Most people can tell you that Social Security provides retirement and disability benefits, but they also lack specific insight into how the programs operate. In a recent survey conducted by the Nationwide Retirement Institute less than 20 percent of people could identify the age in which they would be eligible for full Social Security retirement benefits and over half of the respondents could not identify what percentage of their income would be replaced by Social Security benefits when they retire. Below are some key points in the survey, which shows just how much people don’t know about Social Security and its programs.
Possibly the most eye-opening response to the survey showed that just 16 percent correctly identified the age in which they would be eligible for full Social Security retirement benefits. Decades ago it was determined, by Congress, that Social Security would incrementally increase the full retirement age from 65 to eventually 67. The full retirement age for everyone born in 1960 and after is now 67.
Another 45 percent of people surveyed believed that Social Security benefits would automatically increase to full retirement benefits even if a person decided to collect benefits early, beginning at age 62, but that is not the case and people should be aware of it. When a person decides to collect Social Security benefits, as early as age 62, they pay a penalty and only receive about 80 percent of what their full retirement amount would be. This penalty does not go away when the person reaches full retirement age and a person who collected early will still see a reduction in benefits even when they reach full retirement age and beyond.
Identifying what percentage of work income would be replaced by Social Security benefits is something everyone should be aware of, but the survey found that 54 percent of respondents were unaware of what percentage of their income would be replaced by Social Security benefits. Social Security benefit amounts are based on lifetime earnings so it is difficult to be precise on what portion of income Social Security benefits would replace, but as the survey pointed out, middle-income individuals would replace about 40 percent of their income with Social Security benefits.
Most types of income are taxable and this includes Social Security benefits, but the survey found that 55 percent of survey participants were unaware that Social Security benefits are taxable. It is true that for low-income taxpayers benefits are tax free, but for most people up to 50 percent of Social Security benefits are taxable.
The survey was quite revealing to show that most people know few specifics about Social Security’s programs, which could be problematic as these people approach retirement age. Everyone should know more than what they do when it comes to Social Security benefits and their personal retirement situation.
