ST. PAUL, Minn. (10/7/14)--Don't miss the personalized Social Security benefit estimate that will arrive in your mailbox this fall. Take these steps to learn how to understand the statement, understand how to use it as a financial planning document and how to fix mistakes (NextAvenue Sept. 25).
The statement is a snapshot in time. The projections are smaller than what you likely will receive when you actually start collecting benefits because they're calculated on today's dollars, aren't adjusted for inflation, don't take into consideration cost-of-living increases and assume that you'll keep making the same amount of money until you start receiving benefits.
In addition to benefit estimates, the statement provides your complete earnings history and the total payroll taxes you paid on those earnings throughout your career.
If you take Social Security benefits at age 62 (early retirement age), they'll be smaller than if you wait until you reach what Social Security calls full retirement age. If you were born between 1943 and 1954, full retirement age is 66 and it gradually rises to 67 for people born in 1960 or later. If you wait to retire until age 70, you'll get the largest benefit possible. You won't receive additional benefit increases after age 70.
Calculate the difference in estimated benefit amounts taken at different ages to help you plan different retirement scenarios. For a wage earner who was born, for example, Jan. 1, 1955, and is earning $60,000 at the time of retirement, the annual benefit can vary by as much as $14,000 depending on your age when you apply for benefits.
Your earnings history is the basis for future Social Security benefits. If it's wrong, you might not receive all the benefits you're entitled to. If you see years with zeros in them, check whether or not you paid into Social Security during those years.
If you find errors, contact your former employer for copies of W-2 forms or look at tax returns for the years in error. Once you can document the errors, call the Social Security Administration at 800-772-1213, or send correspondence to Office of Earnings Operations, P.O. Box 33026, Baltimore, MD 21290-3026.
For related information, use the calculator: "How Long Will Retirement Savings Last?" and read "How to Calculate Your Retirement Needs" in the Home & Family Finance Resource Center.