Accessing and Interpreting Your Social Security Estimates and Earnings Record

And why you should make this part of your Annual Financial Routine

This article was originally published by Lorri DeFoor at Sustain Financial.

Social Security. If you’re under the age of 40, there’s a temptation to question whether you’ll even receive it. In fact, the most common pushback I receive from young to middle aged financial planning clients when I ask then to log on and get a Social Security benefit estimate is that they don’t want to count on Social Security as part of their retirement plan. And that makes sense, given that for most of us, our adult lives have been filled with headlines about how Social Security is running out of money and won’t be there for us in retirement.

But hear me out. You need to log in to your Social Security Account once a year anyways, even if you don’t have the ten years of work experience you need for a benefit estimate, and even if you don’t want to count on Social Security as part of your retirement income. It’s still a good idea to make this part of your annual financial routine.

First, it gives you an idea of what Social Security might pay you in retirement. There are obviously no guarantees here. As we stare down some major financial hurdles that Social Security will have to face in the next 10-15 years and combine those with some assumptions the system’s algorithm is making about your earnings record (more on this later), you can’t take that estimate and consider it money in the bank just yet. But I still fall on the side of Social Security being a system that is likely too big and too heavily relied upon, to fail entirely. And while some people may want to plan to do without it, for many, the Social Security estimate is a good starting point for a realistic retirement savings goal for both the very motivated, and the very unmotivated retirement saver.

By that I mean, I’ve worked with plenty of middle-income clients whose interest in saving for a retirement where they don’t count on Social Security is subject to a bit of sticker shock when they see what savings that would require. But rather than give up hope entirely, a good way to approach this is to create a plan that includes Social Security as a first step to a retirement savings goal, with the option to flex up later as more income becomes available.

On the opposite end of the spectrum, Social Security estimates are also a useful tool for someone who may assume Social Security will cover a lot more than it actually will. And this can be motivating in terms of establishing an understanding that even if it is still around, it’s not going to pay for everything. So, you need to start saving and investing to make up the difference.

Either way, the number is just information in your financial forecast, but it’s useful information to have, and it’s worth logging on just to get a sense of it and what part in your financial future it might play. But, there’s an even more important reason to do an annual check on your Social Security account regardless of your age, and that is to check the accuracy of your earnings record.

What is Your Earnings Record and Why Do You Need to Check It?

Your earnings record is simply a record of earnings from every year that you’ve worked where Social Security Tax was taken out of your paycheck and paid on your behalf. When it comes time to receive a benefit, your benefit calculation will be based on the highest 35 years of your earnings record.

And while, in a perfect world, all Social Security taxes you’ve paid would show up here, in the real world it’s not a given. Whether it be typos or egregious errors made by incompetent payroll departments, mistakes in reporting happen.

Seriously – take it from me. The first time I did this I found a mistake from 11 years back where an employer had simply not reported my earnings to Social Security for the entire year. And fortunately – I had a good enough memory of that year to recognize right away that there was a misreport. But even then, resolving it involved contacting the former employer (who I hadn’t worked for in 11 years) and requesting a reprint of my W2. I’m not sure if I’d been looking at that record for the first time at 50 or 60 if I’d have been able to both recognize the error that quickly and get the documentation from the employer that I needed to fix it.

The Social Security website is remarkably specific these days when you look at your earning record. It tells you not just the dollar amount of earnings reported, but also who reported them. So, in a case like mine where I had worked for two employers in the year of the misreport, it was easy to spot who had made the error, and where I needed to start in my quest to fix it.

If you’re in the habit of routinely shredding tax returns after a certain number of years, then checking this record each year before you do this is a really good idea. That way you’re not getting rid of the evidence you may need (like a W2) to refute the misreported earnings.

How Do You Access Your Social Security Benefit Estimate and Earnings Record?

The Social Security Website is where you’ll want to start:

If you’ve been here before and already set up your log in credentials, you can simply log in using those. If you’ve never logged in, you’ll need to create an account. The new account setup has made this a relatively easy process for anyone with a smartphone and a drivers’ license or other state-issued photo ID. By leveraging the power of AI, they’ll have you upload a photo of your ID, and then use your camera to take a photo of yourself to verify that it matches. Once your identity has been verified, you’ll be able to log in with the credentials you’ve set up and download both a benefit estimate and review your earnings record in detail.

Keep in mind that the earnings record can take 1-2 years to update, so when you’re reviewing your record for accuracy, don’t fret too much if the most recent years are incomplete. Just make a note to check them again when you login next year.

What Does Your Benefit Estimate Actually Tell You?

Once you’ve checked your earnings record, you may start to wonder what the number on your benefit estimate means, and how accurately it will reflect what you are projected to receive in retirement. To really understand it, you need to know what assumptions it’s making behind the scenes.

As I mentioned, Social Security benefits are based on your high 35 years of earning, so for a young to middle aged person, the system is obviously making significant assumptions to create projections. The first one to be aware of is that your Social Security Benefit Estimate is based on the assumption that whatever you earned last year, you will continue to earn this amount annually (adjusted for inflation) through your retirement date. If you didn’t work last year, or your earnings have yet to be reported, then it will use your earnings from two years ago as your assumed annual earnings until retirement.

That’s something to be cautious about if your earnings are variable, or last year represented a particularly high or low earnings year for you.

Another factor to keep in mind is that the benefit estimate at any given retirement age is also using an assumption that you are working until that age. Though this may be the case, it’s not uncommon for folks to retire at an earlier age than 67 or 70, but delay taking their Social Security benefit until their Social Security Full Retirement Age or later. In this case, the system may be slightly over-projecting what your estimate will be.

The flip side of the potential for over-projection using a particularly high earning year, is that if you have no reported earnings for the last two years, Social Security estimates assume that you will not have any earnings between now and retirement. Which could obviously create a very skewed estimate if you, say, have taken a couple of years off to raise young children or travel the world, but plan to go back to work before you retire.

All of this is to say, the benefits estimate is useful, but it’s important not to take it as a true reflection of what your Social Security amount will actually be, and to adjust accordingly if your situation is one that would result in a major over or underestimate.

The last big assumption to take into consideration is simply that Social Security Estimates are reported in today’s dollars, so inflation adjustments are not built into the number you are seeing on the benefit statement. As such, after checking the accuracy of the other assumptions stated above, I often encourage clients to make sense of the dollar amount as a percentage of their current spending. For example, if your Social Security estimate is $3000 at 67, and your current spending is $6000 per month, it would be good to have a savings goal and retirement plan that assumes you’ll need to offset at least half of your monthly spending with savings and investments. From there, you can start to work backwards to identify retirement savings goals.

For those of us still 30-40 years away from potentially claiming our benefit, it’s impossible to know what the Social Security landscape will look like when the time comes for us to retire, and it is wise to understand the lack of certainty in that space. That being said, it’s still a good idea to keep track of it (in the same way that it’s a good idea to make sure you log in to all of your accounts at least once annually), and to make sure the earnings reported for you are representative of the working career you’ve had so far. Because if Social Security stands the test of time (even at a reduced amount) you still want to make sure it’s working with an accurate earnings record on your behalf, so that you can claim as much of it as you have earned and are entitled to.


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