The Social Security benefits age and more factors about filing have long since been debated. Since Social Security was established in 1935, the program has undergone changes with more likely to come in the future.
To plan as financially secure a retirement as possible, it’s important to have the most up-to-date information about your Social Security benefits. Sifting through a considerable amount of misinformation surrounding Social Security means it’s important to know what is fact and what is fiction.
MYTH #1: SOCIAL SECURITY WILL COVER MOST OF MY RETIREMENT INCOME NEEDS
You may be surprised to learn that Social Security was never intended to be the only source of your retirement income. It was originally created to provide a foundation in addition to personal savings and other types of retirement income. Depending on where you live and your personal expenses, on average, Social Security will cover approximately 33% of the income you need when you retire.
MYTH #2: MY SOCIAL SECURITY BENEFIT IS NOT TAXABLE
Under the President Reagan Administration, Congress passed a set of amendments in 1983 that made up to one-half of your Social Security benefit taxable. Depending on the total amount of your income – including wages you’ve earned, dividends and distributions from other retirement accounts – you may have to pay taxes on your Social Security benefit.
MYTH #3: I’LL START RECEIVING MY FULL SOCIAL SECURITY BENEFIT AT AGE 65
Amendments from 1983 phased in a gradual increase in eligibility for full Social Security benefits based on the year you were born. For example, if you were born between 1943 and 1954, your Full Retirement Age (FRA) is 66. If you were born in 1960 or later, then your FRA is 67.
Filing for Social Security earlier than the FRA for the year you were born will lower the of your monthly benefit. As of 2018, you are still eligible for Medicare benefits at age 65 but there is no guarantee this will not change in the future.
MYTH #4: IT’S BETTER TO FILE FOR SOCIAL SECURITY BENEFITS EARLY AT AGE 62
Under current law, you can choose to start receiving your benefits once you reach age 62. Whether or not you decide it’s better to file for your benefits early, it’s important to understand the consequences.
On average, filing for Social Security at age 62 will reduce your monthly benefit depending on your FRA. For example, if your FRA is 67, and your full monthly benefit is calculated at $1,500, filing at age 62 will permanently reduce your payment to $1,050. That’s a loss of $5,400 in retirement income per year.
MYTH #5: ONCE I START RECEIVING SOCIAL SECURITY BENEFITS, I CAN’T WORK ANYMORE
You can continue to work and receive Social Security, but your earned income may reduce your benefit. Each year, the Social Security Administration establishes an annual earnings limit based on the age you start receiving benefits.
Until you reach your FRA, the annual earnings limit for 2018 was $17,040 and your benefit is reduced $1.00 for every $2.00 you earn over this limit. If you reached your FRA sometime in 2018, the annual earnings limit for the months before you reach your FRA is $45,360.
If your earned income exceeds this limit, your benefit is reduced $1.00 for every $3.00 you earn. Starting the month you reach your FRA, there is no limit on how much you can earn.
MYTH #6: IF SOCIAL SECURITY WITHHELD A PORTION OF MY BENEFITS BECAUSE I CONTINUED WORKING, THAT AMOUNT IS LOST FOREVER
Once you reach your FRA, Social Security gives you credit for those months your benefit was reduced because you exceeded the earnings limit. You will be sent a letter informing you that your benefit has been recalculated and how much it has increased.
MYTH #7: ONCE I FILE FOR SOCIAL SECURITY RETIREMENT BENEFITS, I CAN’T CHANGE MY MIND AND REAPPLY IN THE FUTURE
This is not entirely true. You have up to 12 months from when you start receiving Social Security to withdraw your claim. However, you must repay all the benefits you received.
If you change your mind 12 months or more after you started receiving benefits, you can’t start over. Once you reach your FRA, and before you reach age 70, you can temporarily suspend your monthly benefit to qualify for a higher benefit later.