4 Social Security Myths That Are Costing You Money

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One of the worst times to make a financial mistake is during your senior years, when you are living on a fixed income with little margin for error. One way to avoid mistakes is to educate yourself on what to expect in retirement — including avoiding Social Security myths that could cost you money.

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Although you can find everything you need to know about Social Security online and elsewhere, certain myths seem to persist year after year. Here’s a look at four of them and how they could cost you money.

The Retirement Age is 65

This was the case for a long time, but things changed in 1983 when Social Security was overhauled and the retirement age was raised. Today, the full retirement age (FRA) — the age at which you can receive your full Social Security benefits — is based on your year of birth:

  • If you were born in 1957, the FRA is 66 years and 6 months.
  • If you were born in 1958, the FRA is 66 years and 8 months.
  • If you were born in 1959, the FRA is 66 years and 10 months.
  • If you were born in 1960 or later, the FRA is 67 years.
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Claiming Social Security benefits before your full retirement age means that your monthly payment will be less than if you waited until your FRA. Your highest possible payment comes when you claim benefits at age 70. If you claim benefits at age 65 based on the old myth, you’ll take a financial hit that could last for decades.

Your Benefits Are Cut if You Still Work

This is only true if you claim benefits before your full retirement age. If you are under FRA for the entire year, the Social Security Administration deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2023, that limit is $21,240, according to the SSA.

In the year you reach full retirement age, the SSA deducts $1 in benefits for every $3 you earn above a different limit. In 2023, this limit on your earnings is $56,520. The agency only counts your earnings up to the month before you reach FRA — not your earnings for the entire year.

Once you reach full retirement age, your work earnings no longer reduce your benefits, no matter how much you earn. If you stop working at full retirement age because you believe the myth that work earnings will reduce your benefits, you’ll be walking away from additional income that could come in handy.

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Your Monthly Payment Will Increase Every Year

In most years, the SSA provides a cost-of-living adjustment (COLA) to help beneficiaries deal with inflation. The COLA for 2023 is 8.7% — the highest in more than four decades. That adjustment will increase the average Social Security payment by $146 a month.

But you’re not guaranteed a COLA every year. In years of no inflation or deflation, there is no COLA. Since the annual adjustment was first implemented in 1975, there have been three times that no COLA was authorized for the following year: 2009, 2010 and 2015.

Believing that you’ll get a COLA every year could cost you money, depending on your spending habits. For example, suppose you finance a purchase you can’t really afford on the theory that a higher Social Security check next year will help you pay for it. If no COLA is forthcoming, then that purchase will have to come out of your pocket.

Social Security Benefits are not Taxed

This is another myth that hasn’t been true in a long time. The Social Security overhaul signed into law in 1984 included a provision that made a portion of Social Security benefits taxable if you have a certain income, according to the AARP.

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Today, you’ll pay federal income tax on up to 50% of your Social Security benefits if your yearly income is $25,000 to $34,000 for individual filers or $32,000 to $44,000 for couples filing jointly. Beyond these thresholds, up to 85% of benefits are taxable. If your income falls below the thresholds, you will not have to pay federal taxes on your benefits.

In addition, 11 states impose state income taxes on Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah and Vermont.

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Failing to pay the taxes you owe on your benefits will cost you in the form of penalties.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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