THE TAX ATTIC with Jerry Coon

What happened to the Social Security statement?

Jerry Coon

Let’s talk about Social Security this week and for the next few weeks as well. I authored a short series of articles on Social Security a few years ago, but enough procedures have changed that I feel it warrants taking another look at the system. One of the changed items involves the personal statement that the Social Security Administration (SSA) prepares annually for each one of us. This annual statement includes a letter from the commissioner, currently Michael J. Astrue; a table spelling out estimated benefits to be received upon applying for benefits; a short discourse on how those benefits are calculated; a schedule of earnings received as recorded by the SSA; and finally a page of information about Social Security.

Until last year, the statement was mailed to taxpayers on an annual basis just prior to the taxpayer’s birthday. It was decided, however, that it was cost prohibitive to continue mailing statements.

The only viable alternative put forth was to create an online Social Security statement and allow taxpayers to access the statement through SSA’s website. I like it because there is actually some good logic here.

Almost everyone in the USA today has a computer, and those who do not, likely have access through a relative, friend or the library. It saves SSA a good deal of money and is accessible to all interested parties. Sounds like a winner to me.

On May 1, 2012, the SSA opened the new online Social Security statement to the public. In a news release from Commissioner Astrue dated May 7, he noted that in those first six days, 130,000 taxpayers had created online accounts to access their statement. SSA recommends checking the information on the statement at least once a year. Since it previously was mailed just prior to the taxpayer’s birthday, it might still work to check the statement around that date each year.

My birthday is in September, so I haven’t received a statement since 2010. I decided to check out the online process. I think I was number 130,001. I started by going to the SSA’s public website at www.socialsecurity.gov. On the left side I clicked on a tab to get a statement online and to create an account. I was then redirected to SSA’s secure website at https://secure.ssa.gve/RIL. I was prompted to click on the “sign in or create on account” box. I was then notified that I would need to verify certain private information about myself such as a valid e-mail address, my Social Security Number, a U.S. mailing address, and I would also be required to certify being at least 18 years old. I proceeded and entered the requested information. I created a user ID, a password, and three security questions and answers.

Once that information was processed, I was able to immediately access my current personal annual Social Security statement. As promised, on the first page was Commissioner Astrue’s comment. I skipped past that to the information on the second page that I was most interested in: my retirement benefits, my disability benefits, my family and survivor benefits, and a note about my Medicare benefits.

I wanted to know what my SSA monthly deposit was going to be upon reaching that magic age called “full retirement age.” In my case, that will be 66 years of age. Don’t get me wrong. I can wait. I’m just turning 60, so I’m hoping to have six more years of softball playing, six more fishing trips to Canada, six more family camping trips, and six more tax seasons to enjoy before I reach 66. I’m not quite willing to trade a few years of living for a SSA check as of this moment in time. Once I reach 62, however, that could be a year-to-year decision.

If I really wanted to wait, I also am told what my monthly benefit would be upon reaching age 70. The monthly benefit is increased by 8% for each year that drawing is delayed beyond 66. I don’t think 8% is enough incentive to wait those extra four years. However, I also didn’t think Jim Leyland would be managing the Detroit Tigers this year or the Red Wings would get beaten in the first round of the hockey playoffs, so my thinking is not always infallible.

Interestingly enough, the third and final amount in the Retirement section is the number that most people want to know and end up using: the benefit at age 62.

For me, directly off my statement, the age 62 figure would be 72% of the full retirement age figure. A 28% discount is a substantial discount to take for the rest of a person’s life. However, the math quite often still indicates that is the way to go. There is a big and bold asterisk next to the “Retirement” heading that draws your attention to a note at the bottom of the section. That note is worth reading slowly and carefully: “Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 75 percent of scheduled benefits.”

That’s a sobering couple of sentences, especially for someone who began to draw at age 62 and took a 28% discount already. If the 75% discount happens, that person, after taking another 25% crew-cut, would actually end up with receiving about 50% of what his age 66 benefit would have been. Ouch!

Of course, 2033 is still 21 years in the future. Who can guess what Congress is going to do one month or one year in the future, let alone 21 years from now? If starting to draw at age 62 makes sense today, it can still be a good strategy.

Going forward, I will discuss the third page of the annual statement: your earnings record, illustrate how the earnings figures on the annual statement translate into an actual benefit, itemize some of the myths associated with SSA, look at the history of the Social Security system, and analyze some of the fixes that can be made to the system so when 2033 rolls around, a 25% discount doesn’t happen. This is Jerry Coon signing off.

 

Jerry Coon is an Enrolled Agent. He owns Action Tax Service on Northland Drive in Rockford. Contact Jerry at www.actiontaxservice.com.

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