Key Points
Many people have inaccurate beliefs about Social Security.
One common myth is that the program will run out of money.
Confusion about full retirement age is another common error.
Although Social Security is a critical source of income for retirees, many seniors (and current workers) don’t fully understand how it works. In fact, there are many myths and misconceptions about the benefits program.
You don’t want to make bad decisions because of mistaken beliefs about Social Security benefits, so be sure to check out the truth about these five common myths that just won’t go away.
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Myth: Social Security is running out of money
Many people are afraid Social Security is running out of money, and the confusion is understandable because there’s some truth to this.
Social Security’s Old-Age and Survivors Insurance trust fund is being depleted, and it’s expected to run dry in 2032. However, the Social Security trust fund running dry is not the same thing as Social Security being out of money.
Social Security can still pay benefits from the current revenue it collects, even if there is no money in the trust fund. The program should collect enough revenue to cover about 78% of the promised benefits if the trust fund is depleted in 2032. While a 22% cut isn’t ideal, it also doesn’t mean Social Security is broke.
Myth: Social Security’s full retirement age is 65
Another major myth is that full retirement age is 65. An estimated 55% of Americans believe their FRA is 65, even though this is no longer the full retirement age for anyone born after 1937.
Not knowing your FRA can be a problem. If you base your retirement planning around the idea that you can claim your full benefit at 65, you’ll actually get hit with early filing penalties that will reduce the income Social Security can offer. So make sure you know your actual FRA. If you were born in 1960 or later, it’s 67.
Myth: Retirees always get a COLA
Many retirees also harbor another misconception. They believe their Social Security benefit will always go up each year. That’s not the case either.
While retirees receive a Social Security cost-of-living adjustment (COLA) in most years, this is not guaranteed. If the COLA formula doesn’t show inflation, there won’t be an increase. This has actually happened several times, including in 2010, 2011, and 2016.
Myth: The government is raiding Social Security
Another common misconception also has retirees worried that the government is “raiding” Social Security. In fact, this is not true. While Social Security is invested in special-issue U.S. Treasury bonds, this is an investment that generates interest for Social Security and helps improve the program’s financial situation.
Myth: You don’t pay taxes on Social Security benefits
The last big myth retirees buy into is that they won’t pay taxes on Social Security.
This is not, in fact, the case. If your provisional income (half of all Social Security, plus all taxable and some nontaxable income) is above $25,000 as a single filer or $32,000 as a married joint filer, then you will owe tax on at least part of your monthly benefit.
While the Trump administration introduced a new $6,000 senior tax deduction that reduces the number of retirees who owe this tax by lowering their taxable income, that deduction is temporary and ultimately did not change the Social Security tax rules.
Now you know the reality about Social Security, and you can make decisions based on the facts about what benefits will do for you.
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