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Social Security is one of the most popular, but most misunderstood, entitlement benefit programs in U.S. history. It’s kept millions of seniors out of poverty and serves as an important income source for most retirees. But a huge number of Americans harbor some major misconceptions about it that could end up costing them.
In fact, close to three-fourths of all Americans believe a dangerous Social Security myth that could lead them to make the wrong decisions about their future retirement benefits. And you don’t want to be one of them.
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Don’t buy into this common misconception about Social Security
According to the TransAmerica Center for Retirement Studies, 73% of workers responding to a recent survey indicated that they agreed with the statement, “I am concerned that when I am ready to retire, Social Security will not be there for me.”
It’s understandable why so many people believe benefits are in danger of running out. There are frequent warnings about the future of the Social Security trust fund. In fact, just recently, the program’s trustees released a report indicating that the trust fund will be exhausted in 2034.
But that’s actually way scarier than it sounds. Even if the trust fund runs dry, that doesn’t mean Social Security benefits won’t be there for you. The trust fund isn’t the only source of funds that benefits can be paid out of. Current workers and their employers pay Social Security taxes throughout the year. The revenue collected from these taxes can be used to pay benefits to current retirees.
The revenue coming in is projected to provide enough to pay 78% of promised benefits even if the trust fund runs short. So in the worst possible scenario, in which government officials don’t act to shore up one of the country’s most beloved benefit programs, retirees in the future would get almost all of their promised benefits, facing only a 22% pay cut.
While this wouldn’t be pleasant, it’s a far cry from Social Security not being there for current workers at all in the future.
Why you shouldn’t buy into this misplaced fear about Social Security
All that said, if you anticipate Social Security running short and it motivates you to save more money for retirement, that’s not a bad thing.
The problem comes, however, if scary Social Security headlines about the program running out of money end up prompting you to claim your retirement benefit checks earlier than you otherwise would have.
Claiming benefits early has financial consequences that can last throughout your retirement, as early filing penalties could reduce your check by up to 30%, while forgoing delayed retirement credits means missing out on a benefit boost worth as much as 8% annually.
Rather than anticipating Social Security won’t be there for you, it’s best to make your decisions about claiming benefits while operating under the assumption you’re likely to get most or all of the promised money, since lawmakers are unlikely to allow such a popular program to be drastically cut.
But you should also realize that even if you do get every dollar promised, you’ll need supplementary savings, so plan accordingly.
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