Many people go an entire lifetime without ever glancing at their Social Security earnings statements. But that's a mistake.
Each year, the Social Security Administration (SSA) issues workers an earnings statement. That document contains a few vital pieces of information.
First, it summarizes annual wages that count toward calculating Social Security benefits. Next, it gives an estimate of what an individual's future monthly benefit might look like in retirement.
Image source: Getty Images.
It's important to check your earnings statement each year. If you don't, and your wages are accidentally underreported, it could leave you with a lower monthly benefit for life.
But another reason checking those statements is important is that they can help you narrow down the monthly benefit you may be entitled to later in life. And that, in turn, could help you better plan for retirement.
In fact, the SSA is actually in the process of rolling out a redesigned Social Security statement that does an even better job at highlighting what future estimated benefits might look like. And it definitely pays to keep an eye out for that change.
The importance of estimating your future benefit
As a general rule, you should aim to have enough annual income in retirement to replace about 70% to 80% of your ending salary. Now Social Security won't help you reach that goal by itself. Those benefits will only replace about 40% of your income if you earn an average wage.
But knowing what future benefit you may be eligible for could help you determine whether you're saving enough for retirement, or whether you need to ramp up your 401(k) or IRA contributions and do better. And that's where the new earnings statement design comes in.
Under the current design, your earnings statement will show you what your retirement benefit will look like at ages 62 and 70, as well as your full retirement age, which is when you're entitled to collect your benefit in full. Age 62 is the earliest age to file for benefits, while age 70 is the latest age you can accrue the delayed retirement credits that boost your benefits.
The new version, meanwhile, will show you what your estimated monthly benefit looks like for each year between the ages of 62 and 70. That could, in turn, help you land on the best filing age based on your income needs and level of savings. It could also help guide your savings-related decisions by showing you what options you have for claiming benefits down the line.
How to access your earnings statements
So far, the SSA hasn't revamped its earnings statements across the board. That change could take time. But it still pays to check out your earnings statement and see what it says.
If you're under 60, you'll need to create an account on the SSA's website to get at that document. Those who are 60 or older can expect those statements to arrive in the mail.
Not only should you examine your statement every year for errors, but you should also pay attention to your estimated benefit. Of course, the closer you are to retirement, the more accurate that number will be, since benefits are calculated based on lifetime earnings. But even if retirement is years away, it still pays to get a ballpark number you can work with.
