Established in 1935 to help alleviate the poverty-related challenges seniors were facing, the Social Security Administration has been actively providing monthly benefits to qualified individuals since 1940.1
The program’s longevity has made “getting Social Security” a foregone conclusion for retirees. While the majority likely depend on all or part of the monthly payment — averaging $1,461 in 20192 — to cover living expenses, only about 1 in 3 have a financial advisor providing guidance on Social Security options.3 That means many people, including some of your clients, are making decisions based on what they think they know about this familiar program.
By debunking four common myths about Social Security with accurate information, you can help your clients better understand Social Security for the valuable retirement asset it is and how to leverage it to their advantage.
Myth 1: There’s only a certain amount of Social Security dollars set aside for me.
Advice to clients: Social Security provides a “retirement paycheck” to replace your “working paycheck.” It is a set monthly amount based on a predetermined credits-based formula for eligibility and the amount you receive.4
You cannot outlive this source of income, and it does not stop after you’ve claimed a certain amount. Social Security benefits are funded by a 6.2% payroll tax employees and employers each pay annually. From every tax dollar collected, 85 cents goes to a trust fund that pays monthly benefits to current retirees and their survivors and families.5 While there is much talk about the future of the Social Security program, the asset reserves of the trust fund should cover the cost of benefits in full for at least the next decade. However, without “fixing” Social Security within 15 years, benefits may begin to be cut by around 25%; that would drop the average benefit to only about $77 per month above the poverty line.6
Myth 2: I have to claim Social Security starting at age 62.
Advice to clients: Anyone can start receiving benefits as early as age 62, but the monthly amount is reduced by a minimum of 25%,7 depending on your year of birth. However, this is not mandatory. Waiting to make a claim until you attain full retirement age, which also varies based on your birth year,8 means you are generally entitled to 100% of your monthly benefit.
Also, claiming benefits and retiring are not the same thing. You can retire early and continue to work while you receive Social Security payments. What’s important to keep in mind, however, is that your income is limited by the earnings test, meaning you can only earn a set amount of income annually before benefits are withheld — generally, for every $2 earned in income the government will withhold $1.9
Myth 3: My spouse, who was the primary worker, died. I can’t collect his/her Social Security benefit.
Advice to clients: Yes and no. You may be able to receive benefits equal to your late spouse’s if that amount is larger than what you collect individually, and you meet other criteria such as being married for at least 9 months prior to survivor benefits being paid (except in the case of an accident), and you’re at full retirement age or older. This payment replaces your individual benefit, it does not supplement it.10
Myth 4: Cost of living adjustments (COLA) are the only way to increase my monthly benefit.
Advice to clients: COLA is an annual adjustment to benefits based on the Consumer Price Index, but it’s not the only way to make the most of your Social Security benefits. For example, you may want to review and adjust your earnings record to review any zero-income reports from the 35-year work history upon which your benefits are based. And, you’ll want to make sure your Social Security benefits statement contains no discrepancies in your work record that might reduce benefits. Accomplish both by tracking your benefit records on the Social Security Administration website.
With health care costs adding unexpected stress to many people in their “golden years,” relying solely on Social Security to cover monthly expenses is risky and, most likely, insufficient. By setting the record straight on Social Security, your clients can then view these benefits as part of a larger retirement income strategy that encompasses pensions, retirement savings and personal savings. Round out the discussion with a risk assessment of their portfolios and use the quick checklists and assessment grids in A Guide to Conducting a Risk Control Review. Click the button below for your free copy.
1Social Security Administration, FAQs, undated
2The Motley Fool, Americans’ Average Social Security 2019 -- How Do You Compare?, October 2018
3InvestmentNews, Future retirees often overestimate Social Security benefits, May 2019
4Social Security Administration, How You Earn Credits, 2019
5Social Security Administration, Understanding the Benefits, 2019
6Social Security Intelligence, The Republicans’ Plan To Save Social Security, undated
7Social Security Administration, Benefit Reduction for Early Retirement, undated
8Social Security Administration, Benefits Planner: Retirement, undated
9Social Security Administration, Exempt Amounts Under The Earnings Test, undated
10Social Security Administration, Benefits Planner: Survivors, undated