Social Security Myths Debunked: What You Need to Know
A retirement plan involves more than investments alone.
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A retirement plan involves more than investments alone. Understanding how Social Security fits with your income, taxes, healthcare, and legacy goals can help you make informed decisions.
Social Security is an important source of retirement income for millions of Americans. Yet misconceptions about when to claim, how benefits are taxed, and who qualifies can complicate retirement decisions. Here are seven common myths and what to consider instead.
The Role of Financial Advisors in Social Security Planning
Social Security decisions are connected to other parts of your financial plan. A financial advisor can help evaluate claiming ages, coordinate benefits with other retirement income sources, consider potential tax consequences, and review spousal and survivor benefits. The appropriate approach depends on your circumstances and goals.
Myth 1: Social Security Will Run Out of Money
Social Security faces long-term funding challenges, but that does not mean benefits will simply disappear. The program is funded in part by ongoing payroll taxes, which would continue to support a substantial portion of scheduled benefits even if trust fund reserves were depleted. The exact percentage payable depends on future program finances and legislative action.
What You Need to Know:
Review your expected Social Security benefits as part of your retirement income plan, while considering how potential future changes could affect your strategy. Avoid treating current benefit projections as guarantees.
Myth 2: You Should Claim Benefits As Soon As Possible
You can generally begin claiming retirement benefits at age 62, but claiming before full retirement age reduces your monthly benefit. Waiting beyond full retirement age can increase your retirement benefit through delayed retirement credits until age 70. For people born in 1960 or later, full retirement age is 67. Delaying is not automatically the best choice for everyone: health, cash-flow needs, marital status, work plans, and longevity expectations all matter.
What You Need to Know:
Compare different claiming ages using your own projected benefits and retirement income needs. Consider how your decision could affect a spouse or surviving spouse, not just your individual monthly payment. For married couples, delaying benefits may also increase the survivor benefit available to the surviving spouse, making claiming decisions particularly important for households with differing earnings histories.
Myth 3: You Don’t Have to Pay Taxes on Social Security Benefits
Many retirees assume Social Security benefits are tax-free. However, depending on your combined income and filing status, part of your benefits may be subject to federal income tax. Combined income generally includes adjusted gross income, tax-exempt interest, and half of your Social Security benefits. Up to 85% of benefits may be included in taxable income; that does not mean your benefits are taxed at an 85% rate. For example, married couples filing jointly may begin paying federal income tax on a portion of their benefits when combined income exceeds $32,000, with a greater portion potentially taxable above $44,000. These thresholds are not adjusted annually for inflation. State tax treatment can differ.
What You Need to Know:
Withdrawals from traditional retirement accounts, investment income, and other income sources can affect the taxation of Social Security benefits. Coordinating retirement withdrawals and other income decisions may help manage your overall tax picture.
Myth 4: Social Security Is Only for Retirees
Social Security provides more than retirement benefits. Depending on eligibility requirements, benefits may also be available to spouses, former spouses, survivors, and people with qualifying disabilities. For example, certain divorced spouses may qualify for benefits based on a former spouse’s record if the marriage lasted at least 10 years. Spousal retirement benefits can be as much as 50% of the worker’s full-retirement-age benefit, subject to applicable rules. Survivor benefits operate under different rules and may provide an eligible surviving spouse with up to 100% of the deceased spouse’s benefit, depending on when benefits are claimed. Supplemental Security Income (SSI) is a separate federal program administered by the Social Security Administration.
What You Need to Know:
Review eligibility for spousal, survivor, and disability benefits where relevant. The rules differ by benefit type, age, and family circumstances, so do not assume that retirement benefits are the only option.
Myth 5: Social Security Alone Is Enough for Retirement
Social Security provides a foundation of income, but for many households it may not cover their desired retirement spending. The share of income it replaces varies by earnings history and claiming age. Healthcare, housing, taxes, travel, and unexpected expenses can all affect the amount of additional income needed. Additionally, planning for a longer retirement is important, as living longer than anticipated can increase the risk of depleting retirement savings.
What You Need to Know:
Estimate your retirement spending and compare it with expected Social Security benefits and other income sources. Consider how savings, retirement accounts, and investments can work together to support your goals.
Myth 6: You Can Depend on COLA to Keep Up with Inflation
Social Security benefits may receive annual cost-of-living adjustments (COLAs), calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But your personal expenses may rise differently from that index, particularly healthcare and housing costs. COLAs also are not guaranteed to be positive every year. Additionally, increases in Medicare premiums may offset a portion of annual Social Security benefit increases, affecting the amount retirees actually receive.
What You Need to Know:
Account for inflation across your full retirement budget, not just your Social Security benefit. Review spending assumptions and investment allocations periodically as your needs change.
Myth 7: Social Security Benefits Are the Same for Everyone
Retirement benefit amounts vary based on your earnings record and the age at which you claim. Social Security generally calculates benefits using your highest 35 years of covered earnings, adjusted under program rules. Individuals with fewer than 35 years of covered earnings may have zero-earning years included in their benefit calculation, potentially reducing their monthly benefit. Most workers need 40 credits to qualify for retirement benefits, although eligibility rules for other benefit types differ.
What You Need to Know:
Review your earnings record and benefit estimates through your Social Security account. Understanding how your work history and claiming age affect projected benefits can help you make a more informed decision.
Myth 8: You Can’t Work While Collecting Social Security
You can continue working while receiving Social Security retirement benefits. However, if you claim benefits before reaching full retirement age, your earnings may temporarily reduce the amount you receive. In 2026, individuals who remain below full retirement age for the entire year can earn up to $24,480 before Social Security begins withholding $1 in benefits for every $2 earned above that limit. Different limits apply during the year you reach full retirement age, and once you reach full retirement age, there is no earnings limit. Importantly, benefits withheld due to excess earnings are not necessarily lost permanently, as Social Security recalculates your benefit at full retirement age to account for months in which benefits were withheld.
What You Need to Know:
If you plan to continue working while collecting Social Security, consider how your expected earnings and claiming age may affect your benefits. Understanding these rules can help you coordinate employment income with your broader retirement strategy.
Conclusion
Social Security is one part of a broader retirement plan. Understanding the rules behind these common myths can help you weigh claiming decisions, taxes, other income sources, and the needs of your family. There is no single claiming strategy that works for everyone.
At Goldstone Financial Group, we consider Social Security alongside income, investments, taxes, healthcare, and legacy planning. If you would like to discuss how these decisions fit together in your situation, schedule a complimentary consultation.