5 Myths About Social Security
Keep reading to find out the most common misconceptions about Social Security to help you make the best-informed decisions.
1. Myth: Social Security Will DepleteAlthough experts foresee Social Security depleting by 2034, it's important to understand this within the proper context.
Keep in mind Social Security is a pay-as-you-go system, so it won't run out if workers and employees continue to pay taxes, though it could eventually lead to some tough decisions. Congress can do things now to prevent future depletion (they've done this before), such as reducing benefits or increasing taxes. These kinds of options may only allow for a certain percentage of your Social Security benefits to be paid out, so it’s worth meeting with a financial advisor to reassess your retirement plan.
2. Myth: You Should Claim Social Security as Soon as PossibleThe earlier you begin taking benefits, the lower monthly payments you’ll receive. For example, if your Full Retirement Age (FRA) is 67, and you start collecting at 62 (when you're legally allowed to do so), your benefits would be reduced by a certain percentage. The percentage is determined by the number of months you took benefits before you reached your FRA.
However, waiting doesn't necessarily mean you'll receive more benefits – it varies depending on individual personal circumstances, so talking to your financial advisor is essential to understanding your specific situation.
3. Myth: Social Security Replaces Your IncomeSocial Security is only a portion of your financial plan. Though it can supplement your income during retirement, it doesn't often replace your full income from working – it usually covers about 33% of what you'll need.
It's essential to consider the type of lifestyle you'll want during retirement. How many vacations do you want to take? What hobbies do you find fulfilling? What does your living space need? To have a fulfilling retirement, determine how much income you’ll need in addition to Social Security income, which could include withdrawals from your savings or retirement accounts.
4. Myth: You’ll Lose Benefits if You Earn Money After RetiringFor many different reasons and to achieve certain goals, some retirees still work after retirement, and that's okay.
If you choose to continue working and elect to receive benefits before your FRA, or during the year you reach your FRA, then your Social Security benefits could be reduced if you earn more than the earnings limit for the year. However, if you have reached your FRA, you can earn as much as you want while continuing to work, and your benefits will not be reduced.
5. Myth: Social Security Can’t Be TaxedFor many Americans, Social Security benefits are taxed. In fact, the federal government may tax up to 50-85% of benefits depending on your income and filing status.
- Up to 50% of Social Security income is taxable for individuals with a total gross income including Social Security of at least $25,000, or couples filing jointly with a combined gross income of at least $32,000.
- Up to 85% of Social Security benefits are taxable for an individual with a combined gross income of at least $34,000, or a couple filing jointly with a combined gross income of at least $44,000.
- Retirees who have little income other than Social Security won't be taxed on their benefits, and you may not even have to file a return.