Common Myths About Social Security

The U.S. government-run Social Security (SS) program collects regular contributions – in the form of a payroll tax – from wage and salary workers and their employers throughout their lifetime. Although its primary purpose is to provide a continuing source of income to those workers when they retire, SS also provides financial assistance to people who become disabled before retirement, as well as the surviving spouses, children and dependent parents of deceased workers.

If you’re like most Americans, you probably won’t think a lot about SS until you’re nearing retirement age. It seems complicated and, until you’re actually drawing on SS benefits, a little mysterious.

Since having money to live on when you stop working is so important—and a little scary to think about—there are a number of common myths about Social Security that people have when contemplating retirement.

10 Social Security Myths And The Facts That Debunk Them

Let’s address some of the most common areas of confusion, misunderstanding and outright myths that people entertain about Social Security.

Myth #1: Social Security Will Run Out Of Money

Many people who pay into Social Security, primarily younger people, think Social Security won’t be there for them when they’re ready to retire. They believe that government mismanagement and/or the payments to tens of millions of people who will retire before them will eventually bleed the fund dry.

The Facts

This worry is not unfounded. In fact, according to the Social Security Administration (SSA), the Old-Age and Survivors Insurance (OASI) trust fund that supports payments is currently estimated to run out of money by around 2033. Currently there are more people retiring and receiving benefits than are paying into the system — about 10,000 baby boomers per day according to CNBC — creating an imbalance.

This doesn’t mean benefits will go away for people who retire after 2033, because as long as they continue to pay SS payroll taxes, those funds will be there for them. But the payout will be less — the SSA estimates about 77% of the benefits they’re promised will be payable if the trust runs dry. Of course, any of these estimates can be impacted if Congress acts to shore up OASI in the years ahead.

Myth #2: The Social Security Retirement Age Is 65

Many people believe they can’t begin to collect Social Security until they turn 65, and that they actually must begin drawing benefits at that time.

The Facts

You can actually begin taking your Social Security retirement benefits at the age of 62, though your benefit will be less than if you wait. Your benefit amount will increase as you get older and maximizes at your full retirement age, which is currently age 66 for people born between 1943-1954 and goes up slightly on a sliding scale for people born after. If you hold off taking your benefits from your full retirement age up to age 70, your benefit amount will increase.

For instance, let’s imagine someone born in 1964 who qualifies for a $1,000 monthly benefit at their current age of full retirement of 67. If that person decides to begin drawing benefits early at age 62, their benefit would only be $700.

For more on how your benefit will be effected by your birth year and age of selection, check out the SSA’s retirement age calculator.

Myth #3: You Only Get What You Paid Into Social Security

Your Social Security is like an individual retirement account—you get out only what you put in.

The Facts

Social Security is not like a retirement account that gathers all of your SS payments over the years and then begins paying you back on retirement. It’s a vast trust fund that provides benefits for all older Americans and also people who are disabled and can’t work, the spouses and dependent children of workers who die before they can collect benefits, and more.

Your actual benefit does depend partly on your contributions after the SSA does a computation it explains in this way:

“Social Security benefits are typically computed using ‘average indexed monthly earnings.’ This average summarizes up to 35 years of a worker's indexed earnings. We apply a formula to this average to compute the primary insurance amount (PIA). The PIA is the basis for the benefits that are paid to an individual.”

Myth #4: Social Security Is Only For Retirees

Some believe that Social Security is strictly a retirement benefit for people ho have turned 65 and are no longer in the workforce.

The Facts

Most Social Security benefits are paid out to retired workers, their spouses and children. But a significant amount each year also goes to the survivors of deceased workers and their families as well as to disabled workers and their family members.

Myth #5: Social Security Benefits Are Tax-Free

Since Social Security payments are supposed to provide a sustainable income for retired people, especially those with a lower income, the benefits are not subject to state or federal taxes.

The Facts

Depending on how much you earn, you may have to pay a tax on your Social Security income. How much federal tax you pay — if you pay any at all — on your Social Security income depends on your annual combined taxable income. This is your total income, from Social Security plus any wages, self-employment earnings, retirement accounts, etc. You’ll pay zero tax on your Social Security earnings if your total income is:

• $25,000, if you’re filing as an individual
• $32,000, if you’re married filing jointly

If your total income does exceed these numbers, between 50% and 85% of your SS earnings will be taxed.

Most U.S. states do not tax your Social Security income. However, in 2023 the following 12 states do have a Social Security tax:

• Colorado
• Connecticut
• Kansas
• Minnesota
• Missouri
• Montana
• Nebraska
• New Mexico
• Rhode Island
• Vermont
• Utah
• West Virginia

All other states and the District of Columbia do not tax the payments.

