Social Security helps millions of seniors stay afloat financially in retirement. But if you don't understand the program's ins and outs, you could end up losing money and struggling as a result. In fact, nearly half of Americans recently failed a basic Social Security quiz, which shows that far too many folks are lacking the knowledge needed to make the most of this key program. With that in mind, here are three misconceptions often associated with Social Security -- and the real story behind them.

1. You should sign up for Social Security and Medicare at the same time

Even though Social Security and Medicare are two distinct programs, many people assume that once they become eligible for the latter, they need to sign up for the former. Not so. Medicare doesn't kick in until age 65, and the earliest you're allowed to sign up for it is three months before the month of your 65th birthday. Social Security, on the other hand, gives you an eight-year window to file for benefits that begins at age 62 and runs all the way until age 70. (Technically, you don't have to file for benefits at 70, but there's no financial incentive not to.)

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Somewhere in the middle of that eight-year window is what's known as your full retirement age. This is at the age at which you get to collect the full monthly benefit your earnings history entitles you to. Your full retirement age is based on your year of birth, but for today's workers, it's either 66, 67, or 66 and a certain number of months. Therefore, if you were to file for Social Security at the same time as Medicare, you'd wind up taking benefits before full retirement age.

Why is this a problem? Namely, because any time you take benefits before full retirement age, you reduce them by a certain percentage. If your full retirement age is 67, at which point you'd get a full monthly benefit of $1,500, but you file for Social Security at 65 instead, you'll reduce your monthly payments to $1,300, which means you'll lose out on $2,400 of income a year in retirement. And that's a lot of money to part with. Therefore, while it's important to sign up for Medicare at age 65, it frequently pays to hold off on Social Security for at least another year or two, depending on your full retirement age.

2. You're not eligible for benefits if you never worked

Social Security benefits are earnings-based -- meaning, the more you earn during your career, the more you stand to collect as a senior. But what if you don't have an earnings history because you never worked? You might assume that you're out of luck as far as Social Security is concerned, but that's not the case. Thanks to the program's spousal benefits feature, you can collect up to 50% of your husband's or wife's benefits even if you didn't work a day in your life. This means if your spouse is entitled to $1,500 a month in benefits, once he or she files, you can collect as much as $750 a month in addition.

3. You can't live on Social Security alone

Social Security can spell the difference between paying your bills in retirement or failing to keep up. But that doesn't mean you can live off those benefits without savings of your own. Social Security will replace about 40% of the average worker's pre-retirement income, but most folks need 70% to 80% of their former earnings to cover their senior living expenses. Furthermore, if you're a higher earner, Social Security will replace an even smaller percentage of your pre-retirement income, thereby making it all the more essential that you save on your own.

The good news? You can build a solid nest egg by making modest yet consistent contributions to a retirement plan over time. Imagine you're 30 years away from retirement and are able to sock away $500 a month. If your investments deliver an average annual 7% return during that time, which is actually several points below the stock market's average, you'll wind up with $567,000 to work with. And that, combined with your Social Security benefits, could make for a very comfortable retirement.

You can't afford to be misguided when it comes to Social Security, so spend some time reading up on the program and how it works. This way, you'll be better equipped to make the most of those benefits when the time comes to collect them.

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