Five Common Social Security Myths and How You Can Avoid Losing Thousands
Almost 70 million Americans use Social Security to supplement their income in retirement, but many times, the rules and regulations within Social Security can be costly and confusing. Misunderstandings about various intricacies can lead people to claim earlier than they should, leading to a reduction in their lifetime income.
Keep reading to learn about five of the most common Social Security myths, the real facts about each one, and how to protect your Social Security for the future.
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There is No Tax on Social Security
Federal income tax still applies to Social Security benefits for many. According to the IRS, a portion of the benefits is “provisional income” to help determine taxation. If that number jumps above $25,000 for individuals or $32,000 for married couples filing jointly, up to 50% of the benefits may be taxable. Plus, if you receive higher provisional incomes, the more the IRS can tax on.
As of now, around 40% of beneficiaries pay federal tax on some of their benefits, and while some tax proposals have been submitted, none have completely taken this rule away.
Social Security is Going Away
There’s no denying that Social Security is facing long-term financing shortfalls, but the program will not disappear, so you do not have to claim early. The Old-Age and Survivors Insurance (OASI) Trust Fund reserves may become depleted in 2033; however, this does not mean benefits will not stop overnight, rather they might decrease or prompt reform for the future.
Many have rushed to claim early, but this can negatively impact you, as it permanently lowers the monthly benefit value, and any future percentage cut would apply to the lower value. Consider your current status and talk with an advisor before deciding to claim, whether early or not.
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You Can’t Calculate Social Security Benefits
You can actually get reliable estimates on your benefits. Through the Social Security Administration, several calculators and statements can estimate benefits at 62 years old, full retirement age, and 70 years old, based on your earnings history.
These are primary tools to determine likely benefit amounts, and if you have a relatively straightforward case, such as a single person with an uninterrupted earnings record, an estimate is easily accessible. Use these tools as a baseline, alongside professional guidance, to determine your benefits and plans for the future.
You Can’t Increase Social Security Payout
While it may not seem like it, you can increase your monthly Social Security benefits in several ways. The biggest strategy is timing: delaying benefits past your full retirement age can earn credits, which, for those born in 1943 or later, will increase benefits by about 8% per year until age 70.
On the other hand, claiming before your full retirement age will result in a permanent reduction. All of this information is listed and detailed on the Social Security Administration’s website.
Working longer can also be more beneficial because Social Security is based on your 35 highest-earning years, and replacing those lower-paying first years with a higher salary will give you more value in the end.
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You Can Always Collect Your Ex’s Social Security Benefits
While there are Divorced-spouse benefits, they come with clear eligibility rules. To be able to claim an ex-spouse’s earnings, you must have been married for at least ten years, be at least 62, and currently unmarried, have a benefit that is less than the amount you would receive on the ex-spouse’s record, and ensure the ex-spouse is entitled to Social Security benefits.
There is also a two-year rule for divorces, where you may apply if the divorce was final at least two years ago, even if your ex-partner has not yet claimed. Make sure to read all the rules carefully before committing.
Tips to Avoid Costly Mistakes
While there are plenty of Social Security myths out there, there are also many tips to avoid costly mistakes in the future. Below are some ways to maximize your Social Security potential:
- Get official estimates through the Social Security Administration.
- Check your records and verify your earnings history now and correct any mistakes.
- Model several scenarios to find the best time to claim and maximize your earnings.
- Factor in Medicare and other deadlines to find the right enrollment window for you.
- Seek help from an experienced financial planner, tax advisor, or Social Security specialist.
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Social Security myths can be confusing, and finding the best time to claim can be even more so. By using some of these tricks and tips above, and learning more about how your Social Security works, you can avoid mistakes that will cost you thousands over a lifetime.