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My Social Security

Richard Connor  |  January 14, 2021

SOCIAL SECURITY is a crucial source of income for many retirees. But unfortunately, there’s also much confusion, because the ways benefits are calculated sure isn’t simple.

Want to learn more? To get started, I’d suggest heading to the Social Security Administration’s website and creating a free “my Social Security” account. For those currently receiving benefits, the website allows you to:

  • Verify your benefit payment amount
  • Get a replacement Social Security card
  • Get a replacement Medicare card
  • Change your address and phone number
  • Start or change direct deposit of your benefit payment
  • Get a replacement SSA-1099 or SSA-1042S for tax purposes

If you aren’t currently receiving benefits, you can:

  • Create, save and print your Social Security statement
  • Get estimates of future retirement, disability and survivors benefits
  • Review your earnings record
  • Review the estimated Social Security and Medicare taxes you’ve paid
  • Print a letter from the Social Security Administration (SSA) stating that you’ve never received benefits

The SSA’s site also offers a chance to get educated about Social Security generally, including:

  • How benefits are calculated
  • When you’ll reach your all-important full Social Security retirement age
  • How much your spouse might receive
  • How much of your benefit you might lose if you work while receiving Social Security
  • How long you can expect to live
  • How important Social Security is to retirees

If you’ve never done it, it’s worth creating a Social Security statement and reading it thoroughly. Keep two things in mind. First, the benefits estimates are in today’s dollars. This gives you a better idea of their purchasing power in the future. Second, the estimate of your future benefits assumes you continue to work at the same earnings rate as the past two years. If you work less, your actual benefit will reflect this. The closer you are to retirement, the more accurate the estimate will be.

If you don’t plan to work right up to the day you start benefits, you can use one of the site’s calculators to produce a customized estimate. If you think your annual earnings might differ in the future from the recent past, you can also model that scenario.

The statement and site will show your detailed earnings record. Experts recommend reviewing this once a year to verify that the amounts posted are correct. Along with your detailed earnings record, the SSA also provides the total amount of Social Security and Medicare payroll taxes that you and your employers have paid to date.

Many people wonder what kind of investment return Social Security delivers. If, instead of paying payroll taxes, I’d been able to put those dollars in a low-cost S&P 500 fund, I’d likely be far better off. But, of course, that’s not how the Social Security system works. The money collected in payroll taxes isn’t invested, but instead immediately used to pay benefits to current retirees and other Social Security recipients.

I also thought it’d be interesting to see what kind of annuity payout my estimated benefits represent. Since I turned age 63 a few months back, I was able to use an estimate of my benefit at 63, along with the total amount of Social Security payroll taxes paid over my career, to get an idea of what kind of return I’d be getting.

I looked up the average life expectancy for a 63-year-old male using the site’s life expectancy calculator. It showed I have about 20 years left. Using that number and Excel’s annuity payment function, I calculated that—to generate my estimated monthly benefit as of age 63—it would require roughly a 6% return on the combined total payroll tax that my employers and I have contributed over the years.

In today’s low interest rate environment, a 6% return doesn’t sound so bad, plus Social Security benefits are adjusted upward each year with inflation, so my return will be even higher. On the other hand, I’m also assuming that, up until now, there’s been zero gain on all the payroll taxes paid over my career—an investment return few folks would be happy with.

Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. Rick enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. His previous articles include Flunking the TestLucky Strikes and Rate Debate. Follow Rick on Twitter @RConnor609.

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