Take the Quiz: What Is Your Social Security IQ

Category: Financial and taxes in retirement

April 21, 2018 — For most Americans, their Social Security retirement benefits are a critical part of retirement. So here is an important thing to remember about Social Security – IT IS NOT ONE SIZE FITS ALL – YOU HAVE OPTIONS – AND YOU HAVE TO MAKE SOME IMPORTANT DECISIONS. Those mostly revolve around when to take it – the way you decide that question will have a significant effect on on the rest of your financial life.

We find there is a fairly shocking lack of knowledge about Social Security. People tend not to know how their benefits are calculated, and they don’t realize how big a difference there is in the benefits, depending on when you take it. To help you get the most out of your benefit we have prepared a 13 question quiz on Social Security. The quiz is pretty challenging. The good news is that even if you don’t ace it, going through the process of taking the quiz, and then using our point by point explanation of each answer will be very educational. You’ll get pretty much all the knowledge you need about your benefits and options.

Note: We developed a similar quiz in 2014 and over 7500 people took it. Most did pretty well. But since then there have been some important changes to Social Security, hence this new quiz. We developed it ourselves; it does not represent anything official from the Social Security Administration, which is the ultimate arbiter of the rules concerning your benefits.

Here is the link to the Social Security quiz

Test prep: To maximize your learning experience, we strongly recommend that you read one of these articles first, then take the quiz, then look at the answers. (After you take the quiz you will see a link to the answers).

Social Security Overview
What You Don’t Know About Social Security Could Hurt You

Take the Quiz!

Comments? Let us know what you think about this quiz. Should we do more, and on what subject(s) – was it too hard? Any of the questions unfair? Please share your thoughts in the Comments section below. We will also report on the results in next week’s newsletter.

Note: The answers and commentary are hard to get back to once you go off that page – so if you want to go back to them, here is the answers/comments link (no cheating!).

Posted by Admin on April 21st, 2018

Your Results: How Did You Do on Our Social Security IQ Test

Category: Financial and taxes in retirement

Thanks for taking our Social Security Quiz. (If you haven’t taken it already, here is the link to the Quiz). To make sure you don’t miss out on useful tools and information like this, sign up for our Free weekly Best Places enewsletter.

Here is more information about the correct answers. There is a Y in front of the correct answer.

Q.1. Assuming you were born between 1943 and 1954, what is considered your Full Retirement Age for Social Security benefit purposes? (The rest of the questions in this quiz assume you were born between 1943-1954, unless otherwise noted)

Y 66

Comment: There is always some confusion over what “Full Retirement Age” means. SS assumes 66 is the full retirement age for folks born between these years. But you can actually qualify for “more than full” and get a larger benefit at any age up to 70. (See Full Retirement Age Chart).

Q.2. The Full Retirement Age (FRA) starts gradually increasing for people born in 1955 and later. In what birth year does the FRA go to age 67?

Y 1960

Comment: The full retirement age for people born between 1955 and 1959 ranges from 66 and 2 months to 66 and 10 months. It is age 67 for those born in 1960 and later.

Q.3. How does the Social Security Administration calculate your benefit?

– Social Security calculates your average indexed monthly earnings during the 20 years in which you earned the most.
– Social Security calculates your average indexed monthly earnings during the 25 years in which you earned the most.
– Social Security calculates your average indexed monthly earnings during the 30 years in which you earned the most.
Y Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most.

Comment: Most people tend to get this question wrong, usually underestimating the number of years in the calculation. The point is, the more years you can maximize your earnings, the higher your benefit. By the way, to qualify for any benefit the minimum number of earning quarters is 40.

Q.4. Assuming you claim your SS retirement benefits at age 62, what % of your Full Retirement Age benefit will you receive?

Y 75%

Comment: You will only get 75% of your Full Retirement Age benefit if you take it at age 62. The closer you get to your FRA, the closer to 100% you receive.

Q. 5. Assuming you wait to claim Social Security until age 70, which of these statements is most correct?

– Your benefit will be the same as at your Full Retirement Age
– Your benefit will be 120% of what you would get at age 66
Y – Your benefit will be 132% of what you would get at age 66
– You should wait until age 72 and get an even higher benefit for delaying

Comment: Your benefit increases by 8% a year if you claim after age 66 (up to age 70). Most experts believe that age 77-78 is the breakeven point for claiming early vs. later – in other words if you or your spouse live past that age you are better off delaying. The average life expectancy for a female aged 62 is 85.

Q. 6. In 2018 what is the average monthly Social Security benefit, AND the highest available monthly benefit?

Y – $1400 average and $3680 maximum
– $1200 average and $3020 maximum
– $1600 average and $3840 maximum
– $1500 average and $2950 maximum

Comment: The average SS benefit is quite low. But for people who have maximized their earnings over 35 years and who delay to age 70, the benefit becomes quite meaningful.

