We Still Don't Understand Social Security, And A New Survey Confirms It

There's arguably no program more important to retired workers in this country than Social Security. Despite the average retired worker's paycheck only amounting to roughly $1,411 a month as of April 2018, Social Security payouts account for at least half of all income for 62% of retirees and essentially all monthly income (90% plus) for 34% of retirees.

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Furthermore, an analysis from the Center on Budget and Policy Priorities that was conducted in 2016 found that 22.1 million people are being kept out of poverty as a result of their monthly Social Security payout. Of these 22.1 million, 15.1 million are retired workers. As you can see, Social Security is much more than just a paycheck -- it's a financial foundation for millions of retirees.

Older Americans Don't Understand Social Security Very Well

However, in spite of Social Security's importance, confusion reigns when it's discussed. Back in 2015, MassMututal released its findings from a 10-question, true-false, online survey of 1,513 adults from across the United States. The questions covered relatively basic concepts that working-age and older Americans should know if they want to maximize their lifetime benefit from Social Security. The results of that survey found that 62% of pre-retirees (those aged 50 and over) and 72% of the general adult population failed -- i.e., scored six or fewer correct answers out of 10.

On Tuesday, May 15, MassMutual released the results of its second true-false survey on Social Security, albeit this one only covered five questions. Though there was improvement from its survey three years prior, the results still were pretty dismal.

In this go-round, MassMutual only questioned adults aged 50 and over. Of the 1,007 seniors surveyed, 47% failed to correctly answer four or five out of five questions correctly (a score of 60% or lower was deemed a "fail"). Another way of looking at this is that nearly half of all older Americans failed. And what pre-retirees don't know could cause them to leave money on the table when they do decide to claim Social Security benefits.

How Would You Have Fared?

Here's a rundown of MassMutual's 2018 Social Security survey questions, along with the corresponding percentage of folks who answered correctly.

1. Under current Social Security law, my benefits will not be reduced if I claim them at age 65. True or false?

Fewer than half (49%) of all respondents correctly answered "false" when asked this question. What this tells us is that most folks don't have any clue what their full retirement age is and/or how Social Security payouts actually work.

Your full retirement age is the age at which the Social Security Administration (SSA) deems you eligible to receive 100% of your retirement benefit. This age is entirely determined by your birth year. For baby boomers and future retirees, your full retirement age ranges between ages 66 and 67. To make things as simple as possible, your payout will be permanently reduced if you enroll for benefits prior to reaching your full retirement age, whereas your benefit may grow above and beyond 100% of what you're due if you wait until after your full retirement age to sign up.

2. My spouse is eligible to receive Social Security retirement benefits, even if he or she has no individual earnings history. True or false?

Just a shade over half (54%) of all respondents correctly answered "true" to this question.

Traditionally, earning 40-lifetime work credits is the easiest way to qualify for Social Security retirement benefits. However, spouses who've never worked a day in their lives still have ways they can qualify for Social Security benefits. As an example, if a breadwinning spouse were to pass away, the spouse who hadn't worked a day in their life would be able to claim a monthly survivor benefit based on the earnings history of the spouse who passed away.

This certainly is not a common means of garnering Social Security benefits, but it does point out the important fact that Social Security is about more than just senior citizens. It protects the long-term disabled and survivors of deceased workers, just as it provides a financial foundation for retirees.

3. If my spouse dies, I will continue to receive both my own benefit and my deceased spouse's benefit, the total Social Security benefits I receive will not change. True or false?

Things got a bit better with this question, as 80% of respondents correctly answered "false."

Survivor benefits, which I briefly mentioned above, only come into play if they're higher than the surviving spouse's retired-worker benefit. If a spouse's own earnings history generates a larger benefit than what he or she would receive as a survivor benefit based on their deceased spouse's earnings history, then the higher retired-worker benefit is kept in place. If, however, the survivor benefit is more than what he or she would receive from their retired-worker benefit, then the survivor benefit can be chosen. It's one or the other -- not both!

4. Social Security retirement benefits are based on my earnings history. I'll receive the same monthly benefit amount whether I start collecting before or after my full retirement age. True or false?

Some 83% of survey takers correctly answered "false" to this question.

The responses to this question would suggest that older Americans understand the general concept of waiting longer to receive a larger monthly benefit. What they don't appear to know is their full retirement age (as evidenced by question one), or how much those benefits grow with each passing year.

Social Security benefits for retirees can begin at age 62 or any point thereafter. However, the dangling carrot of sorts is the approximate 8% increase in benefits for each year an eligible beneficiary goes without claiming their payout, up until age 70. All things being equal -- birth year, earnings history, and work history -- an individual claiming at age 70 can earn up to 76% more per month than an individual claiming a retired worker benefit at age 62.

5. If I am still working when I claim my Social Security, my benefit might be reduced, depending on my earnings and my age. True or false?

The top performance was seen with this question, where 85% of respondents correctly answered "true."

This question refers to what's known as the "retirement earnings test." If you're working while receiving Social Security benefits and you've yet to hit your full retirement age, the Social Security Administration (SSA) can withhold some, or all, of your benefits. If you won't reach your full retirement age in 2018 but have already claimed benefits, the SSA can withhold $1 in benefits for every $2 in wage income above $17,040. Meanwhile, if you will hit your full retirement age later this year, the SSA can withhold $1 in benefits for every $3 in wage income above $45,360. Once your full retirement age is reached, the SSA won't withhold a cent, even if you're working.

Don't worry, though, the SSA won't keep your withheld benefits forever. You'll get them back in the form of a higher monthly benefit once you reach your full retirement age.

One Last Terrifying Finding

One final question posed to survey takers that was also pretty scary was whether or not they'd set up a My Social Security account online to monitor their estimated monthly payout at full retirement age, as well as their reported earnings history. This was asked because the SSA has stopped sending updates through the mail to American workers under the age of 60 since MassMutual's previous survey in 2015. The responses showed that 86% of respondents between the ages of 50 and 59 had not done so.

Failing to set up an account online can put pre-retirees at two disadvantages. First, they'll have virtually no idea what to expect each month from Social Security when they do file for their benefit. And second, should there be an error in their reported earnings history, it's a lot easier to fix prior to receiving benefits than it is to correct once benefits have begun.

Long story short, there's still a long way to go before retirees are making the most of Social Security.

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