Preview Social Security’s role in your retirement plans
With Social Security celebrating its 80th anniversary this year, now might be a good time to review the benefits you can expect — even if you’re skeptical about ever getting those benefits.
A new survey by the Transamerica Center for Retirement Studies found that 76 percent of all workers are concerned that Social Security won’t be around when they retire.
Young workers are especially pessimistic: More than 80 percent of 20-, 30- and 40-somethings feel they won’t get benefits in old age.
It’s true that Social Security faces a funding shortfall.
According to its latest annual report, Social Security estimates that reserves for the program will be depleted in 2034. Thereafter, payroll taxes will cover only about three-quarters of scheduled benefits through 2089, the latest year through which projections currently are made.
Does that mean you can’t trust the estimates provided on your Social Security statement?
“When it was originally put into place, Social Security was intended to be a safety net for a minimal amount of income in retirement, and it was supposed to be augmented with other things,” said Jim Blankenship, a financial planner in New Berlin, Illinois.
He added, “Chances are, there will be something when you’re ready to retire. But the onus is on you to make up the difference.”
Here are some points to keep in mind as you review your potential benefits.
How to get your statement. It used to be that Social Security mailed out a paper statement once a year, starting when you turned 25. Today, however, you will be mailed a paper statement once every five years from ages 25-60. (After 60, a statement is sent annually.)
If you don’t want to wait, head online. Workers 18 and older can forgo the paper statement and review projected benefits at any time online by creating an account at www.ssa.gov/myaccount).
Your estimated benefits
Once you have access to your statement, check your estimated benefits. Your statement will include projections for monthly retirement benefits, as well as payments you’d receive if you became disabled and benefits that family members would get if you passed away.
To be eligible for retirement benefits, you need to accumulate 40 credits. In 2015, you earn one credit for every $1,220 of earnings that are subject to Social Security taxes, up to a maximum of four credits (or $4,880 in earnings).
If you’re young, you may not have earned enough credits to qualify for benefits. And because you likely haven’t reached your peak earning years, your estimated benefits may be artificially low. (To calculate your benefits, Social Security averages the earnings from your top 35 working years.)
Your earnings record
Blankenship says it’s less important for a 20-something worker to worry about the estimated benefits, and more important to review the earnings recorded in your statement.
“If you see an error, now is the time to resolve it, rather than 40 years down the line,” he said.
You should see all the income earned in a given year that was subject to Social Security taxes. In 2015, earnings up to $118,500 are eligible.
If you see an error, contact Social Security at (800) 772-1213.
The bottom line
Even if your retirement benefits are puny now, it’s still a good idea to see how much you’d potentially take home each month in old age. If it’s not enough to cover your monthly expenses — keeping in mind that even those benefits may not be fully payable if Social Security runs short of funds — think of how you’ll make up the shortfall in retirement.
“This is the incentive,” Blankenship said. “Now is the time to save and make up the difference on your own.”