Do you ever wonder how the Social Security Administration (SSA) determines your benefit? First, they index all your years of earnings to today’s dollars to account for inflation. Then they take your top 35 years of wages to determine your Average Indexed Monthly Earnings (AIME). With this information, SSA applies a formula to create your Primary Insurance Amount (PIA). The PIA is the amount you will receive at your Social Security Full Retirement Age (FRA). From there, your benefit may be higher or lower, depending on when you start your benefit.
Through the sea of acronyms, this remains clear– your Social Security check is based on your earnings. Therefore, it is critical to make sure your earnings record is complete and accurate. Regardless of how many years you actually worked, SSA still uses 35 years when calculating your benefit. Therefore, if you worked fewer than 35 years, or if you have years with zero earnings, your Social Security benefit will be lower.
If you haven’t reviewed the earnings record on your Social Security statement lately, time is of the essence. Generally, earnings records must be corrected within about three years after the end of the tax year in question. If you are outside that time frame, be prepared to submit copies of tax returns, W-2s, and more.
Several years ago, SSA made a push for Americans to sign up for online Social Security statements. If you were one of those who created a login, your Social Security statement is just a few clicks away. Check your earnings record today! For those without a login, SSA is now sending paper statements every five years for those under age 60, and every year for those 60 and older. To avoid a delay, consider creating a login to check your record. Keep in mind, SSA uses your credit bureau records to verify identity when creating a login. Therefore, you must lift the credit freeze at all three credit bureaus to create your login.
Don’t get short-changed in retirement. Check your earnings record today!
- Written by Juli Erhart-Graves, CFP® Worley Erhart-Graves Financial Advisors