6 Things Many Americans Get Wrong About Social Security

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Social Security is a significant source of income for many retirees, but people often misunderstand even basic concepts behind this government program.

Nearly 90% of American adults say they are at least somewhat confident in their knowledge of Social Security, according to the 8th Annual Social Security Consumer Survey from the Nationwide Retirement Institute.

And yet, the survey also finds that many Americans don’t know their eligibility age, how payments are calculated and other essential information.

To reach its conclusions, the Nationwide Retirement Institute had nearly 2,000 Americans, age 25 and older, polled in April and May 2021.

Here’s a look at a few of the things that many people get wrong about Social Security.

Maximum benefits

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While 54% of Americans who are not already receiving Social Security benefits say they know how to optimize those benefits, that confidence could be unfounded.

In fact, only 6% could name all the factors that go into determining 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 incomes over time.
  • When you begin claiming Social Security – early, at your full retirement age or deferred.
  • Cost-of-living adjustments that begin at age 62, regardless of whether you are receiving benefits.
  • Whether you have a pension from certain government jobs.

Spousal and child benefits

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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. You’ll find the details in “7 Social Security Benefits You May Be Overlooking.”

Inflation protection

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Inflation drives up the cost of goods and services over time, and Social Security has built-in inflation protection in the form of annual cost-of-living adjustments.

Known as COLAs, these annual bumps in benefits are tied to the federal Consumer Price Index for Urban Wage Earners and Clerical Workers. In 2021, Social Security beneficiaries received a 1.3% increase in benefits; some predict that the COLA for 2022 could be the largest increase in a decade.

Despite all the press surrounding these annual increases, the Nationwide Retirement Institute finds that 37% of Americans don’t know that the Social Security program provides inflation protection.

Eligibility age

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When are you eligible to receive full retirement benefits from Social Security? That depends on when you were born, and 39% of respondents in Nationwide’s 8th Annual Social Security Consumer Survey didn’t know that answer.

Everyone eligible for Social Security can begin claiming benefits at age 62. But if you do, your monthly payments could be reduced by as much as 30%. To receive your full amount, you’ll need to wait for your full retirement age. That is based on your birth year:

  • 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 early payments

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Nearly half – 45% — of Americans are under the mistaken belief that if they claim Social Security benefits early, their monthly payments will receive a boost when they reach full retirement age.

Not so.

If you choose to start benefits before your full retirement age, you’ll have a lower base amount for your monthly checks than if you had waited. That lower base usually is permanent, although continuing to work may increase it.

Regardless of your age when you claim benefits, you will receive annual COLA increases.

Payment amount

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It’s hard to properly plan for retirement if you don’t know how much money you’ll have. Still, 51% of those who are not already receiving benefits don’t have a clear sense of how much their Social Security payments will be.

While your benefit amount won’t be finalized until you’re done 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 see a history of your earnings and an estimate of benefits at your full retirement age.

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