Social Security is in peril, but it can still help your retirement plan. We debunk some common Social Security myths to help you find the truth.
Retirement involves considering multiple factors in order to be successful. One of these factors is your Social Security benefits.
Social Security has been the center of debate as the program faces funding issues. This has led to certain myths about Social Security to be accepted as fact.
To help separate fact from fiction, we debunked 4 common Social Security myths.In 2034, Social Security trust funds are expected to run out. As of now, there isn’t a plan in place to make sure they won’t.
Fact: Even if there is no plan put in motion by 2034 there will be enough funds to pay 79% of the promised benefits. This is because the program is kept afloat by payroll taxes, so as long as people are working Social Security will exist. However, the benefit amounts will decrease.Full retirement age is based on the year you were born. To determine your full retirement age, visit the Social Security Administration’s benefits planner.
Fact: You can either begin collecting your Social Security at age 62, regardless of what year you were born, or you can hold off until your 70. If you begin collecting benefits at 62 they will be reduced based on how many months there are between 62 and your full retirement age.
For instance, if you were born between 1943-1954 your full retirement age is 66, according to the Social Security Administration. With 48 months between 62 and 66 they will reduce your retirement benefit by 25%.
Whereas, if you start collecting later at age 70, your benefits will increase. For example, anyone born in 1943 or later will see their benefits increase by 8% each year from full retirement age until they hit 70. So, the longer you wait the better your patience will be rewarded.If you start collecting your retirement benefits by 62, but are still working, your salary will reduce your benefit amount.
Fact: If you choose this path, Social Security will deduct $1 from your benefit payments for every $2 that you earn above the annual limit. The annual limit changes each year and for 2018 it is $17,040.
You can continue to work at full retirement age, but Social Security will deduct $1 from your benefits for every $3 you earn above a different annual limit. In 2018, the total is $45,360.Regardless of your financial situation, the full amount of your benefits won’t be taxed.
Fact: If you choose to work through your retirement age and collect retirement benefits you will pay a Social Security tax each year on your income. Up to 85% of your benefits can be taxable.
According to the Social Security Administration, there is a set maximum amount that can be taxed each year. For 2018 that amount is $128,400.
You might also find state income taxes on your benefits depending on where you live. So far, only 13 states tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont and West Virginia. Consider this as you plan where to live when you retire.