5 Social Security Myths: Separating Fact from Fiction
Retirement should be a time to enjoy the fruits of years of hard work and preparation, but when it comes to Social Security, many people have more questions than answers. When trying to discern when to claim, how benefits are calculated, and what impacts your monthly check, it's easy to feel overwhelmed or confused.
In this article, we’ll break down some of the most common social security myths. By separating facts from fiction, you can make more informed decisions about your retirement planning.
Myth 1: Social Security Won't Exist When I Retire
A common concern among those approaching retirement is the future of Social Security. Some people worry that the program will completely disappear before they can benefit from it. However, understanding how Social Security is funded and how it operates may provide a clearer perspective on its long-term outlook.
Social Security is fundamentally different from a typical investment account. It is a government-managed program funded through a combination of payroll taxes collected from current workers and existing trust fund reserves. The program has been a cornerstone of retirement income for generations, and has a long history of adapting to economic changes.
The Social Security Board of Trustees releases annual reports that provide detailed information about the program's financial status. Most recently, the Board stated that while the program continues to face financing issues, they expect it to be able to pay full benefits through 2035 and partial benefits for the foreseeable future thereafter. Encouragingly, they also noted that stronger-than-anticipated economic growth had improved the program's long-term outlook.1 Furthermore, other sources agree that this program is unlikely to vanish entirely.
Myth 2: The Age to Qualify for Full Benefits is 65
A common misconception is that 65 is the universal age for receiving full Social Security benefits. While that was once true, the full retirement age (FRA) now depends on your birth year. For most people currently around retirement age, their FRA falls between 66 and 67.
While you can claim benefits as early as 62, doing so will permanently reduce your monthly payments. Conversely, delaying benefits beyond your FRA can increase your monthly income.
For example, if your monthly benefit at full retirement age would be $2,000, claiming at 62 might reduce that to $1,400. By waiting until 70, you could potentially receive $2,480 monthly—a difference that can translate to tens of thousands of dollars over the course of your retirement.
Note that these figures are for illustrative purposes only and actual benefits will depend on factors such as your earnings history and claiming age.
The appropriate time to claim Social Security depends on several factors, including:
- Your current health and life expectancy
- Your immediate financial needs
- Other sources of retirement income
- Your overall retirement strategy
Myth 3: Social Security Replaces the Need for Other Retirement Savings
Social Security is designed to supplement retirement income, not replace your earned income entirely. On average, the program replaces only about 40% of pre-retirement income. Cost-of-living adjustments (COLA), such as the anticipated increase for 2025, aim to help benefits keep up with inflation, but they may not be enough to cover all expenses or enable you to maintain your desired lifestyle.
Once you’re retired, contributing to a 401(k) or building new investments may no longer be an option. Instead, maximizing your existing resources—such as savings, investments, and other income streams—and optimizing their distribution can help you maintain your desired lifestyle.
Your financial professional can help you develop a tailored plan that balances your income sources and supports your financial strategy.
Myth 4: You Don't Pay Taxes on Social Security Benefits
Contrary to popular belief, Social Security benefits can be taxable. Whether your benefits are taxed depends on your combined income, which includes:
- Your adjusted gross income
- Tax-exempt interest
- Half of your Social Security benefits
Tax thresholds vary by filing status. Current tax thresholds are as follows:
- Individual filers might owe taxes if their combined income exceeds $25,000.
- Married couples filing jointly could face taxation if income exceeds $32,000.
- Up to 85% of benefits could be taxable for individual retirees whose combined income exceeds $34,000 or married filers whose combined income exceeds $44,000.
Strategic retirement income planning can help minimize your overall tax burden. Consider consulting a financial professional who can help you explore your options.
Myth 5: You Lose Benefits Permanently if You Keep Working
Working during retirement doesn't mean losing your Social Security benefits permanently. Before reaching full retirement age, your benefits might be temporarily reduced if you earn above certain limits. However, these withheld amounts aren't lost—they're recalculated into higher monthly payments once you reach full retirement age.
Continuing to work can potentially offer several financial advantages. Part-time employment can provide more than just additional income. It can help offset living expenses, keep you socially engaged, and may increase your Social Security benefits over time by adding to your earnings record.
Approach working in retirement as a strategic decision. By understanding how earnings affect your benefits, you can make informed choices that support your financial goals.
Take the Guesswork Out of Retirement
When it comes to Social Security—and retirement income in general—separating fact from fiction can help you make informed decisions about your finances and your future. Misinformation can lead to uncertainty and sub-optimal choices, but understanding the realities of how Social Security works can help you take advantage of the benefits available to you and incorporate them into a well-rounded retirement income strategy.
Social Security is just one piece of the retirement planning puzzle. Your financial professional can help you navigate the complexities of benefit options, tax implications, and income strategies. Contact the office to take the next step toward the retirement you’ve envisioned.
1) “A Summary of the 2024 Annual Reports,” Social Security Administration, retrieved January 22, 2025, from https://www.ssa.gov/oact/trsum/.
This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.
