5 Myths About Social Security
As I get older, I’ve become more curious about Social Security. I’m in my mid 40s and I have been paying into the system since high school. Hopefully, I’m 20+ years out from claiming benefits but given how fast life goes by, it’s never too early to start thinking about and planning for Social Security. It’s a topic that many people shy away from, but in planning for your financial future, it’s an income stream that needs to be accounted for in a financial plan.
To kick off our series of articles on this topic, I am starting with 5 myths about Social Security:
- Social Security is in Crisis – It’s not. Changes will eventually be made, but we’ve known about the projected shortfall for decades. The last changes made to Social Security were in 1983, right around the time when Pat Benatar was releasing “Love is a Battlefield.” The changes made in ‘83 were gradual and allowed the system to run a surplus.
- Stay at Home Parents Get Zippo – Not True. Even if you never paid into the system, you can still receive ½ of your spouse’s benefit.
- Social Security Benefits are Fully Taxable or Tax-Free – Benefits are not fully taxable and could be tax free if your income is below certain limits. To determine if your Social Security benefits are taxable or not, you’ll need to calculate your “provisional income” first. Spoiler alert - we’ll tackle that formula in a future article.
- Collect Social Security as Soon as You are Eligible To Do So – Don’t do it. If possible, especially if you are still in relatively good health, delay claiming your benefits. If you wait until age 70 to claim your benefits, you can increase your Social Security benefits by 8% per year. That’s a lot of money! If you take your Social Security benefits before full retirement age (age 67, if you are born 1960 or later), you could reduce your monthly payment by as much as 30% over your entire life. Before claiming Social Security, look at your other sources of income too – 401ks, pensions, and IRAs.
- Social Security Taxes Paid By Employees are Deductible for Income Tax Purposes – Not a chance. The 1935 law expressly forbid this idea.
Moral of the story - there are many factors to consider making before you begin claiming Social Security. Look for our future articles about this important topic and continue to save!