Myths and Facts about Social Security
Myth: Social Security will provide most of the income
you need in retirement.
Fact: It's likely that Social Security will provide a
smaller portion of retirement income than you expect.
There's no doubt about it — Social Security is an important
source of retirement income for most Americans. According to the Social
Security Administration, nearly nine out of ten individuals age 65 and older
receive Social Security benefits.*
But it may be unwise to rely too heavily on Social Security,
because to keep the system solvent, some changes will have to be made to it.
The younger and wealthier you are, the more likely these changes will affect
you. But whether retirement is years away or just around the corner, keep in
mind that Social Security was never meant to be the sole source of income for
retirees. As President Dwight D. Eisenhower said, "The system is not intended
as a substitute for private savings, pension plans, and insurance protection.
It is, rather, intended as the foundation upon which these other forms of
protection can be soundly built."
No matter what the future holds for Social Security, focus
on saving as much for retirement as possible. When combined with
your future Social Security benefits, your retirement savings and pension
benefits can help ensure that you'll have enough income to see you through
Myth: If you earn money after you retire, you'll lose
your Social Security benefit.
Fact: Money you earn after you retire will only affect your
Social Security benefit if you're under full retirement age.
Once you reach full retirement age, you can earn as much as
you want without affecting your Social Security retirement benefit. But if
you're under full retirement age, any income that you earn may affect the
amount of benefit you receive:
- If you're under full retirement age, $1 in benefits will
be withheld for every $2 you earn above a certain annual limit. For 2021, that
limit is $18,960.
- In the year you reach full retirement age, $1 in benefits
will be withheld for every $3 you earn above a certain annual limit until the
month you reach full retirement age. If you reach full retirement age in 2021,
that limit is $50,520.
Even if your monthly benefit is reduced in
the short term due to your earnings, you'll receive a higher monthly benefit
later. That's because the SSA recalculates your benefit when you reach full
retirement age, and omits the months in which your benefit was reduced.
What Is Your Full Retirement Age?
|If you were born in:
||Your full retirement age is:
||66 and 2 months
||66 and 4 months
||66 and 6 months
||66 and 8 months
||66 and 10 months
|1960 and later
If you were born on January 1 of any year, refer to the
previous year to determine your full retirement age.
Myth: Social Security is only a retirement program.
Fact: Social Security also offers disability and survivor
With all the focus on retirement benefits, it's easy to
overlook the fact that Social Security also offers protection against long-term
disability. And when you receive retirement or disability benefits, your family
members may be eligible to receive benefits, too.
Another valuable source of support for your family is Social
Security survivor insurance. If you were to die, certain members of your
family, including your spouse, children, and dependent parents, may be eligible
for monthly survivor benefits that can help replace lost income.
For specific information about the benefits you and your
family members may receive, visit the Social Security Administration (SSA) website at
call 800-772-1213 if you have questions.
Myth: Social Security benefits are not taxable.
Fact: You may have to pay taxes on your Social Security
benefits if you have other income.
If the only income you had during the year was Social
Security income, then your benefit generally isn't taxable. But if you earned
income during the year (either from a job or from self-employment) or had
substantial investment income, then you might have to pay federal income tax on
a portion of your benefit. Up to 85% of your benefit may be taxable, depending
on your tax filing status (e.g., single, married filing jointly) and the total
amount of income you have.
information on this subject, see IRS Publication 915, Social Security and
Equivalent Railroad Retirement Benefits.
Myth: Social Security is going bankrupt soon.
Fact: Social Security is facing significant financial challenges, but is not going bankrupt.
Social Security is largely a "pay-as-you-go" system with today's workers (and employers) paying for today's retirees through the collection of payroll (FICA) taxes. These taxes and other income is deposited in Social Security trust funds and benefits are paid from them.
According to the SSA, due to demographic factors, Social Security is already paying out more money than it takes in. However, by drawing on the Old-Age and Survivors Insurance (OASI) Trust Fund, the SSA estimates that Social Security should be able to pay 100% of scheduled benefits until fund reserves are depleted in 2034. Once the trust fund reserves are depleted, payroll tax revenue alone should still be sufficient to pay about 76% of scheduled benefits. This means that in 2034, if no changes are made, beneficiaries may receive a benefit that is about 24% less than expected. (Source: 2020 OASDI Trustees Report)
That's not good news, but Congress still has time to make changes to strengthen the program and address projected shortfalls. Until then, consider various income scenarios when planning for retirement.