3 Common Social Security Myths That Could Ruin Your Retirement – Motley's Fool

For many retirees, Social Security makes the difference between enjoying a comfortable retirement and barely managing. According to the Social Security Administration, nearly half of married beneficiaries depend on their social security checks for at least 50% of their income and about 21% for their benefits for at least 90% of their retirement income .

However, despite the fact that social security is a crucial factor in the pension plans of many beneficiaries, very few people fully understand how the program works. In fact, according to a Nationwide Retirement Institute survey, 91% of adults aged 50 and older admit that they do not know what factors contribute to their benefits.

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You do not need to know all the details of calculating the amount of your benefits, but not understanding the basics of program operation can lead to potential problems later. Some myths surrounding social security may not seem prejudicial at first glance, but a lack of understanding of these essential factors could cause you to lose additional income in retirement.

1. The age you claim does not affect how much you receive

You can apply for social security benefits as early as the age of 62, which is the most common age; About 48 percent of women and 42 percent of men seek benefits at age 62, according to a report by the Center for Retirement. Research at Boston College.

However, by claiming this in advance, you will not receive the full amount you are theoretically entitled to. The only way to receive this amount is to apply for payment at your retirement age of 66, 66, and a few months, or 67. By making a previous application to your FRA, your benefits will be reduced by up to 30%.

If you do not know your FRA and its impact on your benefits, you are not alone. According to the Nationwide Retirement Institute, two-thirds of adults age 50 and older do not know when they are eligible to receive the full amount of their benefits. 57% of them think that they are eligible sooner than they actually are. So, if you claim in front of your FRA thinking to receive the total amount to which you are entitled, you may be surprised if your check is smaller than expected.

On the other hand, you can benefit from an increased benefits while waiting to apply after your FRA. Each month that you expect your FRA to claim (up to the age of 70), you will receive slightly larger checks – up to 32% more of the total amount, if you have a FRA, 66 years old.

2. The social security program is bankrupt

The health of the social security program raises a lot of concern and concern, the system likely to be running out of money in the relatively near future. According to a report by the Transamerica Center for Retirement Studies, 77% of non-retirees say they fear they will not be able to benefit from social security once they have decided to retire. .

While it is true that the program is on unstable ground, it is not about to collapse. At present, as baby boomers retire in droves, the system releases more money in the form of benefits than taxes. This means that the social security program is expected to deplete its cash reserves by 2035, according to the report of the 2019 Social Security Administration Administration Board.

This does not mean that the benefits will be eliminated. As long as workers continue to pay taxes, there will always be money that can be distributed in the form of benefits. This means, however, that benefits may have to be reduced by 2035. At this rate, the Social Security Administration estimates that tax revenues will be sufficient to cover only about 75 per cent of projected benefits.

Some future retirees who are concerned about their future employee benefits may think that it is a good idea to claim as early as possible before the bankruptcy of the program. However, it may be wiser to delay benefits for a few years. If the benefits are reduced in the future, the big checks that you will receive while waiting for your claim with FRA could help bridge the gap.

3. You must claim benefits upon retirement

Retirement and claiming social security benefits often go hand in hand, but they do not have to happen simultaneously. In fact, it is sometimes useful to ask for benefits before or after the work stoppage.

If you choose to retire and realize that you do not have enough money to make ends meet, you may decide to look for a part-time job even after you start applying for a job. benefits. If you are passionate about your career and do not want to stop working anytime soon, you can always choose to apply for benefits to earn extra income, even if you do not necessarily need it.

It is possible to continue working after claiming benefits, but if you have not yet reached your FRA, your benefits may be (temporarily) reduced depending on the amount of your earnings. In the years prior to your FRA, your benefits will be reduced by $ 1 for every $ 2 earned beyond the annual limit of $ 17,640 set for 2019. Then, in the year you reach your FRA, your benefits will be reduced by $ 1 for every $ 3 earned beyond a limit of $ 46,920. These reductions, however, are not permanent. Once you have reached your FRA, the amount of your benefit will be adjusted to reflect the money you have withheld from your previous checks.

On the other hand, if you are ready to retire now, but want to take advantage of those big checks you would receive while you apply, you can choose to retire before you apply. benefits. In some cases, it makes sense. For example, if you plan to spend several decades in retirement, you may want these big checks when your personal savings are exhausted. And if you have a solid nest egg now, you may be able to afford to retire now even without the help of social security.

Social security can be a complex subject, but understanding some of the most basic concepts can help you get the most out of your benefits. Especially if you rely on your benefits for a good part of your retirement income, learning as much as you can about how the system works can help you maximize your money.