What older workers don't know about Social Security

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Claiming Social Security too soon could permanently reduce your monthly benefit.
By Emily Brandon

Many older workers don't understand basic facts about the Social Security program. People on the verge of retirement are lacking knowledge about Social Security that could help them increase their retirement payments, according to an AARP and GfK survey of 1,215 adults between ages 45 and 64 who aren't yet receiving Social Security benefits. Here's what people approaching retirement age don't know about Social Security.

The benefit of claiming at full retirement age. Most of the survey respondents (88 percent) know that delaying claiming Social Security past age 62 until their full retirement age, which is typically age 66 or 67, will result in a bigger monthly benefit. But only 5 percent of older workers can identify the percentage by which their payments will increase, and 15 percent named an amount within 5 percentage points of the actual increase. Between age 62 and full retirement age, retirement benefits increase between 25 and 30 percent, depending on your birth year. Most older workers (67 percent) underestimated the benefit increase for delayed claiming.

The age you get the highest possible monthly payment. The majority of people on the verge of retirement (96 percent) say they want to maximize the amount of money they will receive in retirement and sign up at the best possible age, AARP found. But only about a third (32 percent) of older workers know that you get the maximum possible monthly Social Security payment by signing up for benefits at age 70. Another third of older workers (34 percent) incorrectly said signing up in their late 60s will get them the highest possible benefit, and 15 percent think they need to wait beyond age 70 to maximize their payment.

How the earnings test works. Most older workers (84 percent) know that working and claiming Social Security benefits at the same time prior to full retirement age can result in a reduction in payments. However, only 42 percent of the survey respondents know that the benefit reduction is temporary, because the Social Security benefit is recalculated at full retirement age to factor in any withheld benefits and continued earnings.

Eligibility for spousal payments. Only half of older workers who have ever been married know that they are eligible for spousal payments that can be worth as much as half of the other spouse's benefit. In contrast, almost all older workers (97 percent) are familiar with survivor's payments after one spouse passes away. Smaller proportions of retirees know that the age the deceased worker signed up for Social Security and the age the surviving spouse elects to receive survivor's payments also impact the amount the widow or widower receives.

Benefits for divorced individuals. Only a quarter (26 percent) of respondents who have ever been married know that they could receive spousal benefits based on an ex-spouses work record if the marriage lasted 10 years. A third of older workers (34 percent) incorrectly believe that a divorced individual can claim benefits if the marriage lasted 5 years or less, and 31 percent said you could never collect off an ex-spouses work record.

What happens if the trust fund is depleted. Just over a quarter (27 percent) of older workers correctly stated that Social Security has enough revenue to pay out promised benefits for 10 to 20 years without any changes. Only 3 percent of older workers know that if the trust fund is depleted they will continue to receive about 75 percent of promised benefits nearly indefinitely, which will be funded by incoming tax revenue. Nearly 40 percent of the survey respondents mistakenly believe that the reduced payments will only continue for 10 years.

How to get Social Security information you can trust. Many older workers (45 percent) get their information about the Social Security program directly from the Social Security Administration, which is a great way to find out how your payment is calculated. However, about the same proportion of older workers (46 percent) rely on conversations with friends and family members to learn about the program, which may or may not be reliable. Other popular sources of Social Security information include newspaper articles and financial magazines, books and television shows.

Emily Brandon is the senior editor for Retirement at U.S. News. You can contact her on Twitter @aiming2retire, circle her on Google Plus or email her at ebrandon@usnews.com.
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