Nearly 50% of Americans Are Dead Wrong About This Social Security Rule

Personal Finance

Published: October 24, 2024 6:30 pm

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If you’re thinking of retiring early, know how Social Security works.

At the moment, nearly 48% of Americans believe that “If I claim benefits early, my benefits will go up automatically when reaching full retirement age,” according to a Nationwide survey.

Unfortunately, that’s not true at all.

Key Points About This Article:

Nearly 48% of Americans believe that “If I claim benefits early, my benefits will go up automatically when reaching full retirement age,” according to a Nationwide survey.
If you claim benefits before you reach full retirement, it will permanently reduce your monthly benefit.
Unfortunately, Social Security benefits aren’t enough for retirement.
Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

To receive full benefits, you should retire at the age of 67. Or, if you want to earn more in retirement, delay it. According to Kiplinger.com, “For every year you delay taking your Social Security benefits past full retirement age, you get a bump of 8% in your benefit until age 70. For example, if you’d receive $1,000 per month at your full retirement age of 66, delaying your benefits to age 70 would boost your monthly check to $1,320.”

While you can always retire at 62 – and if you can, congratulations – no, you won’t receive any more benefits from Social Security at your full retirement age. If you claim benefits before you reach full retirement, it will permanently reduce your monthly benefit.

That’s just how it works, unfortunately.

However, that’s just one of many myths about social security.

Here are a few more Social Security myths making the rounds.

No. 1: Social Security will run out of money before I retire.

At the moment, 75% of adults aged 50+ are concerned that Social Security will run out of funds in their lifetime, according to Nationwide Retirement. That’s up from 66% in 2014. However, according to the Social Security Administration, benefits are expected to be paid in full and on a timely basis through 2037. After that, the SSA says taxes are expected to be enough to pay 76% of scheduled benefits unless Congress makes changes to benefits and revenue sources.

The last time Social Security was in a deficit was in 1983. To fix the issue, the government increased the full retirement age to 67 from 65 and also charged income tax on benefits.

No. 2: Social Security benefits are all I need for retirement.

Unless you can live on a very tight budget, typical benefits aren’t enough for retirement. The average Social Security payment is $1,900 a month, which won’t get you far unless you also have other forms of income or savings on hand.

Most experts will say you need 80% of pre-retirement income to have a comfortable retirement, according to the Social Security Administration. Unfortunately, social security only replaces about 40%.

No. 3: I won’t pay taxes on my Social Security benefits.

For some, no. However, about 40% of recipients will. That’s because they have other sources of income from a job or investments.

Here are some other rules from the SSA to make your life even more fun. You’ll pay tax on your benefits if you:

File a federal tax return as an “individual” and your combined income is:

Between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits.
More than $34,000, up to 85% of your benefits may be taxable.

File a joint return, and you and your spouse have a combined income that is

Between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits.
More than $44,000, up to 85% of your benefits may be taxable.

Are married and file a separate tax return, you probably will pay taxes on your benefits.

Of course, it’s always a good idea to sit with a financial advisor.