For younger investors, Social Security appears to be on shaky ground.
At the current rate, the program will have to start offering reduced payments in 2034. While politicians are unlikely to let the program die when you retire, experts say it may make sense to start thinking about Social Security benefits. as a small part of your retirement.
“My mindset is to start thinking of it as a little supplemental income in retirement,” says Nick Foulks, director of customer engagement and communication strategy at Great Waters Financial.
Still, when you’re planning a certain lifestyle in retirement, it would be nice to know what that income would look like. Here’s how Social Security payments are calculated and how you can find out what yours could be, even if you’re years away from retirement.
Check now the status of your Social Security benefits
Social Security benefits are designed to replace approximately 40% of your earnings, calculated by taking your average monthly earnings during your 35 most lucrative working years and adjusting for inflation.
The amount you receive fluctuates depending on when you claim your benefits. For those born in 1960 or later, the full retirement age is currently 67. You can elect to receive benefits starting at age 62, but retiring early could result in up to a 30% reduction in your benefit amount.
If you delay retirement beyond your full retirement age, you will receive an 8% annual increase in your payment until your benefit reaches a maximum of 70.
Depending on your financial situation, it may make sense to take Social Security sooner or later. But no matter when you retire, it’s critical to make sure you’re getting the maximum benefit you qualify for. And that means making sure the Social Security Administration has your numbers right now.
“Make sure you count all your years,” says Foulks. “Every year, I check my earnings record to make sure they’re counting my earnings properly.”
The earnings listed for a given year must match your total income before taxes. Errors could arise if you changed jobs or started work in the middle of the year, says Foulks.
To verify your information, create an account on the Social Security Administration website (you’ll have to jump through a few hoops to verify your identity) and download your Social Security Statement. This document will state what you have earned each year so far, as well as what your current benefit would be, if you claimed between the ages of 62 and 70.
Staying on top of your annual earnings now can save you a lot of headaches down the road. If you find a discrepancy, you will need to file a formal request for a correction with SSA, which will require you to provide documents showing that your income is correct.
In other words, stay on top of this now, or you might have to dig up 20-year-old W-2s at some point.
Plus, by checking your Social Security status now, you’ll have a better idea of what you’ll need to save to fund the lifestyle you want to live in retirement.
“That can be a guiding light right there,” says Foulks. “You may not know all the pieces of the puzzle, but at least you’re getting a rough outline of that one.”
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