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 Social Security.
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 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 amount for which you are eligible.
It’s understandable that many people are confused: 65 was the original full retirement age, as established in the 1935 Social Security Act. Our story “70% of Older Adults Botch This Basic Retirement Question” explains that many American adults are confused about the subject.
In 1983, recognizing the improved health and longevity of older Americans, Congress raised the Social Security full retirement age. The full retirement age 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.
Money Talks News partner Social Security Choices offers a reasonably priced, personalized analysis of your Social Security claiming options.
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 the benefit amount at that point for life, except for an occasional, small inflation adjustment. 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 “3 Big Misconceptions About Social Security.”
You’ll find definitions for “spousal benefits,” “earnings record,” “full retirement age” and other important terms in “9 Social Security Terms Everyone Should Know.”
3. Everyone should wait to age 70 to claim benefits
Reality: Starting 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 Times When It’s Smart to Claim 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.” Delaying claiming benefits past your full retirement age grows your benefit by up to 8% per year.
Once you reach 70, that annual growth ends, and there’s no reason to delay longer.
4. You can live comfortably on Social Security benefits
That’s not to say it is impossible to live solely on Social Security. “Comfortably” depends in part on your standards, and on the cost of living where you reside.
According to the Social Security Administration, 21% of couples and 45% of singles collecting the retirement benefit rely on those checks for 90% or more of their income.
We’ve written about counties in the U.S. where a lower cost of living gives retirees a chance to stretch their benefit checks. We also wrote about “10 Places Where Social Security Offers the Best Standard of Living.”
Living abroad is another way to lower the cost of living in retirement. “10 Countries Where Retirees Can Live Large and Save Big” lists the best bets.
5. Everyone gets Social Security retirement benefits
Reality: You must have paid enough 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.
“6 Groups Who Cannot Rely on Social Security Benefits” lists several other situations that prevent people from claiming benefits.
6. 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, employees’ Social Security (FICA) withholding tax 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 taxable income exceeded a certain amount.
In 1993, the law changed again. Now, up to 85% of the benefit of “higher income” beneficiaries is taxable.
7. 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 is deceased and you remarry at age 60 or after, you may collect a spousal retirement benefit based on your ex’s record, says AARP, explaining that, however:
“You cannot claim divorced-spouse benefits tied to a living former mate if you are married.”
If you are divorced and have not remarried, things look a lot brighter: Divorced people who remain unmarried may apply for spousal benefits based on their ex-spouse’s Social Security record. AARP sums up those rules:
- Your marriage must have been at least 10 years in duration.
- Your ex-spouse is eligible to collect Social Security retirement or disability benefits.
- You are 62 or older.