4 Social Security Myths That Could Impact Your Benefit

Social Security is one of the most widely-used and misunderstood retirement programs in the country. Many misunderstandings arise from the fact that Social Security is a complex system with diverse rules around how benefits are calculated, received, and taxed. However, it’s important to have all of the correct information when planning your Social Security claiming strategy. If you are operating under a myth, you may make decisions that could reduce your overall Social Security benefit.

Myth #1: You need to claim Social Security at age 62.

While 62 is the earliest age at which you may claim Social Security, you are not required to claim Social Security at age 62. In fact, doing so will mean you permanently receive a reduced benefit. (Learn more about this reduced benefit below, under Myth #2.) You can claim Social Security at any point after attaining the age of 62, but you do not qualify for your full benefit until you reach Full Retirement Age. Your Full Retirement Age will be between ages 66-67, depending on the year you were born.  If you wait to claim Social Security until after Full Retirement Age, you may be eligible for Delayed Retirement Credits that increase your benefit. Your benefit increases by 8% for each year you delay claiming Social Security between your Full Retirement Age and age 70. You reach your maximum benefit at age 70.

The best time for you to claim Social Security will depend on a number of factors, including your other sources of retirement income. If you do not have other sources of retirement income, you may need to claim Social Security earlier. If delaying claiming Social Security means your withdrawal rates from your retirement accounts would be exorbitant, it may be beneficial to claim Social Security earlier. However, if you have other sources of retirement income and/or you can rely on withdrawals from your retirement accounts without significantly depleting them, delaying Social Security claiming may be beneficial. It’s important to plan out your claiming strategy with a financial planner to determine what is in your best interest.

Myth #2: You can claim early, and your benefit will increase once you attain full retirement age.

If you claim Social Security before Full Retirement Age, your benefit will be permanently reduced. Your benefit will not then increase once you reach Full Retirement Age. You can download your Social Security Statement from ssa.gov, or use this article, to determine the amount by which your benefit will be reduced by claiming before Full Retirement Age.

If you claim early, you generally have 12 months to cancel your claim. You must repay all benefits received, including benefits received by a spouse or beneficiary. However, if you rescind your claim and repay benefits, you can then claim again at Full Retirement Age or later to receive your full or increased benefit.

Myth #3: Your ex-spouse’s actions could impact your Social Security benefit. 

Divorced spouses may be entitled to an ex-spousal Social Security benefit. You must have been married for 10 years and not have remarried in order to qualify for this ex-spousal benefit. If these conditions are met, you would be entitled to your own benefit or 50% of the ex-spouse’s benefit amount, whichever is higher. To apply for the ex-spousal benefit, both you and your ex-spouse must have attained the age of 62. Alternatively, you could claim the ex-spousal benefit if your ex-spouse is receiving Social Security disability benefits.

If you claim an ex-spousal benefit, it does not reduce your ex-spouse’s own personal benefits, and vice versa. Accordingly, it may be beneficial for you to explore the size of your ex-spousal benefit and determine if it is more financially beneficial to claim the ex-spousal benefit rather than your own.

Myth #4: Your cannot receive both a pension and Social Security.

You may qualify for both Social Security and a pension. In that case, you may be able to receive both benefits; however, your Social Security benefit will be reduced under either the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO). WEP applies to non-government employees who qualify for both Social Security and a pension. Under WEP, your Social Security benefits are reduced according to your birth year and the number of years you paid into Social Security. If you paid into Social Security for 30 or more years, your Social Security benefit will not be reduced. Your Social Security benefit can also not be reduced by more than 1/2 of your pension. You can use this chart to determine the amount by which your benefit would be reduced.

Local, state, or federal government employees may see their Social Security benefit reduced by the GPO. Your Social Security benefits would be reduced by 2/3 of your government pension. This offset applies even if you take your government pension in a lump sum.

Takeaways

As you can see, claiming Social Security can be complex. Reach out to our financial planning team to plan your claiming strategy today.