Page 2 of ‘Your Social Security Statement’

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Please click on the thumbnail to the left to see a sample of Page 2 of Your Social Security Statement. The numbers highlighted in red are explained, and expanded upon, in the post below.

This is an estimate of Wanda’s retirement benefits if she took:

• early retirement- at age 62 it would be $975 a month
• normal retirement- at age 67 it would be $1412 a month
• delayed retirement- at age 70 it would be $1761 a month

Obviously, the sooner you retire, the lesser the benefit. Benefits are reduced by 5/9 of a percent for every month that a worker begins receiving benefits before normal retirement.

The monthly benefit amount received depends upon several factors that are beyond the scope of this post. Here’s what you really need to know: social security benefits are paid from the 6.2% tax on each employee’s wages (matched by employers) and the 12.4% tax on self employment earnings. These FICA taxes are imposed on a maximum of $97,500 in wages for 2007.

For example, in 2007, if you’re not self employed and earned $110,000, then you paid $6045 ($97,500 x .o62%) into social security. No FICA taxes were due on the earnings amount over $97,500.

Social security also provides insured workers with long-term disability coverage. Benefits are only available if a worker is unable to do any work for which he or she is suited and the disability will last more than a year. Benefits will not begin until the sixth month after the disability begins.

Much like the retirement benefit discussed in point #7, figuring out how the SSA arrives at the actual benefit amount is too complex for this post. Just know, that there is a grid in place that determines the amount of social security credits needed, at the age of disability, in order to qualify.

This section is self explanatory. Once again, forget about understanding how the SSA came up with these numbers, just know that your family may be entitled to receive survivorship benefits. In Wanda’s case if she died this year both her spouse and child would receive $1008 a month.

Wanda has enough credits to qualify for Medicare at age 65. Anyone over 65 who is eligible for Social Security benefits will be covered by Part A at no charge. Part A Medicare coverage is for hospitalization.

The most important thing here is your estimated future earnings. If your earnings increase (which we hope they will) then future social security statements will reflect higher estimated benefits.

Eligibility for social security is based on a credit system. To earn one credit, for 2007, a worker must earn $1000 in wages or self-employment income. Workers born after 1929 are eligible for Social Security benefits once they have earned 40 credits.

This is pretty logical. In our example, Wanda’s estimated benefits will probably change over time. She still has over 25 years until normal retirement, the closer she gets to that age the more realistic her benefit estimate becomes. Much like financial planning software uses assumptions, so does your social security statement.

Your social security benefits may be affected by a number of different things. Certain workers are not covered by Social Security (OASDI), including federal employees hired before 1984, railroad employees and some forms of family employment.

On Page 2 of the sample statement they give you 2 examples (WEP and GPO) where your Social Security benefits are reduced. The first assumption here is you have attained enough credits to qualify for social security benefits. The second important fact is that you’ve spent a portion of your working life in a job where you did not pay social security taxes but are entitled to a pension.

The bottom line here is if you’re entitled to a pension from a job where you never paid social security taxes, then your social security benefit can be severely limited or even reduced to zero (in the GPO case).

Page 3 of your social security statement tomorrow…

Tags: Social Security, Your Social Security Statement