Social Security: Four Common Misconceptions

Myth – Social Security is running out of money or will become bankrupt.

The U.S. Social Security Administration cannot run out of money. According to the Social Security Administration, even if Congress allowed the trust fund reserves to deplete, continuing income would cover 80% of the scheduled benefits in 2035 and 75% of scheduled benefits in 2093. Further, over the past 84 years since the creation of Social Security, scheduled benefits have always been paid in full.¹

Don’t let this misconception prompt you to claim Social Security earlier than you need it. A recent survey revealed that nearly 32% of respondents would take benefits before age 70 because they are concerned that Social Security may run out of money and/or stop making payments.²

Myth – Full retirement age is 65.

While full retirement age was 65 for many years, in 1983, Congress passed a law to gradually raise the age. Now full retirement age is based on the year you were born. If you were born between 1943 and 1954, your full retirement age is 66, if you were born between 1955 and 1959, it’s somewhere between ages 66 and 67 and if you were born in 1960 or later, it’s 67.

Myth – Social Security is a retirement savings account.

Many people think of Social Security as being an integral part of their retirement planning strategy. The Social Security Retirement benefit is not meant to replace your entire income, only a portion of your income in retirement. The average monthly benefit is $1,550³ which only equates to roughly $18,600 a year. Other saving methods such as retirement plans and personal savings are needed in conjunction with Social Security to create a secure source of retirement income.

Myth – You don’t pay taxes on Social Security benefits.

The majority of Americans who receive benefits will pay Federal income tax on up to 50% or even 85% of their benefits.⁴ The Internal Revenue Service (IRS) rules state:

If a single filer’s combined income⁵ is…

• between $25,000 and $34,000 – up to 50% of your benefits may be taxable.
• more than $34,000 – up to 85% of your benefits may be taxable.

If joint filers’ (you and your spouse) combined income is…

• between $32,000 and $44,000 – up to 50% of your benefits may be taxable.
• more than $44,000 – up to 85% of your benefits may be taxable.

If you fall below these thresholds, you will not pay any Federal tax on your benefits.

When it comes to Social Security benefits or any of your retirement savings, consider your Jemma Financial Advisor as your resource to help you determine a financial path that works best for your long-term goals.

Sources:
1. Social Security Administration, Social Security Financing and Benefits: Myths vs Facts, 2019
2. Schroders US Retirement Survey Results – 2022
3. Social Security Administration, Monthly Statistical Snapshot, November 2022
4. Social Security Administration, Income Taxes And Your Social Security Benefit
5. Combined income = your adjusted gross income + nontaxable interest + ½ of your Social Security benefits