There are many older Americans today who probably would not be able to cover their living expenses without Social Security. And chances are, there will come a point in time when you, too, are dependent on those benefits to make ends meet.
But it's important to have a solid understanding of how Social Security works ahead of claiming benefits. And that means getting to the bottom of these all-too-rampant myths.
Image source: Getty Images.
1. You can live on Social Security alone
Some people expect to get to retirement and live perfectly comfortably on just Social Security. But if you don't save for your senior years or secure income out of Social Security, you might end up struggling to pay the bills.
It's a big myth that Social Security will replace your paycheck from work completely once your career wraps up. If you're an average earner, you can expect your benefits to take the place of about 40% of your pre-retirement income.
Now it's true that you may not need 100% of your former income to live comfortably in retirement, since some of your expenses are likely to decrease. But do you really think you'll be able to manage a 60% pay cut? Probably not.
A better bet than trying to get by on Social Security alone is to build up a nest egg or make sure you have another income source you can tap in retirement. For example, if you own a two-family home and intend to rent out your second unit on an ongoing basis, that could help supplement your Social Security benefits nicely. But make sure you have some kind of plan so you don't end up cash-strapped.
2. Your benefits will increase every year
Social Security benefits are eligible for a cost-of-living adjustment (COLA) each year that's tied directly to inflation. But that doesn't mean your benefits are guaranteed to increase from one year to the next.
If inflation remains flat or decreases in a given year, your benefits won't rise. So it's best not to bank on an automatic increase year after year.
Plus, even if your benefits do end up rising every single year during your retirement, it doesn't mean those COLAs will actually keep pace with inflation in practice. For this reason, too, you're best off having another source of retirement income you can access, whether it's 401(k) or IRA withdrawals or a job you work on a part-time basis.
3. There's nothing you can do to boost your benefits
Even though Social Security won't replace your pre-retirement paycheck in full, it pays to try to do what you can to score larger monthly benefits. And there are definitely things you can do to get more Social Security, despite what you may have heard.
For one thing, if you're able to earn more money throughout your career, it could lead to more generous monthly Social Security checks during retirement. And you're not limited to your main job in that regard. Income you earn from freelance work on the side also counts as long as it's reported and you're paying the right taxes.
There's also the option to delay your Social Security claim for boosted benefits. For each year you hold off on filing beyond full retirement age, your benefits increase by 8%.
Unfortunately, you can't delay and grow your Social Security benefits indefinitely. Once you turn 70, you no longer get credit for waiting to file. But if your full retirement age is 67 and you wait until 70 to claim Social Security, you're looking at a very helpful 24% increase to your monthly payments.
It's important to have a strong understand of Social Security in the course of planning for retirement. Dig deeper into these and other myths so you end up armed with the knowledge you need to thrive financially during your senior years.
