Mailings aid retirement readiness

PERSONAL FINANCE

November 07, 1999|By Eileen Ambrose

YOUNGER generations worry that Social Security won't be there for them when they retire. Dolores Travers didn't realize it was already waiting for her.

The 67-year-old Baltimore woman discovered last month that she was eligible for benefits when Social Security sent a statement to her. It's part of an extensive mailing to alert 125 million American workers about what they can expect to get from Social Security under current law.

Travers worked full time and part time for about two decades at various jobs, including clerk and custodian, until age 47, years before Social Security kicks in. She didn't realize she could get benefits and never applied for them.

Now, she'll receive about $200 a month and collect back benefits for the past six months. The amount of her monthly check also will be bumped up when her husband retires in seven or so years to match half of what he will receive.

"This is wonderful," says Travers, who will use some of the money to repair her home of 50 years.

By law, Social Security now is required to mail individual benefit statements annually. Previously, they were available upon request and, in recent years, copies were sent automatically to workers 40 and older.

Last month, the agency started mailing statements at a rate of about 500,000 a day to workers 25 and older who are not collecting benefits. If that's you, you can expect to receive a statement three months before your birthday. It will detail your earnings over the years and what you can expect to get from Social Security at age 62, at full retirement and at age 70.

It also will tell you how much you would receive if you became severely disabled and what your family would collect in survivor's benefits if you died this year.

"Many people don't have an accurate picture of what their future benefits will be or even a good estimate," said Kenneth S. Apfel, Social Security commissioner.

In a survey this year by Employee Benefit Research Institute, 59 percent of those polled thought they would receive full benefits a year or more earlier than is permitted. (Those born before 1938 collect full benefits at 65. The age limit rises to 67 for those born in 1960 or later.)

The Social Security statement was an eye-opener for 38-year-old Lonnie Lunsford, who recently requested his. It listed his earnings from the $2.66 an hour he made as a grocery clerk in high school and his current income as general manager of Mail Line in Westminster, which prints some Social Security statements.

At 62, his benefits would replace about 20 percent of his current income. The benefits grow to 25 percent of his income at full retirement, age 67, and to 30 percent at age 70.

"I've always planned on retiring at age 62," he says. "As I look at these figures, maybe it would be a good idea to work until I'm 67." He's thinking about contributing more to his 401(k).

That's the kind of response Social Security wants.

"I hope and expect that people will start to use them for their financial planning both to understand what Social Security is, which is a critical foundation, and what it isn't," Apfel says.

What Social Security isn't meant to be is retirees' sole support. Savings and pensions are expected to supplement retirees' income. Wages increasingly are becoming part of the equation, Apfel says, as workers stay on the job longer because they want to or must for financial reasons.

"Social Security calls this a wake-up call. My concern is that people will roll over and push the snooze button and not do anything," says Don Blandin, president of American Savings Education Council in Washington.

So what should you do? First, check for accuracy. Is your birth date correct? Are all your earnings listed? This is critical because your future benefits will be based on your income. To report errors, call 800-772-1213 or your local Social Security office.

Next, review your estimated benefits, which are based on current law. Apfel says he expects Social Security to be around for future retirees but that it must change to resolve long-range financial issues raised by greater longevity and the declining ratio of workers to retirees.

Social Security assumes that your earnings continue at the current level, so the estimates are more reliable for older workers than for younger ones who have yet to hit their peak earning years. You can order a statement based on your assumptions of future earnings by calling Social Security or going online at www.ssa.gov.

Social Security replaces 24 to 55 percent of pre-retirement income. "Most experts agree you need 70 percent of your pre-retirement income for a comfortable retirement. That's not the cruise-of-the-month retirement," Blandin says.

To figure if your nest egg may come up short, Blandin's group offers a "Ballpark Estimate" work sheet on its Web site at www.asec.org. Or you can call for a copy at 800-998-7542.

If you need to be socking away more money, consider an Individual Retirement Account, investments or contributing more to your employer's savings plan, experts say.

"If your employer is not currently offering any retirement savings plan, ask why not," says Ken McDonnell, research analyst with Employee Benefit Research Institute in Washington. One reason many small employers don't offer a plan is that no one ever asked for one, he says.

Once you start thinking about retirement, other person- al-finance issues, such as saving for a home or a child's education, usually follow, McDonnell says. "It's one pebble that starts a landslide."

Do you have a personal finance issue of general interest that you would like to see addressed in this column? Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

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