8 Myths About Social Security

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Social Security benefits are likely to be a big part of your retirement plan. Around 65 million Americans will receive more than $1 trillion in benefits during 2020, according to the Social Security Administration. Yet understanding exactly how this program works, as well as the best time to start taking benefits, isn’t always easy.

Here are some of the most common misconceptions surrounding Social Security:

  • Social Security will fully fund my retirement.
  • Taking benefits early is best.
  • Full benefits start at age 65.
  • Applying in person is required.
  • I can’t work and receive Social Security benefits.
  • Social Security benefits won’t be taxed.
  • It’s impossible to stop benefits.
  • Divorcees can’t receive benefits.

Myth: Social Security Will Cover My Income Needs

While the Social Security program will provide cash during your retirement years, you’ll likely want additional sources of income. Social Security benefits represent approximately 33% of the income the elderly receive, according to the Social Security Administration. “Social Security was never meant to be the sole source of income for retirees,” says Casey A. Marx, founder and president of Crown Haven Wealth Advisors in Carmel, Indiana.

Your Social Security benefits are based on the earnings you brought in during your working years. The benefit you receive will be calculated by taking into account your highest 35 years of earning history. You may want more than this amount each month, depending on your housing costs, health expenses, hobbies and travel plans.

Myth: It’s Better to Take Social Security Benefits Early

You can start receiving Social Security benefits at any time at age 62 or older. The amount you’ll receive each month will vary based on your age. If you start taking benefits right away at age 62, the amount you receive each month will be reduced. For example, someone born in 1960 who is eligible for a $1,000 monthly benefit at 67 can expect to receive just $700 a month, or 30% less than the benefit at full retirement age, if he or she begins drawing Social Security at age 62.

Myth: I’ll Receive My Full Social Security Benefit at 65

While age 65 is often considered a common age for retirement, you probably won’t be eligible for your full benefit at that time. “Full Social Security benefits are not available until you reach your normal retirement age, which may be a later date,” says Kurt J. Rossi, president and wealth advisor at Independent Wealth Management in Wall, New Jersey.

To determine your normal retirement age, which is also known as your “full retirement age,” consider the year you were born. For instance, age 65 is considered the normal retirement age for those born in 1937 or earlier. Retirees born between 1943 and 1954 have a normal retirement age of 66. Individuals born after 1960 will start receiving full benefits at age 67. “It is important to be aware of your normal retirement age, as claiming benefits early will result in a reduction in the amount you may receive,” Rossi says.

Myth: I Have to Go to a Social Security Office to Apply

You can go to a Social Security office in person to fill out an application for Social Security benefits, but you can also sign up from the comfort of your own home. “You can apply for Social Security benefits online,” says Neal Stern, a certified public accountant and member of the AICPA Financial Literacy Commission. Go to ssa.gov to get started. “To allow for processing time, it’s a good idea to start the process up to four months before you want to start collecting benefits,” Stern says.

Myth: Once I Start Social Security Benefits, I Can’t Work Anymore

You’re allowed to continue working after you begin receiving Social Security. Keep in mind that your job could impact the amount you receive in benefits, depending on your age and the amount you earn. During 2020, if you’re between age 62 and your full retirement age, you can earn up to $18,240 and not have your benefits temporarily reduced. If you make more than $18,240, your benefits will be reduced $1 for every $2 you make above the limit.

In the year you turn your full retirement age the limit climbs to $48,600, and $1 in benefits is deducted for every $3 you earn above the limit. The earnings are only counted up to the month before you reach your full retirement age, and not for the full year. Once you reach your full retirement age, there is no limit on the amount you can earn. So if your full retirement age is 67 and you begin taking benefits at that time, you could earn any amount in a year and your benefits won’t be reduced.

Myth: I Won’t Pay Taxes on Social Security

Your Social Security benefit may be subject to income taxes, but it will depend on your total amount of income. If you have other sources of income, add them up, including any wages earned, dividends and retirement account distributions. Then add half of your Social Security benefit to that total. If you’re single and the amount is less than $25,000, your benefits won’t be taxed. If you’re married and the amount is less than $32,000, you won’t be taxed either. For income levels that are higher, you can expect to pay taxes on part of your Social Security benefit.

Myth: Once I Start Social Security, I Have to Continue Receiving It

After you begin receiving Social Security checks, you’re allowed to make changes. However, adjustments must be made in a certain time frame. “Social Security provides for a little known but very valuable one-time do-over option, allowing you to withdraw your application within 12 months of filing,” says Olga Poltoratskaya Okaty, principal and director of financial planning at Centerpoint Advisors in Needham, Massachusetts. You’ll need to repay the benefits and then file again later. If you change your mind after 12 months, you won’t be able to completely start over. If you are normal retirement age or older, you also have the option to temporarily suspend payments and then qualify for bigger payments later.

Myth: My Divorce Will Reduce My Social Security Benefits

If you were married for 10 years or longer, you could be eligible to receive benefits based on your ex-spouse’s work record. To qualify, you’ll need to be at least 62 and unmarried. The benefit you would receive through your ex-spouse’s work history will need to be higher than what you would get based on your own working past.