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Are These Social Security Myths Holding Back Your Income Planning?

While Social Security certainly gets a lot of attention from the media when it comes to taxes and the federal budget, retirees and adults planning their retirement income don’t always receive enough information about how it actually works - or, perhaps worse, they receive information that’s just plain incorrect. Not knowing how your Social Security benefits work could be working against your income planning. We’ll dispel four dangerous myths:

Myth 1: You should always claim benefits at the age of eligibility

A common misconception about Social Security benefits is that payouts start at 62, and that’s the end of the story. However, while the earliest age you’re eligible to claim benefits is 62, you can choose to begin collecting benefits at any point after, and in many cases, it’s actually better to wait.

If you claim benefits before your full retirement age (FRA), you’ll receive a permanent reduction in your monthly income to the tune of 25-30% at 62, depending on your FRA. If you’re not sure of your FRA, you can find it on or on a paper statement mailed to you by the Social Security Administration. This reduction changes based on when you claim benefits between age 62 and your FRA, and once you reach your FRA, you can claim your full retirement benefits.

But even your FRA isn’t a hard and fast rule for when to claim benefits - you can earn an 8% bonus to your monthly income from Social Security for every year past your FRA you wait to claim, up to age 70. This is a significant increase that many people pass up, or aren’t aware of, resulting in less money each month. There is no reason to delay claiming benefits to after age 70, however, as you can’t earn further bonuses afterward.

Keep in mind that for some people, health, financial stability, and other factors may play a role in their decision on when to claim Social Security benefits. Talk to your healthcare providers and financial advisor about the right choice for you.

Myth 2: Your benefits depend on your lifetime earnings

The way that Social Security benefits are calculated can be confusing - is it based on your lifetime earnings? Your earnings before age 65? Do your spouse’s or ex-spouse’s earnings factor into your benefits? Here are the facts:

Your benefits are based on:

  • Your highest 35 years of earnings. These 35 years do not have to be consecutive, or before age 65
  • The current cost of living. As the cost of living rises, so will your benefit
  • The age at which you claim your benefit

Your benefits are not based on:

  • All your working years, if they exceed 35 years
  • Your spouse or ex-spouse and their earnings, though you should talk to your financial advisor about strategies for maximizing your benefit with your spouse

If you want to calculate your benefits, tools on can help.

Myth 3: You have to claim benefits when you retire

The idea behind Social Security is to supplement your retirement income after you stop working, but that doesn’t mean you have to claim benefits as soon as you retire. If you’re looking to maximize your benefits by waiting until after your FRA to claim but are no longer working, you may choose to rely on other sources of income, such as your spouse’s benefits, annuities, pensions, investments, or budgeted retirement savings.

On the other side of the coin, it’s also possible to begin claiming benefits before you stop working. This can mean a reduction in your benefits: if you’re younger than your FRA for the entire year, $1 is deducted from your benefits payment each month for every $2 you make over the annual limit. In the year that you reach your FRA, the deduction decreases to $1 for every $3 you make over the annual limit. Again, the decision of when to begin claiming your Social Security benefits is highly individual and should be made with the guidance of a financial advisor who understands how to maximize your retirement income.

Myth 4: Your claiming decision is set in stone

If you’re reading this and you’re already receiving your benefits, you may be feeling concerned that you’re not getting as much as you could’ve been. Don’t worry: there may be strategies you can employ to increase your benefits even after you’ve claimed them. If you claimed your benefits less than a year ago, you can reverse your decision as long as you can reimburse the Social Security Administration in full for the payments you’ve already received. This allows you to wait to claim until you can receive the amount of your full benefit, or bonuses for each year after your FRA that you wait.

After a year, your options for increasing your benefits are much more limited. When you reach full retirement age, you may voluntarily suspend your benefits until you ask the Social Security Administration to resume them or until you reach age 70, which can allow you to gain bonuses to your benefit payment because you’re not receiving money between your FRA and age 70. However, suspending your benefits also means suspending spousal benefits as of April 30, 2016. In addition, if you’re enrolled in Medicare Part B, you will be billed for future premiums, and if you receive Supplemental Security Income (SSI), suspending your benefits will make you ineligible.

There are other ways of supplementing your retirement income if you’re locked into your Social Security benefits. Your financial advisor is your best resource for understanding and planning your retirement income. Once you understand how exactly Social Security plays into your retirement finances, you can make much better decisions about building a comfortable retirement.

Interested in learning more? Get Your Free Annuity Report Now!