10 Misunderstood Social Security Facts
Social Security is a significant portion of many retirement income plans. The program does much more than pay a benefit to retirees. Below are some of the aspects of the plan that are commonly misunderstood:
- Social Security is not just for retirees: Many people mistakenly believe that Social Security benefits are only for retirees. While it’s true that a significant portion of Social Security recipients are retirees, the program also provides benefits to disabled individuals and survivors of deceased workers. If you become disabled and can no longer work, you may be eligible for Social Security Disability Insurance (SSDI) benefits. Survivors, such as spouses and dependent children, can also receive benefits if a family member who contributed to Social Security passes away.
- You don’t have to stop working to claim Social Security: You can start receiving Social Security retirement benefits as early as age 62, but doing so will result in reduced monthly benefits if you claim before your full retirement age (FRA). However, you can continue working while receiving Social Security benefits. If you claim benefits before your FRA and earn more than the earnings limit, a portion of your benefits may be withheld, but you’ll receive delayed retirement credits when you reach your FRA to make up for it.
- Your benefits are not based solely on your last job: Social Security benefits are calculated based on your lifetime earnings and the 35 highest-earning years of your career (adjusted for inflation). Your work history matters more than your most recent job, so it’s essential to understand how your entire career impacts your benefit amount.
- Social Security benefits are not taxed for everyone: While Social Security benefits are generally subject to federal income taxes, not everyone pays taxes on their benefits. The portion of your benefits subject to taxation depends on your total income, including wages, other retirement income, and half of your Social Security benefits. If your combined income exceeds a certain threshold, you may have to pay taxes on a portion of your Social Security benefits.
- Your benefits are not automatically set for life: Social Security benefits are not static; they can be adjusted for inflation. Cost-of-living adjustments (COLAs) are made periodically to help your benefits keep up with rising living costs. It’s important to stay informed about these COLAs, as they can impact the purchasing power of your benefits over time.
- Spousal Benefits: Many people are unaware that spouses, ex-spouses, and even dependent children can be eligible for benefits based on a primary earner’s work record. Spousal benefits can be as much as 50% of the primary earner’s full retirement benefit. This can be particularly helpful for spouses who may not have their own substantial work history.
- Divorced Spouse Benefits: If you were married to someone for at least 10 years and are currently unmarried, you may be eligible for divorced spousal benefits based on your ex-spouse’s earnings record. These benefits are available even if your ex-spouse has remarried.
- Delayed Retirement Credits: If you delay claiming Social Security benefits beyond your full retirement age (up to age 70), your monthly benefit amount will increase. For every year you delay, you earn delayed retirement credits, which can result in a significantly higher benefit when you eventually claim. A higher benefit for you could also mean a larger survivor benefit to a spouse.
- Survivor Benefits for Widows and Widowers: Surviving spouses are entitled to survivor benefits, which can be as much as 100% of the deceased spouse’s benefit. You can claim these benefits as early as age 60 (or as early as age 50 if you are disabled and the disability occurred before or within seven years of your spouse’s death).
- Benefits for Children: Dependent children under the age of 18 (or up to 19 if still in high school) or disabled adult children may be eligible for benefits based on a parent’s work record. This can provide financial support for families with dependent children.
To make the most of your Social Security benefits and understand how they apply to your unique situation, it’s wise to consult with the Social Security Administration and a financial advisor who specializes in retirement planning. Social Security can be a critical component of your retirement income, and taking the time to understand its various aspects can help you make informed decisions.
Any opinions are those of Landon Vick and not necessarily those of RJFS or Raymond James. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete; it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decisions.
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