The closer we get to retirement, the more Social Security’s exacting rules suddenly matter. Yet many Americans struggle to master the ins and outs of the Social Security system.
The danger of buying into myths about Social Security is that they can form the basis of decisions — even early in your work years — that will hurt your finances at retirement.
Here is a look at some popular myths and misunderstandings about Social Security.
1. Full retirement age is 65 for everyone
Reality: Full retirement age for the purposes of Social Security varies, depending on your birth year. For example, if you were born in 1960 or after, it’s age 67.
Until you reach your full retirement age, or FRA, you can’t receive 100% of the benefit amount for which you are eligible.
It’s understandable that many people are confused: 65 was once the system’s FRA, as established in the 1935 Social Security Act.
In 1983, recognizing the improved health and longevity of older Americans, Congress raised the Social Security full retirement age. The FRA increased, in small increments, ending with those born in 1960 and later, who may claim full benefits at age 67.
To learn your full retirement age, use this chart.
2. Claim early, and your benefit keeps growing
Reality: Wouldn’t that be nice? In truth, though, when you claim Social Security, you lock in your benefit amount at that point for life, except for an annual inflation adjustment known as the cost-of-living adjustment (COLA). Claiming early locks in a lower benefit.
Unfortunately, the notion that if you claim benefits early, you will enjoy a bump in your monthly benefit checks upon reaching full retirement age is one of the common misconceptions about Social Security.
Find out how much your monthly benefit will be in “9 Factors That Affect the Size of Your Social Security Check.”
3. Social Security funds are running dry, so I should collect as soon as possible
Reality: The federal government releases a report each year estimating when the Social Security trust funds that provide for benefit payments will run out of money. Currently, that’s 2032 — but that doesn’t mean benefits would suddenly stop, as we explain in “Why Social Security May Have to Cut Benefits Sooner Than Expected.”
Panicking and claiming early would limit your benefits for the rest of your life. And that would be unfortunate if Congress comes up with a solution when push comes to shove.
4. Everyone should wait until age 70 to claim benefits
Reality: Waiting to start benefits at 70 is a good idea for many, if not most, people. Claiming at 70 lets you receive a supersized amount that could make a nice difference in your livelihood for the rest of your golden years.
But 70 isn’t the magic age for everyone, as you’ll see in “5 Groups Who Are Better off Claiming Social Security Early.” A few reasons it may make more sense to claim earlier include:
- You have a short life expectancy.
- Your spouse is older than you and earns less.
- You need the money.
For most of us, it’s nevertheless smart to wait if possible, as you can learn by reading “7 Reasons Not to Take Social Security at Age 62.” Each year you delay claiming benefits past your full retirement age, your benefit grows by up to 8%, and those gradual increases happen monthly.
Once you reach 70, that growth in benefits ends, and there’s no reason to delay longer.
5. You can live comfortably on Social Security benefits
Reality: Social Security was never intended to be the sole source of income for retirees. Your benefit checks are meant to replace only a percentage of your working income.
That’s not to say it is impossible to live solely on Social Security benefits. “Comfortably” depends in part on your standards and on the cost of living where you reside.
Living abroad is one way to lower the cost of living in retirement. “13 Exotic Places for Retiring Comfortably on $1,500 a Month” lists some of the best bets.
6. Everyone gets Social Security retirement benefits
Reality: You must have paid money into the Social Security system for enough of your working years to receive benefits.
Typically, a worker should have accumulated 40 or more “credits.” Working and paying into the system earns up to four credits per year.
Those who can’t collect benefits usually haven’t worked and contributed sufficiently to qualify. That includes immigrants who arrive in the U.S. late in life.
“5 Groups Who Should Not Expect to Receive Social Security Benefits” lists several other situations that prevent people from claiming benefits.
7. FICA tax payments were once tax-deductible
Reality: Here’s another cherished bit of nostalgia that’s simply wrong. Our Social Security payroll tax payments never have been deductible.
Starting with the 1935 law that created the program, the employees’ Social Security withholding tax known as FICA has always been nondeductible, says the Social Security Administration. “The 1935 law expressly forbid this idea, in Section 803 of Title VIII,” the agency says.
Social Security benefits? Another story. Benefit checks were not subject to federal income tax from 1935 until 1984.
In 1983, with bipartisan support, Congress passed a bill changing that, and President Ronald Reagan signed it into law. Suddenly, up to 50% of a Social Security benefit could be counted as taxable income if a taxpayer’s total combined income exceeded a certain amount.
In 1993, the law changed again. Now, up to 85% of the benefit is taxable.
8. Divorced? You can never get spousal benefits
Reality: It’s true in most cases that if you remarry after a divorce, you forfeit the right to claim spousal benefits on your ex’s account. But there’s an exception: when your ex is dead.
If your former spouse has died and you remarry at age 60 or after, you may collect a survivors retirement benefit based on your ex’s record, says the Social Security Administration:
“Usually, you can’t get surviving spouse’s benefits if you remarry before age 60 (or age 50 if you have a disability). But remarriage after age 60 (or age 50 if you have a disability) won’t prevent you from getting benefit payments based on your former spouse’s work. At age 62 or older, you can get benefits on your new spouse’s work, if those benefits would be higher.”
If you’re divorced and remain unmarried until age 60, you may be eligible for survivors benefits based on your ex-spouse’s Social Security record.
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