Missing years? Zeroes? Here are key things to understand about your Social Security statements

Whether you’re on retirement’s doorstep or striding toward it, there’s one financial task you should complete each year: Check your Social Security statement.

To do so, you’ll have to create or sign in to your Social Security account at www.ssa.gov/mysocialsecurity. You can then receive personalized estimates of future benefits based on your real earnings, see your latest statement and review your earnings history.

So, what are some of the most important things to know when reviewing your statement?

•  Today’s pretax dollars. Your Social Security Statement details what your estimated benefit will be at your full retirement age in today’s dollars, not future dollars. That can be confusing to people who are trying to estimate how much income they will need in retirement.

A Social Security card

Your estimate is also a before-tax amount. The actual amount you’ll receive after taxes or deductions will depend on when you file for Social Security, whether it’s before, at, or after full retirement age and how much income you earn.

You should also remember that the Social Security system pays cost-of-living adjustments (COLAs) to beneficiaries and the estimates on your statement do not include COLAs, says David Cechanowicz, a senior financial planner at REDW Stanley Financial Advisors, LLC.

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•  Only an estimate. Your estimated benefit is just that. And that estimate is “based on the assumption that the worker will continue to work at the same pay schedule as he or she currently earns, all the way to the various ages,” says Cechanowicz. “Therefore, any significant change in income or years worked will change the ultimate amount.”

Put another way: If you stop working earlier your actual benefit will be less than the estimates, says Marcia Mantell, author of “What’s the Deal With… Social Security for Women.”

•  Multiple benefits. Your Social Security Statement doesn’t just list what your benefit will be at age 62, full retirement age and age 70. Rather, multiple benefits are projected on a Social Security statement, including disability benefits and those benefits that might be available to workers and their family and survivors, says Cechanowicz.

“For example, if a worker becomes disabled at age 40, he or she will also have a ‘family maximum’ that allows additional benefits to be paid for minor children in the household as well as for a spouse who might be caring for those children,” he says.

•  Increase your benefit. Social Security benefits are based on a formula that takes into account the inflation-adjusted earnings for an individual’s highest 35 years of work, says Cechanowicz. “Therefore if an individual collects Social Security benefits and continues to work – especially at and after full retirement age where there is no possibility of having to pay back benefits – he or she may increase their lifetime formula which will then cause their benefits to increase.”

Note: Benefit increases for working in 2019 will show up almost a year later at the end of 2020.

Mantell says Social Security does use your highest 35 years to calculate your benefit but also includes zeros if you do not have income in all 35 years. “Many people see reduced income from maternity leave, part-time income from early jobs, no income when unemployed or in graduate school or providing caregiving,” she says.  “Zeros can be replaced with years of higher income to boost your benefit.”

A person filling out a Social Security benefits application form.

•  Are there missing years? Review your earning record to make sure that no years are missing. “Lost years may reduce the ultimate benefits that are available,” says Cechanowicz.

If you discover earnings missing from your record, the first thing you should do is find some proof of those earnings. This proof could be, for instance, a W-2 form (Wage and Tax Statement), a tax return and other documents showing you worked. After you’ve gathered your documents or made a list of all the information you can remember, contact Social Security. The Social Security Administration will work with you to correct your record. For more, read How to Correct Your Social Security Earnings Record.

If you’re a high-income earner, you’ll see a different income listed for Social Security versus Medicare. Social Security taxes are capped at the annual taxable wage base ($137,700 in 2020), but you pay the Medicare portion on all income, Mantell says.

•  Don’t see a benefit? According to Mantell, you won’t see any retirement benefits until you have worked long enough to earn 40 credits. “Generally, that is 10 years of work, and it does not have to be consecutive years,” she says.  “However, you may already be eligible for other benefits such as disability or survivor amounts should you need them.”

By way of background, you qualify for Social Security benefits by earning Social Security credits when you work in a job and pay Social Security taxes. Social Security bases Social Security credits on the amount of your earnings. In 2020, for instance, you receive one credit for each $1,410 of earnings, up to the maximum of four credits per year.

Robert Powell is the editor of TheStreet’s Retirement Daily www.retirement.thestreet.com and contributes regularly to USA TODAY. Got questions about money? Email Bob at rpowell@allthingsretirement.com.

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