Q. 7. Which of these is the most accurate statement about working after you start taking Social Security?

– Once you start taking social security your benefits will be reduced if you work for pay.
Y – Once you start social taking security your benefits will not be reduced if you work for pay, as long as you have reached your full retirement age.
– Once you start social taking social security your benefits will not be reduced if you work for pay.

Comment: If you are younger than full retirement age during all of 2018, SS will deduct $1 from your benefits for each $2 you earn. In the year you reach full retirement age they will deduct $1 for every $3 you earn. After that there are no deductions. BUT, if some of your retirement benefits are withheld because of your earnings, your monthly benefit will increase starting at your full retirement age to take into account those months in which benefits were withheld.

Q.8. Do you have to pay federal income tax on your social security benefits?
– Yes, all of it is taxable
– No, none of it is taxable
Y – Yes, you will have to pay taxes on your SS benefits if your (filing separately) “adjusted” income is over $25,000/year.
– Yes, you must pay taxes on your SS benefits if your (filing separately) income is over $32,000/year.

Comment: Individuals start to pay taxes on their SS benefits if their adjusted income is over $25,000; for couples filing jointly the threshold is $32,000. Individual states vary in their tax treatment of social security benefits. Most do not, whereas others exempt a certain amount. See this SSA document for more about SS and taxes.

Q.9. How much can you receive as as a spousal benefit based on your spouse’s Social Security record?

Y – 50% if you start collecting at your Full Retirement Age
– 50% as long as you are at least age 62
– You cannot receive a spousal benefit unless you qualify on your own contribution record

Comment: We created this question to emphasize that it is usually worthwhile to wait until you are at full retirement age to start collecting a spousal benefit. If you begin collecting spousal benefits before your full retirement age, the benefit is reduced by a percentage based on the number of months before you reach full retirement age. You do not have to have qualified on your own contribution record to receive a spousal benefit.

Q. 10. As the surviving spouse of someone who qualified for Social Security benefits, what are your benefits?

– 50% of the spouse’s benefit, regardless of your age
– 75% of your spouse’s benefit upon his or her death, assuming you are at your Full Retirement Age
Y – 100% of your spouse’s retirement benefit upon his/her death, assuming you are at full retirement age

Comment: Because your surviving spouse gets 100% of your benefit, this is one of the most overlooked aspects when it comes to when to start taking your SS benefit. If you start collecting at 62 but your spouse lives to 95, they have a lot of years collecting a relatively low benefit.

The deceased worker whose benefit you are collecting on does not have started collecting their benefit (but if they were not at full retirement age your benefit will be reduced). If you start collecting as a survivor you have to be at least 60 years old, and you will receive a reduction if you are not at full retirement age. See Social Security – Survivor Benefits.

Q. 11. Assume that you are divorced from someone who qualifies for social security benefits. You are at least 62, and have not remarried. Can you collect benefits as a divorced spouse on the record of your former spouse?

– Yes – but only if your former spouse has not remarried
Y – Yes – but only if you were married to that person for 10 years or more
– Yes – but only if you were married to that person for 5 years or more

Comment: As long as you were married at least 10 years and haven’t remarried you can collect SS on your ex’s record.

Q. 12. Which one of these statements about filing strategies is TRUE?

– Anyone born before Jan. 1, 1957 can take the “File and Suspend” option (file so a spouse can collect spousal benefit, then suspend your own benefit until later)
Y – People born before Jan. 2, 1954 can take a Restricted Benefit (spouse can collect spousal benefit but can wait to claim own benefit)
– The File and Suspend and the Restricted Benefits are available to anyone when they reach their Full Retirement Age
– None of the above

Comment: The File and Suspend strategy is no longer available, unless you are already taking it. Restricted Benefit is available, but only to people who were born before Jan. 2, 1954. It can be a good strategy, particularly in the case where the person collecting the spousal benefit (and delaying collecting on their own) has a strong earning history.

Q. 13. Which of these statements from the Social Security Trustees about the financial health of Social Security is TRUE?

Y – In 2035 only 75% of promised retirement benefits will be available to be paid.
– The system is healthy and will be able to pay promised benefits for the foreseeable future
– In 2025 only 85% of promised retirement benefits will be available to be paid.
– In the next 20 years Social Security will be bankrupt and no benefits will be paid

Comment: The Trustees reported late last year that all SS retirement reserves will be depleted by 2035 – unless something is done soon. In that year the only money available to pay benefits will come from SS taxes coming in from current workers, which is why only 75% of promised benefits can be paid.

Bottom line:
We hope you learned from this quiz, and you are now prepared to make the most of your Social Security benefit.

