Collecting Social Security benefits is an important part of every retirement income plan, but the process can be complicated and hard to understand. Recent headlines surrounding Social Security are adding to the confusion and might be worrisome for the millions planning to retire in the coming years. From how the benefits work to when to begin taking them, misunderstandings and myths are common. Here are some (along with why they’re not true):
1. Social Security will run out of money before I retire.
Whether you are nearing retirement or just beginning your career, seeing a headline about Social Security’s solvency can make you anxious, especially since so many Americans rely on it. About 25% of those age 65 or older rely on Social Security for at least 90% of their family income.
A record number of baby boomers are turning 65 this year — more than 11,000 every day. As this generation starts claiming Social Security benefits in greater numbers, there aren’t enough workers paying into the system to make up the difference.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
As hard as it may be, don't let headlines impair your ability to make smart financial decisions. Don’t panic and begin taking your benefits too early. Claiming benefits before full retirement age results in a permanent reduction in benefits by as much as 30%.
While the future of Social Security is uncertain, it is not going bankrupt. It is funded by a trust fund, which uses its reserves as well as continuing income from payroll taxes. Social Security is not going away, but if the trust fund becomes insolvent — the Social Security Administration projects 100% of benefits can be covered until 2035 — it will be able to pay only 83% of the benefits retirees are entitled to. As long as workers and employers continue to contribute to Social Security through payroll taxes, the program will not run out of money.
2. Social Security benefits are all I need in retirement.
Many retirees think that they can rely solely on their Social Security to provide them with enough income throughout their retirement, but when it’s designed to replace only about 40% of paychecks. Most will need as much as 80% of their pre-retirement income to fund a comfortable retirement. The average Social Security check for retired workers is around $1,900 a month which could make it hard to make ends meet without another form of income or savings.
If you plan on working during retirement, that could affect your benefits as well. If you are under full retirement age, you will have $1 deducted from your payments for every $2 you earn above the limit. For 2024, that limit is $22,320. When you reach full retirement age, $1 in benefits is deducted for every $3 you earn. In 2024, that limit is $59,520.
3. I won’t pay taxes on my Social Security benefits.
Many people believe that their Social Security benefits are never taxed. But the truth is that about 40% of recipients pay taxes on their benefits. Why? Because they have other sources of income, from a job or investments. If 50% of your benefit amount plus other earned income is more than $25,000 as a single filer, or $32,000 if you're married filing jointly, then you may have to pay taxes on your Social Security benefits.
Taxes are complicated and can become more complex in retirement. Many assume they will be in a lower tax bracket because they may no longer work full-time, but that's not always the case.
Without understanding your entire financial situation, you could face unpleasant surprises when you retire. Working with a financial adviser can help you develop the right tax strategy for your present and future.
4. I’m too young to worry about Social Security.
Even if you are years or decades away from retiring, it’s never too early to begin thinking about how Social Security works and how it could impact you. The program could look different once Millennials or Gen Z retire, so younger people need to be flexible about how Social Security will fit into their plans.
To set yourself up for success in retirement, you should also save and invest so you’ll have other avenues of income outside of Social Security. The sooner you start, the more you will be able to save. Even setting aside a small amount of money each month can pay off in a big way down the road.
The rules can be complicated, and with so many different strategies for claiming your Social Security benefits, it’s important to fully understand how this government program works. I recommend sitting down with a financial adviser to determine what strategy is best for you.
Drake & Associates is an independent investment advisory firm registered with the U.S. Securities & Exchange Commission. This is prepared for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person who may view this report. Neither the information nor any opinion expressed it so be construed as solicitation to buy or sell a security of personalized investment, tax, or legal advice. The information cited is believed to be from reliable sources, Drake & Associates assumes no obligation to update this information, or to advise on further development relating to it. Past performance is not indicative of future results. Registration as an investment adviser does not imply a certain level of skill or training.
Related Content
- Do You Stop Paying Taxes on Social Security at a Certain Age?
- Three Changes Coming for Social Security in 2025
- How Long $750,000 in Savings Plus Social Security Will Last in Every State
- Three Ways to Prepare for Long-Term Care Expenses in Retirement
- Three Ways to Supersize Your Retirement Savings
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Ask the Editor: Capital Gains and Tax PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on capital gains tax rates and end-of-year tax planning
-
Time Is Running Out to Make the Best Tax Moves for 2025Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?
Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 Taxes
Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
Small Caps Hit a New High on Rate-Cut Hope: Stock Market TodayOdds for a December rate cut remain high after the latest batch of jobs data, which helped the Russell 2000 outperform today.
-
What Investors May Face in the New Year: InterviewKeith Lerner, the chief market strategist and chief investment officer for Truist Wealth, speaks with Kiplinger.
-
My Adult Child Was Laid Off. Can We Discuss It Without Ruining the Holidays?We asked mental health and financial experts for advice.
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
