The Social Security Administration is stepping up its outreach efforts to working Americans of all ages by including fact sheets with new guidance when workers access their estimated benefits statements online. It is a welcome change and long overdue.
“The fact sheets are designed to provide clarity and useful information, based on your age group and earnings situation,” the agency noted on its website. “They can help you better understand Social Security programs and benefits.”
There are four new Retirement Ready fact sheets aimed at workers ages 18-48, 49-60, 61-69 and ages 70 and up. The appropriate fact sheet will be included automatically when an individual accesses his or her personal account at www.ssa.gov/myaccount.
In addition, there are targeted fact sheets for special situations such as Social Security Basics for New Workers; How You Become Eligible for Benefits; Additional Work Can Increase Your Future Benefits; You Have Earnings Not Covered by Social Security; and Medicare Ready. Anyone can access the fact sheets at https://www.ssa.gov/myaccount/statement.html.
So far, more than 55 million Americans have signed up for personal Social Security accounts, an increase of nearly 10 million people since the end of 2019, SSA spokesman Darren Lutz said in an email.
While that is an impressive surge in people signing up for Social Security accounts, it still represents a mere fraction of the American workers who pay Social Security taxes and receive benefits.
An estimated 178 million workerswere covered by Social Security in 2019 and 65 million Americans, including retired and disabled workers, their dependents, and survivors, received more than $1 trillion in Social Security benefits last year. For most Americans, setting up a personalized Social Security account is the only way to receive estimates of their future benefits. In the past, estimated benefits statements were mailed to all covered workers age 25 and older, but now paper statements are sent only to people age 60 or older who have not signed up for an online account.
The basic Social Security statement, which is a critical financial planning tool, shows individuals how much they have paid in Social Security and Medicare taxes each year and how much they would get in Social Security benefits at 62, their full retirement age and age 70. It also shows how much in disability benefits they may be eligible for if they became disabled and are unable to work, as well as the benefits available to eligible dependents and survivors.
The statements explain that individuals need at least 40 credits earned during their working lifetime to be eligible for Social Security retirement benefits, but the amount of those future benefits is based on their top 35 years of average lifetime earnings and the age at which they claim them. The benefit estimates assume workers continue to earn about the same amount of money up to retirement age.
“Generally, the older you are and the closer you are to retirement, the more accurate the retirement estimates will be because they are based on a longer work history with fewer uncertainties such as earnings fluctuations and future law changes,” every benefit statement notes.
The combined Old Age, Disability and Survivors trust fund is expected to be exhausted in 2034, meaning there would only be sufficient revenue from payroll taxes to pay about 79% of promised benefits unless Congress acts before then.
“It is true that Social Security faces financial problems and action is needed soon to make sure the system can continue to pay approximately the same level of benefits,” one fact sheet notes.
On average, Social Security will replace about 40% of annual pre-retirement earnings, about half of the recommended income replacement rate needed for a comfortable retirement. Although higher-income workers get a larger monthly benefit based on their average lifetime earnings, Social Security tends to represent a smaller portion of their pre-retirement income.
The fact sheet for workers ages 18-48 stresses the importance of starting early to save for retirement, either through an employer plan or an individual retirement Account. The fact sheet for workers age 49-60 explains how continued work can boost future benefits, details the ability to make “catch-up contributions” to a 401(k) or IRA at age 50 or later, and outlines the tax consequences and penalties for tapping retirement accounts early.
The fact sheet targeting workers age 61-69 emphasizes that one’s claiming age affects benefit amounts, that benefits are adjusted for inflation and will continue as long as you live, and notes the importance of signing up for Medicare at 65 unless you are covered bya health insurance plan from a current employer.
The fact sheet for workers ages 70 and up proclaims that “now is the time to claim what you’ve earned.” It notes that “because you are 70 or older, you will receive no additional benefit increases if you delay claiming them. Apply now at www.ssa.gov/applytoretire.”
(Questions about Social Security rules? Find the answers in Mary Beth Franklin’s ebook at InvestmentNews.com/MBFebook.)
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