“Will social security still be around when I retire?”
In our office, we hear this question almost every day. Social security is one of the most important government programs, with about 97% of elderly Americans currently receiving or planning to receive benefits. Unfortunately, the Social Security Administration is in trouble; according to a recent report, the cost of paying out benefits will exceed the Administration’s total income in 2020, a situation which will deplete SSA trust funds by 2035. As a result, unless Congress takes action now, in 16 years Americans will only receive three-quarters of their benefits. No wonder people are worried!
However, the impending fund shortage, while concerning, does not mean that the Social Security Administration will simply cease to exist. Rest assured, social security will be around in some form when you retire. Over the years, misleading headlines, reactionary pundits, and common misconceptions have produced a number of myths about social security, including the false belief that the Administration itself is on the verge of dissolving. In this post, we will debunk some of the most common social security myths.
Social Security Myth #1: My Social Security benefit alone will provide enough income for my retirement
By design, social security is only meant to replace about 40% of your income. In 2019, that leaves the average retired worker with a monthly social security benefit of just $1,461—about $17,532 annually. To maintain a comfortable lifestyle in retirement, you may need up to 80% of your pre-retirement income. Keep in mind, too, that your income will also need to increase over time in order to keep pace with inflation. Conclusion: don’t rely on social security alone to get you through retirement. Fund your personal retirement savings as much as possible during your working years.
Social Security Myth #2: I should claim social security at 62
Retirees are eligible to start receiving benefits when they turn 62, but that doesn’t mean they should. To receive your full monthly benefit, you must wait to claim until full retirement age, which, depending on the year you were born, is somewhere between 66 and 67 years old. Unfortunately, according to a recent survey, 67% of Americans don’t know their full retirement age. Unsure when your full retirement age is? The Social Security Administration offers a tool that can help you find out.
Social Security Myth #3: I don’t have to pay taxes on my social security benefits
This last myth requires an important point of clarification: if your social security benefit is your only source of income, you probably will not have to pay taxes on it. However, retirees who also receive income from a tax-deferred retirement account like an IRA or 401(k) will likely need to hand over a portion of their social security benefit to the IRS. To find out if you will pay taxes on your benefits, determine your combined income. Then, take half of your social security benefit and add that amount to all your other income, including tax-exempt interest. Remember: you will never pay taxes on more than 85% of your social security income.
Watch Roger Cowen debunk these and other social security myths on WTNH, next Monday, August 12th, at 9 A.M.
Sara McKinney
saractag@gmail.com
As Cowen Tax Advisory Group’s Digital Content Marketing Specialist, Sara provides in-house copywriting and manages the company’s electronic records system, email marketing, and blog.
