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Social Security benefits provide retirement income for millions of Americans.
Because the timing of your claim may impact the size of the benefits you receive, it’s a high-stakes decision. And the results may also affect your spouse or dependents.
But sifting through Social Security’s claiming rules may make it difficult to precisely identify the best strategy for you.
Moreover, negative headlines about the program — particularly regarding a depletion date for Social Security’s retirement fund that’s coming up in the next decade — may sway your claiming decision.
As beneficiaries try to make sense of their options, experts say certain misconceptions tend to prevail.
Here’s some of the biggest myths experts say they see — and the truths behind them.
Negative headlines may scare people into claiming as early as possible to get the most benefits.
Eligibility for Social Security retirement benefits starts at age 62. But by claiming early, you will receive less than your full retirement benefit.
To get your full retirement benefit, you must wait until what is called your “full retirement age.” This depends on your birth year.
Those born in 1960 or later have a full retirement age of 67. People in that age cohort who start benefits at age 62 will receive just 70% of their earned benefits.
That gradually increases to 100% at full retirement age. If they wait even longer, they will receive an 8% benefit boost per year up to age 70.
Most people know it pays to wait to claim, a recent Schroders survey found. But just 10% of claimants start benefits at age 70.
The top reason survey respondents said they plan to claim between ages 62 and 65: the fear that Social Security may run out of money and stop making payments.
Experts say you’re only hurting yourself if you claim early due to fears the program may run dry after the Social Security trust funds reach their depletion dates.
“Every time we have approached a shortfall in the past, there has been some compromise to be able to continue benefits,” said Joe Elsasser, a certified financial planner and founder and president of Covisum, a Social Security claiming software company.
Even if no changes are made, the average retiree will still receive around 77 cents on the dollar, Elsasser said.
Prospective legislative actions will likely mean changes — such as a higher retirement age or increased Social Security payroll taxes or higher taxes on benefits, predicts Laurence Kotlikoff, a Boston University economics professor and creator of Maximize My Social Security, a claiming software tool.
Nevertheless, it still pays to wait, Kotlikoff’s research has found. Claiming before age 70 results in an estimated median household loss of about $182,000 in lifetime discretionary spending for claimants ages 45 to 62.
Some claimants prefer to use a calculation called their “break even” age to decide when to start benefits. The break-even age is the point when the value of benefits if you wait to take Social Security later surpasses the value of taking them early.
But by focusing on that measure, you may not consider other important factors, such as how your spouse or dependents may also get the most benefits, according to Bruce Tannahill, a director of estate and business planning at MassMutual.
Kotlikoff’s Social Security claiming software includes the break-even age because of the demand for it, he said. At the same time, there’s also a warning not to consider it.
If your break-even age is after your life expectancy, that may tempt you to claim early.
But life expectancy is an imprecise date because no one dies on time, Kotlikoff said. The risk is that you will live longer and not have enough income to support you.
“The decision to wait is really buying longevity insurance from Social Security,” Kotlikoff said.
Every year, Social Security adjusts benefits for inflation in what’s known as a cost-of-living adjustment.
Due to surging prices, that increase is a record 8.7% in 2023, the highest bump in four decades. As inflation subsides, the cost-of-living adjustment for 2024 is projected to be much lower – around 3%.
That may tempt eligible retirement beneficiaries to claim this year to benefit from the increase.
Experts say that’s not the best idea.
“You don’t have to start now to get the benefit of a cost-of-living adjustment,” Tannahill said.
“Social Security will adjust your projected benefits to reflect the cost-of-living adjustments that occur prior to the time that you retire,” he said.
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The misperception that Social Security benefits aren’t taxed is “perhaps the biggest myth of all,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.
Social Security benefits are taxed based on a formula called “combined” or “provisional” income. That includes the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefits.
If that sum is less than $25,000 if you file your federal tax return individually, or less than $32,000 if you’re married and filing jointly, your benefits will not be taxed.
But up to 50% of benefits are taxable for individuals with combined incomes between $25,000 and $34,000, or married couples with between $32,000 and $44,000.
Meanwhile, up to 85% of benefits are taxed for those with combined incomes that are more than $34,000 if they file individually, or more than $44,000 if married and filing jointly.
Because those income levels are not adjusted for inflation, more people are subject to what some experts call a “stealth tax” on benefits.
One way to adjust for those levies is to withhold federal income taxes from your benefits. Experts also recommend prioritizing your income streams with those taxes in mind.
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When deciding when to claim Social Security, it may be tempting to follow what a friend, family member or neighbor did. You may also be inclined to go to your local Social Security office for help.
But none of those sources may lead you to the best answer for you.
“They will help you get the maximum benefits you’re entitled to at that time,” Tannahill said of Social Security offices.
But they may not give you tips on how to get larger benefits, say by waiting until your full retirement age or by taking survivor benefits first to allow your retirement benefits to grow.
“If any effort goes into Social Security, it should just go into understanding the rules and how they interact with your personal circumstances,” Elsasser said.
The Social Security website is a great place to start to get educated on the rules of the program, Tannahill said.
But to get personalized advice, you need to find the right financial advisor who is well versed on Social Security’s rules. Those professionals often use software to identify the best claiming decisions.
Consumer-facing tools, such as one offered by Kotlikoff’s company, may help you evaluate your choices on your own.
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