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5 Facts About Your Social Security Benefits You Didn't Know

By Christy Bieber - Mar 4, 2020 at 5:03AM

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Most of them will surprise you.

In 2019, around 44.5 million seniors were scheduled to collect an estimated $65.4 billion in benefits from the Social Security Administration. 

Although Social Security is one of the most important sources of income for millions of seniors, many future retirees don't really know how the program works. In fact, there are a lot of facts about Social Security that may surprise those who will collect in the future -- and not all of those facts are good news. In fact, here are five troubling facts you should be aware of. 

An older woman in her living room looking worried

Image source: Getty Images.

1. The average Social Security benefit is $1,503 in 2020

If you receive the average monthly check from Social Security in 2020, you'd have just $18,036 in annual income. That's far too little for most retirees and is just $5,276 above the federal poverty level for a single person. 

The average benefit is so low because Social Security is not designed to be your sole source of support in retirement. It's meant to replace around 40% of pre-retirement income while most experts suggest you'll need about 70% to 80% of your final salary to maintain your quality of life as a retiree. 

2. Full retirement age is increasing in 2021

Full retirement age is the age at which you'll receive your standard benefit amount with no increases due to delayed retirement credits and no decreases due to early filing penalties.

For anyone born between 1943 to 1954, full retirement age is 66. That means the last group of seniors who will have a FRA of 66 will hit that age this year. For anyone turning 66 in 2021 or beyond, full retirement age will be a little bit later. It's gradually going up by two months for each subsequent birth year after 1954 until it hits 67 for people born in 1960 or later. 

With full retirement age going up, you'll have to wait a little longer to claim benefits if you don't want your standard benefit reduced. And you'll have less of a chance to increase your benefit by delaying claiming until after FRA. Benefits increase by about two-thirds of 1% per month for each month you wait after your full retirement age, up until age 70 thanks to delayed retirement credits. But if your FRA is 67 instead of 66, you could earn a maximum of 36 credits instead of 48. 

3. Your benefits could be taxable

If you have a higher income, your Social Security benefits could be subject to federal tax. For purposes of determining if Social Security benefits are taxable, income equals half the amount of your benefits, plus your taxable income, plus certain non-taxable income. 

If your countable income exceeds $25,000, and you file taxes as a single person, up to half of your benefits could be taxed. If it exceeds $34,000, up to 85% of benefits could be subject to tax. If you file as married filing jointly, you could see up to half your benefits taxed with income above $32,000, and up to 85% of benefits taxed with income above $44,000. 

Depending where you live, your state could also tax your benefits, further reducing the size of your checks. 

4.  The buying power of your benefits is eroding

Social Security benefits buy less today than they did in the past. In fact, benefits have lost about one-third of their buying power since 2000. Benefits are losing value because they increase based on a cost-of-living index that measures rising costs for urban wage earners and clerical workers rather than seniors. 

The things older people tend to spend the most on, including healthcare and housing, are increasing in price more rapidly than many other expenses. But since healthcare and housing aren't weighted heavily enough when determining how much Social Security raises should be, the value of benefits ends up eroding. 

5. A big benefits cut could come without changes in 2035

Social Security has a trust fund, which is expected to run dry in 2035. If the trust fund is allowed to run out, Social Security taxes from current workers will continue to come in, so some money will still be available to provide retirees with income. However, benefits would have to be cut if that happened. Current estimates suggest the cut could be around 20%.

While there's no guarantee this cut will be allowed to occur, there may be no way to avoid it if the trust fund is depleted and no changes are made.  

Make sure you understand the role Social Security benefits will play in retirement

It's important to be realistic about the amount you'll receive in Social Security benefits as well as about the future of the benefits program.

You can't live on your benefits alone, and it's very possible a benefits cut will happen in the future. While you can count on getting some help from Social Security, just make sure you don't depend on it to be the sole source of your retirement funds, or you could find yourself with far too little cash in your later years. 

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