Many Americans do not understand Social Security.
Gone are the days where trading and bartering reigned supreme.
Money is required to purchase necessities and, well, pay bills.
This makes income essential at every life stage.
Cash flow is king, they say.
According to a recent Money Talks News article titled “6 Things Many Americans Get Wrong About Social Security,” managing money in retirement can feel daunting.
Without a regular paycheck, some Americans rely on Social Security to fund the bulk of their retirement income.
Unfortunately, this makes the findings of a recent Nationwide Retirement Survey disconcerting.
According to the survey of 2,000 Americans age 25 or older, individuals often misunderstand the basics of Social Security.
What are common mistakes and misconceptions?
The decisions a person makes can either maximize or reduce their Social Security benefits.
Only six percent of those surveyed could identify all of the factors associated with determining the size of a benefit payment.
What are these factors?
The first of these is how much people earn over their lifetimes.
These earnings are indexed to account for changes in average incomes over time.
The second factor is the date people begin collecting Social Security.
The three general categories are “early”, “full retirement age,” and “deferred.”
The monthly check will be larger the longer a person waits up to a certain age.
Adjustments for cost-of-living begin at age 62, even for individuals who have not yet begun receiving benefits.
Pensions from certain government jobs will also impact Social Security benefits.
Spousal and child benefits.
Thirty percent of Americans are unaware there are provisions for child or spousal benefits.
Although not everyone will be able to claim benefits, certain instances exist where dependents or a spouse can utilize the Social Security record of a parent or spouse.
Inflation has certainly reared its ugly head this past year. <understatement>
Because inflation increases the cost of services and goods over time, Social Security places built-in inflation protection into the annual cost-of-living adjustments.
The cost-of-living adjustments are connected to the federal Consumer Price Index for Urban Wage Earners and Clerical Workers.
The cost-of-living adjustment for 2022 was 5.9 percent.
This is the most significant increase for Social Security in 10 years.
Actual inflation was far higher.
About 39 percent of survey respondents did not know full retirement age eligibility is not the same for everyone.
It depends on when a person was born.
Although anyone can start claiming benefits at age 62 for a fixed and reduced monthly payment, the full amount can only be received at full retirement age.
When is full retirement age?
For those born between 1943 and 1945, it is 66.
For those born in 1955, it is 66 and 2 months.
For those born in 1956, it is 66 and 4 months.
For those born in 1957, it is 66 and 6 months.
For those born in 1958, it is 66 and 8 months.
For those born in 1959, it is 66 and 10 months.
For those born in 1960 or later, full retirement age is 67.
By choosing to take your retirement early, you could experience a 30 percent reduction in your monthly Social Security benefits.
No adjustments after early payments.
About 45 percent of respondents stated they believed they would receive a boost in their monthly benefit at full retirement age if they claimed early.
This is inaccurate.
By choosing to claim Social Security benefits early, a person will have a lower base monthly payment permanently.
In some instances, there may be an adjustment if a person continued to work.
Whether you claim your benefit early or at full retirement age, you will receive cost-of-living adjustments.
Of those surveyed, 51 percent did not know how much they would receive in Social Security payments.
Not knowing this number can make financial planning for retirement a significant challenge.
With a robust understanding of Social Security, you will be better prepared to plan for retirement.
Reference: Money Talks News (Nov. 4, 2021) “6 Things Many Americans Get Wrong About Social Security”