Most of us assume that Social Security benefits will comprise a significant portion of our retirement income. But despite the inevitable reliance on the program, we don’t often know much about how it works!
Case in point: MassMutual recently offered a quick, twelve-question quiz to assess Social Security knowledge in those soon to retire (age 55 to 65). And perhaps shockingly, over a third of participants flunked the quiz, with a grade of F. Another 18 percent received a D, and only 3 percent earned an A plus (by answering all twelve questions correctly).
How would your own knowledge stack up? You might know a few basic facts about Social Security, but here are nine tidbits that tend to surprise some people.
- Nope, you can’t live on Social Security. Benefits are designed to replace about 30 to 40 percent of your pre-retirement income, so you need another source to fund your retirement.
- Benefits are calculated by a formula that uses your 35 highest-earning years.
- When one half of a married couple passes away, the surviving spouse can keep the higher of their two checks. For this reason many couples focus on increasing benefits for the higher-earning partner.
- When you file for benefits, don’t simply assume that your own benefit is the way to go. If you’re married or widowed, either your spousal benefit or survivor’s benefit might be larger than your own.
- Divorced individuals can claim spousal benefits, as long as the marriage lasted at least ten years.
- Part of your Social Security benefits will be taxable, if you fall into a certain tax bracket. This rule applies to federal income taxes, and some states impose their own income tax as well.
- If you claim benefits early, you might not receive the full amount. Those who are still working and earn over a certain threshold will find that part of their benefits are withheld. However, you later receive credit for that amount when you reach full retirement age.
- If you claim your benefits but later regret your decision, you can withdraw the application and wait until later. However you will have to repay any benefits received in the meantime.
- The Social Security program, as a whole, is not going to disappear. Yes, analysts anticipate certain problems with funding the program, but the program will still exist with you retire.
Did any of these facts surprise you? You have plenty of time to brush up on your Social Security knowledge before retirement. In fact, let’s discuss these issues, and more to do with your benefits, at our next appointment. When you know what to expect from the program, it is much easier to plan for your future.