Social Security has long been a critical component of retirement planning for millions of Americans – and chances are it will factor into your retirement income plan, too. However, it’s a program often surrounded by myths and misconceptions. In 2024, it’s essential to debunk these myths and understand the current realities of Social Security to make informed decisions about your retirement. Let’s explore some common Social Security myths and the corresponding realities about this longstanding program.
Myth: Social Security Is Running Out of Money
If you’ve heard this one once, you’ve heard it a thousand times. It’s the most pervasive of the Social Security myths today.
Reality: Social Security is funded through payroll taxes and the Social Security Trust Funds. While there are concerns about the long-term sustainability of the program, it’s not running out of money in the near future. The Trust Fund is projected to be able to pay full benefits through 2035. After that, it’s estimated to cover approximately 76% of scheduled benefits if no legislative changes are made. Learn more here.
Myth: You Should Claim Benefits as Early as Possible
This is, perhaps, the most financially damaging of the Social Security myths we’ll cover today because this is not the best option for many people.
Reality: While you can claim Social Security benefits as early as age 62, doing so results in reduced monthly payments. If you can wait until your Full Retirement Age (FRA) or even delay until age 70, you’ll receive higher monthly benefits. The right claiming strategy depends on your financial situation, goals, and health. Learn more here.
Myth: Social Security Benefits Are Tax-Free
This is one of the Social Security myths that catches many retirees off guard – and it can wreak havoc on your finances if you’re unprepared.
Reality: Social Security benefits can be subject to federal income tax, depending on your total income. If your combined income (including half of your Social Security benefits) exceeds a certain threshold, you may owe taxes on a portion of your benefits. Understanding the tax implications is crucial for financial planning. Learn more here.
Myth: Social Security Benefits Are Enough to Support a Comfortable Retirement
Many Americans rely on Social Security as their only source of income in retirement, but this is not advisable.
Reality: While Social Security provides valuable support, it’s typically not enough to maintain your pre-retirement lifestyle. Additional savings and income sources, such as pensions, investments, and retirement accounts, are essential for financial security in retirement. Learn more here.
Myth: You Can’t Work and Collect Social Security
This is another of the Social Security myths that can be financially damaging, especially for those who have reached their FRA.
Reality: The fact is, you can work and collect Social Security benefits simultaneously. However, if you claim benefits before your FRA and earn above a certain limit, a portion of your benefits may be withheld. Once you reach your FRA, there are no earning limits, and your full benefits are paid, even if you continue to work. Learn more here.
Myth: You Can’t Change Your Mind About When to Claim Benefits
Is this one of the Social Security myths plaguing your decisions about your claiming strategy?
Reality: Social Security allows you to change your mind about when to claim benefits. If you initially claim early but later regret that decision, you have the option to suspend your benefits (after reaching your FRA) or withdraw your application within 12 months of initially claiming. This flexibility can be beneficial in specific situations, so speak with a financial advisor if you think it may be the best option for you. Learn more here.
Myth: Social Security Benefits Are Not Available for Divorced Spouses
As far as Social Security myths go, this one surprises many people!
Reality: Divorced individuals may be eligible for Social Security benefits based on their ex-spouse’s work record, provided certain criteria are met. These benefits can be available even if the ex-spouse has remarried. Learn more here.
Myth: Social Security Is a Guaranteed Source of Retirement Income
While this one is generally true, it’s important to look at the big picture.
Reality: While Social Security is generally considered a secure entitlement program, its long-term sustainability remains a concern, as mentioned above. Changes to the program may be necessary to address potential shortfalls, and these are likely to take place in some manner over the next decade. To truly safeguard your financial security, though, it’s crucial to plan for retirement with the understanding that Social Security alone may not be sufficient. Learn more here.
Are You Ready to Learn the Truth About Social Security Myths and Make Informed Decisions for Your Future?
Understanding the myths and realities of Social Security in 2024 is crucial for retirement planning. By separating fact from fiction, you can make informed decisions about when and how to claim benefits and how Social Security fits into your overall retirement strategy. With careful planning and knowledge, you can optimize your Social Security benefits and ensure a more financially secure retirement.
Did you know we offer Social Security planning services at Cash Financial? We help our clients make benefits claiming decisions that best support their unique needs and goals. If you’d like professional assistance in cutting through common Social Security myths and crafting a personalized plan, contact us today. We look forward to helping you secure your financial future!
