To Stay on Financial Track, Perform a Yearly Earnings Review


You probably have an excellent idea of how much money you make, perhaps down to the exact dollar in each paycheck. In your mind's eye, you may think of that number as trending upward each year you gain experience — with the exception of the times that you spent unemployed, attending college as a full-time student, or taking a family leave of absence.

But this imagined trajectory may or may not represent reality. The upward mobility may not be rising as quickly as you had hoped when you bought your house, committed to a car payment, signed on to send your kids to private school, or dreamed about your retirement. Or, you may be making plenty of moneybut your net worth is not increasing as rapidly as your income. (See also: Perform a Credit Card Rewards Annual Review)

Why You Should Check Your Earnings

Taking a look at your annual earnings gives you the unfiltered truth about where your career and compensation are headed. Although there are more factors in achieving happiness and building wealth than increasing take-home pay, considering your annual earnings over time is a worthwhile endeavor.

You may have a spreadsheet detailing your income, spending plan, and assets to measure their progression, stagnation, or decline. If not, you can access annual earnings online at the federal government's Social Security Administration (SSA) website. Rod Griffin, director of public education for Experian (a credit reporting company), recommends that you consider adding this habit to your financial routine at least once a year, just as you might check your credit report. Here's why:

Trends in Earnings Can Guide Decisions About Next Steps Professionally

This financial snapshot of your career may prompt you to reconsider direction or give you the impetus to make changes that you have been mulling over. For example, you may decide to pursue a position with another company; negotiate a better salary or hourly rate with your employer; drop a part-time job because its value isn't worth the extra cost of commuting, eating out, etc.; find higher-paying freelance clients; or switch careers.

Verify the Accuracy of Your Records

You'll want to check the accuracy of your earnings. A byproduct of verifying accuracy is making sure that no one is tampering with your information. Checking your Social Security info is similar to looking at your credit report each year to note anything unusual and make corrections as quickly as possible. Such habits can help prevent identity theft.

Earnings Information Is Needed for Financial Planning Purposes

Even if you are happy with your income trends, an earnings report is useful for financial planning. A financial advisor should want to get this information to help you develop a financial plan. At the same time, you can access estimated benefits in retirement, which may be a factor in determining how much you need to retire.

Note that your regular earnings may differ from your Social Security wages for various reasons, including tax-deferred contributions to employer-sponsored retirement accounts that lower your taxable wages for federal tax purposes. Mike Piper, CPA and author of "Social Security Made Simple" and the Oblivious Investor blog, explains that pre-tax 401(k) contributions reduce federal income taxes but not Social Security taxes. So, refer to your W-2 (specifically Box 3 — Social Security wages) and other tax statements when checking your earnings on the SSA website.

During your visit, you can also take care of tasks like these:

  • Learn how to change your name on your Social Security records and get a new card after getting married
  • Determine estimated Social Security benefits for your surviving children and spouse if something happened to you
  • Change your address if you are currently receiving benefits

How to Check Your Earnings

To check your earnings, you'll need to set up an online "my Social Security" account on the SSA website. There are just a few starting requirements. You must:

  • Be 18 years old or older
  • Have a valid email address and U.S. mailing address
  • Have a Social Security number

When you create the account, you'll need to answer some security questions that Sal Guariano, vice president of government services at Experian, describes as the authentication process. The credit reporting firm developed this process in collaboration with the SSA to make sure that your information is secure.

You'll be asked a series of questions to which only you should know the answers. Sal mentions that even if someone stole your wallet, the thief couldn't extract the answers based on your driver's license and plastic cards.

Note, however, if you have placed a fraud alert or a freeze on your credit report, then you will need to take some extra steps to create an online account. Lift these restrictions temporarily because the SSA works with the credit agency to verify information as part of its security precautions.

After you set up your account and log in, viewing your earnings is easy. You can also locate your estimated benefits at full retirement age as well as earlier and later retirement ages. Precisely what will happen in the future with your retirement benefits is not predictable. But seeing what has happened with your earnings in the past can be useful as you plot next steps.

Have you found that viewing your income and net worth over time is useful? What changes did you make to have a better future?

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