Many people go a lifetime without ever glancing at their Social Security tax returns. But this is a mistake.
Every year, the Social Security Administration (SSA) issues workers an income tax return. This document contains some vital information.
First, it summarizes the annual salaries that count for the calculation of social security benefits. Then, it gives an estimate of what an individual’s future monthly benefit in retirement might look like.
It is important to check your tax return every year. If you don’t and your salary is accidentally underreported, it could leave you with a lower monthly benefit for life.
But another reason why it’s important to check these statements is that they can help you lower the monthly benefit you might be entitled to later in life. And that, in turn, could help you better plan for your retirement.
In fact, the SSA is rolling out a redesigned Social Security statement that does an even better job of highlighting what estimated future benefits might look like. And it’s definitely worth keeping an eye out for this change.
The importance of estimating your future profit
As a general rule, you should aim to have enough annual income in retirement to replace around 70-80% of your final salary. Now, Social Security will not help you achieve this on its own. These benefits will only replace about 40% of your income if you earn an average salary.
But knowing what future benefits you might be entitled to could help you determine whether you’re saving enough for retirement, or whether you need to increase your 401 (k) or IRA contributions and do better. And this is where the new conception of the income statement comes in.
In the current design, your income statement will tell you what your retirement benefit will look like at 62 and 70, as well as your full retirement age, i.e. from which you are entitled to full of your service. Age 62 is the earliest age to apply for benefits, while age 70 is the last age at which you can accumulate deferred retirement credits that increase your benefits.
The new version, meanwhile, will show you what your estimated monthly benefit looks like for each year between 62 and 70. This could, in turn, help you reach the best deposit age based on your income needs and savings level. . It could also help guide your savings decisions by showing you your options for claiming benefits down the line.
How to access your income statements
So far, the SSA has not overhauled its income statements at all levels. This change could take time. But it’s always worth checking your income statement and seeing what it says.
If you are under 60, you will need to create an account on the SSA website to access this document. Those who are 60 years of age or older can expect these statements to arrive in the mail.
Not only should you review your statement annually for errors, but you should also be careful with your estimated benefits. Of course, the closer you get to retirement, the more accurate this number will be, since benefits are calculated based on lifetime earnings. But even if retirement is years away, it still pays to get a rough number to work with.