What Your Social Security Statement Tells You -- and What It Doesn't

"If you observe, people always live forever when there is an annuity to be paid them; and she is very stout and healthy, and hardly forty. An annuity is a very serious business; it comes over and over every year, and there is no getting rid of it.

-- Sense and Sensibility, Jane Austen

If only we could live forever with annuities, because most of us essentially have an annuity to look forward to -- in the form of Social Security. With a regular annuity, you pay a company a significant sum in exchange for regular payments, potentially for the rest of your life. With Social Security, you pay into the system throughout your working life, via taxes, and are promised regular retirement income for the rest of your life.

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Your Social Security Statement

Social Security benefits are critical for most of us, so it's well worth understanding what to expect and what your Social Security Statement tells you. Each worker has a Social Security Statement, which is updated by the Social Security Administration (SSA) annually. It used to arrive in the mail, but it's now available online (and can be mailed to you if you want).

No matter your age now, everyone should set up a my Social Security account at the SSA website, so that they can access their statements. Those 60 and up may get a copy of their statement in the mail if they don't have a Social Security account, but it's best to set up an account, as you can conduct a lot of Social Security business through it -- and you may also prevent a scammer from co-opting your account.

Your Social Security Statement features a bar graph offering estimates of your retirement benefit at nine different claiming ages -- because you can claim your Social Security benefits between the ages of 62 and 70. (The earlier you claim them, the smaller they'll be, but you'll collect more of them. Studies have shown that for most, but not all, retirees, waiting until age 70 will yield the most total benefits.)

What you can and can't learn from your Social Security Statement

Obviously, the statement's estimates of your future benefits can be very helpful when planning for retirement. They will be more helpful for those nearing retirement than for younger people, though. Why? Well, because your benefits are based on your earnings in the 35 years in which you earned the most (adjusted for inflation). If you have only worked for 10, 15, or even 30 years, the SSA doesn't have your full earning history, so the estimates will be very rough. After all, you may soon be earning much more or much less than you are now. Your earnings trajectory can change a lot. (Note that if you can earn more, you can boost your future benefits.)

The illustration of your benefits by claiming age also makes a certain assumption -- that you'll keep working (and earning) until that claiming age, which is between 66 and 67.

The statement does give a fairly good picture of how your benefits will change depending on when you claim them. Clearly, delaying claiming until age 70 will maximize them. That's the right move for most folks, but if your health isn't great and/or many of your relatives have died young, or if you simply need that income pronto, claiming early might be best.

The statement also assumes that you won't work after claiming your benefits. If you do, and earn more than certain thresholds, the SSA will withhold some of your benefits. That's not quite as terrible as it seems, though, because withheld amounts get factored back into your benefits later, making them bigger.

Another thing the statement doesn't reveal is how taxes will impact your Social Security benefits. A few states tax benefits, and the federal government taxes some Social Security benefits, too.

Everyone would do well to check out their annual Social Security statement to help them in their retirement planning.

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