Today’s guest post is from Anum Yoon. You can see her bio at the end of the article. I’m on vacation until July 1st (Happy Canada Day!)
If you’re planning on relying on Social Security income one day, then you should know that some of the buzz about the safety net program is less than accurate. People are known to spread stories about Social Security that range from simple misunderstandings to conspiracy theories.
Here are 8 common Social Security misconceptions.
- Social Security Benefits Are Based on Your Last 10 Years of Earnings
There’s a common misconception that your benefits are based solely on what you earned during the last decade before you retired. There are also variations on this theme, characterized as high-five or last three base of earnings.
It’s not true. All of your retirement benefits are based on your highest 35 years of earnings. Keep in mind, those earnings will be adjusted for inflation.
- Your Social Security Contributions Are Yours Alone
You might be under the impression that when Uncle Sam takes money out of your paycheck, it’s placed into an account with your name on it and that money is yours and yours alone. That’s inaccurate.
The fact of the matter is that Social Security is a pay-as-you-go program. That means that the taxes that you’re paying now are funding the benefits of people who are retired right now. When you retire, younger workers will finance your benefits with their contributions to the program.
- You’ll Probably Get Less Money in Benefits Then You Contributed to the Program
You might think about all of the FICA money that has been deducted from your paycheck over the years and think to yourself: “I’ll never get that much money back when I retire.”
In fact, the average person who retires at age 65 receives more benefits in Social Security and Medicare than he or she contributed to the program.
- You Can Take Reduced Benefits at 62 and Then Switch to Full Benefits Later
It’s not likely that you can take limited benefits at 62 years of age and then upgrade to full benefits later. If you file for any type of Social Security benefit before age 66, you have to file for all the benefits that are due to you at the same time.
There are exceptions to this, most notably for widows. If you’re unclear on your personal situation, you should consult an attorney.
- If You’re Struck With a Debilitating Disease, You’ll Still Have to Wait in Line to Get Your Benefits
It’s easy to think of any branch of the government as little more than a mindless bureaucracy run by people who ask visitors to take a number and get in line. However, that’s not always the case.
Social Security has a program called Compassionate Allowances. It exists to provide quick benefits to people with a confirmed diagnosis of a very severe illness, such as ALS or pancreatic cancer.
- A Married Person Who Has Never Worked Is Not Eligible for Social Security Benefits
In fact, married people can receive Social Security benefits based solely on the work records of their spouses. Previously unemployed spouses can receive benefits equal to as much as 50 percent of the benefits of the spouses who worked.
There are eligibility requirements, though. The nonworking spouse must be at least 62 years of age and the spouse who worked must be receiving benefits.
- Social Security Benefits Will Be Proportional to How Much You Earned during Your Life
While the Social Security computers will calculate benefits based on your highest 35 years of income, the systems will also use something called a replacement formula that basically levels the playing field between high-income, medium-income and low-income workers.
- If You Work After You Start Receiving Benefits, the Extra Taxes You Pay Will Increase Your Social Security Check
In fact, you’ll only receive that automatic increase if your current income is higher than the lowest annual income during the 35 inflation-adjusted years of your employment history.
Anum Yoon is a blogger, freelance writer and everything in between. She loves writing about personal finance, as seen on her blog Current on Currency. When she’s not budgeting for her traveling endeavors, she’s on Twitter, so check out her latest updates.
Related article: How early retirement will impact my Social Security Benefit
Image credit: Flickr by davic