they supposedly needed many years in the future to achieve a particular standard of living throughout their retirement.
Eyeing the Components of Your Retirement Plan
In order to meet your retirement goals, you need a firm grasp of what resources are available to help you. In addition to government benefits such as Social Security, company-provided pensions and personal investments round out most people’s retirement income sources. This section takes a closer look at these elements.
Social Security retirement benefits
Social Security is intended to provide a subsistence/modest level of income in retirement for basic living necessities such as food, shelter, and clothing. However, Social Security wasn’t designed to be a retiree’s sole source of income. When planning for retirement, you’ll likely need to supplement your expected Social Security benefits with personal savings, investments, and company pension benefits. If you’re a high-income earner, you particularly need to supplement your income — unless, of course, you’re willing to live well beneath your pre-retirement income. (Refer to Chapter 10 for more discussion on Social Security.)
www.ssa.gov/myaccount/ or by calling 800-772-1213 and requesting Form SSA-7004 (“Request for Social Security Statement”). Setting up a “my Social Security” account on the Social Security website lets you obtain updated benefits estimates, verify your earnings, and take other actions.
By reviewing your Social Security account, you can see how much in Social Security benefits you’ve already earned and review how the Social Security Administration (SSA) determines these numbers. With this information, you can better plan for your retirement and make important retirement planning decisions.
Looking at your estimated Social Security benefits
Your Social Security account can give you important information about your estimated retirement benefits. For your personal account on the Social Security website, click the link that says, “View Estimated Benefits.” You see information like the following, which happens to be for a person who is about ten years away from retirement and who has consistently been a moderate income earner (unless you don’t have enough work credits, which are awarded for every year you earn money):
You have earned enough credits to qualify for benefits. At your current earnings rate, your estimated payment would be:At full retirement age (67):$2,270 a monthAt age 70:$2,815 a monthAt early retirement age (62):$1,600 a month
These statements are pretty self-explanatory. (We explain in Chapter 10 how the credit-earning part of Social Security works.)
Assumptions: Discovering how your benefits are estimated
Along with your benefits estimates, the SSA also discloses the assumptions used to come up with your numbers and some important caveats. You should understand the assumptions behind the estimates we talk about in the preceding section. Why? These are projections, and depending on your earnings in the years ahead, your expected benefits may change. Here’s what the SSA says:
Generally, the older you are and the closer you are to retirement, the more accurate the retirement estimates will be because they are based on a longer work history with fewer uncertainties such as earnings fluctuations and future law changes. We encourage you to use our online Retirement Estimator to obtain immediate and personalized benefit estimates.
To understand what could throw off future estimates, keep the following in mind as you dig a little deeper into the SSA’s assumptions:
If you have enough work credits, we estimated your benefit amounts using your average earnings over your working lifetime. For 2020 and later (up to retirement age), we assumed you'll continue to work and make about the same as you did in 2018 or 2019. We also included credits we assumed you earned last year and this year.
We can’t provide your actual benefit amount until you apply for benefits. And that amount may differ from the estimates shown below because:Your earnings may increase or decrease in the future.Your actual benefits will be adjusted for cost-of-living increases.Your estimated benefits are based on current law. The law governing benefit amounts may change. Congress has made changes to the law in the past and can do so at any time.Your benefit amount may be affected by military service, railroad employment, or pensions earned through work on which you did not pay Social Security tax.
In other words, the SSA assumes that your future earnings will annually be about the same as your earnings in the most recent couple of years. Therefore, as their own cautions highlight, if you expect your future work earnings to change from your most recent years’ employment earnings, your expected Social Security retirement benefits also will change.
Don’t get hung up over expected cost-of-living increases. When we walk you through the retirement number crunching later in this chapter, these increases are incorporated into the analysis. The third point about future benefit law changes is worth considering, so we cover that in detail in Chapter 10.
www.ssa.gov/benefits/retirement/estimator.html.
Pensions
When putting together your retirement
