Many seniors today rely heavily on Social Security to manage their living expenses, and one day, you might do the same. That’s why it’s important to know the facts about the program, and that means not falling victim to these dangerous falsehoods.
1. The program is going bankrupt
Social Security is facing its share of financial woes. In the coming years, the program won’t have enough incoming payroll tax revenue to keep up with its existing obligations, and once the program’s cash reserves, known as its trust funds, run out of money, Social Security may have to implement drastic cuts, slashing monthly benefits by as much as 24%.
Clearly, that’s not great news. But it’s a very different story than Social Security going bankrupt completely, and you can rest assured that the latter scenario is not on the table. Even if benefits are reduced in the future, Social Security should still be in a position to pay recipients a substantial amount of money each month.
2. Social Security will replace your former paycheck in full
The average senior on Social Security today collects $1,543 a month. If you’re an average earner and are retiring soon, you can expect a comparable payday. But chances are, $1,543 isn’t enough to live on — and it’s nowhere close to what you’re earning today.
Many people falsely believe that the paycheck they collect going into retirement is the same monthly Social Security benefit they’ll be entitled to. Not so. If you’re a typical wage-earner, you can expect your benefits to replace about 40% of your income, assuming benefits don’t get cut. If you’re a higher earner, your benefits will replace an even smaller percentage of your income. Plan accordingly so you’re not caught off-guard once your career comes to an end.
3. There’s nothing you can do to boost your benefits
Your monthly Social Security benefit is calculated by taking your average monthly wage over your 35 highest-paid years in the labor force, adjusting it for inflation, and applying it to a special formula. If you’re at the end of your career, you may not be able to do much to boost your benefits other than work a couple of extra years to replace lower earnings with higher earnings. But one thing you can do is file for benefits strategically, because claiming Social Security at the right age could result in a higher monthly paycheck.
You’re entitled to your full monthly benefit based on your wage history once you reach full retirement age, or FRA. FRA is 67 for anyone born in 1960 or later. That said, you’re allowed to sign up for Social Security as early as age 62, but filing ahead of FRA will shrink your monthly benefit for life. On the other hand, if you delay your benefits past FRA, they’ll grow by 8% a year, up until you turn 70. Go that route, and you’ll score a much higher monthly payout.
Believing the above lies could compromise your retirement and cause you a world of stress. So don’t buy into them. Instead, read up on Social Security so you understand how it works, where its finances stand, and what you can do to secure the most generous monthly benefit possible.