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. …
Mistakes made during initial Medicare enrollment can be costly.
Someone with on-the-job health care coverage who enrolls at age 65 may be paying Medicare premiums unnecessarily. Even worse, retirees who sign up too late incur a penalty for life.
“If you’re actively working, that’s the only reason you can enroll late in Medicare” without paying the penalty, Medicare trainer Andy Tartella says in the above video, “The ABCD’s of Medicare,” produced by the Centers for Medicare and Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services.
Medicare has been around for exactly 50 years. But enrolling in the program is a new experience for every single American who turns 65. To navigate Medicare enrollment and the alphabet soup of Medicare programs, the following are other video tutorials produced by the federal government and other reliable sources – links are embedded at the end of the title: …Learn More
Two important U.S. Supreme Court decisions in two years removed not only the obstacles to same-sex marriage but also most of the financial inequities couples faced.
The June decision upholding same-sex marriage opened up financial advantages of marriage that either had been completely unavailable to gay and lesbian couples or were complicated by marrying in a different state than the state in which they live. The decision came on the heels of the high court’s 2013 ruling against sections of the federal Defense of Marriage Act, a ruling that made Social Security benefits available to gay and lesbian couples in states that permitted them to marry.
In the wake of these decisions, “If marriage is an option and it makes sense emotionally for the couple, that’s also the best financial strategy,” said Sheryl Garrett, a certified financial planner in Eureka Springs, Arkansas.
There are disadvantages to marrying. Filing joint tax returns can mean higher income taxes or less financial aid for college-bound offspring. Nevertheless, Garrett, co-author of “Money without Matrimony: The Unmarried Couple’s Guide to Financial Security,” said the court rulings together make a compelling argument for marrying.
She provided Squared Away with five financial benefits of same-sex marriage listed below. They’re the same advantages that were always available to heterosexual couples who could produce a marriage license. …Learn More
It’s hardly surprising that debt causes stress, but this condition seems rampant among the college crowd.
A new study in the Journal of Financial Therapy finds that nearly three out of four students feel stressed about their personal finances, and student loans are a big reason.
In 2012, the average graduating senior owed $29,400. Student debt has already been shown to be a barrier to homeownership and a cause of bankruptcy among young adults. Paying back the loans is also very difficult when borrowers don’t graduate and earn less in their jobs. Add stress to the host of issues that accompany borrowing for college.
Students who have debt or expect to be in debt after college – whether college loans, credit cards, or car loans – are “significantly more likely to report financial stress” than students who did not have any debt, the study reported. …Learn More
It’s customary every six months for Squared Away to round up our readers’ favorite blogs. The following were your top picks during the first six months of 2015, based on an analysis of online page views.
To stay current on blog posts in the future, click here to join a once-weekly mailing list featuring the week’s headlines on Squared Away.
Retirement is a perennial favorite among readers. But the top 10 list below also includes blogs about financial education and knowledge of the U.S. retirement system, longevity, and the hardships specifically faced by older workers: …Learn More
Many boomers will have to stay employed longer than they’d hoped to close the gap between what they’ll need in retirement and what they can realistically afford. Yet the job market is tough for job-hunting older workers, and if they are employed, wages stagnate or decline when people get into their 50s.
A new report by the AARP Public Policy Institute shows the continuing toll on workers ages 45 and older who have suffered a bout of unemployment since the onset of the Great Recession. Lower pay, fewer hours, or more limited benefits in their new jobs and a prolonged inability to find any job are plaguing these workers. AARP found that only half of those hit by job losses have found work, and the rest either remain unemployed or may have given up and dropped out of the labor force entirely.
AARP’s representative survey of some 2,500 older Americans, conducted late last year, aligns with earlier academic studies looking at the Great Recession’s impact on older workers. The youngest boomers are now 50, so the survey includes some people in Generation X.
The following are AARP’s major findings:
Nearly half of the people surveyed earn less in their new employment than they did before losing their previous job. …
Knowing how to budget or invest one’s retirement savings are useful skills. But managing money isn’t just about what you know – it’s also about how you feel.
That’s the gist of a handful of recent studies into a newly identified emotion known as financial anxiety. These early studies look at two things: 1) is financial anxiety real?; and 2) does it explain why people do things like avoiding money issues or going into debt to paper over their financial problems?
The evidence says yes to both questions.
A 2012 study established financial anxiety as an identifiable psychological condition that can be measured using a standard psychological test. The researchers gauged their subjects’ reaction times to pairs of words flashed on a computer screen – negative financial words (debt), positive financial words (jackpot), neutral financial words (bank), or anodyne control words (camp). The subjects were timed on how long it took to identify a word after an on-screen icon replaced one word in the pair.
When only the negative financial word was left on the screen, people with higher financial anxiety were slower to respond than when only the positive word was visible. The prevalence of longer delays for negative words suggests that most subjects had at least some financial anxiety. …Learn More