If you ask millennials about their plans for retirement, it’s likely that they’ll leave out one option that preceding generations considered essential: Social Security. Why? The Social Security system’s uncertain future has influenced their misconceptions and lack of confidence. However, the picture is not as bleak as it looks. So, before writing off Social Security as an option entirely, let’s debunk the common myths.
Myth #1: Social Security will be bankrupt soon.
The facts: The Social Security and Medicare Trustees issued a report that stated that by 2034, trust fund reserves would be depleted. Reserves are the funds used to cover shortfalls between money collected and benefits paid out. The report projected these numbers assuming no changes are made in how funds are collected or allocated. But, since we have advance notice of potential shortfalls, we can make needed changes. Payroll taxes will continue to be collected, and Congress can raise the retirement age, increase the income tax rate and raise the payroll tax cap to buffer the reserves.
Myth #2: People who haven’t worked outside the home can’t collect Social Security benefits.
The facts: If you were married for at least 10 years, you can collect a percentage of your spouse’s benefits, based on his or her earnings. And, your spousal benefit will not affect your spouse’s benefit. According to the Social Security Administration, the requirements to collect benefits are that you must be at least 62 and your spouse must be receiving retirement or disability benefits. Even if you are divorced, you may still satisfy eligibility.
Myth #3: You have no choice about how much money you receive from Social Security.
The facts: The amount of money you receive from Social Security depends on your total lifetime earnings and the age you elect to start receiving benefits. Currently, retirees can start receiving benefits at age 62, although full retirement benefits are only available after they’ve reached the full retirement age. That age changes based on the year the retiree was born. Retiring later will translate to increased monthly benefits. In general, for each year past the full retirement age that an individual delays retirement, they will receive an additional 8 percent benefit. Earners can estimate their projected benefit amount at different ages using a Social Security calculator.
Myth #4: Social Security only affects today’s retirees.
The facts: Most American workers are already paying Social Security taxes to the federal government. Those taxes are funding current beneficiaries of Social Security. When it’s your time to collect Social Security benefits, taxes paid by younger workers will aid your retirement income.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.