Myths and misconceptions about Social Security abound, making it hard to separate fact from fiction. As more baby boomers become eligible for retirement benefits, debunking these myths is crucial. Let’s explore the truth behind five of the most common Social Security myths.

Myth #1: Social Security Will Disappear Before You Do

It’s often said that Social Security will vanish before you get a chance to benefit from it. The federal government has indeed announced that Social Security may become insolvent between 2033 and 2037 if no action is taken. However, Congress is likely to act to preserve the program because Social Security is a crucial source of income for senior Americans, providing approximately 30% of their total income.

Historically, Social Security has had a surplus every year since 1984. This is about to change, with projections indicating a deficit starting around 2020. The program will rely on incoming interest payments to offset this shortfall until the mid-2030s. While this might sound alarming, the program will not go bankrupt but may reduce payments by about 25%. Therefore, while adjustments are needed, Social Security is here to stay.

Myth #2: Your Social Security Benefits Are “Your” Money

Many people believe that their Social Security benefits are a direct return of the payroll taxes they’ve paid over their working life. However, Social Security operates on a “pay-as-you-go” basis. This means the payroll taxes you paid funded the benefits of retirees at that time. When you retire, your benefits will be funded by the payroll taxes paid by the younger generation currently working.

Understanding this can help clarify why Social Security is a shared social insurance program rather than a personal savings account. It underscores the importance of maintaining a robust workforce and ensuring continued contributions to the system.

Myth #3: Social Security Income is Tax-Free

When Social Security first began, its benefits were indeed tax-free. However, changes in legislation in 1983 allowed for the taxation of benefits. Now, up to 85% of your Social Security income may be subject to federal taxes, depending on your combined income:

• Single filers with combined incomes of $25,000-$34,000 and joint filers with $32,000-$44,000 may have up to 50% of their benefits taxed.
• Single filers with combined incomes above $34,000 and joint filers with above $44,000 may have up to 85% of their benefits taxed.

Myth #4: If You Have Never Worked, You Will Never Get Social Security Benefits

Generally, you need to work at least 10 years (earning 40 credits) to be eligible for Social Security benefits. Each $1,260 of earned income gives you one credit, up to four credits per year. Most people accumulate 40 credits in a decade.

However, if you have never worked or worked for less than 10 years, you might still qualify for benefits based on your spouse’s, ex-spouse’s, or late spouse’s earnings record. For instance:

·      A widow can collect up to 100% of a deceased spouse’s monthly benefit.

·      A married spouse can collect up to 50% of the other spouse’s monthly benefit.

·      If you’re divorced, you may file for benefits based on your ex-spouse’s earnings record as long as the marriage lasted at least 10 years and you have not remarried.

These provisions ensure that non-working spouses, often involved in caregiving and homemaking, can still receive Social Security benefits.

Myth #5: I Should Delay Filing for Social Security Until Age 70

While it’s true that delaying Social Security until age 70 can increase your benefits, this strategy isn’t suitable for everyone. If you start collecting benefits at age 62, you receive a reduced amount. Waiting until your full retirement age (67 for those born after 1960) or until age 70 increases your monthly benefit.

Key factors to consider when deciding when to start taking your benefits include your health, financial needs, and whether you are still working. If you are in good health and can afford to wait, delaying might maximize your benefits. However, if you have health issues or need the income sooner, filing earlier might be more beneficial.

Conducting a cost-benefit analysis or consulting with a financial advisor can help determine the best time for you to start collecting benefits.

The Bottom Line

There are many myths about Social Security, particularly concerning its longevity and structure. While Social Security is likely to last longer than these myths suggest, it is crucial to stay informed and plan accordingly.

At Navalign Wealth Partners, we help you strategize your finances, build wealth, and retire with confidence. Contact us today to take the next step on your wealth management path.