Debunking 7 Social Security retirement myths

Collecting Social Security benefits is an important component of any retirement income strategy, but the federal program can also be complicated to understand.

Myths and misconceptions about Social Security are common and widespread. There are also many competing points of view on how to best utilize the program’s benefits.

Your Ameriprise financial advisor can provide guidance on how Social Security fits into your broader retirement income strategy.

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Here are seven Social Security myths debunked:

Myth #1: Social Security benefits won’t be there when I retire 

Though the solvency of the Social Security program is an ongoing topic of conversation, if you’re already in retirement and receiving Social Security benefits, it is not likely to materially affect you. If you’re further away from retirement, it’s understandable to be concerned about the program’s long-term outlook. It is highly unlikely that the federal program will cease to exist entirely, although there may be some changes — like a reduction in payments or an increased full retirement age — that you will need to plan for, if implemented.

Myth #2: Social Security will cover all my retirement expenses

Social Security alone is unlikely to provide enough income for most individuals. While it can be an important supplemental income source for retirees, the federal benefit program was not designed to cover 100% of retirement expenses. Social Security is one piece of the retirement puzzle, and retirees often need other streams of income to maintain their desired lifestyle.

Myth #3: Social Security benefits don’t increase with inflation 

Unlike other retirement income sources, monthly Social Security payments are designed to increase with the inflation rate. Every year, the Social Security Administration evaluates inflation data and decides whether to institute a benefit increase called a cost-of-living adjustment (COLA). Since 1975, COLAs have ranged from 14.3% (1980) to 0.0% (2009, 2010, 2015).

However, while Social Security benefits have an annual inflation adjustment, it’s important to note that they may not keep pace with rising expenses in retirement. Health care costs, for example, can increase faster than the pace of inflation. And, depending on where you live, your local cost of living may be climbing more quickly than the yearly COLA increase.

Advice spotlight

Social Security should be one of many retirement income sources. Consider how other sources — such as 401(k) plans, pensions, annuities, IRAs, real estate income and other savings — can work with your Social Security benefits to give you the income you need to live your ideal retirement.

Myth #4: I can outlive Social Security 

You can’t outlive your Social Security benefits. Once you start receiving them, payments continue every month for the rest of your life. And because Social Security is backed by the federal government, it provides a level of reliability that many other income sources can’t match.

Learn more: Understanding Social Security survivor benefits and eligibility

Myth #5: I should wait as long as possible to claim my Social Security benefits 

The longer you wait to start collecting your Social Security payments, the higher your monthly benefit will be. However, while waiting to collect Social Security benefits may be beneficial for some, it’s not the right choice for everyone.

Ultimately, you must decide whether it's better to begin receiving smaller Social Security benefits at an earlier age, or to wait to collect larger monthly benefits. While the answer depends entirely on your situation — here are some key factors to consider:

• Health, family history and life expectancy 
• Other retirement income sources 
• Employment status 
• Taxes 
• Your marital status 

Learn more: When should I start collecting Social Security?

Myth #6: Social Security income isn’t subject to taxes

Even though Social Security is paid out through a federal government program, you may have to pay taxes on the income if your total modified adjusted gross income (MAGI) is above certain limits. Up to 85% of your Social Security benefits may be taxable, depending on the amount of income you have from other sources.

Approximately 40% of people who receive Social Security pay income taxes on their benefits, according to the Social Security Administration.¹

Learn more: Social Security and taxes, explained

Myth #7: I can’t work and claim Social Security at the same time  

If working is an important part of your ideal retirement lifestyle, you can do so and take Social Security benefits at the same time. However, you’ll want to understand the broader financial impacts of the additional income:

• Tax impacts: In some cases, receiving Social Security benefits can increase your overall taxable income, placing you in a higher tax bracket. 
• Medicare impacts: If the additional earnings from Social Security pushes you above a certain income threshold, your Medicare premiums will increase.  
• Payment impacts: If you’re younger than full retirement age, collect Social Security retirement benefits and continue to work, you’ll receive reduced Social Security benefits if you earn more than certain dollar amounts. 

Learn more: Working after retirement

Let’s discuss your Social Security options

If you have questions about when to begin collecting Social Security or how this income will fit in with your broader retirement plan, connect with an Ameriprise financial advisor.