In 2024, over 71 million Americans will receive Social Security in retirement in one form or another.1 The Social Security Administration began as the Social Security Board in 1935 when President Roosevelt signed the Social Security Act into being. Since then, the administration itself has weathered quite a few changes. However, the reason for its existence as a social insurance program remained the same: to provide income to retired Americans over 65 years old.2
Many Americans have held to the belief that Social Security benefits would give them everything they need throughout their retirement. Sadly, that’s not the case. So today, we’re going to debunk some myths surrounding Social Security benefits.
5 Myths Surrounding Social Security in Retirement
1. My Social Security benefits will get me through retirement.
Over the years, many people have relied on Social Security in retirement to help them get by. The danger with this is that Social Security was never meant to be your sole source of retirement income. “Social Security replaces a percentage of a worker’s pre-retirement income based on your lifetime earnings. The amount of your average earnings that Social Security retirement benefits replace depends on your earnings and when you choose to start benefits.”3 Start planning for retirement now—work with a financial advisor and start saving what you need to retire well.
2. My Social Security benefits are tax-free.
For many Americans, receiving tax-free benefits is a long-term goal. However, it’s important to note that Social Security benefits are not tax-free retirement funds. If you’re looking for a tax-free way to grow your retirement assets, we encourage you to talk to your financial advisor about how a Roth IRA or Roth 401(k) might benefit you.
3. I should claim my Social Security benefits as soon as I can.
Once you turn 62, you are eligible to receive Social Security benefits. But just because you can doesn’t mean you should. If you choose to collect benefits before your full retirement age, you’ll see a reduction in your benefits (half a percent for each month you retire before your full retirement age).4 But if you choose to wait until your full retirement age to begin collecting, you’ll receive your full benefits.
In fact, the longer you wait to collect on Social Security, the more benefits you’ll receive (depending on your birth year).5 If you reach retirement age and aren’t ready to collect, that’s okay too. Your benefits will increase the longer you wait up until age 70. You get to decide when to start collecting. Chat with your financial advisor to see what the best course of action is for you (and your retirement goals).
4. The money I’ve paid into Social Security is mine.
One of the biggest myths about Social Security is that whatever you’ve paid in taxes has been set aside for you specifically. While that’s a great concept in theory, it’s not true. As we mentioned earlier, Social Security is a social insurance program whereas current workers are paying for the current needs of those collecting benefits. Once you begin collecting benefits, those in the workforce at that time are the ones paying for your benefits.
5. My Social Security benefits will never run out.
Social Security benefits are like a small umbrella. It’s good to have in case of a downpour, but an umbrella won’t keep you from getting wet completely. The same goes for your benefits. Social Security benefits are not something you should base your entire retirement on. Why? Because it was never meant to provide everything you need. As the Baby Boomer population ages and heads into retirement, those benefits will be spread thin. The truth is, we don’t know what the future of Social Security is . . . and that’s why you shouldn’t base your retirement on collecting benefits.
Retire with confidence
The only way to know if you’re going to have enough money to get you through retirement is by planning and saving now. Now is the time to plan, count the cost, and save. Relying on the future workforce to pay for your benefits can be risky. Most of the time, those benefits are just a fraction of what you’ll actually need to retire comfortably. That’s why working with a financial advisor is so important.
Remember: it’s never too early to start thinking about your future—especially in retirement. When you work with an advisor, we’ll help you come up with a personalized plan to help you reach the retirement of your dreams. With this plan, you can have confidence knowing that what you’ve saved for retirement is actually yours.
Want to get started? Check out our Ultimate Guide to Retirement. Then make sure to connect with a SageSpring financial advisor in your area. We’d be honored to help you work through Social Security in retirement and help you come up with a plan for your golden years.
Any opinions are those of SageSpring Wealth Partners and not necessarily those of Raymond James. This information is intended to be educational and is not tailored to the investment needs of any specific investor. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not indicative of future results.
