8 Social Security Myths
Cracking the 8 Social Security Myths – Once and for All
For many individuals planning to retire, benefits paid by social security play a big part in their retirement plan. According to the Social Security Administration, in 2020, about 65 million Americans will receive over $1 trillion in benefits.
Many individuals, though, don’t have a good understanding as to when the best time for them to begin taking benefits. Having a good understanding of how the program works is still a mystery to a lot of people, and the main reason Social Security myths persist.
We’ve reviewed this topic in detail and have come up with 8 misconceptions that seem to surround social security:
- Social Security requires you to apply in person
- At age 65 I’ll receive full benefits
- It’s always best to take benefits early
- If I receive Social Security benefits, I’m not allowed to work
- My Social Security benefits are tax free
- Once I begin to take benefits, I can’t stop them
- If I’m divorced, my Social Security benefits are reduced
- My retirement will be fully funded by Social Security
Myth # 1: I Can Only Apply for Benefits at a Social Security Office
Applying for benefits in person at a Social Security office is one option if that is what you prefer to do.( Right now, due to Covid-19, most SSA offices are closed for normal type transactions) However, in the internet age, you can also apply online from the convenience and comfort of your home.
The internet address is https://ssa.gov. It’s usually a good idea to apply 4 to 6 months before the date that you want to begin receiving your benefits.
Myth # 2: When I Reach 65, I’ll Get My Full Benefits from Social Security
Many individuals still believe that myth regarding age 65. You can still retire at age 65, just don’t apply for benefits though. Years ago, this formula was changed, and the term “normal retirement age” came into being.
For those who were born before 1937, age 65 still applies for full retirement age. If you were born between 1943 and 1954, your full retirement age is now age 66. Anyone born after 1960 will have to wait until they reach age 67 until they qualify for full Social Security benefits.
Be very careful when you retire and apply for Social Security benefits. If you miss something, you might be receiving less than you had planned on. Oftentimes, it is advantageous to meet with a qualified financial planner and review all of your options.
Myth # 3: You Should Always Take Social Security as Early as Possible
There are two schools of thought on this. One says that you should take benefits early because you might not live long enough to get the maximum. The other says that you should wait longer so that you will get a lot more each month.
Your monthly amount will vary based on your age when you apply. It will vary for many, but as an illustration, if you begin to take benefits at age 62 and you were born in 1960, your monthly amount is reduced by about 30% of what you would receive if you waited until normal retirement age of 67.
Myth # 4: Once I begin to Get Benefits, I Can’t Work Anymore
No, you can continue to work when you start receiving Social Security benefits, but your total earnings may be limited. For instance, in 2020, you can earn up to$18,240 if you’re between age 62 and your normal retirement age, without a reduction in benefits.
After you reach your normal retirement age, there is no limitation. You can earn any amount without receiving any reduction in benefits.
Be aware, we’re talking about “earned income” and not investment or other types of income.
Myth # 5: Social Security Benefits are Never Taxed
When this program began in 1935, that was the way it was set up for retirees. In 1968, Lyndon Johnson and his cronies began some very creative accounting methods. They took this Trust Fund and included it under a unified budget.
What that meant was that Johnson had a surplus for the year and not a deficit. Ever since, the Social Security trust fund has been a political football for each administration. Just thinking about it makes me livid.
Move ahead to 1984, and we see where President Reagan and his cronies decided to tax social security benefits. If your total income exceeds a certain limit, then Social Security was taxable up to 50% of the benefits received.
Alan Greenspan chaired the committee that made the recommendation to President Reagan. Was it a coincidence that Greenspan was appointed as Chairman of the Federal Reserve a short time later?
Then, in 1993, another President who had the appropriate nickname, “Slick Willie”, proposed that the amount of Social Security benefits that could be subject to taxation would be increased from 50% to 85%.
It makes one wonder if some politician is already conducting a study on the feasibility of taxing the amount of air that we breathe in any given day. Maybe there’s something to be said for a Monarchy, as long as the Monarch is a benevolent one.
Myth # 6: I Can’t stop Benefits Once I Start to Receive Them
If you haven’t reached full retirement age, and you are getting Social Security benefits, the only option is to file a formal withdrawal of benefits. This must be done within the 12 month period of your initial application. You will also have to repay the amount of money that you already received.
If you’ve reached full retirement age, you only need to suspend benefits and then request them to start again. At age 70, they will continue again and at a higher monthly benefit amount.
Myth # 7: A Divorce Will Lower My Social Security Benefits
This section applies generally to an ex-spouse, and the answer is no.
There are certain requirements you have to meet in order to get these benefits:
- You must have been married for a minimum of 10 consecutive years
- You must be at least 62 years of age
- The ex-spouse must be able to qualify for retirement benefits
- You can’t be currently married
If you’re a divorced spouse, you’re eligible to get benefits based on your ex-spouse’s social security records. It doesn’t matter if your ex-spouse got married again and his new spouse has her benefits based on his records.
As long as your ex-spouse qualifies for retirement benefits, it’s okay. It doesn’t matter if he has applied for them or not. As long as you’ve been divorced for at least 2 years, you’re eligible to get benefits based on his social security records.
You should also be aware that if you’re already at your full retirement age, and are eligible for benefits based on your own record and also your ex-spouse’s record, you may be able to choose.
This depends on your age, however. This is a good time to consult with someone who has expertise in this area. The wrong decision, or lack of one, could be very costly.
Remember, if you get married again, you can’t have your benefits based on your ex-spouse’s record unless your current marriage is terminated by divorce, death, or an annulment.
Myth # 8: Social Security is All the Income I will Need in Retirement
This is not only a myth, but in most cases, the impossible dream. It’s true, Social Security is one source of income, but every one needs to plan on additional sources. This is especially true today.
With the effects of Covid-19 on our economy and so many other factors mixed in, it’s not a pretty picture. Plus, as we get older, health costs tend to rise along with a few other age-related issues.
From the inception, Social Security was not designed to be the primary source of income for the retired. On average, the benefits provide about a third of the total income needed by a retiree.
Your benefits are generally calculated on your gross earnings during your working years. That’s why it’s important to review your earnings records from time to time just to make sure its correct. This can be done at the Social Security website.
We hope that we’ve de-bunked these common Social Security myths, and have you on the right path for a great retirement. Remember, don’t assume that you know all that you need to know about this complicated system.
It’s better to seek professional help from a qualified expert in this field than to make decisions without all facts and knowledge.
Gust Lenglet is the CEO of HBS Financial Group, Ltd., an accounting & tax preparation firm in Maryland. He has more than 25 years of experience in the banking and financial industry. Gust started his career as a loan officer at a major national bank, and then moved on to become controller of a major law firm. In recent years, he has written many financial articles that have been published on Ezine Articles and many websites.
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