5 Things Nearly Everyone Gets Wrong About Social Security

Millions of retirees depend on Social Security as an important, if not primary, source of income. Yet the program remains incredibly misunderstood. A recent MassMutual survey of adults aged 55 to 65 found that 35% of those surveyed failed a Social Security quiz. And an additional 34% only scored a D.

That's concerning because, without a solid understanding of the rules surrounding Social Security, you'll probably have a hard time maximizing your benefits. Here's a look at some of the most common misconceptions on the quiz and how you can leverage this information to get the most out of the program.

Image source: Getty Images.

1. You have to be a U.S. citizen to collect Social Security

This is a particularly dangerous myth for those who are recent immigrants to the U.S., because it could stop them from applying for benefits that they're eligible for in retirement. There are two ways to become eligible for Social Security retirement benefits.

The first one is to be married to a qualifying worker. This makes you eligible for a spousal benefit, based on your partner's work record. Being a U.S. citizen isn't a requirement to claim this. Technically, being married isn't even a requirement since ex-spouses can also claim benefits if they were married to a qualifying worker for at least 10 years.

The other way to earn Social Security retirement benefits is by working and paying Social Security taxes. It's possible to do this even if you're not a U.S. citizen.

Generally, you'll need at least 40 work credits to claim benefits. A credit is defined as $1,640 in earnings in 2023 and $1,730 in earnings in 2024. In both years, you can only earn a maximum of four credits per year.

Some immigrants may qualify for Social Security benefits with fewer work credits if they earned credits in a similar program in their home country and the U.S. has an agreement with that country to count these credits when calculating Social Security eligibility. Non-citizens who have any questions about their Social Security eligibility should contact the Social Security Administration.

2. Social Security benefits are subject to income tax, like IRA withdrawals

You'll pay taxes on your traditional IRA withdrawals in the year you make them, but Social Security checks aren't like that. The federal government taxes Social Security benefits for some recipients, but you won't pay them on all the money you receive from the program. And some people may not owe benefit taxes at all.

The amount of your Social Security benefits that will be taxed by the government depends on your provisional income -- which is your adjusted gross income (AGI) plus any nontaxable interest and half your annual Social Security benefit. The following table gives the taxation thresholds, based on your income and tax-filing status:

Source: Social Security Administration. Chart by author.

Even if you fall into the highest bracket, you won't owe taxes on all of your benefits -- but you will owe the government a cut. In addition, some states tax Social Security benefits, so you may have to give some of your benefits to your state government, as well.

3. Delaying Social Security past 70 will increase your benefit

You can sign up for Social Security as early as age 62, but you may not want to. Claiming the moment you become eligible means you'll get more years of checks. However, for every month you delay signing up, the Social Security Administration will increase your monthly benefit.

This will continue until you reach age 70, at which point you'll qualify for your largest monthly checks. Delaying Social Security beyond this point will only cost you money, so make sure you sign up by then.

4. Full retirement age (FRA) is 65

The Social Security Administration assigns everyone a full retirement age (FRA), based on their birth year. This is the age when you become eligible for your full benefit, based on your work history. Claiming before you reach this age will reduce that benefit, while delaying Social Security will increase it, as discussed above.

FRA used to be 65, but as people started living longer, the Social Security Administration moved the goalposts. The table below shows the FRAs for today's workers:

Source: Social Security Administration. Chart by author.

Knowing this information can help you better understand how delaying benefits or claiming early will affect your checks. Then, you can use this information to decide when to apply.

5. Current law won't cause significant benefit cuts

A lot of people have some idea that Social Security is in trouble, but there are a lot of misconceptions about what that means. Some believe the program will disappear within the next few years, but this isn't the case. The truth isn't exactly heartwarming, though.

If the government makes no changes to Social Security's funding, the latest estimates suggest the government would have to slash benefits by about 20%, beginning in 2034. But this might not happen.

Politicians recognize that this is a serious issue. They'll most likely come up with some sort of solution eventually, though it's impossible to know what this will look like right now.

If a lot of this information is new to you, that's OK. Plenty of other people didn't know these things, either.

But if you realize you were basing your decision about when to claim Social Security on incorrect information, it might be time to rethink that. Reevaluate your strategy now so you can get a rough estimate of how much you'll get from the program and how much of your retirement costs you'll need to cover on your own.