Social Security serves as a critical income source for millions of older Americans, and the moves you make when you're younger could dictate what your monthly payments look like as a senior. In fact, you'll often hear that it's wise to advocate for pay raises during your career, not just to put more money in your pocket immediately but to boost your Social Security benefits.
Those benefits are calculated based on the wages you earn during your 35 highest-paid years in the workforce. There are additional factors that go into determining what your monthly retirement benefit looks like, such as the age at which you sign up. Your wages, however, are the basis for that calculation.
But what happens if the Social Security Administration (SSA) has the wrong wage information for you on file? If your earnings are underreported, it could result in a lower retirement benefit -- for life.
Thankfully, there's one thing you can do to help ensure that this doesn't happen: Check your Social Security earnings statement every year.
What's in an earnings statement?
Your earnings statement is a summary of the wages you earned in a given year that count for Social Security purposes. Because there's a wage cap associated with Social Security, earnings beyond a certain threshold don't get counted toward your benefits calculation. That threshold changes from year to year, but for the current year, it's $137,700. This means you don't pay Social Security taxes on any wages higher than $137,700. As such, those extra earnings can't be used to bring up your monthly retirement benefit.
Much of the time, the information workers see in their earnings statements is correct. But sometimes, errors can happen, and when they do, they can be quite detrimental if they remain undisputed.
How so? Say you have a year when you switch jobs and earn $55,000 from one employer and $70,000 from a second employer for a total of $125,000. All of those wages should count toward your Social Security benefit calculation. But what if your first employer forgets to report your wages somehow? Suddenly, your reported income for the year is just $70,000. That's a large enough difference to lower your monthly retirement benefit if left unaddressed.
That's why it's so important to review your earnings statement every year and correct mistakes that work against you. The reality is that if your wages are underreported by $1,000 or so in a given year, it probably won't make a huge difference in the grand scheme of calculating your benefits. But if a large chunk of income isn't reported, it could have a more significant impact.
How can you access your earnings statement?
If you're at least 60 years of age, you should receive a copy of your earnings statement each year by mail. If you're younger, you'll need to create an account on the SSA's website to access that document. There's also talk of reinstating paper statements for all workers aged 25 and over, though so far, that change has yet to be implemented -- and those against it argue that it constitutes unnecessary spending given the ease of online access.
Though reviewing your Social Security earnings statement may not be the most fun activity to check off your list, it's an important step that could spare you a lifelong reduction in benefits during retirement. Furthermore, your earnings statement will give you a peak at what your monthly retirement benefit may look like, and that's information you may be curious to know. Granted, the younger you are, the less accurate that estimate will be, but it still helps to have a ballpark number to work with.