Social Security is likely to play an integral role in your retirement income plan. Yet too many people aren’t as familiar with the complexities of the program as they should be.
There are a number of false perceptions about what to expect when the time comes to start collecting benefits. Here are five common myths and the real story behind each of them.
Myth #1 – I have to start collecting Social Security at age 62.
The reality is that you can begin collecting at any point between your 62nd birthday and your 70th birthday. The earlier you start, the lower your monthly benefit will be. But you are free to select any time within that eight-year window to “turn on” the Social Security spigot.
Myth #2 – If I collect with lower benefits at age 62, I’ll see a step-up in my benefit when I reach full retirement age.
This is not true. Depending on your year of birth, full retirement age as defined by Social Security is between ages 66 and 67. The benefit you are estimated to receive at full retirement age is the basis for determining how much higher or lower your monthly benefit will be depending on the actual age (between 62 and 70) that you begin to collect. If you start at age 62, your benefit will be approximately 25% lower than it would be at full retirement age. Benefits will remain at a reduced level throughout your life.
Myth #3 – If I’m divorced, I can’t collect a spousal benefit.
In many cases, a divorced spouse can collect benefits based on the earnings of an ex-spouse. If you are 62 or older but were married to that spouse for at least 10 years, you can claim a spousal benefit if it would be higher than your own. If you remarry, you are no longer eligible to claim a spousal benefit based on your ex-spouse’s earnings.
Myth #4 – I’ll pay more into Social Security than I’ll get out of it.
This is only true if you live a short life in retirement. It is one of the potential tradeoffs for having the security of a reliable source of inflation-adjusted income throughout your life, no matter how long you live. What’s more, the longer you collect, the more likely it is that you’ll receive more in benefits than you paid in. If you are the highest-earning spouse in your marriage and pass away first, your spouse will continue to collect your benefit (instead of their own) through the rest of their life.
Myth #5 – Social Security is going bankrupt.
This common phrase is not about the entire program, but about what is known as the Social Security Trust Fund. The trust fund has grown over the life of Social Security until recently. It is a reserve amount representing the excess of Social Security taxes collected each year that did not need to be paid out in current benefits.
Until recently, the trust fund was growing, but now it is beginning to be drawn down. Projections suggest it may be depleted by 2035. But Social Security itself will not go bankrupt. Under existing tax structures, billions of dollars will continue to come into the program each year to fund ongoing benefits. Congress also may take action to strengthen the trust fund.
Gregory A. Chona is a Certified Financial Planner with Ameriprise Financial Services in Crown Point. He specializes in fee-based financial planning and asset management strategies and has been in practice for 29 years. To contact him visit www.ameripriseadvisors.com/g.chona/, call 219-663-9860 ext. 114 or visit 11480 Broadway Crown Point. Ameriprise Financial Services Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax adviser or attorney regarding their specific situation.
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