Top 5 Social Security Myths to Avoid | Smart Change: Personal Finance

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Social Security provides the highest expected retirement income for most working Americans—a measure of gold at the end of their careers. But many people who rely on Social Security income also misunderstand it, and that ignorance can be costly. Here are five common mistakes people make when thinking about Social Security, and why it’s worth avoiding them.

1. All seniors get the same benefit

40% of working adults believe that everyone gets the same amount of Social Security when they retire. Instead, your benefit payments are tied to your earnings and the amount you contributed to Social Security taxes throughout your years of employment.

The Social Security Administration uses the average monthly income of recipients over the years to calculate the dollar amount each person will receive at full retirement age. Social Security assumes that workers who earn more during their careers will need less help in retirement. The higher your earnings before retirement, the smaller the percentage of that income that will replace Social Security thereafter.

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2. Even if you claim it early, your benefits will increase when you reach your full retirement age

You can start collecting Social Security at age 62, but you don’t have to. The full Social Security retirement age, after which you start receiving benefits automatically, varies depending on the year you were born: 66 for those born in 1943 and later, and gradually increasing to 67 for those born in 1960 or later.

If you start collecting your benefits earlier than your full retirement age, your monthly check will be reduced by about 30%, permanently, because Social Security will distribute the same total benefit money you owe — based on a life expectancy of 78.6 years — over more Than checks and a longer time period. If you live longer than that, waiting until full retirement age will give you greater paychecks for the rest of your life than you did by claiming benefits earlier.


Annual Cost of Living Adjustment, or COLA, uses a subset of the Consumer Price Index known as CPI-W Increasing Social Security benefits to offset inflation.

But according to the Social Security Act, benefits only rise if the average consumer price index in the third quarter of this year is higher than last year’s. In some years you don’t see benefits at all for inflation – but only because inflation itself hasn’t risen in that period.

4. It is always better to claim Social Security as soon as possible.

There is no one-size-fits-all answer to this crucial question! If you file early, you will have extra cash to travel and spend time doing the things you loved to do when you were younger. You may also simply need the money, or live with health conditions that make you think you’ll never reach full retirement age.

But if you have average to excellent health, and a higher-than-average life expectancy, you can make more money by waiting. If you plan to work before you reach retirement age, this may reduce your benefits. (More on that below.) And if your lifetime earnings exceed your spouse’s, waiting longer can guarantee them even higher marital benefitvery.

5. Once I start Social Security benefits, I can’t work anymore

You are Can Keep going – with some caveats. In 2022, people under full retirement age can earn up to $1,560 without penalties. Your benefits are reduced by $1 for every $2 you earn above this amount. The income limit rises along with your age, and from the month you reach your full retirement age, there is no limit to how much you can earn and still receive your full benefits.

Only if you regret the permanent reduction in benefits that come from claiming early, if you’re going back to work with a higher salary, or if you’re bored, can you undo your decision, as long as you started receiving Social Security less than 12 months ago. Once in a lifetime, Social Security gives you an extra chance; You can withdraw your benefits application, repay all the money you received, and file it again at a later age.

Social security is a complex subject due to all the variables that come into play, mixed with the unique situation of individuals. Please do your careful research and talk to Your local Social Security office before making any important decisions.

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