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Social Security Myths You Should Know

Social Security Myths You Should Know

October 28, 2022
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Like most people, your initial understanding of Social Security probably came from word of mouth or things you watched on the news. Many people know that Social Security benefits can supplement their retirement income and that anyone who has previously worked, or has worked, until they reached their 60s should receive social security benefits.  

However, besides that, Social Security can be complex and confusing with many stipulations. You might have questions such as, "Should I collect my social security benefits early?", "How long do I need to work to receive benefits?" or "Should I take my spouse's social security benefits?"  

Everyone's goal is to maximize social security benefits to ensure they don't lose out on annual income. But what is the best way to maximize your benefits?  Our financial advisors at JL Smith are here to clarify some of your most pressing concerns and debunk some myths about social security.  

Myth: 62 is the Best Age to Start Collecting Social Security 

Some people believe that they should start collecting social security at age 62. However, this is the earliest age at which people are eligible to receive social security. It's not the only, or even the best, age to do so if you want to receive the full benefit. 

Your base benefit depends on your full retirement age (FRA), which is 67 if you were born in 1960 or later. The Social Security Administration (SSA) calculates your fixed social security benefits based on your average monthly earnings during the 35 years you earned the most and paid social security taxes.  

If you claim your benefits any time before you reach FRA, you'll lock in a permanent reduction of monthly income. The longer you've worked, the more money you made and paid into social security, and the longer you wait to receive your benefits, the higher your monthly benefits will be.  

According to Fidelity, claiming your social security benefits at age 62 leads to a 30% reduction in monthly benefits. Fidelity also reported that you receive an 8% increase in your monthly benefits each year you wait until age 70.  

Suppose your full retirement age is 67. If you delay benefits until 70, you'll receive a 24% increase in your monthly social security income. Whenever you decide to collect benefits is ultimately up to you, but you will maximize your earnings by waiting a little longer. 

Myth: I Won't Receive Benefits if I Don't Work 35 Consecutive Years 

A person's work history can have a lot of gray areas. People lose jobs, become disabled, or take time off to raise families.  

The SSA bases your monthly benefits on an average of your total salaries over 35 years. These working years do not have to be consecutive. In other words, the salary still counts despite job gaps.  

You must work for a minimum of ten years to receive social security benefits. It's never a bad idea to work an extra year or so (if possible) to increase your earnings. If you have worked under 35 years, the SSA represents or calculates these years as "zeros," which can hurt your benefits package.  

Myth: The SSA Doesn't Calculate More Than 35 Years of Work History 

Remember that the SSA works with averages, particularly with the averages of the years that you earned the most money. If you've worked more than 35 years, the government won't include the years you earned your lowest salaries. Since the factor here is averages, it does help to have high-grossing salaries throughout your career.  

Myth: I Can't Claim Spousal Benefits 

You can collect your spouse's social security benefits instead of your own. In some cases, it's even more beneficial to claim spousal benefits if your spouse is the higher earner or you've been out of work for a while. You can receive up to 50% of your spouse's primary benefit amount so long as you've been married for at least a year.  

It only makes sense to take half of a spouse's benefits if your benefits are lower than theirs. For example, if your spouse's monthly benefits are $1,000, you would only receive $500 of this. If your monthly benefits are $1500, it would be better to collect your social security benefits.  

You should also know that claiming your spouse's social security benefits before you turn 67 leads to an even higher reduction of 35%. If unfortunately, a spouse passes away, the widow or widower can receive 100% of their spouse's benefits in a process called "survivor benefits." Once again, you can leverage survivor benefits if it makes sense financially.  

In the case of ex-spousal benefits, you're eligible to collect social security benefits if you were married to a former spouse for at least ten years. You'd receive half of their benefits, or you can choose to collect your own if you make more money, but not both. The caveat is that if you remarry, you can no longer receive an ex-spouse's benefits.  

If you want a more in-depth view of social security planning for couples, we encourage you to download our "Navigating Spousal Social Security Benefits" guide.  

Myth: Social Security Benefits Aren't Affected by Inflation

This year, everyone was affected by price surges regarding gas prices, food, and most, if not all, economic sectors. The Cost-of-Living Adjustment (COLA) combats high inflation. The SSA increases social security benefits to counteract the effects of inflation.  

According to Investopedia, the SSA equates COLAS to the percentage increase based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) for a specific time. The SSA also bases COLAs on the Consumer Price Index (CPI), representing the average prices of basket goods (a constant set of general goods produced in an economy whose prices are tracked over time) used to measure inflation.  

CNBC reported that the 2023 COLA Social Security is 8.7%,the highest increase in 40 years. This percentage means that someone who received $1,600 in social security benefits in 2023 would receive $1739.20. You should also know that your COLA-adjusted income decreases if you collect social security benefits early.  

Myth: Social Security Benefits Aren't Taxable

Social security benefits are taxable for most people. The IRS shared tax tips stating that to find out if your social security benefits are taxable, you should:

  • Calculate half of the social security you've received for the year and add it to your other income 

Other income could be pensions, wages, interest, dividends, and capital gains.

  • If you are filing single and that total comes to at least $25,000, a percentage of your social security benefits will be taxed.
  • If you are married and filing jointly, you should take half of your social security plus half of your spouse's and add that to the combined income. If that total comes to more than $32,000, then part of their social security may be taxable. 

JL Smith's Financial Advisors Can Help with Social Security Planning

Calculating social security benefits isn't a one-size-fits-all approach. Everyone is different, and each person's work history tells a unique financial story. It can also be hard to determine how to maximize social security benefits.  

For that reason, JL Smith offers webinars where we answer some of your most burning financial planning questions. Recently, we hosted a social security webinar called "Social Security Benefits Options".

Our team also hosts live events, and we encourage you to keep checking the website to register for ones that interest you.  

As you probably know, social security benefits are supposed to supplement the wealth you've already garnered. However, financial planning should be comprehensive. Our holistic planning services cover social security, investments, insurance, estate and tax planning,  healthcare, and Medicare. Our team wants you to enjoy your sunset years feeling financially secure from all angles.  

Contact us and schedule a complimentary consultation so we can discuss your financial concerns and priorities.