement Accounts (IRAs), and Roth IRAs to plan for retirement.
Of course, the Social Security Statement is an estimate of future benefits. It uses current salary data and Social Security law in effect to project the future. Future retirees shouldn’t use projected estimated benefits as what they can expect to receive from SSA at retirement.
Social Security Beneficiary Record of Earnings
The Social Security Statement also provides an annual record of earnings. The beneficiary’s 35 best (highest) earning years are used by SSA to calculate the monthly Social Security retirement benefit. It’s important to review this part of the Social Security Statement with great care. If the Record of Earnings is inaccurate, the beneficiary might not receive full Social Security credit for earnings:
Let’s say you earn USD 50,000 per year: you paid the required FICA tax on these earnings.
Your Statement of Earnings shows you earn USD 35,000 per year. Your Social Security and Medicare taxes are probably incorrect as well.
Review your Social Security Statement’s Social Security and Medicare Taxes portion. The beneficiary’s Social Security and Medicare tax payments are broken down per year. [Note: If the beneficiary has paid in sufficient Medicare tax, the statement projects his or her ability to request Medicare coverage at age 65.]
Compare payment amounts reported on the Social Security Statement and taxpayer paycheck stubs. Report inaccurate information to Social Security.
Contact Social Security to correct any error. The ability to draw future retirement benefits from Social Security at the appropriate level may be at stake.