Myth #6: The Actions Of An Ex-Spouse Can Affect Your Benefits

If your ex-spouse becomes eligible to receive Social Security benefits, this can negatively affect and possibly even reduce the amount you or your new spouse will receive.

The Facts

An ex-spouse cannot negatively affect the amount you or your new spouse will receive in SS benefits. But your former spouse can receive benefits based on your record, even if you have remarried, if:

• Your marriage lasted 10 years or longer.
• Your ex-spouse is unmarried.
• Your ex-spouse is age 62 or older.
• The benefit that your ex-spouse is entitled to receive based on their own work is less than the benefit they would receive based on your work.
• You are entitled to Social Security retirement or disability benefits.

Even if you have not applied for retirement benefits, but can qualify for them, your ex-spouse can receive benefits on your record if you have been divorced for at least two continuous years.

If your ex-spouse is eligible for retirement benefits on their own record, the SSA will pay that amount first. If the benefit on your record is higher, they will get an additional amount on your record so that the combination of benefits equals that higher amount.

Myth #7: You Can’t Work While Receiving Social Security

Once you’ve started collecting Social Security, you are considered officially retired and can longer work.

The Facts

You can still work and earn a wage even after you’ve started collecting Social Security. However, if you’re under your full retirement age your monthly benefit will be reduced for every dollar you earn over the annual earnings limit for that particular year. In 2024, for example, the yearly earnings limit is $22,320. Here is how the SSA governs your benefit amount in the period before you reach full retirement age:

• If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit.
• In the year you reach full retirement age, we deduct $1 in benefits for every $3 you earn above a different limit, but we only count earnings before the month you reach your full retirement age.

The SSA only considers the wages you make from your job, your net earnings if you’re self-employed, and any bonuses, commissions, and vacation pay you received during the year. They do not count other sources of income, such as investment income, interest, pensions, veterans benefits or other government or military retirement benefits.

Myth #8: Social Security Is A Retirement Savings Account

I might not have much in my 401(k) or IRA but that’s okay, because Social Security will always be there to finance my retirement.

The Facts

While it’s true that Social Security was designed to serve as a safety net for all Americans as they get older, especially lower income people who might not have much in savings, it typically will not provide enough to cover all your expenses after you retire.

Even more to the point, it is very different from other types of common retirement savings accounts many Americans own, such as an Individual Retirement Account (IRA) or a 401(k). These accounts you privately set up with banks and other investment companies or in coordination with your employer. Social Security is a system you must participate in if you work in the United States, with a few exceptions, and your contributions are automatically deducted from each paycheck.

Myth #9: Social Security Doesn’t Keep Up With The Cost Of Living

Once you begin receiving your monthly benefit, that dollar amount is locked in and cannot keep up with inflation or other rises in the cost of living.

The Facts

Since 1975, Social Security's general benefit increases have been based on increases in the cost of living, as measured by the Consumer Price Index, which is the average change in price over time of a market basket of consumer goods and services such as food, bills and rent.

Each Social Security benefit is based on a "primary insurance amount," or PIA. This amount can be a lower number if you retire before full retirement age and goes up if you begin to take benefits at full retirement age or later.

It is the PIA that is increased by the Cost Of Living Adjustment (COLA). For example, the SSA announced a COLA of 3.2% in 2023. If your initial PIA is $1,924.50 and it is increased by a 3.2% COLA, the new PIA would be $1,986. There will be a new COLA announcement in Q4 of 2024.

Myth #10: You Can Adjust Your Social Security Benefits

You can request that your monthly benefit be lowered now with the idea that the difference will be added to future payments.

The Facts

You cannot raise and lower your benefit amount once you’ve started collecting SS, but you can suspend benefits once you’ve reached full retirement age. Say you started taking benefits at age 62 and your full retirement age is 65. You cannot suspend benefits until you’ve reached 65.

If, however, you begin working again at 65 and make a comfortable living just on your earnings, you can suspend your benefit. By doing this, you will earn delayed retirement credits for each month your benefits are suspended which will result in a higher benefit payment to you once you go back on the program.

Should You Include Social Security In Retirement Planning?

Yes, you should include Social Security when planning for retirement. Your plan should account for all sources of income that will cover your expenses after you stop working.

For an estimate of what your benefit will be based on the age you wish to begin collect, consult the SSA’s online benefits calculator.

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The Bottom Line: Don’t Let Myths About Social Security Harm Your Retirement Plan

Social Security doesn’t need to be frustrating or confusing. However, while Social Security should provide some financial stability when you retire, it likely won’t cover everything. That’s where the rest of your retirement savings plan comes in.

Sign up for the Rocket Money app now to begin building savings and tightening your budget, helping you to generate multiple income streams in retirement.