Beginning this month, many workers will get Social Security benefit estimate statements in their mailboxes for the first time since 2011. But to get the most out of them, you need to know how to read them, fix mistakes in them and plot your retirement plans around them.
I’ve spoken to two experts for their advice on all counts, which I’ll offer below.
If you do receive one of these statements from the Social Security Administration, don’t toss it or file it away unread. “It’s probably the most crucial financial planning document for every American,” said InvestmentNews contributing editor Mary Beth Franklin, author of the new e-book, Maximizing Your Social Security Retirement Benefits.
(MORE: The Real Social Security Crisis: Service)
Why Paper Statements Are Here Again
Back in 2011, the Social Security Administration began phasing out mailed annual benefit statements to most workers to save an estimated $70 million a year. The agency said people could get the same information by setting up my Social Security accounts at its website, Socialsecurity.gov.
But its decision raised a ruckus, especially since only 14 million wage earners have logged on to create the accounts. (I’m one who has, and check my Social Security statement online at least once a year even though I won’t start claiming for another 16 years or so.)
Mailings for people 60 and older resumed in February 2012 and Congress required the agency to revive the paper version starting this month — for millions of others (though not for everyone).
Now, the paper mailings go out every five years to American workers age 25 and older who are not receiving Social Security benefits and who haven’t registered for my Social Security accounts. That means boomers can expect to get theirs at age 50, 55 and 60. After age 60, people will get the printed statements annually.
(MORE: How to Track Down Your Social Security Benefits)
The Reason to Open Yours
Why bother opening the letter when it arrives?
The primary reason is that your statement will give you an idea how much you can expect to receive from Social Security depending on what age you apply for benefits. And this information will help you decide when to start claiming them. You can begin taking Social Security retirement benefits at age 62, but they’ll be smaller than if you wait until you’re what Social Security calls Full Retirement Age — that’s now age 66 and gradually rises to 67 for people born in 1960 or later. But you can get even larger benefits if you don’t start receiving them until you turn 70. (In my case, the difference between applying for benefits at 62 and 70 is more than $14,000 a year.)
(MORE: Preparing for Social Security: A Checklist)
Now, for the advice about getting the most out of the paper statements:
How to Read The Statements
When you get your statement, first check your earnings record and see if all the employment figures are correct. If your earnings record is wrong, you may not receive all the Social Security benefits you're entitled to; Social Security figures your monthly checks based on your average earnings over your lifetime.
“It’s very common that the income is incorrectly reported,” said William Meyer, CEO and co-founder of Social Security Solutions, a company that sells a Social Security claiming-decision software tool (cost: $20 to $250, depending on the level of analysis you receive).
Next, look at the amount listed as your monthly estimated benefit at Full Retirement Age, at age 70 and 62 (early retirement age).
You can also check the monthly survivor benefits if you were to die this year — for your child, a spouse caring for your child and your spouse starting at Full Retirement Age.
Keep in mind that the statement’s benefit estimates are just that — estimates. The projections are smaller than the dollar amounts you will likely receive when you claim benefits because they’re calculated in today’s dollars — before being adjusted for inflation, Franklin told me.
Plus, your eventual benefit could be affected by any modifications to benefits Congress enacts and by cost-of-living increases after you start claiming. The estimates also assume (probably wrongly) that you’ll keep making the same amount of money until you start receiving benefits.
In short, your Social Security estimated benefits report is “a snapshot in time,” said Meyer.
Now here’s what you won’t find on the statements: Your spouse’s (or ex-spouse’s) estimated Social Security benefits. “If a person is married, divorced or widowed, the information is only about that individual and doesn't include the whole picture,” said Meyer.
How to Fix Errors in the Statements
If you discover that any earnings before last year are incorrect, get your W-2 or tax return for the years in error and then either call Social Security (800-772-1213) or write to the agency immediately (Social Security Administration, Office of Earnings Operations, P.O. Box 33026, Baltimore, Md. 21290-3026).
How to Use Your Statement
Reading your Social Security statement can be a good reminder of how much you need to be saving on your own for retirement. Odds are, you won’t be happy living on just the estimated benefit Social Security says will be winging your way.
It can also launch your essential retirement-planning research to determine what age you (and your spouse or partner if you have one) should begin claiming Social Security benefits.
“When to start receiving Social Security is the largest financial decision that 99 percent of Americans make,” said Meyer.
Anyone who is married should view his or her Social Security claiming date as a household decision. “You should make this decision together as to what is appropriate for both of you and how to maximize your benefits,” said Franklin. That means looking at both of your personalized Social Security statements —ones in the mail or online.
The decision about when to take Social Security is a head-spinner and no two people have the same scenario. To get a handle on it, first sign up for my Social Security (so you won’t have to wait to get a paper statement). Then run various claiming situations with a free online Social Security benefits calculator such as ones from AARP, T. Rowe Price, Financial Engines or SSAnalyze!
Two calculators that charge a fee but are worth considering: Maximize My Social Security ($40) from Boston University economics professor and PBS NewsHour contributor Larry Kotlikoff and Meyer’s Social Security Solutions. Their fees are pocket change when you consider the thousands of dollars in Social Security benefits you might forego by making the wrong choice of when to start claiming.
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