When planning for your retirement, you want to know what benefits you can count on when you stop working. Social Security is the biggest source of income for the majority of retired people in the United States today. And even though social security can be a significant benefit, it was never intended to be the only source of income for retirement. Social security benefits are part of your plan to finance your retirement and must be supplemented with other sources of resources, such as personal savings, investments, a private pension plan from a company where you have worked, 401(k) plan, traditional Individual Retirement Account (IRA) or Roth IRA, income from a part-time job when you retire, income from your own business, or from self-employment when you retire.
It’s important to plan for your retirement far ahead of time in order to be prepared. And to do this planning, you need information. You can find out how much your social security benefits will be from a statement that the Social Security Administration sends you by regular mail each year, or that you can request at any time.
How Do You Request the Statement?
The Social Security Administration automatically sends the statement by regular mail each year to all workers or ex-workers who are 25 years of age or older. If you want a statement at some other time, you can request it through the Internet, download the request form and send it by regular mail, or call 1-800-772-1212.
The Internet request is available at https://s044a90.ssa.gov. A request by Internet must be made during the hours indicated on this web page.
If you prefer to request the statement by regular mail, you can download the form, print it, and then send it by regular mail. You should go to the Social Security Statement website at www.ssa.gov/mystatement , and select the option “Need to request a Statement?” On the next page, called “Information about Requesting a Social Security Statement” toward the bottom you will find a link to “Social Security Statement request form SSA 7004”. When you select the link, the form opens in a pdf document that you can print.
What Information is Presented in the Statement?
The statement you receive in the mail from the Social Security Administration includes an estimate of the benefits you will receive, and a record of your earnings, year by year, from when you first started working up until the present.
Benefits Estimate
The estimate of your benefits includes the monthly retirement benefits you will receive under different scenarios, for example if you retire early at age 62, at the normal retirement age, if you wait until you are 70 before you retire, or if you retire due to disability.
The estimate indicates the benefits that would be paid to your family members in the event of your death, indicating the monthly benefits for your children, the monthly benefit for your spouse who is taking care of your children, the monthly benefit for your spouse upon reaching normal retirement age, and the maximum benefits that will be paid for your entire family.
There is also a determination as to whether you would qualify for Medicare benefits that cover the costs of heath care when you reach normal retirement age.
Record of Earnings
The statement from the Social Security Administration indicates the earnings that are recorded for you, year by year, since the year you first started working until the present, for social security and Medicare purposes.
You can check this information to be sure it is accurate and complete, by comparing the amount of earnings recorded each year with the amount indicated on your W-2 form that you receive for federal income tax purposes for the corresponding year, or with the year-to-date total on your final payroll stub or statement for each applicable year. If you have been self-employed, you can compare the yearly total on the social security statement with the amount reported on Schedule SE that you filed with your annual federal income tax return, which is the schedule on which you report earnings from self-employment.
You should note that when you worked for more than one employer during a year, or when you had income from a salary you earned from an employer and also had income from self-employment that year, on the statement you receive from the Social Security Administration, these amounts are combined and are reflected in one total of all earnings for the year.
You should also be aware that the income subject to the social security tax, and therefore the income that is included in the statement, is subject to a maximum limit each year. This limit has gradually increased each year, and in 2007 you paid social security tax at a rate of 6.2% on your taxable earnings up to maximum of $97,500. When your income exceeds this limit, the excess is not included in the record of your earnings.
Earnings subject to the Medicare tax are not subject to any limit. In 2007 you paid the Medicare tax at a rate of 1.45% on all your earnings. Your employer paid taxes equivalent to yours on the salary paid to you.
When you are self-employed, you pay the social security tax at a rate of 12.4% and the Medicare tax at a rate of 2.9%, corresponding to the combination of the rates that apply to the employee and the employer in the case of a salary. But on your annual federal income tax return, you can claim a deduction for 50% of the self-employment tax.
