Social Security is a major source of income for many retirees. However, people frequently misunderstand even basic concepts behind this government program. That was the finding of a survey by the Nationwide Retirement Institute of about 2,000 Americans, age 25 and older. What do people get wrong about Social Security?
Beck & Lenox Estate Planning & Elder Law, LLC, brings your attention to a Money Talks News’ recent article entitled “6 Things Many Americans Get Wrong About Social Security” . It looks at a few of the things that many people mistake about Social Security.
Maximum benefits. About 54% of Americans who aren’t already getting Social Security benefits say they know how to optimize those benefits. That confidence may be unfounded. In fact, only 6% could name all the factors that go into determining a person’s maximum benefit. The IRS says those factors are:
- Your lifetime earnings, indexed to account for changes in average incomes over time;
- When you start claiming Social Security, whether it’s early, at full retirement age, or deferred;
- Cost-of-living adjustments that begin at age 62, regardless of whether you are receiving benefits; and
- Whether you have a pension from certain government jobs.
Spousal and child benefits. These are valuable provisions of the program, but 30% of Americans don’t know that they exist. There are several situations when spouses and dependents can claim benefits from a person’s Social Security record.
Inflation protection. Inflation drives up the cost of goods and services over time, and Social Security has built-in inflation protection in its annual cost-of-living adjustments. These are known as COLAs. These annual bumps 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. The COLA for 2022 is 5.9%, the largest increase in 10 years. The survey found that 37% of Americans don’t know that the Social Security program provides inflation protection.
Eligibility age. The age at which you’re eligible to get your full retirement benefits from Social Security depends on when you were born. Roughly 39% of respondents survey didn’t know that answer. Everyone eligible for Social Security can start 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, which 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; and
- 1960 and later: your full retirement age is 67.
No adjustments after early payments. Almost half (45%) of those surveyed think that if they claim Social Security benefits early, their monthly payments will receive a boost when they reach full retirement age. Nope. If you start benefits before your full retirement age, you’ll have a lower base amount for your monthly checks than if you had waited. That’s usually permanent, but if you continue to work, you may increase it. Regardless of your age when you claim benefits, you will receive annual COLA increases.
Payment amount. It’s difficult to properly plan for retirement if you don’t know how much money you’ll have. Even so, more than half of those polled who are not already receiving benefits (51%) don’t have a clear understanding of how much their Social Security payments will be.
While you are getting educated about Social Security, make sure you are taking care of creating or updating your Estate Plan. There are experienced estate planning attorneys all over the country like Beck & Lenox who can help you.
Reference: Money Talks News (Nov. 4, 2021) “6 Things Many Americans Get Wrong About Social Security”