May 20th, 2016
There are a lot of misconceptions surrounding the Social
Security system. Here are four common myths and the truth about how Social
Security works and its future prospects.
Myth 1: You Should Collect Benefits Early
This is one of the biggest Social Security myths. In 2015, more
than half of Social Security recipients began collecting benefits before their full retirement age (66
for those born between 1943 and 1954), potentially costing themselves thousands
of dollars in additional benefits. If you take Social Security between age 62
and your full retirement age, your benefits will be permanently reduced to
account for the longer period you will be paid.
On the other hand, if you delay taking retirement, depending on
when you were born your benefit will increase by 6 to 8 percent for every year
that you delay, in addition to any cost of living increases. There are a lot of
factors that go into the decision as to when to take Social Security benefits, but if possible it is
usually better to wait until your full retirement age or older.
Myth 2: Your Money Goes into an Account with Your Name on It
When you pay into Social Security, the money is not set aside in
a separate account, as with a 401(k) or IRA. Instead, your contributions are
used to pay current recipients. When you start receiving benefits, people
paying into the system will be paying your benefits.
Myth 3: Social Security Will Be Out of Money Soon
Many young people believe the Social Security system will run
out of money before they have a chance to collect anything. Currently, the
Social Security trustees predict that the trust fund will run out of money in
2034. Politically, it seems unlikely that Congress and the President would let
this happen. Changes will likely be made to the system by either raising taxes
(such as by lifting the cap on income subject to Social Security tax), reducing
benefits for high-income individuals, increasing the retirement age, or doing
something else that will allow Social Security to be fully funded. However,
even if the trust dries up and there isn't enough money to pay all the promised
benefits, people will still be paying into the system and Social Security will
be able to pay at least 75 percent of benefits.
Myth 4: If You Haven't Worked, You Cannot Collect Benefits
If you haven't worked outside of the home, you will not be able
to collect Social Security benefits on your own record, but you may be able to
collect them based on your spouse or ex-spouse's record. Spouses are entitled to collect
as much one half of a worker's retirement benefit. This rule applies to
ex-spouses as well, as long as the marriage lasted at least 10 years and the
spouse applying for benefits isn't remarried.
To learn more about Social Security, click here.
Last Modified: 05/20/2016
Last Modified: 05/20/2016
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