What Social Security Isn’t Telling You

Official estimates of your future benefits from the Social Security Administration can be both helpful and misleading. The agency has resumed mailing out the future-benefits statements after having halted the practice in 2011 to save money. Now you can expect to receive one every five years if you’re 25 to 60 years old…or every year after age 60 if you are not yet receiving benefits, unless you have signed up to view annually updated statements on the Social Security website.

Here’s how your benefits estimate might mislead you…

It assumes that you will continue at your current income level until you begin receiving benefits. This means that your future benefits may be overestimated if your income was exceptionally high during a recent calendar year or if you intend to retire years before you claim your benefits. Your statement will probably underestimate your future benefits if your income climbs significantly before you retire.

It ignores your spouse’s (or ex’s) income. You could opt to claim a spousal benefit equal to 50% of your spouse’s retirement benefit rather than your own, assuming that your marriage lasts at least 10 years. If your spouse or ex dies and you wait until your full retirement age, you could claim a survivor benefit equal to 100% of that spouse’s benefit rather than your own benefit.

It doesn’t mention that your benefits might be taxed. As much as 85% of your Social Security benefits might be subject to income taxes, depending on your income. That means many people will pocket much less from the Social Security system than they expect.