Social Security is a critical part of many Americans’ retirement plans, but there are several misconceptions about how the program works.
These myths can lead to confusion and may even result in people making decisions that aren’t in their best financial interest. Here are three common Social Security myths that many Americans believe, and the truth behind them.
Your Social Security benefits are based on your last 5 years of earnings.
Your Social Security benefits are actually based on your highest 35 years of earnings, adjusted for inflation. The Social Security Administration (SSA) calculates your average indexed monthly earnings during the 35 years in which you earned the most. If you have fewer than 35 years of earnings, the SSA will use a zero for each year without earnings in the calculation. This means that working for more than 35 years can increase your benefits, as each additional year of higher earnings will replace a year of lower earnings or a zero in the calculation.
You should claim Social Security benefits as soon as possible.
While you can start claiming Social Security benefits as early as age 62, doing so may not be the best financial decision. If you start claiming benefits before your full retirement age (which varies depending on your birth year), your monthly benefit amount will be permanently reduced. On the other hand, if you delay claiming benefits past your full retirement age, your monthly benefit will increase until you reach age 70. It’s important to consider your own financial situation, health, and life expectancy when deciding when to start claiming benefits.
Medicare premiums do not affect your Social Security benefits.
Your Medicare Part B premiums are typically deducted from your Social Security benefits. This means that the amount you receive in Social Security benefits each month may be less than your full benefit amount due to the Medicare Part B premium deduction. Additionally, if you have a higher income, you may have to pay an Income-Related Monthly Adjustment Amount (IRMAA) for Medicare Part B and Part D, which can also reduce your Social Security benefits.
Understanding how Social Security works is crucial for making informed decisions about when to start claiming benefits and how to maximize your benefits. Don’t let these common myths lead you astray. If you have any questions about Social Security, it’s always a good idea to consult with a financial advisor or the Social Security Administration.
Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.
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