5 Myths About Social Security
July 27, 2015I’m going to unofficially declare last week as National Social Security Awareness Week as a result of the questions I got in a series of workshops that I facilitated on retirement planning. I don’t think a week of Social Security actually exists on the calendar but with all the confusion surrounding Social Security there probably needs to be one. Here are some common myths I’ve heard:
1) Everyone should take Social Security benefits as early as possible because the system is broke. There are many factors involved in this decision and Social Security planning can be complex. Complicating this decision of when to start receiving retirement income benefits is the projection that the trust fund will be exhausted by 2033. At that point, it is projected that there will only be enough revenue to pay 77 percent of projected benefits.
However, I would never recommend taking benefits early solely based on concerns about the long-term viability of the program itself. Social Security will most likely be protected by Congress enacting some combination of small benefit reductions, tax increases, and delayed full retirement ages for younger workers. Since most proposed changes are geared to protect those closest to retirement, I recommend making the “when do I start receiving Social Security” decision based on personal factors such as income needs, whether you will continue working, life expectancy, and the availability of other income sources.
2) Both spouses can take advantage of the file and suspend method at the same time. This is not an option. While both spouses technically could file and suspend, only one person would be able to take the spousal benefit at any given time, allowing their own benefit to increase up to age 70.
However, file and suspend (a.k.a. “claim and suspend” and “voluntary suspension”) is indeed an effective strategy for couples to potentially maximize their lifetime benefits when the spouse with the higher Social Security benefit would file for benefits first and then suspend them. By suspending these income benefits, their benefits may then continue to grow until age 70. However, the process of filing for benefits allows the other spouse to file for a spousal benefit at their full retirement age and then switch to their own benefit at age 70.
3) The Social Security Administration no longer mails out paper statements. Social Security statements did stop being mailed out to all workers back in 2011. This was a cost saving measure also designed to encourage people to sign up for online statements.
However, those paper statements made a comeback last fall as the Social Security Administration resumed mailing them to workers attaining ages 25, 30, 35, 40, 45, 50, 55, and 60 and over. These statements now go out to workers who are not receiving Social Security benefits and who are not registered for an online account. To get your online statement, you can sign up for a free account anytime directly with Social Security.
4) Collecting a spousal benefit can reduce my spouse’s actual benefit. When a spouse receives a spousal benefit from Social Security, it does not negatively impact the other person’s retirement benefits. The spousal benefit is available even if one spouse never worked. It allows a husband or wife to receive 50 percent of the other spouse’s Social Security benefit at full retirement age. If you are under full retirement age and qualify on your own record, Social Security benefits will be paid based on that amount first but if you also qualify for a higher amount as a spouse, you’ll get a combination of benefits that equals that higher amount.
5) I lose spousal benefits after divorce. Divorce can have a pretty nasty impact on personal finances but there is a scenario where a prior marriage can provide some financial benefits. If you are divorced and were married for 10 years or more, you are eligible for ex-spousal Social Security benefits as long as you are single. As Tania Brown highlighted in a recent blog post, “if you file for your Social Security benefit prior to full retirement age, you will get either your benefit or an ex-spousal benefit equal to ½ of your ex-spouse’s normal benefit, whichever is greater, although either benefit will be reduced for filing early. If you wait until your full retirement age, you can then file a restricted application and take the ex-spousal benefit now and let yours grow until age 70. Social Security benefits not taken after full retirement age earn delayed retirement credits of 8% per year plus possible cost of living adjustments up until the age of 70.”
This is just a sample of the many Social Security myths we hear on a regular basis. How about you? If you have any questions about how to best navigate this important retirement planning topic, just drop us a few lines in the comments section.