The rules of Social Security benefits are incredibly complex and confusing for many. Over the years, myths have developed about many aspects of the program, some containing kernels of truth, while some are completely false. We’d like to debunk some of these myths today.
Myth: Throughout your career when you work and contribute to Social Security taxes, the government puts that money away in an account under your name that you collect plus interest upon retirement.
Truth: The Social Security System is “pay as you go.” Taxes contributed by those currently working provide the benefits to those currently retired and collecting.
Myth: Most people collect less in Social Security and Medicare benefits than they actually paid in Social Security and Medicare taxes.
Truth: According to a 2013 study of taxes paid versus benefits collected by seven categories of people (single men, women, or married couples at varying income levels) conducted by the Urban Institute, in all cases those studied received more in benefits (Social Security and Medicare combined) than they paid in taxes over the years.
Myth: If you are rendered disabled by a rare or severe disease, you still must wait in line for disability benefits.
Truth: This is not the case. The Compassionate Allowances program was created to escalate disability benefits to those with life-threatening illnesses. You can view the list of conditions covered by this program on the Social Security web page.
Myth: Married individuals who have never entered the workforce are ineligible for Social Security benefits.
Truth: Married individuals who have never worked are eligible to receive Social Security benefit payments based upon their spouses’ work history. Social Security benefits amounting to 50 percent of the benefits a working spouse can receive are available to the unemployed spouse. The working spouse must currently be receiving benefits for the nonworking spouse to be eligible. The non-working spouse must be at least 62 years old in order to collect Social Security benefits.
Myth: If you continue working and are therefore ineligible to collect a portion or all of your Social Security benefits for a period of time, that money disappears.
Fact: If you are earning in excess of the Social Security benefit wage limit, once you reach full retirement Social Security will give you credit for the benefits you did not receive when partially retired or working full time. This will result in increased monthly payments temporarily. The earning limit is currently $15,720 per year until the year that you completely retire. For each $2 in wages earned above $15,720, Social Security holds $1 of benefits. The year that you will reach full retirement age (currently age 66), the cap increases to $41,880 for the months preceding your birthday month. In that case, $1 is held back for every $3 in wages earned above the limit.
Myth: Retirement benefits collected are proportional to what you earned during your career.
Truth: This is not exactly true. When you are ready to collect retirement, the Social Security program examines what you earned in your career, emphasizing the highest earning 35 years. The computer then calculates a primary insurance amount, which is your basic retirement benefit amount once you reach age 66 or full retirement age. The calculation is essentially an income replacement formula. Recently, high income earners (72k+), received about 35 percent of their working income in Social Security benefits; while on the other end of the spectrum, low wage earners ($20k and below), had approximately 57 percent of their income replaced by Social Security benefits.
Myth: The best practices strategy for collecting Social Security benefits is to begin collecting partial payments as soon as they are available (upon reaching age 62).
Truth: For some people this could be true, but most people live many years after Social Security benefits begin. The longer you wait to receive Social Security, the larger each check will be. The Social Security Administration has published a helpful guide for when to begin collecting retirement benefits.
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