Social Security Quiz 2003

Pick the best answer to each of these 17 questions. Twelve correct answers is passing.

1. Social Security is funded by

A. payroll taxes.

B. Social Security's investments.

C. taxes paid by self-employed people.

D. income taxes paid on Social Security benefits.

E. all of the above.

2. True or false? Workers born after 1959 must wait until age 67 to draw full Social Security retirement benefits.

3. What is the minimum age to draw Social Security retirement benefits?

A. 60.

B. 62.

C. 65.

D. It depends on the worker's year of birth.

4. Average retirees can expect Social Security to replace what part of their pre-retirement earnings?

A. About 20%.

B. About 40%.

C. About 60%.

D. About 80%.

5. How much can an under-full-retirement-age Social Security-retirement beneficiary earn from a job in 2003 before losing benefits?

A. $11,520

B. $17,000.

C. There is no longer any limit.

6. True or false? Retirees who take benefits at 62 draw a reduced amount until they reach "full-retirement age". At that time the benefits are increased to the full amount.

7. Which of these programs is funded by Social Security payroll taxes?

A. Supplemental Security Income (SSI).

B. Medicaid.

C. Food Stamps.

D. None of the above.

8. True or false? Social Security benefits are a better deal for workers who had lower earnings during their careers.

9. The amount of a Social Security retirement benefit is based on:

A. The total FICA taxes paid.

B. Earnings in the best 5 years of work.

C. Earnings in the best 35 years of work.

D. Earnings in the last 40 quarters.

10. How much is a monthly Social Security disability benefit?

A. $545.

B. About the same as full retirement benefits.

C. 80% of the full retirement benefit.

D. 40% of Social Security taxes paid.

11. How much work qualifies a worker for retirement benefits at 62?

A. About 10 years.

B. 5 out of the last 10 years.

C. No benefits are available until 67.

D. 35 years.

E. No work is required.

12. How does Social Security keep up with inflation?

A. Congress increases benefits in election years.

B. It doesn't: Social Security is a "fixed" income.

C. Automatic annual cost-of-living raises.

D. Retirees apply for raises based on their expenses.

13. About how much does Social Security spend on administrative expenses--as a percentage of total revenue?

A. 25% of total revenue.

B. 10% of total revenue.

C. 5% of total revenue.

D. 1% of total revenue.

14. Which statement is true about income tax and Social Security?

A. Benefits are taxable for some beneficiaries according to a means test.

B. Everyone pays income tax on Social Security.

C. No one pays income tax on Social Security.

D. Benefits are taxed after retirees recoup the equivalent of taxes paid while working.

15. At what age can widows and widowers begin receiving Social Security benefits?

A. 60.

B. 50 if the applicant is disabled.

C. At any age if the applicant has a child-in-care.

D. Any of the above.

16. What income counts against the earnings limits on people drawing Social Security benefits?

A. Just wages.

B. Taxable income.

C. Wages and self-employment earnings.

D. All taxable income plus tax-free interest.

E. Double dipping (drawing two pensions).

17. True or False? Social Security tax dollars go into each taxpayer's personal Social Security account. At retirement age, retirees draw out their own money -- with interest.

Answers 1. E About 85% of Social Security's revenue comes from taxes levied on employees, self-employed people and employers. About 2% comes from income taxes paid on Social Security benefits. About 13% is interest earned on Social Security's investments in U.S. government bonds.

2. True The law increasing "full-retirement age" from 65 to 67 was passed in 1983.

3. B 62 is correct. It used to be 65. In 1956, Congress gave women the option of taking reduced Social Security benefits at 62. Men were given that option in 1961. The minimum age for benefits is not scheduled to increase.

4. B On average, today's Social Security benefits replace about 40% of a 65-year-old's pre-retirement earnings.

5. A Someone under full-retirement age--currently 65 plus two months--for all of 2003 loses $1 from his or her Social Security benefits for every $2 earned above the annual earnings limit of $11,520.

Workers who attain full-retirement age during 2003 have an earnings limit of $30,720. But this limit applies just to months before workers reach full-retirement age: Money earned in or after the month of attainment of full-retirement age doesn't count against the $30,720 limit. If the limit is exceeded, the worker loses $1 from benefits for every $3 earned over $30,720.

Workers who are full-retirement age or older are entitled to Social Security benefits, no matter how much they work and earn from their jobs.

6. False Social Security retirement benefits are permanently reduced if they are taken before full retirement age.

7. D None of these programs--not even SSI--spends Social Security money for benefits or administrative costs. The Social Security Administration administers SSI, but the money comes from general revenues of the federal government. The other programs are funded by combinations of state and federal money.

8. True Social Security is not a pension. It is social insurance. It is still true that higher earnings result in higher benefits. But Social Security's benefit formula is designed to give low-income workers a higher earnings replacement rate (the percentage of pre-retirement earnings that are replaced by Social Security benefits).

9. C Retirement benefit amounts are based on the average earnings in a retiree's 35 best years of work. Social Security benefits were never based on a 5-year average. Only wages subject to Social Security taxes--i.e. up to the maximum FICA tax base--count toward the 35-year average.

10. B Disability benefits are equivalent to a worker's unreduced retirement benefits.

11. A Retirees need 40 credits or quarters of Social Security-covered work to qualify for benefits at 62. Forty quarters is about 10 years of work.

12. C Automatic annual cost-of-living raises started in 1975. Before that, it took an act of Congress to increase Social Security benefits, and that usually happened in election years. Today's automatic benefit increases equal the increases in the Consumer Price Index.

13. D Actually, Social Security spends less than 1% of revenue on administrative costs.

14. A If income is above $25,000 for a single person, or over $32,000 for a couple, benefits are taxable. The definition of income for this law includes Adjusted Gross Income, plus tax-free interest, plus one-half of Social Security benefits. See IRS Publication 915 for more details.

15. D Surviving spouses qualify for benefits at age 60, or 50 if disabled, or any age if the widow or widower is taking care of a child of the deceased worker.

16. C Only "earnings" count against the earnings limits. That includes gross wages: the amount shown on the W-2 of an employee. It also includes profits from a business: net earnings from Schedule SE of a self-employed person's tax return. Pensions and investment income do not count against the earnings limits.

17. False Social Security is not a savings or investment plan. It has always been a pay-as-you-go system. Each generation of taxpayers pays for the benefits of the recipients who are retired at that same time.