How to interpret your Social Security benefit statement

The Social Security Administration will be mailing annual benefit statements for the first time in three years to some American workers. That’s good news, because the statements provide a useful projection of what you can expect to receive in benefits at various retirement ages, if you become widowed or suffer a disability that prevents you from working.

But if you do receive a statement next month, it is important to know how to interpret the benefit projections. They are likely somewhat smaller than the dollar amount you will receive when you actually claim benefits, because they are expressed in today’s dollars – before adjustment for inflation.

That is a good way to help future retirees understand their Social Security benefits in the context of today’s economy – both in terms of purchasing power, and how it compares with current take-home pay. This approach also keeps Social Security out of the business of forecasting future inflation scenarios in the statement that might – or might not – pan out. The statement also provides a starting point for workers to consider the impact of delayed filing.

Unfortunately, the annual statement is silent when it comes to putting context around the specific benefit amounts. The document’s only reference to inflation is a caveat that the benefit figures presented are estimates. The actual number, it explains, could be affected by changes in your earnings over time, any changes to benefits Congress might enact, and by cost-of-living increases after you start getting benefits.

And the unadjusted expression of benefits can create glitches in retirement plans if you do not put the right context around them.