Misconceptions About Social Security

It is the most important source of retirement income for most workers. Yet too many older Americans lack a basic understanding of certain aspects of Social Security benefits.

In fairness, many people got some key questions right in a survey that quizzed them about the program’s rules and incentives. But a significant minority, and sometimes a majority, revealed a poor understanding of several major features of the program. As the researchers note, misunderstanding Social Security benefits could lead to poor financial decisions about retirement.

They analyzed responses by more than 2,300 people – all between ages 50 and 70 – to a nationally representative survey administered online in 2008. The survey, which took about half an hour, started with basic demographic questions before moving to various questions about components of the Social Security program.

Brief explanations of some program features appear below, followed by the percentage of survey respondents who provided incorrect answers, according to the researcher’s analysis of the results:

• The U.S. Social Security Administration calculates pensions using a formula based on the average of a worker’s 35 highest years of earnings. This information is important, because each additional year of work could substitute current earnings for an early year of low earnings – or even zero earnings prior to the worker’s entry into the labor force.

68 percent were incorrect in their responses to a multiple choice question that included the correct calculation as one of four options.

• A married person who has never worked is eligible for a pension equal to half of her spouse’s “full retirement age” benefit if the non-working spouse claims at her own full retirement age, and a reduced benefit if she claims earlier.

48 percent believe a non-working spouse is ineligible for spousal benefits.

• By continuing to work and increasing the earnings base for calculating their own Social Security benefit, a primary breadwinner also increases the spouse’s monthly check – if the spouse is eligible for a spousal benefit, rather than a benefit based solely on their own work history.

61 percent of respondents the researchers inferred could benefit from working longer were unaware that their work decision also affects their spouse’s monthly benefit.

• The earnings test withholds $1 in benefits for every $2 beneficiaries earn from employment in excess of an exempted amount – $15,720 in 2015. The test applies only until beneficiaries reach full retirement age, at which time benefits are increased to make up for benefits withheld by the earnings test.

When asked about a hypothetical 64-year-old worker (who hasn’t reached the full retirement age), 60 percent of respondents did not provide the correct response – that the individual’s benefits would be withheld at that time.

On the bright side, survey respondents did much better on some questions. For example, about 85 percent accurately said that a hypothetical person between 62 and 70 could increase his monthly benefit by delaying when he begins receiving benefits.

Many Americans nevertheless fail to grasp program features that could have a major impact on their retirement finances.

The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement Research Consortium. The opinions and conclusions expressed are solely those of the author(s) and do not represent the opinions or policy of SSA or any agency of the federal government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.