You’re Going to Start Getting Statements From Social Security
The Social Security Administration launched a massive consumer outreach effort today, with a $70-million mailing aimed at telling 125 million American workers whether they qualify for Social Security benefits and how much they’d be likely to get.
The mailing, which will be done in increments of 500,000 letters a day, is the result of a 10-year-old law aimed at increasing awareness of the nation’s cornerstone retirement program.
Not only will the regular statements allow better retirement planning, but they also should allow individuals to make sure the government does not make a blunder in keeping crucial records on their lifetime earnings. Over past decades, the administration has been unable to properly credit billions of dollars of wages to individual accounts.
All American workers who pay Social Security taxes will get a statement once annually--just as they receive regular statements from other pension plans. Until now, such Social Security statements have been sent mainly to people who had requested them and to certain limited groups of older Americans.
You can expect to receive your statement about three months before your birthday each year, said Kenneth S. Apfel, commissioner of the Social Security Administration, meaning the first batch of mailings will go to people with birthdays in January.
“Hopefully, these will become part of Americans’ financial planning process--just like their 401(k) statements,” Apfel said. “If I were to guess, I’d say that the first year people get one of these they’re going to be surprised and find it interesting. The second year, they’re going to pay more attention. The third year, they’re going to file it with all their other retirement account statements and make it a real part of their retirement planning process. That’s what we’re hoping for.”
The program comes at a time when major changes in the Social Security system are being considered. The system, which currently provides retirement, disability and survivor’s benefits to 45 million Americans annually, has been under intensifying assault since the General Accounting Office warned several years ago that the system is unlikely to have enough money to pay full benefits at current levels after 2034 because there will be too many retirees and not enough people paying taxes. Some analysts think the system may get squeezed starting in 10 to 15 years, when the baby boomers begin retiring.
Congress is considering various proposals that would: create individualized Social Security “accounts” that would allow individuals to invest some or all of their contributions themselves; reduce future Social Security payments; raise Social Security taxes; and other changes that would make alterations in determinations of who is entitled to benefits at what age, and how much he or she would receive. Each of the proposals is controversial. All would require trade-offs between young and old, richer and poorer. Building the consensus necessary to make changes in the system is a tall order, Apfel acknowledges.
“Fundamentally, there will be changes. There have to be changes,” he said. “We don’t have to act today or tomorrow. But it is very important that we do something soon. If we are still sitting here 15 years from now talking about it, it would be profoundly wrong.”
With every passing year, the cost of making needed changes grows, he said. That’s because the system makes promises to future retirees--today’s workers. As the number of workers rises, the tab required to honor these promises soars. If the nation doesn’t start socking this money away today--or making decisions to deal with the obligations some other way--the bill could become crushing.
One of the most pressing issues is technical in nature, but nonetheless crucial, Apfel said: separating Social Security’s trust fund from the overall U.S. budget.
As the system now operates, money paid into Social Security is set aside “on paper” only. The money workers contribute is “borrowed” to finance the day-to-day workings of the U.S. government. The Social Security trust fund gets federal IOUs--another name for U.S. Treasury bonds--in exchange. The big worry is that once the massive baby boom generation enters retirement age starting in the next 10 to 15 years, there might not be enough ready funds in the U.S. Treasury to pay those retirees what they expect.
What the government is doing is the equivalent of you borrowing from your 401(k) to buy groceries and giving the account only a personal IOU in exchange. Everything looks great until you retire without having paid back those IOUs. At that point, the IOUs aren’t worth anything unless you’ve socked a lot of money aside somewhere else to pay them--or your working children are willing to pay the debt for you.
Few people believe Social Security will go bankrupt, but most observers agree there is a real possibility that benefits will have to be cut, taxes will have to be raised and/or retirement ages will have to rise drastically in the future if nothing is done today.
Apfel is urging Congress to act now--while the U.S. economy is strong--to create a true trust fund that can’t be tapped to pay other government bills. That money could then be diversified into stocks and other investments, which proponents argue would increase the size of America’s retirement nest egg over time and decrease its reliance on one source--namely, the U.S. government--to come up with all the needed cash for retirees.
In the meantime, Apfel wants to make sure the majority of Americans understand how the current system works. This knowledge should raise the level of political discourse and ultimately help the country make better informed decisions about how and what ought to be changed.
Workers can start with the new statements that let you check your reported wages--your average wage over 35 years of work is a pivotal determinant of how much you eventually collect in Social Security benefits--on an annual basis. Wages are sometimes reported incorrectly or simply not posted to the proper accounts.
Indeed, Social Security has amassed a $250-billion “suspense file” of reported wages that could not be matched to individual workers’ accounts, based on both their names and Social Security numbers. Women who changed their surnames and minorities with non-Anglo names were among those who ended up being shortchanged, according to one agency report. Untraditional names are more easily misspelled by an employer or Social Security, thus creating a mismatch.
Social Security is hopeful that the annual statements will help reduce the number of mistakes and mystery wage reports because consumers will promptly see whether their wages have been posted correctly.
* COMING SUNDAY: A Q&A; with Social Security Commissioner Kenneth Apfel.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
When You Get Your Statement
A few tips about what to do with the new Social Security statement:
* Check your earnings record. The third page of the form shows your reported earnings on a year-by-year basis. To the extent you can, check if the figures accurately reflect what you’ve earned. If they don’t, call the Social Security Administration at (800) 772-1213. The record is much easier to correct when you have documentation of what you earned.
* Remember that the retirement figures are estimates. The younger you are, the less accurate they will be, because your final retirement stipend will depend on your average wage over 35 years of work. The estimates assume your future earnings will remain relatively constant.
* Remember that disability-benefit figures are “real-time” estimates. In other words, they roughly correspond to the amount of money you’d get if you were disabled today.
* Customize your report. If you plan to make a major career change and want to know how it will affect your Social Security benefits, you can get a customized statement by contacting the Social Security Administration and filling out a short form. To get the form online, visit https://www.ssa.gov/mystatement. The last line of the form asks you to estimate your future earnings. Plug in your guess, and the agency will respond with an estimate that takes the change into account.
