Social Security is something nearly everyone counts on to help them with their retirement expenses, but there are a lot of misconceptions about how it works. This leaves some people anxious about how much support Social Security will provide. Clearing up some of these misconceptions can go a long way toward easing that anxiety. Here are three of the most common Social Security myths you ought to forget as quickly as you can.
1. Social Security is going to disappear
Perhaps the most pervasive Social Security myth is that it's going to disappear, and today's workers won't receive any benefits from the program. That's not true, but the myth does bring to light a very real problem.
The reason this myth came about is because Social Security's trust funds are nearing depletion. The government has relied upon these trust funds, along with Social Security taxes and Social Security benefit taxes on recipients, to help pay for the program. But with the trust funds likely to be depleted before the end of the decade, Social Security could face a funding shortage.
That's not the same as Social Security disappearing altogether. The other sources of the program's revenue will still exist. All seniors currently receiving checks will continue to receive them, and workers not yet eligible will be able to sign up once they turn 62. That said, it's possible there could be benefit cuts in the future if the government doesn't come up with an alternative way to fund the program.
Several solutions have been proposed over the years, including raising the Social Security tax rate, raising the ceiling on income subject to Social Security taxes, and raising the full retirement age (FRA). That's the age at which you become eligible for your standard benefit based on your work history.
Nothing has been agreed upon yet, but if you're concerned about the program's future, you can plan for slightly smaller Social Security checks — you don't have to plan for a retirement without benefits altogether.
2. There's a correct time to sign up for Social Security
There's a lot of debate around when you should sign up for Social Security. Some say you should delay benefits until 70, so you can get the largest possible checks, while others say you should start right away at 62. Even though your checks will be smaller if starting early, you'll receive more years of benefits.
The truth is, there isn't a “correct” answer when it comes to signing up for Social Security — it depends on your personal situation.
Everyone has an FRA based on their birth year. For today's workers, it's somewhere between 66 and 67. You must wait until that age to sign up if you want your full benefit based on your work history. Every month you claim benefits before this age shrinks your checks a little, while every month you delay benefits past your FRA increases your checks a little, at least until you reach your maximum benefit at 70.
If your goal is to get the most money out of the Social Security program, you have to consider your life expectancy. Signing up early makes sense if you don't expect to live that long. But if you think you'll make it to your 80s or beyond, delaying benefits is usually better.
Ideally, you'd be able to wait to sign up until whichever age makes the most sense for you. But sometimes, there are more immediate concerns to worry about. For example, if you planned to delay Social Security benefits until 70 but then find yourself forced into early retirement, you may have to sign up early to cover your expenses. Choose the starting age most advantageous for your personal situation.
3. There's nothing you can do about your Social Security benefits right now
When we're under claiming age, Social Security can often feel like part of some distant future, but it's dangerous to fall into the trap of thinking there's nothing you can do about your benefits until it's time to claim them. That attitude can cause you to miss opportunities to increase your benefits.
One of the easiest things you can do to boost your checks is to make sure you remain in the workforce for at least 35 years before retiring. Your Social Security benefit is based on your average monthly income over your 35 highest-earning years, with adjustments for inflation. When you work fewer years than this, you have zero-income years factored into your benefit calculation, which shrinks your checks.
You can also work to increase your income today. You might pursue a promotion, switch employers, or start a side hustle. Every extra dollar will help your Social Security benefits later. The only exception to this is for those making more than $142,800 in 2021 or $147,000 in 2022. This is the maximum income subject to Social Security taxes, so earning more than this won't increase your benefits.
As we move into 2022, keep these tips in mind and look for opportunities to set yourself up for a more comfortable Social Security benefit in the future. You should also start thinking about when you want to sign up for the program so you can estimate how much you'll receive. But be prepared to adjust this estimate over time if the government makes any changes to the program.
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