Social Security is a lifeline for millions of retirees. The average retired worker collects roughly $1,800 per month in benefits, as of July 2023. If your savings are falling short, that money can go a long way in retirement.
However, Social Security can also be confusing. If you don't have a robust understanding of how the program works, even simple mistakes or misunderstandings could cost you thousands of dollars' worth of benefits.
There are three myths that are especially costly for retirees, and if you're falling for any one of them, it could potentially put your retirement at risk.
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Myth No. 1: If you claim early, your benefit will increase later
To receive the full benefit amount you're entitled to based on your earnings, you'll need to wait to file until your full retirement age (FRA) -- which is age 67 for anyone born in 1960 or later. If you file before your FRA (as early as age 62), your benefit will be reduced by up to 30% per month.
A common misconception, however, is that if you file early, you'll only receive reduced payments until you reach your FRA. In fact, around 49% of U.S. workers believe this myth, according to a 2022 survey from the Nationwide Retirement Institute.
In reality, filing early will result in receiving smaller checks for the rest of your life. If you're thinking about claiming before your FRA, it's important to make sure you know how it will affect your benefit amount throughout the rest of your retirement.
Myth No. 2: It's better to claim now if Social Security is going bankrupt
There have long been rumors that Social Security is running out of money and that benefits will be going away. Some people believe, then, that it's best to take your benefits now while you can still get them.
While Social Security is struggling financially, benefits are not going away. The program is funded primarily through payroll taxes, with the Social Security Administration (SSA) paying out benefits using the money coming in from current workers. As long as workers continue paying taxes, there will always be cash to pay out in benefits.
That said, benefits could still be reduced in the next decade or so. Right now, the money coming in from taxes isn't enough to fully fund benefits. The SSA has been dipping into its trust funds to bridge the gap, but those funds are expected to be depleted by 2034 -- at which point taxes and other income sources will only be enough to cover around 80% of future benefits.
This means that if Congress doesn't come up with a solution before 2034, benefits could be cut by up to 20%. If anything, it may actually be wiser to delay Social Security to earn larger payments rather than claim early, as that could help cushion the blow against future cuts.
Myth No. 3: If you've never worked, you can't get Social Security
To earn Social Security retirement benefits, you generally need to have worked and paid taxes for at least 10 years. But if you haven't worked that long, there are other benefits you could qualify for -- specifically spousal, divorce, or survivors benefits:
- Spousal benefits: If you're currently married to someone who is entitled to Social Security retirement or disability benefits, you may qualify for spousal benefits. The maximum amount you can receive is 50% of your spouse's benefit at their FRA.
- Divorce benefits: To qualify for divorce benefits, you must have been married for at least 10 years, and you cannot currently be married. Like with spousal benefits, the most you can collect is 50% of the amount your ex-spouse is entitled to at their FRA.
- Survivors benefits: Survivors benefits are generally available to widows and widowers, but sometimes other family members -- such as parents, children, or divorced spouses -- can also qualify. The amount you can receive will depend on multiple factors, including your relation to the deceased person and your age.
Even if you've never worked, it's worth seeing whether you could be eligible for other types of Social Security. The average spousal/divorce benefit amount is nearly $900 per month, and the average non-disabled widow(er) receives more than $1,700 per month in survivors benefits.
Social Security can be confusing at times, and it's often tough to separate facts from fiction. But by avoiding these common myths, it will be easier to maximize your monthly payments and head into retirement as prepared as possible.
