Just like with reaching any significant milestone in life, lots of thinking, planning, and preparing goes into what will happen next. When you’re approaching retirement, there are many things to consider and to ask yourself. One thing that is often neglected, though, in terms of preparing for retirement is preparing and educating yourself regarding one of the most important decisions of all…THE ELECTION OF SOCIAL SECURITY BENEFITS!
There are lots of myths that circulate regarding Social Security benefits, the way they are calculated, and the benefits you can receive. It’s always best to have the facts! This blog will help put the top 5 myths that we hear to rest.
Myth #1- I should start collecting benefits as soon as I am eligible at age 62.
Fact- Some individuals believe that by taking money out as soon as possible, they should take as much as they can now before their benefits are reduced or worse yet, the Social Security fund becomes “depleted.” Taking early benefits is not always the best option. Essentially, the longer you hold out, the more your benefits will increase. The truth of the matter is that according to the 2014 Social Security Annual Trustee Report, the OASI (Old Age and Surviving Income) fund is currently, without making any future changes, capable of paying full benefits all the way out to 2033.
Another important factor to consider is that while future generations may have to worry about future Social Security reform, if you are one of the people drawing closer to the retirement age, it will be much less likely for Congress to enact legislation that would reduce your benefits.
Myth #2- The money I pay into Social Security is going into my own personal account.
Fact: Social Security works like a cycle of money. You pay taxes that essentially go to a person who has retired. When you retire, some 20 or 30-something-year olds are paying taxes ensuring you can live comfortably. It’s not like a 401k where you’re basically paying your future self. While your earnings do determine the amount of benefits you will be eligible to receive, there is no specific account in your name where your credits are deposited.
Myth #3- I will get penalized for working and collecting benefits at the same time.
Fact: The truth is, if you keep working at a high enough salary, you may increase your lifetime earnings average, thereby slightly increasing your retirement benefits for the years to come. But if you claim early retirement benefits and continue to work, be aware that the money you earn over a certain amount each year may reduce your Social Security retirement benefits (until you reach full retirement age). Such a reduction in benefits applies only to the years you are working. It has no permanent effect on the amount of benefits you’ll receive in future years (and you can even make back some of the reduction in future years.
Myth #4- Once married, I can always collect benefits based on my spouse’s record.
Fact: It is important to note that there are special rules that are attached to “spousal benefits” that you should be aware of. First, you generally must be married for one year to collect spousal benefits. To collect survivor’s benefits, you must have been married for at least nine months. And if you get divorced, you must have been married 10 years to collect on your ex-spouse’s record.
Myth #5- Social Security benefits are based on my last 10 years of working.
Fact: Your Social Security payments are based on your lifetime average earnings. For retirement payments, SSA uses your best 35 years of work, indexed for inflation. The misunderstanding of the 35-year average of earnings can potentially lead you to make a wrong turn regarding when to elect benefits as well as how long you should continue to work to maximize the amount of your benefit.
These common myths or misconceptions, among many others, are why it can be so crucial to sit down with a knowledgeable financial professional to help you navigate through the many twists and turns of Social Security rules and regulations. The bottom line is that you are able to make better retirement decisions with accurate information to help assure that you attain the maximum amount of benefits you are eligible to receive!