Social Security has a lot of complex rules, and most Americans don't know them. According to a recent survey* conducted by Harris Polls, more than half of adults surveyed answered 10 key true/false questions about the retirement benefits program incorrectly.
Their misconceptions included how long you can collect Social Security, whether those benefits are taxed, how Medicare premiums are determined and how your income impacts your benefits.
So, which 10 statements did most Americans got wrong? Here they are. See if you can do better than most of your peers.
1. Social Security offers guaranteed income for life
Just 49% of people correctly indicated that this statement was true.
The reality is, once you begin receiving retirement benefits checks, they'll continue for as long as you live. For most people, this makes Social Security the only source of income they can count on for their entire retirement, since savings can run out. The fact that these benefits provide guaranteed income is one key reason why it pays to try to maximize them.
2. Divorced people can still be eligible for Social Security spousal benefits
Only 47% of people knew this statement was also accurate.
The good news for those whose marriage has ended is that it's possible to get these benefits as long as the marriage lasted for at least 10 years and as long as you haven't remarried someone else.
3. Social Security benefits are tax-free
The correct answer, false, was provided by just 45% of people. While Social Security is tax-free for some beneficiaries, that's not the case for everyone.
In fact, single tax filers with a provisional income of $25,000 or higher and married joint filers with a provisional income of $32,000 or higher will be taxed on part of their benefits. Provisional income is half of Social Security benefits, all taxable income, and some non-taxable income.
Thirteen states also tax benefits, for at least some retirees.
4. Medicare premiums aren't impacted by your income
Only 38% of people correctly answered this statement as false. The reality is that higher earners end up paying more than the standard premium – with some people paying as much as $578 per month in 2022. Wealthier retirees must be aware of the potential for costlier healthcare expenditures.
5. If you claim Social Security early, your partner's spousal benefits will be affected
Only 37% of people knew that this statement was true. Married couples should recognize that their claiming decisions can affect both spousal and survivor benefits and should work together to create a strategy to maximize combined lifetime income.
6. If you work for less than 35 years, you'll get a smaller Social Security benefit
Just 35% of people accurately stated this was true.
It may come as a surprise since you need only 10 years of work history to qualify for retirement benefits. But regardless of how many years you actually work, benefits are calculated based on average wages in your 35 highest earning years. Working for less time means your Social Security income will be reduced by the inclusion of $0-wage years in the average wage used to set your benefit.
7. You can't sign up for Medicare without being enrolled in Social Security
This statement is false, but only 35% of people knew that. Once you turn 65, you become eligible for Medicare even if you aren't getting Social Security. Also, be aware that signing up late could lead to higher future Medicare premiums.
8. Someone who makes $150,000 pays the same Social Security tax as millionaires
This surprising fact was known by just 33% of survey respondents.
The reason this is the case is that there's a "wage base" and Social Security taxes are charged only up to that limit. In 2022, the wage base limit is $147,000. So, whether you make $150,000 or $10 million per year, you're only going to pay Social Security taxes on $147,000 in income. Of course, you also won't get credit for income above this level when benefits are calculated.
9. Social Security isn't protected against inflation
Surprisingly, only 32% of people correctly indicated this statement is false. The good news is, there is inflation protection built into the benefits program as seniors get periodic cost of living adjustments when the consumer price index shows a year-over-year increase in the cost of goods and services. This year's increase, 5.9%, is one of the highest in decades.
10. Workers pay Social Security tax on all their income
Finally, only 30% of people knew that it was false that workers pay tax on all their income. The reason this is false is due to the wage base limit mentioned above.
How many of these assertions did you validate correctly?
Hopefully, you did better than the majority of Americans. If not, at least now you know the truth and can make more informed choices about your benefits claim.
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*: Harris Polls for Nationwide Retirement Institute 2021 Social Security Survey, June 2021. Thanks to Christy Bieber of The Motley Fool for the original post 2/19/2022.