Busting Common Social Security Myths
Do you feel confident you know enough about Social Security and how it will factor into your retirement plans? There’s a chance you may mistakenly believe some of the system’s misconceptions or myths.
In this video, we’re busting common Social Security myths so you can understand the system better.
You can also read the article version below:
Myth number one: many people think Social Security is going broke. Bust!
The system will not run out of money as long as employees and employers pay payroll taxes. The system is pay-as-you-go and the money going into Social Security will cover the benefits people are drawing.
People may falsely believe the myth because Social Security faces funding challenges. Right now, the system has a surplus of funds from when more money went in then came out, but this surplus is expected to run out in 2035. However—the system will not be broke and could solve the surplus issue by making changes to the system like retirement age or tax rate. *1
Myth number two: Social Security can be used like another retirement account.
This is actually not the case. The Administration does not keep the taxes you’ve paid into Social Security in a personal account for when you retire. Your tax contributions in working years goes to paying current retirees and others drawing benefits… and people still working will cover your benefits when you retire. Benefits are based on how much you’ve earned in your life, not how much you’ve contributed to the system. Benefits are also only meant to replace a percentage of your earnings. *2
Myth number three: you lose benefits by continuing to work.
This isn’t the case. There is an earnings limit that reduces benefits for people who are still working, but only temporarily. For some who are still working, receiving benefits, and haven’t reached full retirement age, Social Security will withhold benefits above a certain amount. The money will be given back after hitting full retirement age. *3
Myth four: cost of living adjustments are always guaranteed.
Not true. Benefits are required to adjust to keep in line with inflation, but there may be some years where there isn’t true inflation. In these years, there will be no cost of living adjustment. This happened as recently as 2016. The COLA is based on a federal index of consumer goods and services prices. *4
Myth five: Social Security’s full retirement age is 65. Bust!
We spoke about this in a previous video: “When to Take Social Security.” 65 used to be the age of full benefits eligibility until the 80s. To receive full benefits in 2021, you must be 66 and 10 months. The age will go up to 67 for anyone born in 1960 or later. *5
And myth six: you don’t pay taxes on Social Security benefits.
The truth is, this used to be the case, but benefits became taxable in 1984. If your income is 25 to 34 thousand dollars as an individual, or 32 to 44 thousand dollars as a couple, you’ll pay taxes on up to half of your benefits. If your income is higher than these ranges: 85 percent is taxable… and if your income is lower than these ranges, you don’t owe any taxes on benefits. Pay, pensions, tax-exempt interest, investments, and half of your Social Security benefits count as income. *6
Our goal is to assist you in maximizing your Social Security benefits, coordinating them with your spouse’s, and filling the gap between your benefits and overall retirement-income needs.
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*5 https://www.ssa.gov/pubs/EN-05-10024.pdf
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