Social Security benefits are a crucial aspect of retirement planning. Unfortunately, there are many myths and misconceptions surrounding Social Security benefits that can lead to confusion and costly mistakes. In this blog, we’ll explore some of the most common myths about Social Security benefits and provide accurate information to help you make informed decisions about your retirement.
Myth #1: Social Security benefits will provide all the income you need in retirement.
This is a common myth that can lead to unrealistic expectations about Social Security benefits. The truth is that Social Security benefits are only designed to replace a portion of your pre-retirement income. According to the Social Security Administration, the average retired worker receives about 40% of their pre-retirement income from Social Security benefits. This means that you will need additional sources of income, such as personal savings or a pension, to cover your living expenses in retirement. Take steps to get the most out of Social Security benefits.
Myth #2: Social Security benefits are not taxable.
While it’s true that Social Security benefits are not taxable for some people, many retirees will have to pay taxes on their benefits. The amount of Social Security benefits that are subject to taxation depends on your income level. If your combined income (which includes your adjusted gross income, tax-exempt interest, and half of your Social Security benefits) is above a certain threshold, you will have to pay taxes on a portion of your benefits. It’s important to factor in the potential tax implications of Social Security benefits when planning for retirement.
Myth #3: You should start collecting Social Security benefits as soon as you are eligible.
Many people believe that they should start collecting Social Security benefits as soon as they are eligible, which is age 62. However, this may not be the best strategy for everyone. While you can start collecting Social Security benefits at age 62, your monthly benefit amount will be reduced compared to what you would receive if you waited until your full retirement age (FRA). Your FRA is determined by your birth year and ranges from age 66 to 67. If you can afford to delay collecting Social Security benefits until your FRA or even later, you may be able to receive a higher monthly benefit amount.
Myth #4: Social Security benefits are only available to retirees.
While Social Security benefits are most commonly associated with retirement, they are also available to other groups, including disabled workers and their dependents, as well as surviving spouses and children. Disability benefits are available to workers who have a medical condition that prevents them from working and is expected to last at least one year or result in death. Survivor benefits are available to the family members of a worker who has died, including their spouse, children, and dependent parents.
Myth #5: Social Security is going bankrupt.
This is a common myth that has been circulating for many years. While it’s true that the Social Security program is facing financial challenges, it is not going bankrupt. The Social Security Administration projects that the program will be able to pay full benefits until 2033. After that, the program will still be able to pay about 75% of scheduled benefits. To ensure the long-term sustainability of the program, policymakers will need to make changes such as raising the retirement age or increasing payroll taxes.
Myth #6: Social Security benefits are only available to U.S. citizens.
While U.S. citizenship is one way to qualify for Social Security benefits, it is not the only way. Non-citizens who are legally present in the U.S. and have worked and paid Social Security taxes for a certain number of years may also be eligible for benefits. The specific requirements depend on the individual’s immigration status and the type of benefit they are applying for.
Myth #7: Once you start receiving Social Security benefits, your monthly benefit amount will never change.
Your monthly Social Security benefit amount can change over time for a variety of reasons. For example, if you continue to work while receiving benefits before your FRA, your benefit amount may be reduced based on your earnings. On the other hand, if you delay receiving benefits beyond your FRA, your benefit amount will increase. Additionally, cost-of-living adjustments (COLAs) are made each year to account for inflation, which can also affect your monthly benefit amount.
Myth #8: Social Security benefits are based on your last five years of earnings.
While your recent earnings may play a role in determining your Social Security benefit amount, the calculation is actually based on your highest 35 years of earnings. This means that if you worked for more than 35 years, your lowest-earning years will be dropped from the calculation, which can increase your benefit amount. Additionally, if you have periods of low or no earnings due to factors such as caring for a child or a family member, you may still be eligible for Social Security credits that can help you qualify for benefits.
Understanding the truth behind common myths about Social Security benefits is crucial for proper retirement planning. Misconceptions surrounding Social Security benefits can lead to costly mistakes and unrealistic expectations. It is essential to know that Social Security benefits are only designed to replace a portion of your pre-retirement income, and additional sources of income are necessary to cover living expenses in retirement. It is also important to factor in the potential tax implications of Social Security benefits when planning for retirement. Starting to collect Social Security benefits as soon as you are eligible may not always be the best strategy, and your monthly benefit amount can change over time. Social Security benefits are not only available to retirees but also to disabled workers, their dependents, and surviving spouses and children. Lastly, policymakers will need to make changes to ensure the long-term sustainability of the program. By dispelling these common myths and understanding the facts, you can make informed decisions about your retirement and secure a comfortable future.