Five Social Security myths debunkedFocus on the facts before you claim this valuable retirement income benefit.
97% who voted found this helpful Getting your arms around Social Security can be pretty complicated. Misinformation, partially informed opinions, and complex benefits formulas can easily lead one down an incorrect—and costly—path. Before you make your decision about claiming this valuable benefit, let’s clear up five of the most common myths and misperceptions. Myth #1: You must claim your Social Security benefit at age 62Many people are adamant that Social Security benefits must begin at age 62. This is a myth: 62 is the earliest age you can claim your benefit, but, it’s not the only age. Your benefit is calculated based on your “Full Retirement Age,” or FRA. The year you were born determines your FRA. Your base benefit is calculated by the Social Security Administration based on your average indexed monthly earnings during the 35 years in which you earned the most (and payment of Social Security taxes) up to FRA (or later if you work past FRA).
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 961. A key consideration is maximizing your income for a retirement that could last longer than 30 years. Wait until age 70 and lock in a “bonus”:
Read Viewpoints: “Longevity and your retirement“ Myth #2: You can claim early, then get a “bump up” once you reach Full Retirement Age.Many believe there is a “bump up” or “added income” once they reach their full retirement age. They’ve heard 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 big misperception. There is no bumping up of income once you’ve claimed your Social Security retirement benefit. However, anyone receiving a benefit can voluntarily “suspend” that benefit after they reach FRA and resume it as late as age 70. If they do, the benefit will increase by 8/12% per month. You will not receive any benefits during the suspension. There is no increase after age 70. 2 You get an annual cost of living adjustment, but there is no increase when you reach FRA. If your benefit payments are suspended, they will start automatically the month you reach age 70 unless you specify otherwise. Lastly, in general, you can cancel your Social Security claim if you do so within the first 12 months of receiving benefits. You must repay the full amount you’ve received, and the full amount a current spouse or family member received. Then, you are eligible to claim again at a later date and will receive a larger monthly payment. Each individual can only cancel a claim once in their lifetime. Case Study: Lower-income spouses may get a “top up” or “auxiliary” benefit. There is, however, one case where you could get a “top up” benefit at FRA, but you still need to wait until your FRA to claim your Social Security benefit. In this hypothetical example, Sally earned less during her career than her husband Brad. Her benefit is $700 per month; his is $2,000. As a spouse, she’s entitled to 50% of Brad’s benefit if she claims at her FRA. She would receive a “top up” of $300 to bring her benefit up to the $1,000 (half of Brad’s benefit) to which she is entitled. Social Security will calculate her options and pay out the higher benefit to which she is entitled. Myth #3: Your monthly Social Security benefit could be reduced or denied if your ex-spouse claims Social Security in a certain way.In a recent survey,3 Fidelity asked more than 1,000 people if an ex-spouse could influence their Social Security benefits . Fifty-two percent of them said yes, this is true. The real answer: False. There are a lot of things an ex-spouse might do to complicate your life, but Social Security is off limits. Your ex has no influence over your benefits. 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, whichever is higher—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.
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.govOpens in a new window to do the calculations.
Read Viewpoints: “Social Security tips for working retirees“ Myth #5: You’ll never get back all the money you put into the program.Although 70% of the respondents from our survey5 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:
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. Social Security: Your contributions vs. potential benefitsLet’s look at a hypothetical case of an American worker, Steve, who reaches his FRA in 2016. He’s retiring in December and will begin collecting his Social Security benefit in January, 2017 at his FRA. In Steve’s case, if he lives past age 74, he will receive a larger benefit than he contributed to the system. There is no standard break-even point, but let’s look at Steve’s situation in more detail. Checklist for your Social Security claiming strategy
For many, Social Security benefits are the foundation of their income in retirement. Social Security benefits provide guaranteed income that will last as long as you live. Know your numbers, do the math, and develop a plan for a claiming strategy that supports your overall retirement income strategy. Act
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The benefit calculations and discounting in this article do not account for the effect of taxes. The after-tax discount rate for one individual could be very different from that of another individual depending on multiple factors, including the sources and levels of income. For individualized estimates, try the Retirement Estimator from the Social Security Administration.
1. Society of Actuaries RP-2014 Mortality Table projected with Mortality Improvement Scale MP-2014 as of 2016.)
2. In general, you can cancel your Social Security claim if you do so within the first 12 months of receiving benefits. You must repay the full amount you’ve received, and the full amount a current spouse or family member received. Then, you are eligible to claim again at a later date and will receive a larger monthly payment. Each individual can only cancel a claim once in their lifetime.
3. This Fidelity-sponsored study presents the findings of an online survey conducted among a sample of 1,023 adults comprising 512 men and 511 women 18 years of age and older. Interviewing for this CARAVAN? Survey was completed on September 15–18, 2016, by ORC International, which is not affiliated with Fidelity Investments. The results of this survey may not be representative of all adults meeting the same criteria as those surveyed for this study.
4. Ibid.
5. Ibid.
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