Social Security has become more and more important.  It now replaces about 40 percent of the average worker’s preretirement income.  It was never intended to be the sole source or even the main source of retirement income for families.    But the confluence of influences is making it more and more so for many.

Witness the demise of the defined-benefit pension plan.  This is the type of qualified retirement plan that guarantees a worker a definite income for life at retirement based on one’s earnings history and years of service.  As employers have chosen to reduce their financial exposure to market risk and longevity risk, they have been phasing out these plans in favor of plans like 401(k) plans that shift more of the burden onto the worker.

Sadly, workers have not responded well.  Americans generally have little money put away for retirement.   Perhaps that results from a misunderstanding of Social Security and unreasonable expectations of how inadequate the benefits will be.

People need to learn more about Social Security.  To help, I list below some facts.  True or false?

Since benefits are based on prior earnings, I will get the same benefit whenever I start to draw it.  False.  Social Security is an annuity.  And, like any annuity, the later you start (up to age 70) receiving income, the more your benefit.  Normal retirement age is generally age 66 or 67.  But one can start to draw as early as age 62 or a late as age 70.

The Social Security Administration (SSA) will not recognize a power of attorney (POA) granted by a benefits beneficiary to another.  True.  A power of attorney is the authority to act for another in certain specified or even all legal or financial areas.  One cannot use a POA to obtain information or deal with the beneficiary’s Social Security benefits.  Rather, it is necessary to be designated a “representative payee” for the beneficiary.    This gives the designated person the right to receive the benefit payments and spend them on behalf of the beneficiary.

The SSA will investigate and determine whether it is willing to recognize the named person as the representative payee.  It may take months for the SSA to investigate and render a decision. Normally, one cannot charge a fee for being a representative payee but can be reimbursed for out-of-pocket expenses incurred on behalf of the beneficiary.  Every year the representative payee must document in a report how the benefit money is being spent.

It never makes sense to delay benefits beyond 66 or 67.  False.  Granted, if you do not have enough to live on, of course it makes sense to start benefits.  But for those who continue to earn an income or have other sources of money to live on, it is often wise to wait until age 70.  For each year that benefits are delayed beyond the full retirement age (FRA), they are increased by eight percent.

Remember that a spouse is entitled to a spousal benefit unless the spouse has an earnings record that allows for a greater benefit in his or her own right than the spousal benefit.  If the covered worker dies after having chosen to enhance the monthly benefit by delaying the start of benefits beyond FRA of age 66 or 67, the widowed spouse, if receiving spousal benefits, is entitled to a benefit equivalent to that worker’s full, enhanced benefit.  Thus, even if the covered worker does not expect to live a significant number of years after starting benefits, it may be worth delaying and thus enhancing the monthly benefit for the sake of the spouse’s later widow’s benefit.