Americans have rarely been more wrong about Social Security. As Nationwide Financial found in a recent survey, 40% of Americans say they’re either confident or very confident in their knowledge of Social Security. In fact, twice as many people say they’re “very confident” in their knowledge of the program and its benefits today compared with nine years ago.
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The trouble is, they’re wrong.
Americans Struggle With This Critical Question
Not only do Americans not understand many of their rights and benefits under the Social Security program, but they’re getting more wrong as they grow more certain. For example, take this critical question:
“At what age are you eligible for full retirement benefits?”
This might be the most important issue in all of retirement planning. When you retire will determine how long you spend out of work and, as a result, how much money you need. Nationwide asked Americans when they can retire and collect full benefits, and by generation, they gave the following answers:
- Gen Z: 54 Years Old
- Millennials: 55 Years Old
- Gen X: 60 Years Old
- Baby Boomers: 64 Years Old
Every generation got this question wrong, including the cohort that has actually entered retirement. “Those who said they are very confident in their Social Security knowledge had more incorrect responses (70%). In contrast, those saying they were somewhat or not at all confident in their knowledge had less incorrect responses,” Nationwide wrote in its results.
If you’re younger than 63 years old, the correct answer is that you can begin collecting full Social Security benefits at 67 years old. Only 13% of adults knew that important fact.
Impact of Social Security Mistakes
Most Americans can claim full Social Security benefits beginning at age 67 and maximum benefits at age 70. But you can claim reduced benefits starting as early as age 62. However, this will reduce the monthly benefits you receive for the rest of your life.
Americans who believe they can begin collecting Social Security in their early 60s, as Gen Xers appear to do, might mistakenly file for those benefits. At age 60, the worst that will likely happen is a rejection letter from the Social Security Administration. At age 62, though, the SSA might process that claim, cutting benefits for the rest of your life.
Of course, if you do mistakenly file for Social Security early, you can undo that claiming decision within 12 months. Unfortunately, only 29% of Americans appear to know that. Most people polled also believe that Social Security is tax-free, that it’s not protected from inflation, and that it expires during a recipient’s lifetime.
All of this is incorrect. Social Security benefits are taxed; adjusted annually for the cost of living; and guaranteed for life.
And then there’s this: 42% of people not currently receiving Social Security don’t know how much they can expect to receive in monthly benefits, and almost nobody knows all of the factors that can contribute to the maximum benefits they’ll receive. (The four factors are work history, age, benefit start date and marital status.)
Understanding Social Security’s Role in Retirement Planning
So, why are we throwing this brick of numbers at you? Why is this all so important?
Chiefly, it’s because Social Security is a critical part of retirement planning for many, if not most, Americans. As the Center on Budget and Policy Priorities wrote in April, it is “the largest source of income for most beneficiaries. For 4 in 10 retirees in 2015, it provided at least 50 percent of their income, and for 1 in 7 it provided at least 90 percent of income…” In fact, in Nationwide’s poll found that almost a fifth of Americans say they’ll have no other source of income at all.
This means that it’s critical to understand how Social Security works. You can’t plan for a program that you don’t understand. That’s how people make mistakes. You don’t, for example, need to know exactly how much money you’ll receive in Social Security benefits; that’s the result of a complicated set of calculations. But you should have a general sense of what to expect. You don’t need to know exactly when you plan on retiring, but you do need to know the benefit age brackets to plan around.
Social Security Quiz
Here are the 21 true or false statements Nationwide posed to more than 1,800 American adults about Social Security. How many can you answer correctly?
- You may have to pay taxes on a portion of your Social Security benefits.
- There is a cap to how much Social Security benefits you can get.
- Some of your benefits may be withheld if you’re still working before your full retirement age (FRA), between ages 66 and 67 depending on your year of birth.
- Medicare Part B premiums are deducted from Social Security checks.
- If married, you are eligible to receive a portion of your spouse’s Social Security benefit.
- If I claim benefits early, my benefits will go up automatically when reaching full retirement age.
- Social Security benefits are tax-free.
- Social Security offers guaranteed income for life.
- Your monthly Social Security benefit amount will be reduced if deflation occurs.
- If I don’t work for at least 35 years, my Social Security benefit will be reduced.
- Somebody who makes $150,000 pays as much in Social Security taxes as millionaires.
- Social Security is not protected against inflation.
- You can undo a claiming decision within the first 12 months.
- Workers pay Social Security taxes on all of their income.
- Social Security may offer benefits for your spouse or children.
- Upon one spouse’s death, the higher Social Security benefit is inherited by the surviving spouse.
- You may be able to claim Social Security benefits on a former spouse’s record if your marriage lasted 10 years.
- You may be able to claim Social Security benefits on a former spouse’s record if you are at least 62.
- You may be able to claim Social Security benefits on a former spouse’s record if you have not re-married.
- If you are divorced, you may be eligible for Social Security benefits based on your ex-spouse’s record.
- If you claim Social Security early, any spousal benefits your partner is eligible for will be reduced.
Answers: T, T, T, T, T, F, F, T, F, T, T, F, T, F, T, T, T, T, T, T, T
Most people don’t know when they can begin collecting Social Security, and almost nobody knows the factors that contribute to their benefits. That can be a big problem when it comes to planning for your retirement.
Social Security Tips
- If you’re unsure how much you’ll potentially collect, SmartAsset’s Social Security calculator can help you estimate the value of your benefits based on when you plan to claim them.
- Get retirement planning and investing tips Tuesdays through Fridays with the SmartMoney Minute newsletter. It’s 100% free and you can unsubscribe at any time. Sign up today.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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