Myths About Social Security and Retirement

Social Security has been a major issue among retirees for some time now — along with their children who are afraid Mom and Dad will move in with them. With all the hype, it’s sometimes hard to dig down to the truth behind the stories — and it appears that it’s mostly hype that’s fueling our anxiety. So, to help relieve some of that anxiety, here’s the truth regarding some of the myths about Social Security and retirement.

Myths about Social Security and retirement

Myth #1: Social Security funds are running dry, so you should collect as soon as possible.

The most recent government-issued report projects that Social Security will run out of funding by 2033. This is earlier than previously expected, but doesn’t necessarily mean Social Security will be gone in 20 years. It means system revenues won’t be capable of paying 100 percent of promised benefits under the law. The Social Security Administration estimates that benefits could be reduced by 22 percent at that point and may continue to decline if Congress doesn’t intervene.

Meanwhile, an increasing number of Americans are taking Social Security at the minimum age of 62, according to SmartMoney. But experts insist that it pays to wait. For each year you hold off on collecting Social Security after reaching full retirement age – which is typically age 66 for baby boomers – you’ll get an 8 percent increase in benefits. So waiting till 70 means about a third more income.

While it’s true that funds are decreasing, taking them early does mean less money. On the other hand, as more boomers retire — even if they wait until 70 — they will put an enormous strain on the system. Hopefully this has been taken into account when doing the projections.

If you have money in a 401(k), IRA or other retirement fund, you shouldn’t rely too much on that, either. Most of these plans invest in mutual funds — primarily stocks — and when thousands of boomers start to take their money out of the market at the same time — well, I won’t say a crash is inevitable, but you really should take a look at your retirement investments, make sure you understand what’s going on and that they’re performing the way you expect.

This leads us to the second myth.

Myth #2: You’ll be able to live comfortably on Social Security alone.

If you’re counting solely on Social Security to support you after retirement, you might find yourself in a difficult financial situation: The average Social Security payment to a retired worker is around $1,234 per month – slightly more than the Federal minimum for a month’s wages.

So unless you’re prepared to supplement Social Security with savings or a pension, be prepared for a challenge. Consider cost-cutting measures, like minimizing housing expenses, as well as earning extra income. You can work and claim Social Security benefits at the same time.

Myth #3: You’ll be eligible for Medicare as soon as you can collect Social Security.

I know. It’s not strictly about Social Security, but Americans are woefully delusional about how much their medical care will cost after they retire. Most guess about $50,000. The truth is, it’s more likely to be about $250,000.

Americans can’t earn Medicare benefits until age 65, but can collect Social Security as early as 62. Exception: If you collect Social Security Disability, you’ll get Medicare coverage automatically after two years.

The Social Security program was never meant to be the sole source of income for retirees. Unfortunately, that’s become the situation for many of us. You can plan for a secure retirement — including Medicare and Social Security benefits — as long as you understand the myths about Social Security and retirement.

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