As part of “National Social Security Month” the Social Security Administration (SSA) is sponsoring various activities to make the public more aware of the benefits of Social Security. During the month of April they will be focusing on what they call the “five key steps toward financial security”.
Let’s take a look at what SSA identifies as the five steps and see how they apply to federal employees and retirees.
Step 1
The first step they identify is get to know your Social Security.
One might think that it is easy to understand Social Security; after all it’s simple – you pay payroll taxes while you are working and receive a secure stream of income once you are collecting benefits.
Yet, there are more quirks to Social Security than you might expect. People who don’t understand the system stand to lose benefits to which they are otherwise entitled.
Other than finding information on the Social Security website, there are many books that delve into the arcana of Social Security. Get What’s Yours: The Secrets to Maxing Out Your Social Security by Laurence Kotlikoff, Philip Moeller and Paul Solman will make you aware of many things you didn’t know about how the system works.
Step 2
Secondly, SSA suggests you verify your lifetime earnings with a mySocialSecurity account.
Your Social Security retirement benefits are based on your highest 35 years of inflation indexed earnings, and those earnings are listed on your Social Security Statement, which you can check at any time if you have a mySocialSecurity account.
Do not assume that Social Security has all of your earnings; check the earnings record on your statement. A participant in one of my pre-retirement seminars who had been a civilian employee of the Navy for his entire career found, after checking his earnings record, that a full 20 years of earnings did not show up in his Social Security records. It’s best to find out you have a problem like this one so that you can correct it before you retire and are shocked by how meager your Social Security retirement benefit is.
Step 3
SSA suggests as the third step that you estimate your future Social Security benefits by using one of the calculators you can access through your mySocialSecurity account.
Just as it is important to have an estimate of what we will receive from our CSRS or FERS pension and from our Thrift Savings Plan, it’s important to know how much you will be entitled to as a Social Security benefit at varying ages (e.g., age 62, your full retirement age, and age 70). On its website, SSA says that “On average, Social Security replaces approximately 40 percent of pre-retirement earnings.”
Beware the weasel words “on average” and “approximately”! Most federal employees earn more that the “average” wage earner.
According to the Bureau of Labor Statistics, the average salary of a US worker in 2016 was $44,148. Due to the fact that the formula used to calculate Social Security Benefits replaces a higher percentage of the earnings of a low wage earner, it is likely that a federal retiree who is collecting Social Security retirement benefits will have less than 40% of their pre-retirement income replaced. Use the calculators on the SSA website to get your exact numbers.
Step 4
In the fourth step they identify, they suggest that when you apply for Social Security benefits you do so online.
When I applied for benefits last year, I used the online application and it was (relatively) easy. I was contacted by a representative to straighten out a few loose ends.
Be aware that the current online application does not address federal income tax withholding, so if you want to have money withheld for taxes, indicate how much you would like withheld (I did it as a percentage) in the “remarks” section of the form.
In addition, if you are applying for Social Security after you have attained your full retirement age, you should indicate in the remarks section whether or not you want to receive six months’ worth of retroactive benefits.
Step 5
The fifth and final step they identify is to manage your Social Security benefits – preferably online through your mySocialSecurity account.
