Social Security is more than just a government program; it’s a critical income source for countless retirees. As of July 2023, the Social Security Administration reported an average monthly payout of around $1,800 to retirees. Especially for those with inadequate savings, these funds are invaluable during retirement.
Nevertheless, the complexities of Social Security often lead to misunderstandings that might cause you to miss out on receiving the full benefits you are entitled to. Here, we address three misconceptions that could adversely affect your retirement income.
Opt for Early Benefits, and They’ll Increase Later
For individuals born in 1960 or later, the age for full entitlement to Social Security benefits, known as the Full Retirement Age (FRA), is 67. Opt to start drawing your benefits before this age, and you’ll face a monthly reduction of up to 30%. A prevalent but mistaken idea, subscribed to by nearly half of American workers according to a 2022 study, is that this reduced amount will increase once you hit your FRA. The truth is far from it: the decision to claim early may have lasting effects, reducing your benefits for the rest of your life.
Claim Benefits Now Because Social Security is Running Out of Funds
The narrative of Social Security’s looming bankruptcy has led some to claim their benefits hastily. While there may be concerns about the long-term sustainability of Social Security, it’s not on the brink of dissolution. Primarily funded through payroll taxes, the system will continue to pay out as long as people work and pay into it.
If no legislative updates occur, current estimates indicate that by 2037, Social Security should still be able to provide about 76% of scheduled benefits from ongoing tax contributions. Therefore, claiming benefits early out of fear could prove counterproductive. A more prudent approach might be deferring your benefits to accrue higher payments, which could offset potential.
No Employment History, No Social Security
A common belief is that you must have a 10-year work history to be eligible for Social Security. While valid for the standard retirement benefits, there are exceptions:
- Spousal Benefits: If your spouse qualifies for Social Security, you could be entitled to as much as half of their full benefits when they reach their FRA, regardless of your work history.
- Divorce Benefits: If you’ve been married for a decade or longer and are not remarried, you could collect up to half of your ex-spouse’s full benefits.
- Survivor Benefits: These are accessible to widows and widowers and, under specific conditions, to other family members like children or divorced spouses. Eligibility and the benefit amount are based on several factors.
Understanding Social Security can be daunting, but clearing up these widespread myths is crucial for optimizing your benefits and securing your financial well-being during retirement. Stay ahead by staying informed. If you have questions about how to use social security in your retirement planning, please contact us. We welcome the opportunity to help you make informed decisions about your financial future.
All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Quantum Strategies, LLC does not offer tax planning or legal services but may provide references to tax services or legal providers. Quantum Strategies, LLC may also work with your attorney or independent tax or legal counsel. Please consult a qualified professional for assistance with these matters. You should always consult with a qualified professional before making any tax or legal decisions.