Why it pays to have a "my Social Security" account

Do you know how much you might eventually receive from Social Security? If the answer is no, you could benefit by setting up a "my Social Security" account with the Social Security Administration (SSA), which is promoting the accounts this week as part of an ongoing effort to educate the public about these valuable benefits.

For many Americans, Social Security will be the largest source of their retirement income, particularly for older Americans with low retirement savings. If this describes you, the most important financial decisions you'll likely make involve the best strategy for claiming Social Security benefits and deciding when to stop working and retire.

If you're informed, you're much more likely to make better decisions.

After setting up a my Social Security account, you can check your earnings history and view an online statement showing estimates of your future monthly retirement income, based on three different ages when you might start your benefits: age 62, your full retirement age (age 66 for current retirees) and age 70.

Because Social Security calculates your benefit using a 35-year history of your earnings, it's important to review your earnings history to check for mistakes. If the information the SSA has on file isn't correct, your benefit won't be calculated correctly.

You can also check to see if you have 35 years of earnings. If you paid Social Security taxes for less than 35 years of earnings, the SSA plugs in zeros for the missing years and still calculates a 35-year average. But this reduces your benefit, compared to paying into the system for each of 35 years.

The number of years you've worked so far can be one factor that influences how long you'll work because you may decide to keep working until you've accumulated 35 years of credit.

It's also important to understand how your monthly Social Security check increases if you delay the start of your benefits. The fact is, many people can increase their total lifetime Social Security payout if they delay starting their benefits for even a few years.

This strategy can work for people of average health or better, while workers who are in poor health and don't expect to live very long may benefit by starting their Social Security income early. Once again, learning how much you're rewarded for delaying the start of benefits can help you decide how long you should work and when you should begin drawing benefits.

The online estimates described above are calculated by assuming you'll keep earning your most recent annual wages until the assumed retirement date. This might be problematic for people who decide to retire and stop working but delay the start of their Social Security benefits. In this case, use an online calculator from Social Security to refine your estimate by plugging in how much you expect to earn in the future. You'll get an estimate based on that assumption.

Many people who already have 35 years of earnings may find that such a refined estimate won't differ much from the estimate on their online statement. If you're in this situation, it may help to take the time to prepare the refined estimate to know for sure. Strategies these people should consider include drawing from retirement savings to replace the Social Security benefit they're delaying, or working just enough hours to replace these benefits while you're delaying.

According to a recent study from the Boston College Center for Retirement Research, many Americans report that the information they receive from Social Security's benefit statement is valuable to them, and more than 40 percent of people approaching retirement say they use the information as part of their planning.

Knowledge is power. So, take the time to create a my Social Security account to learn how much you might receive from the SSA. It will help you feel more confident about your future.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.