Social Security is the retirement and disability insurance program that is used most often in the United States. Currently, about 66 million people in the U.S. are beneficiaries of Social Security. However, that doesn’t mean that everyone has a clear understanding of Social Security.
Here are five myths concerning Social Security that U.S. citizens need to be aware of how to plan for retirement properly.
Social Security Has Gone Bankrupt
This myth is not true, but some misinformed Americans have been passing this rumor around. However, there are some financial issues with Social Security retirement that need to be addressed. Social Security will have enough funds to pay beneficiaries for another 17 years. There is plenty of time for the Social Security Administration to get its finances in order so that the money won’t run out in 2034 as it is expected to. Even if Social Security funds are depleted in 2034, tax revenue will cover the cost of benefits.
There’s More Money In Waiting
Contrary to popular opinion, people don’t get more Social Security funds if they wait to claim their benefits. Individuals will receive more monthly benefit checks if they delay retirement, but this doesn’t mean that these people will receive more money overall. Earlier retirees simply get less money so that the average person will receive around the same amount of Social Security assistance in his/her lifetime.
People Can’t Get Social Security While Working
It’s not true that people have to retire to get Social Security benefits. Depending on a person’s age, benefits can be reduced depending on income. Those who will reach retirement age in 2017 have an earnings threshold of $16,920. It’s important to contact your local Social Security office for additional details.
The Last Few Years of Work Determine Benefit Amounts
It’s a myth that the last few years of employment are what determine the amount of Social Security benefits. People who work at public sector establishments and those who are employed by private companies may have a pension plan, and this retirement plan is based on the employee’s last few years of income.
However, it’s important to note that this doesn’t apply to Social Security benefits. These are designed for your entire working life in mind. Each year that you earned money is indexed and your top 35 years of earning will be taken into account when determining your average earnings.
Social Security Benefits Are Not Taxable
Some people don’t pay income taxes on Social Security benefits. However, if you have a significant amount of taxable income as well as Social Security benefits, up to 85% of your benefits could be taxable. To find out if any of your benefits can be taxed, the IRS takes your combined income (adjustable gross income and nontaxable interest) into account. No matter how much you earn, no more than 85% of your benefits can be taxed.
Keep these principles in mind when applying for Social Security, or when calculating how much you can expect from Social Security upon retirement. This will make for more secure financial planning, so you can truly live the life you want after retirement.