Social Security Myths That Could Wreck Your Retirement

Making the most of your Social Security benefits is advisable because they often represent a sizable portion of your retirement income. Understanding how Social Security works might help you optimize your benefits even though the subject can occasionally be perplexing. Although you don’t need to understand every last nuance of how your benefits are calculated, having a firm grasp of the fundamentals will help you immensely.

There are a few widespread myths about Social Security that may have an impact on the amount you receive. Go into retirement as prepared as you can by avoiding these three common misconceptions:

Myth: Social Security Benefits Will Be Enough to Cover All Your Expenses

According to a 2021 survey by the Nationwide Retirement Institute, nearly one-third of baby boomers think Social Security should be able to cover all of their retirement expenses, and about 20% of boomers don’t have any additional savings aside from their benefits. Actually, the goal of Social Security benefits was to replace about 40% of your pre-retirement income. You’ll probably need at least some funds to get by in retirement unless your expenses are significantly lowered.

Your projected future expenses, the number of years you plan to spend in retirement, and a number of other criteria will determine just how much you need to save. However, if you’re approaching retirement and counting on Social Security to pay all of your expenses, you might be in for a shock.

Myth: Your Benefit Amount Will Increase When You Hit Your Full Retirement Age (FRA)

The cheques you get from Social Security are smaller if you apply early. However, a massive 69 percent of baby boomers, according to a Nationwide poll, think that their benefits will rise once they reach full retirement age (FRA).

Your benefit amount is typically fixed for life after you file for Social Security. Therefore, if you make an early claim, your retirement benefits will be reduced. Reaching your FRA will not result in an increase in benefits; instead, you will get modest cost-of-living adjustments each year to help guard against inflation.

Myth: Delaying Benefits is A Good Way to Go

Early application for benefits will result in fewer monthly checks, but waiting until after your FRA will result in higher payouts. Since doing so will increase your monthly income, it might appear that waiting a few years is the best course of action.

Delaying rewards isn’t always the best course of action, though. You can actually be better off filing early in some circumstances.

Generally speaking, delaying Social Security is the best option if your main objective is to raise your monthly income. Your monthly payments could increase by hundreds of dollars if you wait until you are 70 to file, which can make a big difference.

But you might not absolutely need that additional income if you already have a sizable retirement fund. Similarly, filing your claim earlier may provide you more time to enjoy your money if you have health difficulties or other reasons to think you won’t live a longer than typical life.

Myth: You Won’t Pay Taxes on Social Security

It will depend on your overall income whether or not your Social Security payout is taxable. If you have any more sources of income, such as salary, dividends, or distributions from retirement accounts, total them all up. Then double that sum by 50 percent of your Social Security benefit. Your benefits won’t be taxed if you’re single and the amount is less than $25,000. You won’t pay taxes either if you’re married and the total is less than $32,000. You can anticipate paying taxes on a portion of your Social Security payout if your income is higher.

Myth: Your Marital Status Doesn’t Matter

When deciding whether to start receiving benefits, your marital status should be a major consideration. If you are married, starting benefits earlier will reduce the potential spousal or survivor benefits your husband or wife will receive.

Benefits for surviving spouses could increase by as much as 40% to 50% if benefits are not claimed until age 70. While widowhood lasts an average of 11 years. One spouse is considerably more likely to survive for a considerable amount of time without the other – and that needs to be accounted for.

Myth: It’s Easy to Figure This Stuff Out on Your Own

A single person’s lifetime benefits could differ by $250,000 as a result of a good or bad claim decision.

Simply shifting a few retirement-related assumptions can result in a shortfall of thousands of dollars.

Consult the Social Security Administration website as well as a financial counselor who can use Social Security optimization software to walk you through your alternatives.

It might not be rocket science, but you’ll want to do more research than a quick 5-minute conversation at the next family BBQ.

Myth: Your Social Security Record is Always 100% Accurate

Your highest 35 years of earnings are used to calculate your Social Security payments. These estimates will be impacted if the Social Security Administration does not have an accurate record of your earnings. After the conclusion of the taxable year for such wages, you have three years, three months, and fifteen days to request a revision to those records.

Even if you are a long way from retirement, you should still be keeping an eye on that record. You’ll want to create a Social Security Administration online account to do this.

Social Security can be difficult to understand at times, but it is beneficial to do your best (by doing some homework). Avoiding these widespread misconceptions can help you make sure your retirement benefit approach is effective.