If you’re investing for your retirement, you shouldn’t forget about the income you’ll earn from Social Security.
Even though it may be decades away, it’s possible to get an estimate as to what your retirement benefits will be.
All you have to do is get a copy of your Social Security Statement. It’s easy to do, and it’s an absolutely necessary step in planning for your retirement.
A Social Security Statement is a statement that is available through the Social Security Administration (SSA). It shows you the benefits that you’ll be entitled to when you retire, or if you need to file a claim for disability.
The purpose of the form is to let you know what your benefits will be. It’s important to remember that the information provided is just an estimate.
For example, your Social Security retirement benefit is based on your earnings history. Since you’re still working, the information that will be needed to determine that benefit is not complete.
The SSA has a record of your earnings and taxes paid up to this point. But what they don’t know is what your future earnings will be. The estimate makes the assumption that your earnings will continue at the same level as it was for the most recent earnings year.
So let’s say that in 2016 you earned $50,000. Now this is earned income only, so investment earnings, retirement plan liquidations, unemployment insurance, and other unearned sources will not count toward your benefits calculation. Only your earned income – wages, self-employment income, contract revenues, and the like – are used to calculate your benefits.
The SSA will make the assumption that you’ll continue to earn $50,000 per year between now and the time you collect benefits.
If your future earnings are higher, that will naturally increase the amount of benefits that you’ll be paid. But since your benefits are calculated based on your 35 highest earning years, it’s not equally true that a lower future income will result in reduced benefits.
If your earnings exceed $127,200, you’re already at the maximum benefit level. That’s the maximum taxable income for calculating Social Security benefits for 2017. Higher future earnings will not increase your benefit.
Your Social Security statement contains the following information:
- Your retirement benefit at your full retirement age (generally 67)
- Retirement benefits if you delay collecting until age 70 (the highest benefit you can receive)
- Retirement benefits if you begin taking benefits at age 62 (the earliest you are eligible for retirement benefits)
- Your disability insurance benefit, should that become necessary
- Survivor’s benefits for your spouse, child or family, should you die while receiving benefits
The statement also shows other useful information, such as your earnings record going back to when you first started working, as well as the amount of Social Security and Medicare taxes you’ve paid since the very beginning.
The Social Security Administration used to send statements out to all taxpayers on an annual basis. But several years ago they ended that practice, in an effort to save money. However, you can still obtain a copy of your statement online. You can create a mySocial Security account on the SSA website. (People 60 and older get their statement mailed to them if they’re not already collecting benefits and have not signed up for mySocial Security.)
When you go to the mySocial Security page, set up a username and password. You can use this to access your account at any time. Once you’ve created your account, you’ll have regular access to your Social Security statement.
In order to accurately assess how much income you’ll need in retirement, and therefore how big of a retirement portfolio you’ll need to produce that income, you have to consider retirement income from non-investment sources. This includes pensions, income generated by non-retirement assets, and Social Security benefits.
For example, if you expect to need $5,000 per month in retirement, but you will receive $2,000 per month in Social Security benefits, then your retirement portfolio will only need to generate $3,000 per month.
Knowing your Social Security benefit is also important because most workers today aren’t covered by a defined benefit pension plan. Those were the employer-only funded plans that many of today’s retirees enjoy. But most workers today will be dependent on a combination of Social Security benefits and the income generated by a generously funded retirement portfolio.
Apart from retirement, it’s also important to know how much you can expect to receive if you needed to file for disability. This is an often under-appreciated benefit of Social Security, but an extremely important one for everyone who relies primarily on earned income to provide for themselves and their families.
Your Social Security Statement will provide you with a wealth of necessary information. And since it only takes a few minutes to get the statement online, it’s well worth the effort.