For younger investors, Social Security looks to be on shaky ground.
At its current pace, the program will have to begin offering diminished payouts in 2034. While politicians are unlikely to let the program die by the time you retire, experts say it may make sense to start thinking about Social Security benefits as just a small piece of your retirement.
“My mindset is to begin to think about it as a small supplemental income in retirement,” says Nick Foulks, director of communications strategy and client engagement at Great Waters Financial.
Still, when you’re planning for a certain lifestyle in retirement, it would be good to know what that income might 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 the status of your Social Security benefits now
Social Security benefits are designed to replace roughly 40% of your income, calculated by taking the average of your monthly earnings over your most lucrative 35 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, full retirement age is currently 67. You can elect to receive benefits as early as 62, but retiring early could result in a ding of up to 30% in the amount of your benefit.
If you delay retirement past your full retirement age, you’ll receive an 8% annual boost to your payout until your benefit maxes out at 70.
Depending on your financial situation, it can make sense to take Social Security earlier or later. But regardless of when you retire, it’s key to ensure that you’re getting the maximum benefit that you qualify for. And that means making sure the Social Security Administration has your numbers straight now.
“Make sure you’re getting all of your years counted,” says Foulks. “Every year, I check my earnings record to make sure they’re appropriately counting my income.”
The earnings listed for a given year should match your total pre-tax income. Mistakes might arise if you changed jobs or started working partway through the year, Foulks says.
To check your information, create an account on the Social Security Administration’s website (you’ll have to jump through some hoops to verify your identity) and download your Social Security Statement. This document will lay out what you’ve earned each year so far as well as what your current benefit would be, were you to claim from ages 62 to 70.
Staying on top of your annual earnings now can save you a lot of grief down the line. Should you spot a discrepancy, you’ll have to file a formal request for a correction with the SSA, which will require you to provide documents proving your correct your income.
In other words, stay on top of this now, or you could find yourself having to dig up 20-year-old W-2s somewhere down the line.
Plus, by checking in on the status of your Social Security now, you give yourself 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.”