Here at Life Point Law we are constantly being reminded that there is a vast amount of misinformation out there about Social Security. This program, so important to senior Americans, is widely misunderstood – so much so that thousands of retirees are making decisions every year that can end up costing them a lot of money over the course of their retirement.
Correct These Social Security Myths and Clear Away the Retirement Fog
To help counter all the erroneous assumptions and bogus “facts” people cling to about Social Security, we are always on the lookout for articles for the AgingOptions blog that can help clear away the fog and provide reliable information. After all, our goal is to help men and women make the right decisions for their retirement so that they can protect their assets, avoid becoming a burden to their loved ones, and escape the trap of being forced against their will into a nursing home.
With that goal in mind, we want to bring back to your attention this helpful article that was published last year on the NerdWallet financial website. Written by frequent contributor Liz Weston, the column lists five common myths about Social Security and then sets the record straight about each one. These may not be “new news” to you, but if you have someone in your life who frequently spouts misinformation about Social Security, Liz Weston’s column may be a good place to refer them.
The Number of People Filing Early Shows the Power of Social Security Myths
The NerdWallet article starts with one of the leading indicators of Social Security misinformation: the age at which people file for monthly payments. “Researchers tell us that most people would be better off waiting to claim Social Security benefits,” writes Weston. “Yet most people file early.” Indeed, about one-third start taking benefits at the earliest allowable age, 62, even though they are permanently locking in a significantly lower monthly payment for the rest of their lives. According to the article, barely 4 percent of applicants hold out to receive maximum benefits at age 70.
Why do people grab their benefits at the first opportunity and leave so much money on the table? “Some people have little choice, of course,” Weston acknowledges. “They may have no savings and no job.” However, she adds, the irony is that many retirees “have better options than applying early, but don’t realize it. That’s due in part to the many, many myths surrounding Social Security.” As one example, Weston cites a 2013 financial survey in which more than three-fourths of pre-retirees said they felt confident about their Social Security knowledge – but when asked eight questions about how the program works, 95 percent answered at least some questions incorrectly.
Social Security Myths: People Don’t Understand the Benefits of Waiting
Here are Liz Weston’s five myths about Social Security – the ones, as she puts it, that are “most likely to cost you money.”
- “It doesn’t matter when I take Social Security.” This is a surprisingly common misperception. “Social Security benefits increase by about 7 percent each year between 62 and your full retirement age, and by 8 percent each year between full retirement age and 70,” says Weston. While it may be tempting to start collecting early, “longer life expectancies, current low interest rates and rules regarding survivor benefits mean that most people are better off delaying.” It’s also generally true that many retirees outlive their savings, making it even more critical that they max out their Social Security benefits which will last a lifetime.
- “If I have a shorter-than-average life expectancy, I should claim benefits early.” Research shows that most people underestimate their life expectancy. The Social Security Administration estimates that a 65-year-old man today can expect to live to 84, and a woman who is 65 today can expect to live to 86 ½. For couples who are 65 today, the odds are at least 50 percent that one spouse will live to 92. Weston adds, “Even if you’re right about having a shorter life expectancy, claiming early could shortchange your mate.” That’s because, when one spouse dies, “the survivor will get the larger of the two checks the couple was receiving.” If you’re the higher earner in your household, you’re ensuring your surviving spouse a larger benefit for his or her life if you delay.
Social Security Myths: People Worry About the Future
- “If I claim benefits early and invest them, I’ll come out ahead.” This is a common fallacy. “No investment offers a guaranteed return as high as what you can get from delaying your Social Security application,” says Weston. “To match that return, you’d have to take a lot of risk. Even the most prudent investor can get shellacked by a bear market or real estate downturn.” Delaying Social Security offers a risk-free return.
- “I have to claim Social Security as soon as I quit working.” You don’t have to start Social Security when you stop working, says Weston, and you don’t have to quit work to draw benefits. If you decide to retire but want to delay filing, your adviser may suggest other strategies to fund your retirement for a few years until you reach the optimum age.
- “I need to apply before Social Security goes bankrupt.” We hear this a lot, but it’s a myth. “Social Security is not ‘going bankrupt,’” says Weston. It’s true that, if Congress doesn’t act, the system will have to reduce benefits by an estimated 20 percent in 2035, but “80 percent clearly is not the same as zero.” Odds are that Congress will get around to fixing Social Security, making adjustments that will probably affect future retirees and not current ones. Don’t lock in your benefit prematurely; if you do, says the NerdWallet article, “[it] just means settling for smaller checks for life.”