Unmasking Social Security Myths: Don’t Fall for the Misconceptions!

Social Security retirement benefits are a critical aspect of many federal employees’ future retirement income. However, misconceptions and myths about Social Security persist among federal employees and retirees, leading to confusion about eligibility, benefits, and application processes. To clear the air and provide accurate information, we’ve compiled a list of ten common misunderstandings and myths surrounding Social Security retirement benefits.

Myth 1: Social Security is Going Bankrupt Soon

While it’s true that Social Security faces funding challenges, it won’t be going bankrupt anytime soon. For years, the system collected more in payroll taxes than it paid out in benefits, building a significant surplus. By the end of 2022, this surplus stood at an impressive $2.83 trillion. However, due to demographic shifts, such as an aging population living longer, the system now pays out more in benefits than it receives through payroll taxes. As per the latest report from the Social Security Program trustees, the surplus is projected to run out in 2034.

But here’s the important part: even if the surplus runs out, Social Security will still be able to collect tax revenue and pay benefits. It might not be able to cover 100% of scheduled benefits, but it’s projected to pay around 80% of them. To secure the program’s future, Congress may need to make changes, as they did back in 1983. Possible solutions include raising the full retirement age, increasing the payroll tax rate, or taxing a higher percentage of Social Security benefits.

Myth 2: Social Security Full Retirement Age (FRA) is 65

The FRA is the age at which individuals who are “fully insured” (having earned a minimum of 40 Social Security credits) can receive 100% of their benefit. Initially set at 65 when Social Security began in 1935, the minimum age for receiving reduced benefits was lowered to 62 in the 1950s. However, in 1983, Congress made significant changes to reduce Social Security’s costs, leading to a gradual increase in the FRA. Depending on your birth year, your FRA ranges from 65 to 67.

Myth 3: Military Retirees Can’t Collect Both a Pension and Social Security

Contrary to this myth, both active-duty military retirees and military reserve retirees can collect their full Social Security retirement benefits alongside their military pension, without any reduction to either.

Myth 4: Federal Retirees Under CSRS Can’t Get Social Security

Federal employees who retired under the Civil Service Retirement System (CSRS) and are receiving a CSRS annuity might think they’re ineligible for Social Security benefits. However, if they’ve earned the minimum 40 credits required for Social Security eligibility through other employment, private industry work, or active-duty military service, they are indeed eligible for a monthly Social Security retirement benefit. The Windfall Elimination Provision (WEP) might reduce their Social Security benefit, but it won’t eliminate it entirely. To avoid WEP reductions, having at least 30 years of substantial Social Security earnings is crucial.

Myth 5: Social Security Benefits are Tax-Free

While it’s true that Social Security benefits aren’t entirely tax-free, many people believe they are. Depending on your combined income (adjusted gross income + nontaxable interest + half of your Social Security benefits), a portion of your Social Security benefits may become taxable.

Myth 6: You Can’t Work While Collecting Social Security

This myth suggests that you can’t work and collect Social Security benefits simultaneously. In reality, you can do both, but if you’re below your full retirement age, there are earnings limits. If you earn over a certain limit, your benefits may be reduced. However, once you reach your full retirement age, there are no earnings limits, and your benefits won’t be affected by your income.

Myth 7: Social Security Benefits are Based on Your Last Job’s Salary

Your Social Security benefits are not solely based on your last job’s salary. Instead, the Social Security Administration calculates your benefits based on your average lifetime earnings, up to a maximum of 35 years of indexed wage earnings. Indexed earnings adjust past income for wage inflation to current dollars, with indexing applied to wages earned before your 60th birthday.

Myth 8: You Should Always Take Social Security Benefits Early

While you can claim Social Security benefits as early as age 62, doing so will result in reduced monthly benefits compared to waiting until your full retirement age. Waiting even longer, until age 70, can increase your benefits significantly. The best age to claim depends on your individual circumstances and financial needs.

Myth 9: If You Delay Benefits, You’ll Miss Out on Payments

Delaying Social Security benefits beyond your full retirement age might make some people worry that they’ll miss out on payments. But the reality is, if you delay benefits, you’ll receive higher monthly payments. This increase effectively compensates for the months you didn’t receive benefits, ensuring you won’t miss out on what you’re entitled to.

Myth 10: Social Security Benefits Are Based on Specific Periods of Employment

Your Social Security retirement benefit is not determined by specific periods of employment. Instead, the Social Security Administration calculates it using your average lifetime earnings up to 35 years, regardless of whether these years were consecutive or when you earned them. Indexed wage earnings are used to adjust past income for wage inflation up to your 60th birthday.

In conclusion, understanding the truth behind these common Social Security myths is essential for making informed decisions about your retirement. Knowledge is power when it comes to securing your financial future, so be sure to consult The Benefit Coordinators for personalized guidance. By busting these myths, you can plan confidently and make the most of your Social Security benefits when the time comes.