Can You Pass This Quiz on Social Security Benefits?
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For many Americans, Social Security will be a vital source of income during retirement. The most recently released data from the Social Security Administration found that 61% of current beneficiaries rely on Social Security to provide at least half of their monthly income. This both speaks to the poor savings habits of most Americans, as well as to the importance of Social Security.
Yet, in spite of the critical role it plays in keeping millions of seniors out of poverty, Social Security remains a program that many Americans simply don't understand all that well. And if you don't have a firm understanding of Social Security, you could wind up costing yourself a lot of money in retirement.
Can you pass this Social Security benefits quiz?
How do you know if you have what it takes to make a well-informed Social Security decision? Simple. Take the following Social Security benefits quiz I've devised below and test your knowledge. To keep things simple, the answers to all 10 statements below are either "True" or "False," and all 10 statements will be listed first to keep you from cheating and scrolling for the answer.
Get a pen and paper ready, because we're about to see how retirement ready you really are.
1. The Social Security Administration factors in my 25 highest-earning years when calculating my payout.
2. Everyone has the same full retirement age.
3. There's a maximum monthly benefit under Social Security.
4. My benefit grows by 4% per year for each year that I hold off on filing for benefits.
5. My benefit stops growing (assuming you haven't filed for benefits) when I turn age 70.
6. Social Security benefits aren't taxable.
7. Social Security's cost-of-living adjustment regularly outpaces the medical inflation rate.
8. Spousal benefits can reduce your own monthly benefit.
9. Social Security allows you to undo your benefit claim within the first 12 months.
10. Payroll tax revenue ensures Social Security can never go bankrupt.
Have your answers written down? Let's take a closer look at how you did.
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Did you pass?
1. The Social Security Administration factors in my 25 highest-earning years when calculating my payout. FALSE
It is true that the Social Security Administration (SSA) factors in your highest-earning years to determine your monthly benefit during retirement, but the SSA actually takes your 35 highest-earning years into account, not 25. It's also worth knowing that the SSA will average in $0's for each year less than 35 that you work, meaning it's often a good goal to work at least 35 years if you're planning to lean on Social Security during your golden years.
2. Everyone has the same full retirement age. FALSE
This one is definitely false. Your full retirement age (FRA) is determined by your birth year, and beginning in 2017 the newest retirees who were born in 1955 are going to see their FRA increase to 66 years and 2 months from the 66 years the FRA has sat at for the past 12 years. Want to know your full retirement age? You can figure it out with this handy table from the SSA.
3. There's a maximum monthly benefit under Social Security. TRUE
There is indeed a maximum monthly payout under Social Security. According to the changes issued by the SSA in October for 2017, the maximum monthly benefit an individual can collect at full retirement age is $2,687, up from $2,639 in 2016. However, the maximum monthly payout could be even higher than $2,687 if a max-payout individual waits to claim benefits until after their full retirement age.
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4. My benefit grows by 4% per year for each year that I hold off on filing for benefits. FALSE
That loud gameshow-like buzzer you hear in your head is the sound of this statement being declared false. It's very true that waiting to sign up for Social Security results in your benefits growing on both a monthly and annual basis, but the average annual increase is approximately 8%, not 4%. This means filing for benefits as soon as possible can result in a 25% to 30% haircut compared to your FRA benefit, whereas waiting as long as possible could result in a 24% to 32% increase in your monthly payout over your full retirement age benefit.
5. My benefit stops growing (assuming you haven't filed for benefits) when I turn age 70. TRUE
On the other hand, this statement is completely true. Social Security benefits can be claimed as early as age 62, but they stop accruing at approximately 8% per year once you turn age 70. Although you're allowed to file for benefits after age 70, there's no longer any added benefit for waiting.
6. Social Security benefits aren't taxable. FALSE
Believe it or not, more beneficiaries are taxed on their Social Security benefits than aren't according to The Senior Citizens League. Since the amendment to tax Social Security benefits was introduced in 1983, the taxable income threshold has not been adjusted once. What once affected about 10% of households in 1983 affects an estimated 56% as of 2015. If you're an individual that earns more than $25,000 a year, or you file jointly with more than $32,000 in income, and you're receiving Social Security income, at least half of your benefits will likely be taxed by the federal government.
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7. Social Security's cost-of-living adjustment regularly outpaces the medical inflation rate. FALSE
False, false, a million times false! The Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, is what determines how much of a "raise" Social Security recipients receive from one year to the next. Unfortunately, when compared to the Consumer Price Index for the Elderly, which takes into account the spending habits of households over the age of 62, the CPI-W drastically understates the medical costs elderly persons pay in retirement. Over the past 35 years, Social Security's COLA has outpaced the medical inflation rate just two times.
8. Spousal benefits can reduce your own monthly benefit. FALSE
If a spouse or ex-spouse can qualify to receive benefits based on your earnings history, the good news for you is that it has no bearing whatsoever on your own monthly payment. In fact, in some rarer instances a spouse and children may qualify to receive benefits, none of which will adversely impact the monthly payout to the primary beneficiary.
9. Social Security allows you to undo your benefit claim within the first 12 months. TRUE
The SSA actually does allow its beneficiaries a mulligan as long as they stick to some strict guidelines. Form SSA-521, or as it's officially known, the "Request for Withdrawal of Application," allows you to undo your Social Security benefits. In order to qualify, you'll have to file for Form SSA-521 within the first 12 months of signing up for Social Security and (big "and" here) you'll need to pay back every cent you, and anyone else tied to your earnings history, may have received from the SSA. If you meet these requirements, it'll be as if you never signed up in the first place and your benefits can continue to grow.
Image source: Getty Images.
10. Payroll tax revenue ensures Social Security can never go bankrupt. TRUE
One of the more pervasive Social Security myths is that the program is going bankrupt, which just isn't true. In 2015, according to the SSA, more than 86% of the programs' revenue was derived from payroll taxes on working Americans. In other words, as long as there are working Americans, there will always be revenue heading into the Social Security program. To be clear, benefits for seniors could fall in the future if new revenue sources aren't found for Social Security, but the payroll tax will prevent the program from going bankrupt.
If you managed to score at least seven out of 10 points, congratulations, you passed. However, missing even one question could wind up costing you dearly come retirement. If something stumped you in this quiz, I'd encourage you to become more familiar with the ins and outs of Social Security since it could make a big financial difference come retirement.
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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.
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