Five Social Security Myths DebunkedMarch 7, 2017
*Adapted from Fidelity Investments
By Jeremy Reif, CRPS®, Financial Advisor and Owner of Point Wealth Management
Social Security is one of the most widely-used Government programs. In 2016, it provided retirement benefits for 90% of Americans aged 65 and older, with the average American receiving 34% of their retirement income from Social Security.
But just because so many people use the program doesn’t mean it’s straightforward and well-understood. Every bit of misinformation, partially-informed opinions, and complex benefits formulas can cost you in the long-run. Before making any claiming decisions or preparing your withdrawal strategy, take a look at these five myths and misperceptions.
Myth #1: You must claim your Social Security benefit at age 62.
This is one of the most common myths surrounding Social Security. You can begin to receive your benefits at age 62, but you don’t have to. Your benefit is calculated based on your Full Retirement Age (FRA), which is determined by the year you were born. Your base benefit is calculated assuming you’ll claim your benefit at FRA. If you were born between 1943 and 1954, your FRA is 66. Those born later have an FRA of 66 and some months or 67.
If you claim any time before your FRA, you lock in a permanent reduction in monthly income. Claiming at 62 translates to a reduced income of 25% to 30%, depending on your FRA. That means you may receive a lot less monthly retirement income, every year, for potentially several decades. You might think you are not going to live a long life, but many people do: 25% of men will live until 93; 25% of women will live to 96. A key consideration is maximizing your income for a retirement that could last longer than 30 years. If you wait until age 70 to claim, you will receive a bonus of 8% per year past your FRA.
Myth #2: You can claim early, then get a “bump up” once you reach Full Retirement Age.
Many believe they can claim early at 62, then when they reach 66 or older, their checks will increase to the amount that corresponds to their full retirement age benefit. That’s a major misconception.
There is no bumping up of income once you’ve claimed your Social Security retirement benefit. You have made an irrevocable decision. You will get an annual cost of living adjustment, but there is no increase when you reach FRA.
The only way for your benefit amount to increase is through your spouse. As a spouse, you are entitled to 50% of your partner’s benefit. If half of their benefit is higher than all of yours, you can receive the higher amount. Either way, you will still need to wait until FRA to claim your benefits.
Myth #3: Your monthly Social Security benefit could be reduced or denied if your ex-spouse claims Social Security in a certain way.
There are plenty of things an ex-spouse might do to complicate your life, but affecting your Social Security is not one of them. If you have an ex-spouse, you may be entitled to spousal benefits as if you had remained married. If you were married for 10 consecutive years and have not remarried, you are entitled to either your own benefit or 50% of your ex’s Social Security benefit once you reach your FRA.
If you wish to claim on your ex-spouse’s benefit, you simply make an appointment with your local SSA office and bring documents that prove the marriage and divorce. They will calculate your benefit options, and when you submit your claim, you’ll receive the higher benefit. This will in no way impact the benefits they receive.
Myth #4: Your benefits are only based on wages that you’ve earned before age 65.
How your Social Security benefit is calculated can seem mysterious. However, it’s important to know a few essential facts to aid your claiming strategy. You can use the tools on SSA.gov to do the calculations.
- Your benefit is calculated based on your highest 35 years of earnings; they do not have to be consecutive years or before age 65.
- If you work past age 65, those earnings years will be included, so long as they are high enough to be part of your highest 35 years.
- Even working part-time after turning 65 may be part of your highest 35 years of earnings.
- If you don’t have 35 years with earnings, zeros will be included in the calculation.
Myth #5: You’ll never get back all the money you put into the program.
Although 70% of the respondents from our survey thought they might not get back all they money they put in, many will. Everyone’s situation is different. Simply put, if you live a long time, you may collect more than you contributed to the system.
Due to the complexity of claiming strategies and number of variables involved, the Social Security Administration no longer offers a break-even calculator on its website. Social Security is designed to provide a safety net of income for the retired, the disabled, and survivors. The contributions you and your employers make during your working years provide current retirees and other Social Security recipients with payments and a guaranteed income benefit when you reach retirement.
While the government does not have a specific account set aside just for you with your FICA contributions (the taxes for Social Security and Medicare paid by you and your employer), one of the most powerful features of Social Security is that it provides an inflation-protected guaranteed income stream in retirement, ensuring against the risk you will outlive your savings. Even if you live to 100 or more, you continue to receive income every month. And, if you predecease your spouse, he or she also receives survivor benefits until his or her death.
Since Social Security will be such a major part of your retirement income, it is imperative to make the right filing decisions. At Point Wealth Management, we have the knowledge and experience necessary to walk you through the Social Security filing process and maximize your lifetime benefit. Let us help you work through the Social Security intricacies and start planning early. Call us at 715-870-2450 or contact Point Wealth Management in Wausau, Wisconsin by clicking this link.
About Jeremy Reif, CRPS®
Jeremy Reif is an independent financial advisor with more than a decade of experience in the financial services industry. He is also the owner of Point Wealth, LLC, an independent fee-only financial planning and investment management firm. With advanced credentials and training in retirement planning and financial planning, Jeremy specializes in helping individuals and families pursue financial independence. Regardless of the services he’s providing, he focuses on talking openly about financial planning, the industry, common questions about retirement planning, and more to help everyday investors gain more confidence in their financial opportunities. Based in Wausau, Wisconsin, Jeremy serves clients throughout the state and can work virtually with clients throughout the country. To learn more, visit http://pointwealthmanagement.com and connect with Jeremy on LinkedIn.
Material discussed may be provided by a third party source, and is meant for general illustration and/or informational purposes only. It is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.