Millions of seniors today look to Social Security as a major source of retirement income. For many, in fact, it's their only source.
Now ideally, that won't be the boat you land in. Retiring on Social Security alone could mean subjecting yourself to years of financial struggles. A much better bet is to plan to retire with different income sources at your disposal, including money in a savings plan, different investments, and even part-time work, if that makes sense for you.
But either way, there's a good chance Social Security will play a big role in your retirement. And so it's important to file for benefits strategically. But if you buy into these three dangerous myths, you could end up claiming benefits at the wrong time -- and shorting yourself as a result.
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1. Social Security will soon disappear
Social Security is facing a revenue shortfall. In the coming years, it expects to owe more money in benefits than it collects, largely due to an anticipated mass retirement of baby boomers.
Now, Social Security has trust funds it can tap to make up that gap. But once those trust funds run dry, which could happen in just over a decade, benefit cuts may be on the table.
Benefit cuts, however, are a far cry from Social Security disappearing completely. And it's important to note that distinction.
You'll often hear that it's a good idea to sign up for benefits as early as possible so you can start to collect your money before Social Security runs out of funds completely. But if you claim benefits early, all you'll do is reduce a major retirement income stream for life -- leaving yourself with even less money in the face of benefit cuts.
2. Social Security should be claimed at age 65
Age 65 is when Medicare eligibility begins. This means you'll often hear that you should sign up for Social Security at the same time. But you absolutely do not have to do that.
In fact, while 65 may be when Medicare eligibility kicks off, you're not entitled to your full monthly Social Security benefit based on your earnings record until age 66, 67, or 66 and a certain number of months, depending on your year of birth. So if you claim Social Security at 65, you'll guarantee yourself a lower benefit for life.
It's true that if you're enrolled in Social Security and Medicare at the same time, the monthly premiums you pay for Medicare Part B will come out of your Social Security benefits. But if you're not receiving benefits, it's not a problem. Medicare will still find a way to take your money so you can get health coverage without having to claim Social Security.
3. Social Security benefits are yours tax free
If Social Security is your only source of retirement income, there's a good chance you won't pay taxes on your benefits. Otherwise, taxes might come into play, depending on what your total retirement income looks like.
And that's just federal taxes. There are some states that impose taxes on Social Security income as well.
It's important to know ahead of time that your benefits may be taxed in retirement, as that might influence your filing decision. You might, for example, opt to sign up at a later age for a higher benefit to make up for the loss of income due to taxes.
Get your facts straight
Clearly, there's a host of misinformation out there when it comes to Social Security. If you want to avoid what could end up being a huge filing mistake, spend some time reading up on the program so you can get your facts straight.
