Social Security Part 1 – How to Read Your Statement

Americans love the royal family.  And I’m English (my mom was born and raised there) so let me try to spice up the topic of Social Security with a royal family metaphor.  Social Security is like Prince Harry – widely known but never fully understood.  I cannot figure out what Harry is doing right now, but I am going to attempt to shed some light on Social Security in this 3-part blog.  First, we will tackle the basics of understanding the benefits shown on your Social Security statement.

The first step is to get a copy of your statement.  You used to get this in the mail but the Social Security Administration stopped mailing hard copies to most people about 10 years ago.  So now you have to go online and create a mySocialSecurity account on the ssa.gov website instead.  Once you have an account and your password, the first thing to check on your statement is whether your information is correct.  Specifically, you will want to review your earnings history on page 2 of your statement and make sure no pieces are missing since this is a key component of the benefit calculation.

Assuming that all of the earnings info looks correct, the main numbers you will want to understand are the retirement benefit estimates shown on the right side of the first page of your statement.  These estimates are shown in a bar graph reflecting the different amounts you could get depending on what age you start taking benefits.  There is a permanent reduction in your benefits if you start taking them before your normal retirement age (NRA), and a permanent increase in your benefits if you delay past your NRA (up to age 70).  The bar graph presents an estimate of your options depending on when you choose to start your benefits.

But there are some key assumptions to be aware of as you review these numbers.  First, the estimates assume that you keep working at your current income level up to the age that you start Social Security.  This may or may not be a good assumption for you.  Second, the numbers reflect all cost of living adjustments (COLA) that have been implemented to date, but they do not reflect estimates for any future COLA adjustments.  Everything else being equal, these estimates will go up every year as more COLA adjustments are implemented.  So, it’s not just the people collecting benefits today who will enjoy the COLA adjustments like the 8.7% increase that was granted for 2023, but those of us who haven’t started collecting yet are also seeing the same increase in the future starting point of our benefits.

Beyond the standard retirement benefits based on your own earnings record, there are many other rules for spouses, widows, and divorcees that I will outline in Part 2 of this series.