An older woman sitting with her husband while looking over a Social Security document

Let's dispel a few myths about Social Security benefits.

Social Security is an exceptionally important government program that benefits many people, especially the tens of millions of retirees across the country. However, such a complex system is surrounded by myths and misconceptions about how it functions and how active adults can access their benefits.

Although misinformation can easily spread about the ins and outs of Social Security benefits, it’s important to separate fact from fiction so active adults can feel empowered to plan their retirement finances. We found and dispelled five common myths about Social Security to reveal some major truths about the system.

Myth #1

You can think about Social Security like a retirement savings account.

A middle-age man looking at a piggy bank and considering his savings

Social Security benefits don’t substitute retirement savings accounts.

Some of the most common misconceptions about Social Security surround how the program actually works. One myth portrays Social Security like a savings account run by the government. People have the misconception that when they pay into Social Security pre-retirement, the government stows that money away into personal savings accounts that they release to individuals, with interest, once they retire. However, this is not the case. 

The truth is that when individuals pay the taxes on their payroll, they fund the Social Security benefits of current retirees—not their own personal retirement accounts. In turn, when people retire and file for Social Security, the citizens who are still working fund retirees’ benefits through their payroll tax contributions.

Additionally, the Social Security benefits that individuals receive are based on how much money they earned throughout their working careers, not on how much they paid into the system during their work lives. So, rather than thinking about Social Security like a savings account, most people understand it as a benefit they earned that’s promised by the government.

With that being said, active adults planning for retirement should take care to differentiate between Social Security benefits and other retirement income sources. Social Security benefits don't replace work income, and they also don’t substitute retirement savings accounts. Retirees should plan and organize more income than Social Security for retirement, which connects to another misconception tackled later in this list.

Myth #2

The retirement age for Social Security is 65.

Close-up of a person's hand filling Social Security benefits application form

Social Security benefits correlate with full retirement age (FRA).

Many people believe that you can’t claim Social Security until the age of 65, or at least that you won’t receive full benefits until the age of 65. However, this is not true—unless you were born before 1937, that is. The question about the retirement age for Social Security requires a more complex answer.

The age of 65 may have a nice ring to it for those planning for retirement, but the age that individuals receive their full Social Security benefits depends on the year they were born. Those born in 1937 or earlier can consider their normal retirement age 65. However, the normal retirement age for those born between 1943 and 1954 is 66. Individuals born after 1960 will begin receiving their full Social Security benefits at age 67.

Social Security benefits correlate with full retirement age, or FRA, which describes the normal retirement age for a group of people. It’s worth noting that Social Security benefits can actually increase by a percentage when people wait to begin their participation in the program. Likewise, those who claim their benefits before their FRA receive a permanent reduction on their monthly income.

You can learn more about your FRA from the Social Security Administration (SSA) website.

Myth #3

You don’t pay taxes on Social Security.

A Social Security card laying in a pile of coins

In 1983, Congress changed the law and decided to apply a federal income tax to Social Security.

Some people assume that you don’t need to pay any taxes on Social Security. This used to be true: Originally, Social Security benefits were not taxed. However, in 1983, Congress changed the law and decided to apply a federal income tax to Social Security. But whether or not you pay taxes on your benefits depends on your total amount of income.

Technically, Social Security benefits may be indirectly taxed depending on total income. Here’s how to determine whether income taxes may apply to your benefits, according to the SSA. Add up all of your sources of income, including income from retirement accounts, dividends, non-taxable interest, pensions, and wages. Then, add half of your Social Security benefit. If the total amount is less than $25,000, and you're single, then your benefits won’t be taxed. If the total amount is less than $32,000, and you are married, then you won’t be taxed either. 

However, if the total amount is higher than those figures, you'll be expected to pay income taxes on a portion of your benefits. The taxed percentages vary depending on total combined income. In short, your Social Security benefits are not taxed directly, but when taken into consideration with the rest of your income, there's a possibility that you will need to pay income taxes. 

Active adults should also know that some states tax Social Security income. These rules can vary widely by state. The SSA website can provide more detailed information that applies to your individual situation so you can better plan for retirement. 

Myth #4

You lose your benefits if you decide to keep working.

An older woman making notes in a notebook while working on a laptop and drinking coffee

Generally, the more income an individual makes from their work, the less SS benefits they receive.

Retirement doesn’t always mean the end of working. Some retirees choose to keep working after retirement. Jobs can offer a source of entertainment, purpose, and socialization for those who recently retired, and some retirement hobbies can even make money. But those who hope to continue working well into retirement should understand how that work may impact their Social Security benefits.

The SSA does have a policy, called the “earnings limit,” that can reduce the Social Security benefits of individuals who still work. However, this is not permanent, and it only applies in certain situations. Social Security benefits only completely go away if the person receiving them chooses for them to.

The “earnings limit” rule applies to individuals who claim their Social Security benefits before their full retirement age (FRA) and continue working. When individuals earn a certain amount from their work, the SSA does withhold some of their benefits. However, the amount earned and the amount withheld can change depending on how close an individual is to their FRA.

Generally, the more income an individual makes from their work, the less SS benefits they receive. The SSA temporarily adjusts the benefits to account for the income from work. Retirees have the option to continue working while receiving Social Security, but they can only make so much before it starts to decrease how much they receive. 

Keep in mind that once you reach your FRA, these limits no longer apply. If retirees wish to continue working after starting Social Security at their FRA, then they can earn any amount from outside employment without their benefits being decreased. Any active adults who want to continue working well into their retirement should learn more about how their work may change their benefits.

Myth #5

Social Security should be your sole source of income in retirement.

A senior couple sitting on a sofa while looking over their Social Security benefits online

It's recommended that retirees prepare additional sources of income alongside Social Security.

The Social Security program provides retirees with a source of guaranteed income throughout their retirement. Yet, these benefits should not be retirees’ sole source of income. Most retirees have additional streams of funds when they start receiving Social Security benefits.

In addition to SS benefits, many retirees receive payments from retirement savings, pensions, dividends, and post-retirement employment. However, the misconception prevails that retirees who apply for Social Security should consider it their sole source of income. 

It's both recommended and encouraged that retirees prepare additional sources of income alongside Social Security. The benefits from Social Security typically only make up a percentage of retirees’ income, and individuals may want to consider before retirement how much disposable income they want to have for expenses such as travel, hobbies, and healthcare.

As explained above, keep in mind that having a certain amount of income before reaching your FRA may decrease the amount of Social Security benefits received, as explained above. Ultimately, individuals should decide for themselves, with the advice of financial professionals, how to best budget and plan for a retirement with several income sources, including Social Security benefits.