FINANCIAL FRESHMAN #054
TL;DR → Once you understand the mechanics of how Social Security works, you should create your own account, check your eligibility and earnings history, and preview your Social Security benefits.
Social Security…201?
We’re spending two weeks talking about Social Security for one main reason: As a college student or recent graduate, you’re probably not thinking about it very much yet. Over the course of your career, you’re going to pay a ton of money into this program, so our goal is to demystify it as soon as we can.
In our post last week, we covered some Social Security fundamentals. If you missed that post, I do recommend reading that one prior to working through this one. That post covered the basics of Social Security, how the program gets funded, and what it may look like in the future. My goal this week is to give you some (brief) homework, to expand your Social Security familiarity even further.
This will work best if it’s a little bit interactive, so open up another tab and let’s get started. We’ll cover 3 actions that you can take right now to bolster your Social Security understanding and get ahead of your peers. Nothing major, we’re talking about a 20-minute investment.
Step 1: Create Your Account
This first step is our most logical place to start. If you haven’t already, you should navigate to ssa.gov/myaccount and create an account using the provided link.
You’ll have the option of creating an account using either login.gov or ID.me. Both processes will require the same information from you, and both are fairly seamless!
Once completed, be sure to save your login credentials, as well as which authenticator you used, somewhere where you won’t lose them.
There are a number of things you can accomplish with this account, some of which we’ll talk about in this post! For now, think of this as “planting your flag.” You have a Social Security number, and now you have your own Social Security account to go with it.
Step 2: Check Your Eligibility & Earnings
With your account created, the next step is to review your Social Security eligibility, as well as your earnings record. Prior to doing this, let me explain the concept of Social Security credits.
You see, paying Social Security taxes, in and of itself, does not qualify you to receive Social Security benefits in retirement. To ensure you are eligible, you have to earn a total of 40 credits (in most cases). The math associated with these credits is fairly simple:
- You earn one credit for each $1,810 you make in income.
- You can earn up to 4 credits per calendar year.
- If you earn $7,240 ($1,810 x4) in any given year, you have earned all your credits for that year!
Using these figures, we know that earning 40 credits means working for around ten years, assuming that you meet the income threshold each year. As you explore your account, you’ll see the status bar that highlights where you are on the credit scale currently.
Typically below this scale, you’ll see a link to review your full earnings record. Navigate to this page, and take a few minutes to ensure its accuracy. As you can see at the top, there’s a link provided to contact them for corrections. The sooner that mistakes are discovered, the easier they are to get corrected. This is part of the reason you’re making your account so early!
Step 3: Preview Your Benefits
Lastly, but arguably most importantly, let’s talk about using your new account to preview your retirement benefits. Before we do this, let’s highlight what full retirement age means in the eyes of the Social Security Administration.
Let’s talk through some ages, and the associated milestones:
- Age 62: Provided that you earned all 40 of your credits, you can begin receiving benefits at this time. However, since you have not met full retirement age, you will permanently receive only about 70% of your benefit.
- Age 67: This is considered full retirement age. At this age, you are entitled to 100% of your benefit.
- Age 70: If you retire at this age, you will have earned delayed retirement credits, which means you could earn around 130% of your benefit.
I’m simplifying a little bit here, but you get the idea. Also note that there’s a step function connecting these three milestones—if you take your benefit at 63, you will earn more than at 62, as an example.
Knowing this information, you should play around with the retirement calculator at the bottom of your account’s homepage. As you accumulate income throughout your career, it will be incredibly valuable for you to understand what your available benefits will look like at several different milestones.
To change the provided graph, you can manipulate your retirement age, as well as an average of your future annual salary. If you have an estimation of what your starting salary may be after graduation, this is a great place to plug that in.
Final Thoughts
There you have it! Three quick steps that put you in the driver’s seat when it comes to your Social Security benefits. You don’t need to be thinking about retirement to take retirement seriously, and taking care of these actions in your 20s is not too early. This is the perfect time to get ahead of your peers, ask questions if you have them, and build habits that future you will thank you for.
Take these three steps today.
