Understanding Social Security benefits can seem like deciphering an intricate puzzle. With myriad rules and seemingly complex formulas, making uninformed decisions can be detrimental. Seeking advice from financial professionals to strategize your Social Security claims is crucial. Before you step into this maze, let’s debunk 5 widespread myths about Social Security.
Myth #1: Claiming Social Security Benefits at Age 62 is Mandatory
Contrary to popular belief, age 62 is merely the earliest age to start claiming your benefits, not a mandatory age. The Social Security Administration (SSA) determines your “full retirement age” (FRA) based on your birth date. If you begin your claims before reaching your FRA, you’re essentially settling for a lower monthly income—up to 30% less if you were born after 1960 and have an FRA of 67.
However, patience has its rewards. If you wait till 70, not only do you bypass the reduction, but you also earn about an 8% bonus on your monthly income for every year you delay claiming after 62.
Myth #2: You’ll Lose Money in the Long Run
There’s a misconception that you may not receive what you contribute to Social Security over your lifetime. While each case is unique, living a longer life might allow you to reap more than you sowed. Contrary to the myth, the SSA is designed to be a safety net for retirees, ensuring a steady income stream. Your FICA contributions guarantee you a lifetime income benefit once you retire. Plus, with inflation-protected, guaranteed monthly payments, you can be assured of a steady income even if you touch a century.
Myth #3: Ex-Spouse’s Actions Will Affect Your Benefits
Concerns around an ex-spouse affecting your Social Security benefits are baseless. If you were married for at least 10 years and remain unmarried post-divorce, you might qualify for 50% of your ex-spouse’s Social Security benefit, which can sometimes exceed your own benefit. Moreover, this claim does not affect your ex-spouse’s benefits, ensuring complete financial independence.
Myth #4: Only Wages Earned Before Age 65 Count
Another misconception is that only earnings before 65 are considered for Social Security. In reality, it’s based on your 35 highest-earning years, irrespective of when they occurred. If you work past 65, those years can still be counted, potentially boosting your benefits. However, a minimum of 10 years of employment where Social Security contributions were made is essential.
Myth #5: Early Claiming Can be Followed by a “Bump Up” at Full Retirement Age
Many mistakenly believe that claiming at 62 can be followed by a significant increase in their benefits once they reach their FRA. But the truth is, once you’ve set your claim in motion, there’s no automatic increase. Yes, there’s an option to suspend the benefit post-FRA and resume it before 70 for a benefit boost, but it’s not the same as a “bump up.”
While you can cancel your Social Security claim within the first year of receiving benefits, it requires repaying the entire amount received. Plus, this can only be done once in your lifetime.
Concluding Thoughts
Planning for Social Security claims shouldn’t be a last-minute decision. Its inflation-protected, lifelong benefits make it the foundation of your retirement plan. Seeking advice from financial professionals, like a Fidelity financial advisor, can help you weigh the pros and cons and determine the best claiming strategy for your unique situation. Don’t let myths derail your retirement dreams; arm yourself with the right knowledge.
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