Answers to the Social Security Quiz

1. At what age can you first sign up for Social Security benefits?

• Answer: b. 62

Most Americans (85 percent) are aware that 62 is the earliest age they can begin to receive benefits, and 45 percent of baby boomers currently age 61 plan to sign up as soon as possible, according to a recent Fidelity Investments survey. But waiting to claim up until age 70 will produce higher payouts.

2. For someone currently age 60, how much per year does your Social Security benefit increase for each year you delaying claiming between the eligibility age and age 70?

• Answer: c. 7 to 8 percent

Social Security benefits will increase by approximately 7 percent each year this group of boomers delays claiming from age 62 to 66 and by 8 percent per year until age 70.

3. At what age are baby boomers currently age 60 eligible to receive full benefits?

• Answer: c. 66

The full retirement age for people born between 1943 and 1954 is age 66. For those born between 1955 and 1959, the age gradually increases. And those born in 1960 or later can't collect their full due until age 67. This chart explains the exact age breakdown.

4. How far in advance do you need to apply before you get your first payment?

• Answer: b. 3 months

Workers can apply online, by phone, or in person at any Social Security office. But don't expect to walk out with a check. About 54 percent of current 61-year-olds didn't know that you need to apply 3 months in advance of receiving your first payment, Fidelity found, and 7 percent erroneously believed that the Social Security Administration would contact them to set up payments.

5. Are Social Security benefits taxable?

• Answer: a. Yes.

About 31 percent of current 61-year-olds didn't know that their benefit could be considered taxable income, Fidelity found. Individuals whose adjusted gross income, nontaxable interest, and one half of Social Security benefits add up to between $25,000 and $34,000 ($32,000 and $44,000 for couples) will have to pay income tax on 50 percent of Social Security benefits. Above $34,000 ($44,000 for couples) up to 85 percent of your due can be taxed, the maximum taxable amount.

6. How much can a 64-year-old earn after signing up for Social Security without altering his benefit check amount?

• Answer: b. $14,160

Social Security recipients younger than their full retirement age who continue to work can earn up to $14,160 without penalty in 2009. (For baby boomers turning 62 in 2009, the full retirement age is 66.) If a worker earns above that amount, he or she will lose 50 cents of every benefit dollar. In the year you reach your full retirement age, you can earn up to $37,680 between January and your birthday without penalty. Above that amount, your Social Security check will be reduced by about 33 cents for every dollar earned. After full retirement age, there is no penalty for working. And the benefits aren't lost permanently. Once you reach full retirement age, your benefits may be recalculated to a higher amount to account for your increased earning record. Some 12 percent of current 61-year-olds had no idea that earned income might reduce the amount of the check they receive, Fidelity found.

7. What is the maximum amount (nonworking) spouses of current Social Security recipients may receive?

• Answer: a. 50 percent of the higher earner's benefit

A spouse can receive up to 50 percent of a retired worker's full benefit if that is a higher amount than she can get based on her own working record. But if the spouse signs up before full retirement age, the benefit amount is permanently reduced by a percentage based on the number of months before full retirement age that the spouse signs up. For example, if the spouse begins collecting benefits at age 63, but her full retirement age is 66, she will receive 37.5 percent of her spouse's benefit amount. Approximately 72 percent of 61-year-olds are unaware that a spouse who did not work or earned less than the other spouse might be eligible for a benefit based on the work history of the higher earner, Fidelity found. Only 36 percent correctly knew that this amount could be as much as 50 percent of the higher earner's benefit.

8. What is the maximum amount of Social Security surviving spouses may receive?

• Answer: b. 100 percent of the higher earner's benefit

Roughly half (51 percent) of 61-year-olds are not aware that a surviving spouse may be entitled to the larger of the couple's two benefits.

9. If you sign up for Social Security at age 62, but then pay back all the money you've received at a later date without interest, you can qualify for higher payments for the rest of your life.

Answer: a. True

Most people who sign up for Social Security at age 62 receive reduced benefit payouts for life. But if you can afford to pay the money back, you can then qualify for higher payments for life. Many wealthy retirees will come out ahead using this strategy, but you could also lose the money through bad investments or die soon after you pay it back and come out behind.

10. The Social Security cost of living adjustment is tied to:

• Answer: d. The consumer price index

Social Security benefit increases are tied to the consumer price index, a measure of the prices paid by urban consumers for goods and services. The cost-of-living increase will be 5.8 percent in 2009, the largest increase in over 25 years. But this year, checks increased by only 2.3 percent.