If you detect any error on the record of earnings according to the statement you receive from the Social Security Administration, it is important that you notify the Administration of that error, because the earnings they have recorded form the basis for determining your eventual benefits. You can call the Social Security Administration at 1-800-772-1213 to inform them of the error. You should be aware that it is possible that the last year reported is not complete yet, because the Administration could still be processing your earnings reports when it issues the statement. Therefore, you can review all years prior to the last year reported.
In order to qualify for social security benefits, you earn “credits” during the time you work. This work can be for an employer or it can be self-employment. You can earn up to four credits per year. In 2007, you earn one credit for each $1,000 of income from your work. When you have earned $4,000 in the year, you have four credits for the year.
The majority of workers need to accumulate 40 credits during their working life in order to be eligible for social security retirement benefits. But you could be eligible for social security disability payments if you have less than 40 credits at the time you become disabled. And, workers who die before accumulating 40 credits could qualify for benefits to be paid to their surviving beneficiaries.
Once you accumulate 40 credits, social security retirement benefits are calculated based on your average earnings during your working life. For purposes of estimating the benefits you will entitled to receive when you retire, the Social Security Administration takes into account your accumulated earnings to date and makes a projection of your future earnings. This projection is made assuming that your level of income in the future will be more or less equal to your level of earnings over the last two years.
In evaluating this estimate of your benefits, you should take into account the following:
The estimate is generally more accurate for people who have been working a longer time because the estimate is based on a longer history of earnings, with less uncertainty, such as fluctuations in the level of earnings and possible changes that could occur in the social security law.
Estimated benefits are calculated based on your earnings to date, and your actual benefits can change according to your level of earnings in the future. If your earnings increase in the coming years, your benefits will be more, and on the contrary, if your earnings are lower, your benefits will also be lower than estimated.
Estimates are expressed in terms of today’s dollars. Once you start to receive benefits, they will be adjusted for increases in the cost of living.
Estimated benefits are calculated based on the law in effect on the date the Social Security Administration makes the estimate. Any change in the law could affect your actual benefits in the future.
When You Retire and How That Affects Your Benefits
You can retire early at the age of 62 and begin to receive social security benefits with a monthly amount that is lower than the amount you would receive if you retire at the normal retirement age, which is between 65 and 67, depending on your date of birth. In this case, you receive a lower amount per month indefinitely, but you receive benefits over a longer period of time.
On the other hand, if you continue working after reaching the normal retirement age, you can receive a higher amount of monthly benefits, due to the additional income you will have earned and for the credit that applies for having postponed your retirement.
When you start receiving social security benefits before reaching the normal retirement age, you can still continue working, but there is a limit on the amount you can earn from your work without affecting the amount of social security benefits you receive. When your earnings from work exceed this limit, the amount of social security benefits you receive will be reduced.
Therefore, there are various factors to take into account in determining the best age at which you should start to receive social security benefits. In the Social Security Administration’s website at www.ssa.gov there are Social Security Benefits Calculators that can help you calculate your future retirement benefits. There is also a free publication called “Social Security – Retirement Benefits” that provides specific information.
Disability Benefits
If you become disabled before reaching normal retirement age and cannot work, you can receive social security disability benefits. You can receive these benefits after six months, provided that:
You have credit for earnings from work that, depending on your age, are from 6 to 20 credits, earned within a period of from 3 to 10 years before you became disabled, and you have a physical or psychological disability that is expected to prevent you from being able to do “substantial” work during a year or more, or that could result in your death.
Family Benefits
When you are eligible for social security benefits for disability or retirement, the members of your family could also receive benefits. The members of your family include your spouse or ex-spouse, your minor children, and your adult children if they were disabled when they were less than 22 years old.
Survivors
In the event of your death, certain members of your family can receive survivor benefits. These beneficiaries include your spouse who is 60 years of age or older. Your spouse can be 50 or older and still receive survivor benefits if he or she is disabled. If your surviving spouse is caring for your children who are under age 16, he or she can receive survivor benefits regardless of age.
Your children can receive survivor benefits if they are not married and are less than 18 years of age, or less than 19 if they are full-time students, or when they are disabled before reaching the age of 22.
