15 Surprising Truths About Social Security

For many seniors, Social Security benefits are vital to their financial security in their later years.

Unfortunately, misconceptions abound about the retirement benefits program. And some of the myths people believe could cost them. It's crucial you have a realistic understanding of what Social Security will and won't do for you as a retiree.

Learning these 15 surprising truths about the benefits program can help make sure that you aren't caught off guard by the realities of your retirement benefits.

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Many future retirees expect that Social Security will cover most of their costs. But that won't happen.

Benefits replace around 40% of pre-retirement income, and you'll typically need to replace a minimum of 80%. Social Security was intended to work along with a pension and savings to support you, so if you don't have supplementary income, you could struggle to make ends meet.

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The average monthly Social Security benefit is $1,657 in 2022. This would provide an annual income of $19,884 for the typical retiree. This is barely above the federal poverty level, and the vast majority of people cannot live on such a small sum.

Some future retirees erroneously assume they can retire at 65 and get their full Social Security benefit. That's because 65 used to be full retirement age (FRA) for Social Security.

However, changes to the law in 1983 pushed FRA back. Now you need to be at least 66 and four months old when starting benefits in order to avoid a reduction in your monthly income. And people born in 1960 or later are going to need to wait until they are 67 to claim their first check if they want their standard benefit.

ALSO READ: Full Retirement Age for Getting Social Security

Close to four in 10 Social Security beneficiaries believe they can claim their retirement checks early and have their benefits increased at FRA.

That's not the case, and claiming early based on this misconception is a costly mistake. If you start your benefit checks ahead of schedule, you will face a permanent reduction in the retirement income you get.

If you regret starting your Social Security benefits early, you may mistakenly believe that you're stuck with your decision. That's not necessarily the case in every situation.

It is possible to undo early filing, but you must act to rescind your claim within 12 months. You also must pay back all the money received to date, which not everyone can afford to do.

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Social Security bases the amount of your benefits check on your average wages over the 35 years when your earnings were highest. But if you don't work for that many years, they don't change the benefits formula for you. Instead, years of $0 wages are included when your average wage is calculated.

If you reduce your average earnings by working less than 35 years, your Social Security check could end up a lot smaller.

ALSO READ: 3 Social Security Mistakes That Could Cost You a Fortune

Social Security benefits don't stay the same throughout your retirement. Cost-of-living adjustments (COLAs) are part of the program's design. This means the benefit you start with will go up most years.

The increase in benefits is calculated by comparing annual changes to a financial index called the Consumer Price Index for Urban Wage Earners and Clerical Workers.

Although COLAs are intended to help ensure seniors don't lose ground due to inflation, they don't work perfectly. In fact, benefits have lost about 30% of their buying power since 2000.

Because of this sad reality, checks won't stretch as far for the oldest retirees. And many people in this age group are most in need of Social Security because their savings may be starting to run dry.

ALSO READ: Social Security Recipients Are Losing Buyer Power This Year -- Despite a Generous Raise

Although they are earned benefits, Social Security payments may be taxed both by the IRS and by your state government.

There are 12 states where at least some retirees are taxed on benefits. And the IRS imposes tax on up to 85% of benefits once provisional income exceeds $25,000 for single filers or $32,000 for married joint filers. Provisional income is half of benefits, all taxable income, and some nontaxable income.

Taxes reduce the amount of benefits you actually get to spend to cover your costs as a senior retiree.

For most retirees, Medicare premiums are deduced from their checks.

This further reduces benefits available for other expenses. In some years, Medicare premiums rise substantially. This can wipe out the COLA or eat up most of this benefits increase.

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To claim Social Security based on your own work record, you'll need to work for at least 10 years and earn enough work credits in each of those years.

However, if you are married, you can claim benefits based on your spouse's career history. This means you may be eligible for Social Security even if you never worked a day in your life.

ALSO READ: Collecting Social Security Spousal Benefits

Spousal and survivors benefits are not just available to people who are currently married to their partner. If you were married for at least a decade before divorcing, these benefits could still be available to you.

Your spousal or survivors benefits could be higher than your own benefit. And survivors benefits could be available much earlier than retirement benefits. It's important to understand whether you're eligible for them so you don't miss out on income you deserve.

If you have just gotten married, you can't necessarily assume you'll be eligible for Social Security benefits based on your partner's work history.

In general, you must have been married for a minimum of nine months in order to get survivors benefits if your spouse dies. However, there are limited exceptions to this rule, such as if your spouse passed away in the line of duty while serving in the military.

ALSO READ: 4 Kinds of Social Security Benefits Older Americans May Be Eligible for

The Office of the Inspector General has determined that retirees missed out on millions of dollars in Social Security benefits because they didn't claim the money owed to them. The Social Security Administration (SSA) didn't tell these retirees about their options.

The reality is, SSA staff can't always know how you should optimize your benefits or what your best claiming strategy is. It's up to you to do your research and understand what you are entitled to.

Finally, many people erroneously believe Social Security will go bankrupt. But that can't happen under its current funding mechanism.

Social Security does have a trust fund, which may run dry. But even if there is no money in it, current workers will pay Social Security taxes. This tax money can be used to pay benefits and is enough to provide around three-quarters of the promised amount to seniors.

Because of this continual revenue stream, current and future retirees don't need to worry about not getting the money they were promised.

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Now that you understand these surprising truths about Social Security, you can better determine the role your benefits will play in supporting you as a retiree.

This insight can help you to make realistic retirement plans that ensure you have the money you need to live comfortably during your later years.

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