New survey confirms no one understands Social Security. Do you?

Social Security rules are complicated and change often. For the most recent “Ask Larry” columns, check out

Boston University economist Larry Kotlikoff has spent every week, for over two years, answering questions about what is likely your largest financial asset — your Social Security benefits. His Social Security original 34 “secrets”, his additional secrets, his Social Security “mistakes” and his Social Security gotchas have prompted so many of you to write in that we feature “Ask Larry” every Monday. Find a complete list of his columns here. And keep sending us your Social Security questions.

Kotlikoff’s state-of-the-art retirement software is available here, for free, in its “basic” version. His new book, “Get What’s Yours — the Secrets to Maxing Out Your Social Security Benefits,” (co-authored with Paul Solman and Making Sen$e Medicare columnist Phil Moeller) was published in February by Simon & Schuster.

Watch Larry explain how Paul and his wife could collect an extra $50,000 in Social Security benefits:

Massachusetts Mutual Life Insurance Company (MassMutual) just released the results of a survey on Americans’ Social Security knowledge. The research was conducted by KRC Research on behalf of MassMutual from February 26 to March 2, 2015 via an online survey among 1,513 Americans (1,000 non-Hispanic age 25 to 65; 513 Hispanic age 18 and over).

The basic finding is that many to most people are clueless when it comes to collecting Social Security. But the precise wording of the survey questions also suggests that MassMutual, itself, doesn’t have a fully correct understanding of the system. On the other hand, MassMutual’s answers to the questions, which it provided after the participants took the survey, are pretty much on target.

It’s worth noting that MassMutual and virtually every other financial company are beginning to get into the Social Security advice business as a lost leader. They will start a conversation with you about Social Security, but that conversation will likely end up with MassMutual pitching their financial products to you. This said, MassMutual may have the best financial products around. I haven’t examined them or compared them.


Pose Your Questions to Larry Here

So nothing I say here should come across as particularly critical of MassMutual. Their survey is very valuable (and I applaud them for conducting it), because it tells us something I’ve been shouting in this column for what is now almost three years—Social Security, as currently designed, is a true national disgrace and needs to be retired and replaced. It’s far too broken to be fixed on a piecemeal basis. A modern version of Social Security, much like the one I advocate here, would fully fulfill its critical mission without randomly redistributing between those who know and those who really don’t know exactly, to the T, the system’s rules.

Here are a few of MassMutual’s findings:

  • Citizenship is not a requirement: Three-quarters of survey respondents think that being an American citizen is necessary to receive Social Security retirement benefits, which is incorrect. (Being a nitpicker, I need to say that if you aren’t a U.S. citizen and live abroad, in a country like Armenia, you may have a lot of trouble collecting spousal or widow(er) or divorcee spousal or divorcee widow(er) or child benefits or survivor child benefits on your spouse or ex-spouse’s work record.)
  • Retirement age is a mystery: More than seven in ten surveyed (71 percent) incorrectly believe that full Social Security retirement age is 65, when the age actually varies depending on birth year.
  • Continuing to work and age affect benefits: More than half of those surveyed (55 percent) incorrectly believe that they can continue working while collecting full Social Security retirement benefits regardless of their age. (Again, the nitpicker in me needs to tell you that, as long as you don’t flip onto another benefit, you can, actually, collect full Social Security benefits regardless of age thanks to Social Security’s Adjustment of the Reduction Factor (ARF). ARF kicks up your retirement, spousal, divorcee spousal, widow(er), and divorcee widow(er) (but not child-in-care spousal or mother or father) benefits at full retirement age to compensate you on an actuarially fair basis for benefits lost to the earnings test before full retirement age. So if you lose all your early retirement benefits to the earnings test, your retirement benefit at full retirement age will be set to your full retirement benefit!)I’m going to walk you through each of the other questions of the survey and point out if the question is, itself, unambiguous. The following are statements that survey participants were required to specify as true or false:1. Social Security retirement benefits are based on my earnings history, so I’ll receive the same monthly benefit amount no matter when I start collecting.

    This is a good question, setting aside the Earnings Test and the Adjustment of the Reduction Factor. The answer is false since Social Security reduces your monthly retirement benefit if you take them before full retirement age and increases them via the Delayed Retirement Credit (if you delay, which you can do up to age 70, taking them after full retirement age).

    2. If my spouse dies, I will continue to receive both my own benefit and my deceased spouse’s benefit.

    This is not a well written question. You can’t continue to receive anything that you haven’t already been receiving. And you can’t receive a widow(er) benefit before your spouse dies. Also, what Social Security will give you, assuming your deceased spouse didn’t take his or her retirement benefit early, is the larger of one’s own retirement and one’s widow(er)’s benefit. But if your widow(er)’s benefit is larger, Social Security will describe this as your continuing to receive your own benefit plus your excess widow(er) benefit. Moreover, if your deceased spouse took his or her retirement benefit early, your widow(er) benefit will be computed via the RIB-LIM formula, which is extremely complex and involves both your own and your deceased spouse’s benefit.

    3. If I file for retirement benefits and have minor dependent children, they also may qualify for Social Security benefits.

    This is a good question and the answer is true—unless you are a disabled worker with a low earnings history. In this case, the family benefit maximum, which is different for the disabled than for the non-disabled can wipe out any family benefits. Moreover, at full retirement age, your disability benefit, which is actually your full retirement benefit, begins to actually be called your full retirement benefit.

    4. As a divorced person, I can collect Social Security retirement benefits based on my ex-spouse’s earnings history.

    Frankly, this is a bad question. If you were married for 10 or more years, the answer is true. If you were married for fewer years the answer is false. MassMutual explains this after the survey has been applied, but…

    5. Once I start collecting Social Security, my benefit payments will never change.

    This is a really bad question. Assuming you don’t keep working, Social Security benefits are CPI indexed, so they will change due to inflation, but not in real terms. So the answer can be true or false. Furthermore, if you collect early and earn enough to lose benefits due to the Earnings Test your benefit will be adjusted upward due to the aforementioned Adjustment of the Reduction Factor. And if you earn enough after you start collecting to raise the average of your past covered earnings, called the Averaged Indexed Monthly Earnings, your own retirement benefit will be increased under a provision called the Automatic Earnings Reappraisal Operation. So again, the answer can be true or false. And if you are taking one benefit, like a widow(er) benefit, and switch to a different benefit, like a retirement benefit, again the answer can be true or false. Finally, if you took it early, you can suspend your retirement benefit at full retirement age, in which case your benefit will change, but not your full retirement benefit on which the early retirement reduction and delayed retirement credits are calculated.

    6. Government workers may have their Social Security retirement benefits reduced.

    This isn’t a great question either, because all federal government workers are now covered by Social Security. Instead, I would have asked, “If you worked in a job, such as being a teacher in the State of Massachusetts, that didn’t deduct Social Security taxes might your Social Security benefits be reduced?”

    7. My spouse can qualify for Social Security retirement benefits, even if he or she has no individual earnings history.

    Well, this is OK. But if my spouse never worked a day in her life, and I take my retirement benefit at, say, 67, and drop dead, her widow(er) benefit will equal my retirement benefit. The question doesn’t specify whose retirement benefit is in question.

    To its credit, MassMutual provides a lot of correct and important information about the system’s rules in providing the answers to its survey questions. But it’s clear that survey participants aren’t the only ones at least somewhat confused about Social Security.