I’m not a fan of made-up commemorative days, but I’m making an exception for Social Security’s National Check Your Statement Day on April 7. Understanding your statement is crucial to your retirement security, so it's well worth a calendar call-out. I'll walk you through the key points to look for and explain how this information plays into your Social Security claiming choices.
First, get a copy of Your Social Security Statement (yes, that's the official name). You may recall receiving a printed statement in the mail annually. As a part of a budget-cutting plan, the agency ended these mailings several years ago and instead put the information online, where few people saw it. After prolonged complaints, Social Security now sends paper statements on a modified schedule to older Americans, but everyone else has to set up an online account.
If you don't have a recent Social Security statement, go to the “My Social Security” website and sign up—it's easy to do. You'll see a four-page document containing your wage history and benefit projections. Here's a rundown of the key sections in the statement:
Your Earnings Record. Go to page three of the statement to see the official record of your taxed Social Security earnings, which is the portion of your income that's subject to payroll taxes. There are separate columns for Social Security and Medicare earnings, which have different tax ceilings. (For Social Security, the ceiling is $118,500 this year, and for Medicare, there's no ceiling.) The agency uses W-2 tax forms for this information. Make sure Social Security's earnings record agrees with your own records. If it does not, or you have other earnings questions, call the agency at 1-800-772-1213.
Your Estimated Benefits. In this section, found on page two, you will see a series of important benefit projections. This is what the different estimates tell you:
*Retirement. These are the retirement benefits you would receive at different claiming ages, based on your current earnings history. Social Security retirement benefits normally may be claimed as early as age 62, but if you defer filing, the amount rises by 7% to 8% a year. Your benefit amount maxes out at age 70. If you claim your retirement benefits before what’s called full retirement age (FRA)—now 66—you will be hit with early claiming reductions. If you’re still working, you may also face temporary benefit cuts caused by Social Security’s earnings test.
*Disability. If you are younger than full retirement age, you'll be told you could qualify for Social Security disability payments and, should you become disabled, you'll see an estimated benefit amount. Those payments automatically convert to regular retirement benefits at FRA.
*Family. When you retire, or if you become disabled, your earnings record may also entitle your spouse and children to benefits, but Social Security does not provide estimates of these payments. That's a major flaw in these statements, because overlooking spousal and child benefits is a key reason so many people make bad claiming decisions. Your spouse and school-aged children can claim benefits roughly equal to as much as half of your actual or projected retirement benefit as of your own FRA.
Many people fail to claim these benefits. Or they claim them too early, which will trigger reductions in those benefits and perhaps in your spouse's individual retirement benefits. These payments are also subject to complicated family maximum benefit rules that limit in the overall amount you and your family members can claim based on your Social Security earnings record.
*Survivors. When you die, your surviving spouse (or divorced spouse) and your school-age children may receive benefits based on your earnings record. Social Security does project those benefits here and also lists the limit on payments under the family maximum benefit rule.
Many people fail to claim survivor benefits or understand the often complex claiming rules that govern them. These benefits are not only tied to your earnings record but may also be affected by the timing of your individual retirement benefit claim.
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Your spouse’s benefits, for example, will equal the greater of her or his own retirement benefit or survivor benefit based on your earnings record. If you wait to file for your own retirement benefits until age 70, you will receive the maximum amount—plus you may also be providing your spouse the maximum survivor benefits.
I wish these earnings statements provided more explanation of Social Security’s complicated claiming rules. But they do at least give you essential earnings information and claims projections that you can use to ask more questions and develop a claiming strategy that will benefit both you and family members who depend on you.
So use the statement as a springboard for developing a full financial plan. And it's best to get started now, even if your retirement date is decades away. You don't want to wait until it's too late to protect your family.
Philip Moeller is an expert on retirement, aging, and health. He is co-author of The New York Times bestseller, “Get What’s Yours: The Secrets to Maxing Out Your Social Security.” A revised edition explaining the new Social Security rules will be published May 3. His companion book, “Get What’s Yours for Medicare: Maximize Your Coverage; Minimize Your Costs,” will be published in October. Reach him at email@example.com or @PhilMoeller on Twitter.