Nearly 40 million retired Americans receive an average of $1,335 a month from the Social Security program. From most of them (to be specific 64% of retirees) the check makes up more than half of their total income.
Which means that without this retirement benefit, many of the oldest Americans would be poverty-stricken.
But somehow, the importance of Social Security is not a priority for many Americans. According to a quiz developed by Massachusetts Mutual Life Insurance Company, out of 1,500 people that were part of the quiz only 28% received a passing grade.
This means that a lot of people are misinformed about how Social Security works and that’s costing them their retirees.
“Americans who lack the proper knowledge and information about Social Security may be putting their retirement planning in jeopardy,” Phil Michalowski, the vice president at U.S. Insurance Group, MassMutual, said in a statement.
“In fact, many may be leaving Social Security retirement benefits they’re entitled to on the table, or incorrectly assuming what benefits may be available in retirement.”
Here are ten of the biggest lies you’ll hear about Social Security.
1. Our children and grandchildren will drown in debt if we don’t cut the social safety net
Not addressing the health care cost inflation doesn’t mean that the future generations will drown in debt. Cutting Medicaid or Medicare benefits will push costs onto the private sector. The Social Security program is funded through dedicated taxes and prohibited by law from borrowing.
2. The retirement age is 65
Even though 71% of people surveyed by MassMutual believed the retirement age was 65, this is not exactly the truth.
The age at which you can claim full retirement benefits depends on when you were born.
People born in 1937 or earlier can claim their full retirement at 65. If you were born between 1938 and 1959, full retirement age varies between 65 and 2 months and 66 and 10 months. For everyone born after 1960, full retirement is at 67.
3. You can’t get benefits if you’ve never worked
This is also wrong, since you can benefit from Social Security even if you’ve never worked a day in your life. Non-working spouses may receive up to 50% of their husband or wife’s benefit amount.
Non-working spouses can start claiming benefits as soon as their working spouses files. They can continue receiving benefits after his or her death.
4. Benefits are generous
Well, they’re actually not, since the average retirement benefit is $14,000 a year (and that’s less than a full-time minimum wage). For a medium earner retiring at 65, Social Security benefits replace 41 percent of pre-retirement earnings, and that’s down from 52 percent in 1981.
5. Private accounts are a better alternative to the current Social Security system
Former President George W. Bush was a big supporter of privatizing Social Security; “Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account.”
It is true that letting people invest all or a portion of their Social Security can increase people’s savings. But it is a risky strategy, since a lot of people are bad at managing money and the stock market is far from stable the last few years.
6. Social Security will cut benefits for people who don’t need them
Proposed cuts will not hurt the middle or the poor class. Only few, supposedly “progressive” plans actually go after middle-class benefits in order to yield significant cost savings. If the universal social insurance program moves towards a need-based, it will doom Social Security to the same fate as targeted programs like Medicaid.
7. You have to be a citizen to get benefits
In order to meet all the other requirements and claim your Social Security benefits when you retire, you need at least 10 years of working experience. Whether you’re a U.S citizen or not, you can still receive benefits.
8. You should claim Social Security as soon as you can
“Waiting will make your income bigger, but Social Security retirement benefits cannot be left beyond a spouse,” Paul Tully, a financial advisor and founder of Eagle Wealth Strategies, told The Wall Street Journal.
“A portfolio that’s been used as a bank account for eight years will have less capital to grow on in the years remaining, as well as less cash available for emergencies or special expenditures.”
9. You can work and collect full Social Security benefits
“If you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit,” the SSA explained.
The yearly earnings limit was set $15,720 in 2016. But as soon as you reach full retirement age, you can work and get your full benefits at the same time.
10. You have a personal Social Security “account”
“Social Security isn’t like a 401(k) or even a traditional funded pension plan. Your contributions are immediately paid out to current beneficiaries,” Erik Carter of Financial Finesse explained in an article for Forbes.
This means that the money you pay into Social doesn’t go into a personal account. The money goes into a general trust fund, and is then used to pay benefits to current and future retirees.