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During a recent conversation with a close friend about her retirement plans, I was curious about something (so I asked): When did she think she might file for Social Security?

She was puzzled. "What do you mean 'file'? Doesn't Social Security just kick in at a certain point?"

I don't know which one of us was more shocked.

Luckily, we both got a laugh out of it (and an in-depth conversation about how Social Security works). But it got me thinking.

How Much Does Anyone Know About Retirement, Really?

Here was a close friend in her 60s, with an advanced degree and a great job, who was unfamiliar with one of the retirement fundamentals. Was it that surprising? Given how complicated retirement planning is — and that most of us are ridiculously busy with the here and now — it makes sense that some facts slip through the cracks.

What we all need: A retirement refresher, disguised as a short, fun quiz!

Don't worry: There's no scoring system here, so you cannot win or lose. Hopefully the answers — which you can find at the end of this quiz — will be their own reward!

1. The day will come when you (and your spouse/partner) will have to decide when to claim Social Security benefits. Why does the timing matter?
A. Social Security may run out of money, so start getting benefits as soon as you're eligible.
B. The longer you wait, the bigger your monthly check is.
C. The earlier you claim, the lower your taxes will be.
D. You don't want to get hit with a penalty.

2. What happens when you withdraw money from a traditional IRA, SEP-IRA, 401(k) or 403(b) retirement savings plans?
A. You go to Greece!
B. You have to roll it over into another retirement account.
C. Trick question – nothing happens. It's just a withdrawal.
D. You have to pay taxes.

3. You joined the retirement plan at work (or you were automatically enrolled). When your employer withdraws money from your paycheck, where does it go?
A. It goes into my retirement account.
B. It's deposited into my employer's matching plan.
C. The money is kept overseas, for investment purposes.
D. Into an IRA.

4. Social Security is designed to cover your basic living expenses in retirement.
A. Yep.
B. Nope.
C. In which country?

5. True or false: A couple can sign up for a joint retirement account so they can save more together.
A. True.
B. False.

Couples can use a few other strategies to ensure their Individual Retirement Accounts (and savings plans) are in sync:

• Coordinate how much you're saving in total, and how your money is invested.

• Talk to each other regularly about what you each envision retirement to be. (That helps couples to set financial goals as well.)

• If one member of the couple isn't working, the working spouse may be able to set up what's known as a spousal IRA.

While you can start taking Social Security as early as age 62, if you wait until your full retirement age of 66 or 67 (depending on when you were born) you'll get a bigger monthly payout. And if you can hold off filing until you're age 70, you'll get the maximum monthly payout — which is about 30% higher than the amount you'd get at age 62.

That doesn't mean you have to wait until age 70. Not everyone can. And some people argue that claiming earlier can yield more money over time. The point is that there are many ways to make Social Security work, so find what works for you.

(And, no, Social Security is not going to run out of money. That's a myth.)

This was actually another funny moment with a different friend, a few years back. She withdrew a lump sum from her IRA (long story). And she didn't know she would owe taxes on that money! But she did.

That's because . . . traditional IRAs and workplace plans like 401(k)s or 403(b)s are tax-deferred accounts. The money you contribute to these plans is not counted as taxable income for that year, but you will have to pay income tax when you withdraw funds. (Note that Roth IRA accounts get a different tax treatment.)

So: If you earn $80,000 in a given year, and set aside $7,000 in a traditional IRA or 401(k), your taxable income would be reduced to $73,000. The $7,000 you set aside isn't taxed at first. BUT you will owe tax on money when you withdraw it. See now? Tax . . . deferred!

It's a puzzling aspect of many workplace plans — including the ones that auto-enroll employees and withdraw a fixed contribution amount from each paycheck: The money withheld from your paycheck does get deposited into your retirement account. But where, exactly? 

• In some cases, your savings may be invested in a pre-selected investment, such as a target-date mutual fund.

• In other cases, your money might be deposited into a money market fund, which is like a park bench where your savings can get stuck wasting time, i.e. not invested in a way that might offer some growth.

The point is: How you want your retirement savings treated is an important choice. Don't leave it up to chance. Or your employer plan.

For context: the average benefit check for a retiree is about $1,900 per month, as of January 2024, according to the Social Security Administration. Some people receive amounts that are higher or lower, because benefits are based on a) your personal earnings history and b) how old you are when you file (see question #1). But it's unlikely that Social Security alone can cover your living expenses in retirement.

From the outset, when the program was established in the 1930s, the idea was to supplement people's own finances or pension. Although Social Security has become a sole source of income for some, that wasn't the original idea.

Retirement accounts are individual accounts; there are no joint retirement accounts. That said, retirement assets are typically shared by couples when they retire; and typically divided (by law or other means) in a divorce. A divorced spouse may also be eligible for up to half of their ex's Social Security benefits.

Couples can use a few other strategies to ensure that their Individual Retirement Accounts (and retirement savings plans) are in sync:

• Coordinate how much you're saving in total, and how your money is invested.

• Talk to each other regularly about what you envision retirement to be. (That helps couples to set financial goals as well.)

• If one member of the couple isn't working, the working spouse may be able to set up what's known as a spousal IRA.

Congratulations! If you're reading this, it's likely you made it through the rest of the quiz. We hope you learned — or remembered — a few useful facts about retirement and how it works. We're all in this together. Pass it on!

M.P. Dunleavey writes about life and money, as she has for many years, in countless publications (and a book). She now covers aging and eldercare for Next Avenue, Kiplinger and on Squished, a lighthearted chronicle about how to cope with aging parents, young-ish kids and one’s own mortality. Read More