There’s no denying that Social Security is confusing. But many people — including those close to retirement age — struggle to grasp even the basics.
Only 28 percent of people passed a 10-question true or false quiz on Social Security benefits, according to a study by MassMutual Life Insurance Company. Just one person out of the more than 1,500 who took the test answered all 10 questions correctly. (A passing score was answering eight out of the 10 questions correctly.)
The report shows that people are not only confused about when they should start collecting Social Security to get the most out their benefits, they may not fully understand what they’re entitled to or how other decisions may affect their benefits and taxes. Here are some of the most fundamental things many people got wrong.
The official retirement age is not 65.
More than 70 percent of people surveyed said they thought the full retirement age was 65. That used to be the case, but now a person’s full retirement age, or the age at which they can start collecting full retirement benefits, varies depending on the year they were born. The full retirement age is 66 for people born between 1943 and 1954 and it gradually increases to 67 for people born in 1960 or later. Getting the official retirement age right is important because people who collect benefits early get reduced monthly checks and those who wait beyond their retirement age to collect can receive 8 percent more for every year that they delay. (Check this table from the Social Security Administration to look up your full retirement age.)
Working can reduce your benefits.
Most people, about 55 percent, thought it was fine to keep working while receiving retirement benefits, regardless of age. But they overlooked that people who haven’t reached their full retirement age yet could see Social Security benefits reduced if they earn above a certain amount. For instance, people born between 1943 and Jan. 1, 1955 will have $1 deducted from their benefits for every $2 they earn above $15,720 if they’re younger than their full retirement age. The money isn’t lost forever. It gets added on later after they reach their full retirement age. (People who work past their full retirement age can keep all of their benefits, no matter how much they make.)
You can collect retirement benefits from an ex.
Only 45 percent of people knew that they could collect Social Security spousal benefits after getting divorced. This is generally true if the two people were married for at least 10 years and the person looking to collect their former spouse’s benefits has not re-married. That ex could even collect the spousal benefits while they put off their own Social Security to take advantage of delayed retirement credits.
You don’t need to be a citizen to collect.
About 75 percent of the people surveyed wrongly said only citizens can collect Social Security. Workers are generally eligible to receive Social Security benefits after 10 years of working and paying taxes into the system. That’s true regardless of whether or not you’re a citizen. Workers with legal residence status risk leaving money on the table if they overlook this rule and fail to collect benefits they’ve earned.
Social Security will likely be a huge part of your retirement plan.
In addition to the quiz, people were asked about how much they expect to rely on Social Security in retirement. The majority, 63 percent, said they expect Social Security to be around when they retire, but about 44 percent said they expect to rely more on their own savings in retirement.
But 52 percent of married couples and 74 percent of single people receiving retirement benefits get more than half of their income from Social Security.
That means any confusion over how the program works could substantially affect a person’s retirement plan, advisers say. “If they get this Social Security decision wrong, I think all of the other decisions about their other assets will be either be skewed or they won’t fit,” says David Freitag, financial planning consultant MassMutual. “It’s important to know the specifics.”