Social Security Mailing Could Be a Wake-Up Call for Many Workers

The 125 million statements that go out beginning this week should bring retirement planning into focus.
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Most U.S. workers have been putting money into Social Security all of their lives. Beginning this week, millions of them will get their first accounting of what it all adds up to.

Starting this week, the

Social Security Administration

is sending personalized statements to U.S. workers over age 25 with year-by-year details of their contributions to the plan and projected monthly checks for a range of retirement ages.

Congress voted to have the statements sent out annually to each worker -- 125 million of them this year -- at a cost of about $70 million.

Financial planners are delighted: The mailing should focus new attention on the need for retirement planning because the average 65-year-old retiree currently only receives $740 a month in Social Security benefits.

"It's a marvelous event because it's a huge wake-up call for America," says Joel Davis, a senior financial planner with

American Express Financial Advisors

in Portland, Maine.

"I think it's something that's long overdue. You pay into Social Security and you should know what you'll get in return," says William Baldwin, a financial planner with Lexington, Mass.-based

Pillar Financial Advisors


What should you do when you get your statement?

First, review the listing of your contributions for accuracy.

"You'll sometimes find that two people are using the same Social Security number," says Davis, who notes that errors are not uncommon, particularly among small-business employees.

Social Security spokeswoman Carolyn Cheezum says errors can result from an employer's incorrect accounting, name changes, job changes and Social Security Administration oversights. The historical error rate is 0.2%. That still adds up to about 233,000 workers who will report errors this year.

If you do find an error, Davis and others say you should contact the Social Security Administration immediately as the government is not required to correct errors made more than 10 years ago. Errors can be reported by calling 800-772-1213.

Advisers admit that errors will go uncorrected because many people ignore their Social Security benefit. But they say that dismissing the benefit is a mistake.

"For some people it will be supplemental, and for others it's more substantial. But it's vital information for everyone. You have to consider all your retirement income streams when you're making a financial plan," says Davis.

Why? Davis lists a host of little-known Social Security issues. For instance, working in retirement can reduce your monthly benefit check and end up costing you money after taxes.

Also, without careful planning, annuitized investments such as variable annuities can inflate your retirement income to the point where 85% of your Social Security benefit becomes taxable. (See a previous

Tax Forum for information on calculating the cutoff point.)

On the plus side, widows and widowers are entitled to 50% of their spouses' benefits, and a divorced spouse is entitled to the same benefit if married for ten years.

If nothing else, the mailing might assuage investors' fears that the system will collapse. "Clients have a huge fear factor that Social Security won't be there for them, but this shows the reality of their benefit," says Birmingham, Ala.-based planner Stewart Welch.

Tom Foster, an attorney with

John Hancock Funds

who focuses on retirement issues, says that since most investors will need around 70% of their highest salary in annual retirement income to sustain their standard of living, the mailing will be a catalyst. "I think 401(k) deferrals will go up. I also think more people will open IRAs and other individual retirement plans," he says.

Of course, even an attorney knows a sales opportunity when he sees one. "This is probably the best marketing opportunity we've had in several years," says Foster.