10 Reasons Your Social Security Estimate Might Be Dead Wrong

Millions of people check their Social Security statements and assume the estimate of their future retirement benefits is accurate. However, there are many situations where the prediction can be way off.

If you're 50 or older — or even if you are younger — and are using these figures to prepare for retirement, explore some of the following reasons why your estimate could be dead wrong.

Social Security benefits are based on your highest 35 years of earnings. If any of the information about those years is wrong or missing, it could mess up your entire estimate.

Mistakes can happen if your employer didn't report your income properly or you changed your name and your records weren't updated. So, keep a close eye on your statement and if something looks wrong, report it to the Social Security Administration (SSA).

Your Social Security estimate is based on assumptions about how much money you will earn between now and the day you retire. As you might imagine, those guesses don't always match reality.

The SSA often assumes you'll keep earning at your current rate until full retirement age. Therefore, your projection can easily be a little inflated.

For example, if you make six figures now but plan to reduce your hours or retire early, your actual benefit could be noticeably lower than what the SSA projects today..

Any future gaps in your earnings — such as a layoff or illness — can reduce your average earnings, leading to a lower Social Security benefit than is currently forecast.

It's also important to note that any unemployment benefits you receive — past, present, or future — do not count as earnings when the SSA calculates your benefits.

Many people plan to retire later in life but end up leaving the workforce sooner, whether that is by choice or due to poor health or job loss.

Either way, if you claim benefits before your full retirement age — which is 67 for most people today — your monthly check could be substantially reduced.

You can begin drawing as early as 62, but that could lower your monthly by up to 30%, or even more for some recipients, according to the SSA.

On the other hand, your Social Security estimate might understate your future benefits if you continue working past your full retirement age and well into your senior years.

If you plan to work longer, your benefit could be substantially higher, especially if you are a high earner during your later years. In fact, for every year you hold off claiming after your full retirement age, your benefit will increase by 8% per year up through the age of 70, according to the SSA.

Your Social Security estimate shows benefits in today's dollars, without factoring in future cost-of-living adjustments (COLAs). This means that your payment will likely be considerably higher in the future than what you see today.

COLAs vary from year to year, and they aren't guaranteed. But most years, the SSA gives retirees a little bump so their benefits will keep pace with inflation.

Your Social Security benefit estimate doesn't reflect what you'll actually receive after your Medicare premiums are deducted.

Many retirees have the cost of Part B premiums taken directly from their checks. Currently, Part B costs around $185 a month for those on Original Medicare, but it can be higher for those with higher incomes.

Monthly premiums vary quite a bit for those with a Medicare Advantage plan.

With that in mind, your actual monthly deposit could end up being less than your estimate suggests.

Your personal estimate doesn't include potential spousal or survivor benefits for which you might qualify.

For instance, if your spouse has earned significantly more than you have, you could be eligible for a higher monthly benefit than your own record suggests. This option isn't reflected in your Social Security statement, but it can impact your decisions about when to claim.

Your estimate doesn't account for potential taxes that you might owe on your benefits. If what is known as your "combined income" exceeds certain thresholds, up to 85% of your Social Security income could be taxable.

Your combined income is your adjusted gross income, any nontaxable interest you earn, and half your Social Security income.

Taxes start kicking in if your combined income exceeds $25,000 for single filers and $32,000 for joint filers. Such taxes can significantly reduce the amount of money that actually ends up in your pocket.

To get a clearer picture of what you might actually receive, use the SSA's online tools that allow you to input different retirement ages, earnings levels, and work histories.

You can also create a My Social Security account at the SSA website so you can look at your records and check for errors. Make sure your earnings record is accurate.

Just keep in mind that nothing you see on the SSA website is set in stone, so it's foolish to regard your estimate as anything more than an educated guess.

When it comes to predicting your future Social Security benefits, estimates can be a helpful planning tool. But they are far from a guarantee.

It's important to review your earnings record regularly to make sure there are no mistakes. You should also create a strategy for when you intend to file for benefits, as different claiming scenarios can have a big impact on the size of your monthly benefit.