“Don’t believe anything you hear and only half of what you see.”
I remember hearing that from my mom when I was growing up, and it still serves me well today. Some of the things you might have heard or read about Social Security may not be true.
Here are five Social Security myths you may have thought were fact.
Myth #1: Your Social Security benefit is based on a specific timeframe of your employment.
You may have heard that your Social Security benefits are based off of your three highest-earning years of employment, your last 10 years of employment, or your last five years of work. However, according to the Social Security Administration (SSA), your benefits are typically computed using average lifetime earnings, up to a maximum of 35 years, indexed to bring past earnings up to an equivalent income in current dollars.
Myth #2: If you retire from the military, you cannot receive your military pension and collect your Social Security retirement benefits.
The good news for service members is that you can get both Social Security retirement benefits and military retirement pension. Generally, the SSA will not reduce your Social Security benefits because of your retirement benefits for active service in the military. Since 1988, service in the armed forces reserves (such as weekend drills) has also been covered by Social Security.
Myth #3: It is always better to wait to start collecting your Social Security retirement benefits.
People born from 1943 to 1954 qualify for full Social Security benefits at age 66; those born from 1955 to 1959 qualify at monthly increments between ages 66 and 67; and if you were born in 1960 or later, your retirement age for full benefits is 67. If you do plan on waiting until a later age to start collecting your Social Security benefits, your benefit payout would be higher—in theory.
However, no two people are alike, and you need to take into account your personal circumstances to determine the best course of action. Consider factors such as your life expectancy, marital status, and children before deciding to wait.
There are cases when it makes sense to collect early. For example, what if your life expectancy is shortened due to an injury or illness? In a case like this, there is a possibility that waiting to collect the higher payout might yield a lower benefit in total.
You can estimate benefit amounts and find more information to help you decide when to start receiving retirement benefits by using the Benefits Planners online at www.socialsecurity.gov/planners. You also can use the Retirement Estimator at www.socialsecurity.gov/estimator or create an account to see your Social Security statement at www.socialsecurity.gov/myaccount.
Myth #4: It is always better to start collecting your Social Security retirement benefits as soon as possible.
The earliest you can start to receive Social Security retirement benefits is 62, but the sooner you start collecting your benefits, the lower your monthly payment. For example, if your full retirement age is 66, and you choose to start getting benefits at 62, your monthly benefit will be reduced by 25 percent to account for the longer period of time during which you will receive benefits. This is a permanent reduction in your monthly benefit.
Just as waiting to collect benefits in order to maximize your monthly payment is not always the best course of action, starting to collect benefits as soon as you are eligible might hurt you in the long run, depending on your personal circumstances. If your life expectancy is average or above and you choose to file later, it could mean not only a higher monthly payment but also a higher total lifetime payment.
Myth #5: Social Security will run out of money by 2033 and will quit paying benefits.
The trustees in charge of the Social Security Trust Fund did project in 2014 that the fund will run out of reserves by 2033. However, even if Congress does not act between now and then, the SSA expects that Social Security tax revenues will still cover approximately 77 percent of all benefits after that date.
Steve Repak is a CERTIFIED FINANCIAL PLANNER™ professional, CFP® Board Ambassador, and financial literacy speaker. He is also an Army veteran and the author of Dollars & Uncommon Sense: Basic Training For Your Money. Follow him on Twitter: @SteveRepak