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3 Social Security Myths -- Debunked!

By Dan Caplinger - Apr 4, 2016 at 7:01PM

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Don't fall for these commonly misunderstood aspects of Social Security.


Image source: SSA.

Social Security is a complicated program, so it's not surprising that there's a lot of confusion among the millions of Americans who rely on the program for their retirement income. In particular, several myths have arisen about Social Security, and many people still erroneously believe them to be true. Let's take a look at three of them and work at debunking these misunderstandings.

Myth 1: Social Security benefits will disappear in the future.
Many Americans are aware of the financial challenges that Social Security faces. The program's trust fund is expected to run out of money in 2034, according to the latest projections from the trustees who manage that fund. Many people believe that once the trust fund is exhausted, then Social Security will stop paying benefits to all recipients.

In reality, Social Security doesn't work that way. Every year, the Social Security Administration collects revenue to help pay benefits. Most of the revenue comes from payroll taxes on wages and salaries, but there are some other sources, including interest on trust fund balances and the income taxes that some Social Security recipients pay on their benefits. The SSA then figures out how much it needs to pay in benefits. If payments exceed revenue, then the SSA taps into the trust fund.

After the trust fund runs out, the SSA projects that revenue will be enough to pay about three-quarters of all benefits owed to retirees and other eligible beneficiaries. That means that even in a worst-case scenario, Social Security recipients can still expect to get about $0.75 on the dollar after 2034.

Myth 2: You should always take Social Security benefits as soon as you qualify.
Due in part to this misconception about the future of Social Security, many people believe that claiming Social Security as early as possible is the best solution in all cases. More people still claim Social Security at age 62, the first year of eligibility for retirees, than at any other age, despite a trend that has seen an increasing proportion wait before claiming benefits.

For some people, claiming early is the best option. However, for many, it's not. If you would prefer to get larger monthly payments later in life even if it comes at the expense of not getting any benefits in your early or mid-60s, then putting off Social Security until as late as age 70 can give you the best fit with your financial goals. Waiting until you stop working to take benefits can keep you from dealing with Social Security's forfeiture rules, which can cause you to lose benefits if you earn more than certain threshold amounts. Between life expectancy, quality of life, and other financial and nonfinancial factors, making a smart Social Security choice involves much more than just grabbing benefits at your first opportunity.

Myth 3: What you do with your Social Security has no effect on your family.
In making decisions about Social Security, single retirees with no eligible family members to claim related benefits have the least to consider. They can look solely at their own needs in making a smart choice about their Social Security benefits.

Others, however, have to consider impacts on family members. For instance, survivor benefits for your spouse and eligible children are based on the retirement benefits you receive. In particular, if you claim retirement benefits early, then your survivors' benefits will also suffer the same reduction after your death that yours did during your lifetime. Similarly, career decisions that you make that will increase or decrease your average earnings in calculating your eventual Social Security benefit will affect not just retirement benefits but also spousal and children's benefits, along with any survivor benefits that apply.

Sometimes, taking your family members' needs into account won't change your decision. But in other cases, it will, and it's important to ask the question.

Social Security is complicated enough that numerous myths about the program have become part of the collective consciousness. By knowing why these myths aren't true, you'll be in a better position to assess your Social Security rationally to make the best choices possible.

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