Social Security is an important source of income for many retirees, but people often misunderstand even the basics behind this government program.
Nearly 90% of American adults say they have at least some confidence in their knowledge of Social Security, according to the Eighth Annual Survey of Social Security Consumers of the National Retirement Institute.
And yet the survey also finds that many Americans do not know their age of eligibility, how payments are calculated, and other essential information.
To reach its conclusions, the National Retirement Institute had nearly 2,000 Americans, ages 25 and older, surveyed in April and May 2021.
Here are some of the things many people get wrong about Social Security.
While 54% of Americans who are not yet receiving Social Security benefits say they know how to optimize those benefits, that confidence could be unfounded.
In fact, only 6% were able to name all the factors that determine a person’s maximum benefit.
For the record, according to the IRS, those factors are:
- Your lifetime earnings, indexed to account for changes in average earnings over time.
- When you start claiming Social Security: early, at full retirement age, or deferred.
- Cost of living adjustments starting at age 62, regardless of whether you are receiving benefits.
- If you have a pension from certain government jobs.
Benefits for spouses and children
Spousal and child benefits are valuable provisions of the Social Security program, but 30% of Americans apparently don’t realize they exist.
There are a number of circumstances in which spouses and dependents can claim benefits from a person’s Social Security record. Details are in “7 Social Security Benefits You May Be Overlooking.”
Inflation increases the cost of goods and services over time, and Social Security has built in protection against inflation in the form of annual cost-of-living adjustments.
Known as COLA, these annual increases in benefits are tied to the federal consumer price index for urban wage earners and white-collar workers. In 2021, Social Security beneficiaries received a 1.3% increase in benefits; Some predict that the COLA for 2022 could be the biggest increase in a decade.
Despite all the press surrounding these annual increases, the National Retirement Institute finds that 37% of Americans are unaware that the Social Security program provides protection against inflation.
When are you eligible to receive full Social Security retirement benefits? That depends on when you were born, and 39% of those surveyed in Nationwide’s 8th Annual Social Security Consumer Survey were unaware of that answer.
Anyone eligible for Social Security can begin claiming benefits at age 62. But if you do, your monthly payments could be lowered by up to 30%. To receive the full amount, you will need to wait until your full retirement age. That is based on your year of birth:
- 1943-1954: Your full retirement age is 66
- 1955: 66 and 2 months
- 1956: 66 and 4 months
- 1957: 66 and 6 months
- 1958: 66 and 8 months
- 1959: 66 and 10 months
- 1960 and later: 67
No adjustments after advance payments
Almost half (45%) of Americans have the mistaken belief that if they claim Social Security benefits early, their monthly payments will get a boost when they reach full retirement age.
If you choose to start benefits before your full retirement age, you will have a lower base amount for your monthly checks than if you had expected. That lower base is usually permanent, though continuing to work you can increase it.
Regardless of your age when you claim benefits, you will receive annual COLA increases.
It’s difficult to properly plan for retirement if you don’t know how much money you will have. Still, 51% of those who are not yet receiving benefits do not have a clear idea of how much their Social Security payments will be.
While your benefit amount won’t end until you’ve finished working, it’s easy to find out how much you can expect to receive. Create a my social security account on the Social Security Administration website to view a history of your earnings and an estimate of benefits at your full retirement age.
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