Millions of Americans will file their taxes between now and April 15 — an annual practice in looking backward. For many, this time of year is the only time they take stock of things like their salary, tax withholding and annual contributions to retirement accounts.
With all of that information top of mind, tax season is also a great time to start thinking ahead, specifically about Social Security. In fact, “it’s the perfect time,” says Jared Friedman, a certified financial planner and partner at Redwood Financial Planning in Scotch Plains, New Jersey.
Although talk of Social Security’s eventual demise isn’t going away, politicians aren’t going to let the plan dry up by the time younger adults retire, Friedman says. That makes it an essential piece of your retirement income that’s worth staying on top of.
“A great practice is, when you file your taxes, you should take an accounting of all your financial stuff,” he says. “Review your 401(k) balance, review your bank balances, review your credit limits, and yes, check on your Social Security Statement.”
It’s not hard. Just create an account on the Social Security Administration’s website (you’ll have to submit some identifying documents) and download your form.
Even if you’re years away from retirement, checking your statement now can give you a decent idea of what you can expect to receive when you stop working.
What your Social Security Statement tells you
Social Security benefits are meant to replace roughly 40% of your preretirement income, which the government calculates by taking the average of your 35 highest-earning working years.
To estimate your payout, the government assumes you’ll continue to earn what you did in the most recent calendar year until the time that you claim your benefits. Should your salary go up or down between now and retirement, the amount of your estimated benefit will change.
Your statement will show you an estimated monthly payout in retirement, which fluctuates depending on the age you start to claim your benefits. For workers born in 1960 or later, full retirement age is currently 67. You can claim as early as age 62, but starting early could result in a reduction in your payout of up to 30%.
Conversely, you’ll receive a higher payout should you delay taking your benefits, to the tune of 8% extra per year until your benefits max out at age 70.
The strategies around timing when to claim Social Security depend on myriad factors. But regardless of when you claim, Social Security is an important piece of the puzzle for income in retirement — one that you’re better off knowing about as soon as possible, says Friedman.
“Why not know that baseline?” he says. “That way you can look at [your estimated retirement income] in total with your 401(k), Roth IRA and Social Security benefits.”
And depending on how long and how recently you’ve worked, you and your family members may qualify for benefits in the event that you die or become disabled. Those estimated amounts are listed in your statement as well.
That alone may make it worth checking your statement — even if you’re years away from retirement, says Friedman.
“Why not have that peace of mind? Why put your head in the sand because you’re a young person?” he says. “I don’t think money has to rule your life. But it’s good to be organized financially in all phases of life.”
Why now’s a good time to check your Social Security statement
Your statement lists your pre-tax income from each working year — amounts that will eventually be used to calculate your benefit. Chances are, you’re never going to have a better idea of your income for 2023 than right now, says Crystal McKeon, a CFP and chief compliance officer at TSA Wealth Management in Houston, Texas.
“Your Social Security calculation is updated with your earnings every year after you file your taxes,” she says. “This is the best time to catch any mistakes if there is an error in your calculation.”
That’s because, should the Social Security Administration misreport your income if you changed jobs or worked several gigs as an independent contractor, it’s on you to correct the record. To get it changed, you’ll have to file a formal request with the agency in which you provide documents proving your income.
This year, that would be a snap. You already have your W-2s and 1099s handy. By the time you’re eyeing retirement, not so much.
“If you don’t look at your Social Security annual income calculations until you are 60, you likely won’t know if the income from when you are 35 was correct,” says McKeon. “Even if you do know exactly what you made that year, you might have a hard time proving [it] unless you keep your tax filings that long.”
Want to land your dream job in 2024? Take CNBC’s new online course How to Ace Your Job Interview to learn what hiring managers are really looking for, body language techniques, what to say and not to say, and the best way to talk about pay. CNBC Make It readers can save 25% with discount code 25OFF.
