Don't Believe These 5 Social Security Myths

Is Social Security really going broke? Do you have to file for benefits once you reach retirement age? We debunk these and other myths that may affect your financial future.
Kerry Lengyel
Published: April 18, 2018
No matter what your age, it’s best to be well informed about your retirement. One key component that can make or break your golden years is the amount of Social Security benefits you receive.

Over the years, several facts about these benefits have been misinterpreted, causing unnecessary concern for those nearing retirement age.

Here we debunk five Social Security myths, so you can set your future self up for success.

Myth 1. You must file for benefits once you reach full retirement age.

The Truth: You can hold off until you’re 70 years old if you want to.

Your full retirement age — the age when a person first becomes eligible for full or unreduced retirement benefits — is based on the year you were born. According to the Social Security Administration, your full retirement age will be one of the following:
  • Born 1943-1954 — 66 years old
  • Born 1955 — 66 years and 2 months old
  • Born 1956 — 66 and 4 months old
  • Born 1957 — 66 and 6 months old
  • Born 1958 — 66 and 8 months old
  • Born 1959 — 66 and 10 months old
  • Born 1960 and after — 67 years old

Myth 2. You can live off Social Security alone.

The Truth: Your Social Security benefits should be used only to supplement your personal retirement savings.

The average benefit for those who file for Social Security is around $1,400 per month, which is less than $17,000 per year. Considering health care, housing, transportation, food and clothing costs, this is simply not enough to live on.

This means you need to have a well-established personal savings account to keep yourself comfortable during retirement. Think of your Social Security benefit as a supplement for your savings, not a replacement.

Myth 3. You should claim benefits early because they might be going away.

The Truth: Social Security will never go away entirely.

Social Security funds are projected to become depleted by 2034, which means benefits could be cut by up to 23 percent, but Congress will undoubtedly step in well before then.

So, yes, you may see a decrease in Social Security benefits at some point down the line, but the program can never go broke because it’s funded by payroll taxes. This means that as long as people are working, the program will stay afloat.

Myth 4. If you claim early and keep working, you lose most of your benefits.

The Truth: You do lose some benefits in the beginning, but you get every penny back.

Say you want to file for your benefits earlier than your full retirement age, but you also want to keep your job. If you earn more than the capped annual earnings amount — which is $17,040 for 2018 — you will lose $1 in benefits for every $2 you earn over that cap. Then, during the year you will be reaching full retirement age, you give up $1 for every $3 you earn over a much larger capped annual earnings amount — which is $45,360 per year for 2018 — before the month you reach your full retirement age.

After that, there’s no limit on how much you can earn, and Social Security will adjust your benefits to ensure that you’re repaid what you missed over the previous years.

Myth 5. Social Security benefits are not taxable.

The Truth: They could be.

It’s true that Social Security is usually not taxed, but if you are working or have other significant income while collecting your benefits, up to 85 percent of your benefits could be liable for taxation.

You might also have to pay state taxes on part of your benefits, depending on where you live. As of February, only 13 states tax social security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia.

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