For further reference:
How Social Security calculates your benefit
How work affects your benefits
SSA Retirement Info Summary
What You Don’t Know About Social Security Could Hurt You (3 part series)

Disclaimer: We have tried to provide the most accurate information available. However note that in matters as important and complex as your social security benefit you should do careful research on your own, consult the SS Administration, and rely on your financial or other adviser before making important decisions.

Comments? How did you do on the quiz? Should we have more quizzes on Social Security and other subjects? What has been your Social Security claiming strategy? Anything we should explore in greater detail? Please let us know in the Comments section below.

Posted by Admin on April 20th, 2018

Rethinking the ‘When to Start Collecting Social Security’ Question

Category: Financial and taxes in retirement

March 14, 2018 — A crisis will affect Social Security just 16 short years from now, and it has some experts rethinking their strategies for when to start taking Social Security. Instead of urging people to wait until age 70, some are recommending beginning at age 66.

The crisis
In 2034 the Social Security reserves are expected to be exhausted. With no reserves available, the only money available to pay benefits is what comes in from current worker and employer contributions into the program. Sadly, that won’t be enough; starting in 2034 there will only be enough coming in to pay 77% of scheduled benefits.

A new recommendation to think about
Mark Hulbert of Market Watch reported on the argument posed by Richard Band, editor of the Profitable Investing advisory service, in “Why it might be better to take Social Security at age 66 instead of 70“. To Band, the question of when to start taking the benefit hinges on your confidence in the federal government. The advisor, who is 66, facetiously wonders if anyone really (more…)

Posted by Admin on March 14th, 2018

How the New Tax Bill Affects You As a Retiree

Category: Financial and taxes in retirement

December 19, 2017 — The imminent passage of the Republican tax bill makes us wonder how our audience – retirees and people about to retire – will be affected by it. We will attempt to answer that question here, recognizing that everyone’s situation is unique and might be affected differently. We are not tax experts, but have tried to digest various media reports to provide this overview.

The bill will have direct effects on retirees in 2018, as well as some possible indirect effects down the road. Let’s look at each of those in turn.

Direct effects on retirees
1. Lower tax payments. With the exception of the people described in #4 below, almost everyone will pay lower federal taxes in 2018 than they do now. However, those cuts will expire in 2025.
Effect: Good news for retirees who pay taxes, except in those who live in high tax states. Who wouldn’t want to pay lower taxes!

2. The standard deduction is now much higher, at $12,000 per person vs. the current $6500. This means that far fewer people will have enough deductions to itemize, and filing will be simplified. On the other hand the current personal deduction of $4500 has been eliminated, so the net effect in the increase in the standard exemption (more…)

Posted by Admin on December 18th, 2017

3 Things That Could Save Social Security

Category: Financial and taxes in retirement

November 28, 2017 — As if there wasn’t enough bad news to go around, your Social Security retirement check is in trouble. If Congress doesn’t act soon, retirement benefits will probably have to be cut by 23% in 2034 – when someone who is 66 years old now will be 83. Most everybody knows the two major reasons driving this – too many baby boomers getting benefits compared to the number of younger folks paying into the system, and our ever-increasing life spans. Combine that with the fact that 60% of Americans rely almost entirely on Social Security for their income, and we have a disaster in the works.

Recently we saw a very practical article in MarketWatch by Paul Brandus, “3 things that could help put Social Security back in the black“. His common sense approach so simply gets to the bottom of the issue that we thought we would repeat it:

1. Raise the retirement age. Brandus suggests that we start raising the normal retirement age for full benefits by a month a year. It wouldn’t take too long to raise it to age 68, which would do a lot to help stabilize the fund.

2. Raise payroll taxes. This one might hurt a bit. Currently employees pay 6.2% in FICA – the SS trustees recommend increasing that by another 2.83%. So if you make $50,000, your FICA share would go from $3100 to $4650 – ouch!

3. Raise — or eliminate — the cap on taxable wages. In 2018 if you make more than $128,700 you and your employer would stop paying into Social Security at the point when you earned that much (there is no limit on Medicare). SS misses a lot of potential revenue from CEOs who get those nice $50 million paychecks. The Center for Budget and Policy Priorities, a nonpartisan group, estimates are that from a quarter to as much as 90% of the SS shortfall could be solved with this idea alone.

Seems simple enough, right?
We have to do something, as every month of inaction makes the problem harder to fix. Yet neither party is talking about it. Neither is the guy who signed the rather dire Audit Report, Steve Mnuchin. It is a national embarrassment, in our opinion. Next time you talk with an elected official, ask them what their plan is to save your Social Security.

For further reading:
Full Social Security Trustees 2016 Report
Social Security: The Can That Keeps Getting Kicked Down the Road

Posted by Admin on November 27th, 2017

How Will Tax Reform Affect Your Retirement?

