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The 3 Most Problematic Social Security Myths: Debunked

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You can't afford to fall for them!

Although Social Security is one of the most important sources of income for most retirees, it's also one of the most misunderstood. And not only are many Americans confused about how their retirement benefits will work, some actually harbor incorrect beliefs about them.

If you've bought into any of the common misconceptions about Social Security, that could be a big problem as you may be basing your retirement plans on a falsehood. Fortunately, three Motley Fool retirement experts are here to clear things up. We're debunking some of the most popular Social Security myths so you can learn the truth about what this program will do for you. 

Older couple reviewing financial paperwork.

Image source: Getty Images.

You're stuck with the monthly benefit you lock in for life

Maurie Backman: When it comes to filing for Social Security, you have options. You can claim benefits at full retirement age (FRA), sign up earlier -- as early as age 62 -- or delay benefits beyond full retirement age to boost them. Many people file before full retirement age because they want or need the money sooner, but then regret that decision after the fact. The reason? Filing early results in a reduction in benefits that could remain in effect on a permanent basis.

But that doesn't have to be the case.

One little-known Social Security rule is that you're allowed one filing do-over in your lifetime. If you claim benefits too early and realize you're not happy with that decision, you don't have to get stuck with the lower monthly benefit you've secured.

Instead, you can withdraw your application for benefits and return all of the money you received in Social Security income within 12 months. If you do that, you'll have an opportunity to sign up for Social Security at a later point in life and potentially avoid reducing your benefits at all. That means you could wait to file at full retirement age or even beyond if you want to boost your benefits on a permanent basis.

Of course, not everyone can take advantage of that do-over, because repaying that money is easier said than done. The point, however, is that the initial monthly benefit you lock in based on your filing age isn't necessarily the amount you're stuck with forever.

Don't forget, too, that in addition to that do-over, Social Security also pays annual cost-of-living adjustments. While those won't raise your benefits substantially, they could, over time, turn a smaller benefit into a larger one.

Your benefits will go up at full retirement age if you claim them early

Christy Bieber: One reason why people file for Social Security earlier than their full retirement age is a mistaken belief their check amount will increase when they reach FRA. In fact, close to 4 in 10 pre-retirees harbor this misconception, incorrectly anticipating that if they accept a reduced benefit it will be recalculated later.

The reality is, if you've claimed your benefits before FRA -- and you don't take advantage of the do-over option mentioned above -- your benefits will be smaller for the rest of your life than they would've been had you waited. 

You'll start with reduced checks and all of your future cost of living adjustments will be smaller, too, since they're calculated as a percentage of your starting benefit. And there will be no readjustment at FRA -- things will keep ticking along just as they have been. The only way to avoid this permanent reduction in monthly benefits is to wait to claim them. 

All seniors get the same monthly benefit

Katie Brockman: Even if you claim Social Security at the same age as someone else, you may have wildly different benefit amounts. That's because the amount you receive in benefits depends on your work history and your income throughout your career.

Your basic benefit amount (or the amount you'll receive by claiming at your full retirement age) is based on your income during the 35 highest-earning years of your career. The Social Security Administration will take an average of your wages throughout those 35 years, then adjust it for inflation. If you haven't worked a full 35 years, you'll have zeros added to your average, which will lower your benefit amount.

This means that the higher your income during your working years, the more you'll receive each month in Social Security benefits. The maximum amount you can receive from Social Security in 2021 is $3,895 per month. To collect that much, you'll need to be consistently reaching the maximum taxable earnings limit (for 2021, that limit is $142,800 per year). You'll also need to work for at least 35 years, then wait until age 70 to begin claiming benefits.

While it would be nice to earn nearly $4,000 per month in benefits, the average retiree receives just over $1,500 per month, according to the Social Security Administration. But if you want to increase your benefit amount, aim to work at least 35 years and try to increase your income. The more you earn now, the bigger your Social Security checks will be down the road.

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