Social Security. It's one of the most popular programs in America, and chances are good you'll be receiving income from it as a senior. But do you really understand how it works? If you're like most Americans, probably not. 

Misunderstandings about Social Security abound, and some of the misconceptions people have could be quite costly. To make sure you don't lose out on benefits or make plans for your retirement based on bad information, read on to find out the truth about three things most Americans don't understand about Social Security.

Social Security cards sitting on top of money.

Image source: Getty Images.

1. Social Security isn't in danger of running out of money

A majority of Americans think Social Security won't be available when it comes time for their retirement. The good news is, Social Security actually isn't in that much danger.

The Social Security Trustees Report indicates the trust funds that help supplement benefits will run out of money by 2034. But only a small portion of the money used to pay benefits comes from the trust funds; most comes from taxes paid by current workers.

That means even if the trust funds run out, retirees will receive around 75% of promised benefits. And such a big benefit cut is unlikely, as there are simple ways to shore up the program, including raising taxes or lifting the cap on the amount of income taxed. 

Don't make your retirement plans based on the idea Social Security will be broke -- you're likely to get most or all of the benefits you expect. 

2. Social Security isn't going to provide enough for you to live on

A majority of pre-retirees expect Social Security will provide them at least half their retirement income and will cover at least half of necessary retirement expenses. Many also overestimate what their actual monthly benefit will be.

In reality, a person who retires at 65 after working all his life and receiving average earnings would get Social Security benefits equal to about 39% of past earnings. For those who earn a medium income, benefits will replace around 36% of past earnings.

You'll need much more money if you want to live comfortably, especially as many seniors actually need to replace more than their pre-retirement income after leaving the workforce. Living on Social Security alone would put you near the poverty level, and you'd likely struggle to afford to meet all your needs -- especially as you get older and require more costly healthcare. Plan to have additional income from a pension or from investments if you don't want to be a broke retiree. 

3. Social Security benefits don't go up at full retirement age if you retire early

If you claim Social Security benefits prior to full retirement age, benefits will be permanently reduced. You could lose as much as 30% of what your standard benefit would've been at full retirement age (FRA), depending how early you claim benefits. 

Unfortunately, close to 40% of all Americans think that if they've claimed benefits early, the reduction in benefits is temporary, and they'll still be able to get their full benefit once they hit FRA. This isn't the case, though. You need to fully understand the permanent reduction in benefits that occurs because of claiming Social Security prior to FRA.  While it sometimes makes sense to still claim Social Security benefits early -- even though benefits will be reduced -- this isn't always the case.

Don't make the choice to permanently reduce your benefits by claiming early without understanding the implications. 

You need to understand Social Security to plan for retirement

Understanding the truth about Social Security benefits is essential to plan for retirement. The bottom line is, Social Security is going to be there for you, but it won't provide as much income as you probably expect -- and you could end up permanently reducing the income it provides if you claim benefits before FRA. 

By making a realistic assessment of how much you'll receive in Social Security and planning your retirement strategy accordingly, you can help set yourself up for more financial security in your senior years. 

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