Category: Financial and taxes in retirement

Update Dec 2, 2017: The Senate passed their tax proposal early this morning. It is anticipated that the reconciliation between the Senate and House versions of the bill will go smoothly and it will be signed by the President soon. As soon as the final details emerge we will either update this article or create a new one, so that you can see how tax reform might affect your retirement.
November 23, 2017 — Recently we had some Comments made to other posts that touched on how the proposed tax bills approved by the House and being considered by the Senate might affect retirees. While the bills and different how they might be reconciled in the end is very fluid, it is worth considering how they impact your retirement. Just about everyone agrees that the concept of simplifying our overly complex tax code is a good thing in principle. But it also certain that any tax reform always produces winners and losers. In this article we will give our opinions on how different groups of retirees would fare on tax reform. Let us hope for your sake you are among the winners!

Tax Reform and Roth Conversions
Here is the Comment by Peder: “If the tax reform/cut/whatever gets through and they raise the 25% bracket all the way to $200K, I’m seriously going to consider converting (more…)

Posted by Admin on November 23rd, 2017

Social Security Cost-of-Living (COLA) for 2018 – Up 2%

Category: Financial and taxes in retirement

November 20, 2017 — Monthly Social Security and Supplemental Security Income (SSI) benefits for more than 66 million Americans will increase 2.0 percent in 2018.

The 2.0 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 61 million Social Security beneficiaries in January 2018. Increased payments to more than 8 million SSI beneficiaries will begin on December 29, 2017. (Note: some people receive both Social Security and SSI benefits)

The maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase to $128,700.

The earnings limit for workers who are younger than “full” retirement age (age 66 for people born in 1943 through 1954) will increase to $17,040. (We deduct $1 from benefits for each $2 earned over $17,040.)

The earnings limit for people turning 66 in 2018 will increase to $45,360. (We deduct $1 from benefits for each $3 earned over $45,360 until the month the worker turns age 66.)

There is no limit on earnings for workers who are “full” retirement age or older for the entire year. Here is a SS Fact Sheet with more.

For further reading
It’s 2017: What You Thought You Knew About Social Security

Posted by Admin on November 20th, 2017

Does the Equifax Data Breach Affect You – Probably!

Category: Financial and taxes in retirement

September 19, 2017 — Last week we found out that one of the nation’s largest credit monitoring services, Equifax, had been hacked. The credit records of 143 million Americans were compromised, including in most cases their social security numbers, addresses, birth dates, credit ratings and sometimes a lot more – basically the keys to the scamming kingdom. Since then the company is being investigated because there was an earlier hack not disclosed, and corporate insiders might have traded ahead of the public release of information.

If you have been wondering if you were one of those whose credit info is now available to the highest underworld bidder – yes you probably were. After all the U.S. population is 323 million, so statistically you have just under a 1 in 2 chance of being affected. This (more…)

Posted by Admin on September 18th, 2017

Don’t Get Hurt by the Latest Scam – Phony Federal Reserve Accounts

Category: Financial and taxes in retirement

August 28, 2017 — From June to mid-August 15, nearly 107,000 payments for more than $100 million were attempted by people trying to use the latest financial scam. Unfortunately for those who tried, all of the payments were nullified. In this “too good to be true” flim flam people are being told there are secret accounts at the Federal Reserve that ordinary people can tap into to pay bills, if they learn how. All you need to do is add your Social Security number to (more…)

Posted by Admin on August 28th, 2017

The Can That Keeps Getting Kicked Down the Road: Social Security Trustees Annual Report Has More Bad News

Category: Financial and taxes in retirement

August 15, 2017 — If you are receiving Social Security or you plan on relying on it for your retirement, this news is important. If no action is taken, your benefits will take a big haircut in just 17 years.

Every year the Social Security Trustees prepare an annual report. The one for 2016 was just published, and once again it predicts trouble ahead for the nation’s system of Federal Old Age and Survivors Insurance and Federal Disability Insurance Trust Funds (OASDI), otherwise known as Social Security. Every year the Trustees warn Congress that something must be done, and every year Congress kicks it down the road. Fixing the system will be painful, but in our opinion, something must be done. The longer it takes to correct the system, the worse the problem gets.

Income still higher than expenditures – for now
Total expenditures in 2016 were $922 billion, while total income was $957 billion: the surplus for the year was $35 billion. Asset reserves held in special issue U.S. Treasury securities continued to grow. Social Security’s total income is projected to exceed its total cost through 2021, as it has for every year since 1982.

Interest income not enough to cover program cost deficit
The Trustees project that interest income, which was $88 billion in 2016, is shrinking every year. Up to this point it has helped cover the deficit of expenses over contributions paid in. As interest income declines, however, the total surpluses will turn to (more…)

Posted by Admin on August 15th, 2017