Social Security isn’t just a paycheck in retirement—it’s the foundation of financial security for millions of Americans. Unfortunately, we are getting closer to the possibility that Social Security’s retirement trust fund will be depleted — now predicted to occur in 2032 if Congress fails to act.
The latest annual report by the Social Security Administration makes clear that the situation is getting worse. There are many myths and misconceptions about how this program works and what the future may bring. That's why it's important to know the facts so you can be proactive in your retirement planning and future actions.
Check out this Social Security myth-busting list to make more confident, informed decisions about your benefits:
Myth #1: Social Security Payments Will Completely Go Away
The doomsday scenario is that Social Security runs out of cash and will leave future generations in the lurch. The truth is more nuanced. Social Security runs on a “pay-as-you-go” model, funded primarily by payroll taxes. Although a shortfall is predicted in the next decade, Social Security benefits won’t disappear overnight. However, the amount paid out may be reduced.
In a recent AARP survey, respondents were asked what would happen if Social Security ran out of money. 39% incorrectly answered that benefit payments would stop completely. Fewer older respondents were misinformed; 32% of those 50 and older gave the same incorrect response.
Only 23% selected the correct answer. Social Security will only make partial payments after the trust fund is depleted.
Myth #2: Claim Early to Get the Most Money
It seems intuitive: grab your benefits as soon as you are eligible. But beware of the break-even point for Social Security benefits. Claiming before your full retirement age permanently reduces your monthly payout.
Applying for benefits at age 70, on the other hand, can mean an 8% increase in benefits each year. While claiming early makes sense in certain cases, waiting can give you larger monthly payments—and potentially more in the long run. How reduced benefit payouts work into this scenario is yet to be determined.
Myth #3: Social Security Is Tax-Free
Up to 85% of your benefits can be taxable, depending on your income. Since “provisional income” includes tax-exempt bond interest, people with higher incomes may pay tax on more benefits. You can even have taxes withheld to avoid surprises come tax season.
Myth #4: Your Highest-Paying Year Determines Your Benefit
It’d be nice if your best year was the golden ticket. But Social Security uses your highest 35 earning years. It adjusts those earnings for inflation. Working a few extra years at a higher salary can replace lower-earning years. So, don’t discount how much those final work years can boost your benefit.
Myth #5: Once You’re Receiving Benefits, No More Social Security Taxes
Even if you work after retirement age and get benefits, you still pay Social Security taxes on your earnings. The upside? Social Security recalculates your benefits to reflect any additional income, potentially giving you a bump in future payouts. Keep this in mind if you plan to keep working and collecting benefits.
Myth #6: After a Spouse’s Death, You Can Collect Both Benefits
Here’s a shocker for many: if your spouse passes away, you can only collect one benefit—the larger of the two. This rule can be hard for dual-income couples, since losing one benefit can create a large financial gap. That is why planning is so important to prepare for this potential benefit loss and protect your lifestyle.
Myth #7: Congress Gets a Free Pass on Social Security
Contrary to the belief that members of Congress are exempt from Social Security, they pay in just like everyone else. Since 1984, all members must pay into Social Security. They must follow the same benefit rules.
Secure, But Not Without Some Strategizing
While these myths and misconceptions can cause worry, Social Security remains a vital program. It will continue to play a major role in retirement income for millions of Americans. The key is to stay informed, plan strategically, and seek professional advice to maximize your benefits.
Determine what your Social Security benefits are here.
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