Understanding Your Social Security Statement

Every year, about three months before your birthday, you should be receiving from the Social Security Administration (SSA) a document called "Your Social Security Statement."  It is full of valuable information and also has a place that you should check to make sure that your income has been reported properly.  But what do all those numbers mean?  Click on through and you will see…

On the front cover, there is your name and address, the date that your document was produced, and some information about the social security system, it's current status, and what the future may hold.  The back cover contains more in-depth information about the benefits described on the inside pages.

The personal and important stuff is on the inside two pages.  When you open it up, the left side has your estimated benefit and the right side has your earnings record.

Your estimated benefits are broken down into four categories:  retirement, disability, survivors, and medicare.  (The statement also includes a "family" category, but all it does is say whether your family could be eligible for benefits if you retire, become disabled, or die.)  All of these benefits are based on "credits."  Earn one credit for each $1,090 of wages or self-employment income earned in 2009, up to four credits for the year.  (The dollar amounts goes up a little bit every year as the average earnings levels rise.  It was $1,050 for 2008.)

Retirement:  Most people need 40 credits (about 10 years), earned over their working lifetime, to receive retirement benefits.  In the retirement section of the estimated benefits, it will say whether you have earned enough credits to qualify for benefits.  If you haven't yet earned 40 credits, the SSA is unable to estimate your benefits yet.  Your estimated benefits are based upon average earnings up to this time, and assume that will continue to earn roughly the same amount each year until you reach retirement age.  These estimates will change throughout your life as your earnings go up or down (hopefully up!).  In addition, the laws that govern the benefits may change before you begin receiving these benefits.

Your benefits estimate shows three different amounts:  retiring at age 62, full retirement (age 67 for most of us), and delayed retirement.  For these purposes, retirement doesn't necessarily mean when you stop working, but rather it means when you start drawing social security benefits.  There is no requirement to start drawing social security as soon as you stop working.  As you can see from the figures, there is a large incentive to put off drawing social security as long as possible.

Disability:  Social Security Disability Insurance (SSDI) pays benefits to the worker and certain family members if the worker becomes disabled.  Disability benefits are available for people who have enough credits from earnings.  (The exact amount varies depending on your age.) You must suffer from a physical or mental impairment that is expected to prevent you from working for a year or more, or result in death.  For purposes of disability payments, the definition of disability is very strict:  your illness or injury must severely limit your ability to perform basic actions such as sitting, walking, or remembering.  Payments under SSDI begin in the sixth full month after you have become disabled.

If you are eligible for SSDI, certain family members may also be eligible for a benefit.  These members include a spouse who is aged 62 or older or is caring for a child under the age of 16, an unmarried child who is under the age of 18 (19 if still enrolled in high school,) or an unmarried child who is disabled and became disabled before turning 22 years old.  The Disability section of the statement shows how much your monthly payment would be if you become disabled.  As you can see, it is probably no where near what you are making right now.

Survivors:  This section of the statement talks about benefits that could be available to your family members if you die.  Survivor benefits also require enough credits for eligibility.  Payments may be made to a surviving spouse, at retirement age, or a disabled surviving spouse as early as age 50.  Unmarried children are eligible for benefits until age 18 (19 if still in high school) and a surviving parent who is caring for a child under the age of 16 will be eligible for benefits as well.  The estimation of benefits will state individual amounts for certain circumstances, and then state a "total family benefits cannot be more than" amount.  If you have two or more children, this is the important amount for you to note and use in your life insurance planning calculations.

Medicare:  This section will state if you have earned enough credits to qualify for Medicare at age 65.

Your Social Security Statement is interesting and full of good information.  Don't get discouraged if you haven't earned enough credits to be eligible for benefits, or if your benefit amount seems low.  Estimates assume that you will continue to earn at your current rate for the rest of your working career.  For most of us, particular when we're young, it is more likely that our income will continue to increase, thus increasing the benefits.

There has been a lot of talk about the solvency of the Social Security system and some people think that it won't exist by the time most of us reach retirement age.  While that is certainly possible, I personally think it more likely that benefits will decrease and the age to receive benefits will continue to go up, but some sort of Social Security will still exist.  Regardless of what does happen, knowing what the current situation is is better than not knowing anything at all.  So next time that envelope arrives from the Social Security Administration, take out your statement, make sure all the information is correct, and see what benefits may be there for you.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.