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Can You Pass a Social Security Test?

Nearly three-quarters of people over 55 flunked when asked how benefits work

By Anne Tergesen and MarketWatch

This pessimistic conclusion comes from Financial Engines, a Sunnyvale, Calif. company that manages 401(k) accounts and IRAs on behalf of people who want investment help.

When the company administered an eight-question quiz about Social Security to about 1,000 people ages 55 to 70 in October, almost three-quarters got a grade of “C” or lower (meaning they got six answers or fewer correct); only 5 percent received perfect scores. (Test your knowledge by taking the quiz here.)

The takeaway: “Americans aren’t very well informed about how Social Security works,” says Chris Jones, chief investment officer at Financial Engines. And the stakes are high, since these benefits comprise 90 percent or more of the retirement income of a quarter of all American couples and half of single individuals.


To some extent, Social Security education is a losing battle. While the questions on Financial Engines’ quiz aren’t all that difficult (in fact, seven of the eight questions are true-or-false), Social Security’s rules are voluminous and byzantine.

For couples, there are about 8,000 different claiming strategies to choose from, says Jones. “It’s not realistic to expect a typical person to be able to evaluate all the possibilities,” he says.


(Of course, that knowledge gap creates a business opportunity for financial-services companies: Financial Engines plans to join the growing number of services that provide advice on Social Security claiming strategies—possibly as soon as later this year.)

Picking the right strategy can make a big difference in a retiree’s wealth. For a single individual, a wise choice can inflate lifetime retirement income by as much as $100,000. For couples, an optimal strategy can add $250,000 or more of benefits over a lifetime. Given that the average 401(k) balance for a worker in his or her 60s is only about $125,000, maximizing Social Security is key, notes Jones.



For many people, it pays to defer Social Security. For every year you wait between age 62 (when you first become eligible) and age 70, benefits rise by 6 percent to 8 percent. Because Social Security benefits are also adjusted for inflation, delaying “is a screamingly good deal,” says Jones.

“The government is giving you a 6 percent to 8 percent guaranteed real return” for every year you delay claiming, “which is vastly higher than the return rates we see in the economy today” for investments with a comparable low risk, he says. (For some people, including those who are single and have a short life expectancy, it may not pay to wait.)


While delaying taking benefits until age 70 is optimal, “delaying Social Security for even one or two years can make a big difference in household retirement income, and especially for the surviving spouse,” he says.


Anne Tergesen is a staff reporter at The Wall Street Journal, covering retirement finances and planning. This article originally appeared on

Anne Tergesen is a writer for, specializing in retirement. Read More
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