Most people are unaware of the rules governing Social Security benefits and that’s hardly surprising. According to economist Laurence Kotlikoff, the Social Security Handbook has 2,728 separate rules governing its benefits—and many thousands of explanations of those rules. Not knowing the facts can cost you big bucks now and in the future.
10 common Social Security misconceptions
1. When you take benefits has no effect on the amount of your monthly check: Taking your full Social Security benefits at 62 can cost you a bundle because your benefit amount is automatically reduced under Social Security’s Early Retirement Reduction, whereas if you wait until age 70 to start collecting, Social Security’s Delayed Retirement Credit kicks in. Plus which, if you continue to earn money after 62, your benefit amount can be even higher because Social Security will re-compute it.
2. If you’ve already started drawing benefits, it’s too late to do anything about the amount: Not necessarily. If you started drawing benefits at 62 and have now reached your full retirement age, asking Social Security to suspend your benefits until you are 70 can significantly boost the amount you’ll eventually receive because Social Security will apply its Delayed Retirement Credit to your existing benefit once you start collecting again.
3. Withdrawals from investment accounts don’t count as income: Actually, most do. The exception is withdrawals from a Roth IRA, because Roth accounts are not tax-deferred, meaning that you have to pay taxes on the money before it goes into your Roth account. Withdrawals from 401(k), 403(b), regular IRAs, and other tax-deferred accounts are taxable as income. However, withdrawing funds from a tax-deferred account after you retire but before you begin collecting from Social Security might be a smart move.
4. The more money you make, the less you get back: Not true. You boost your Social Security benefit amount by continuing to work in your sixties, Boomers can significantly raise their retirement benefits by continuing to work in their sixties. This may also significantly raise the spousal, child, and mother and father benefits their relatives collect.
5. You can’t collect unemployment and Social Security at the same time: Yes, you can. Unemployment insurance benefits are not counted under the Social Security annual earnings test and therefore do not affect your receipt of Social Security benefits. However, the unemployment benefit amount of an individual may be reduced by the receipt of a pension or other retirement income, including Social Security and Railroad Retirement benefits. Check with your state office to find out if and by how much your unemployment benefit would be reduced.
6. Social networking sites can’t affect your Social Security number: They can—in fact many people have already been adversely affected. Today’s identity thieves are enough smarter than their victims that they can figure out a Social Security number if they have your year of birth and the name of the town in which you were born. Once they have your Social Security number, identity thieves can file false tax returns under your name to receive refunds. And, when you file your own tax return, if you have a refund coming, it can be seriously delayed.A recent report from the inspector general of the Internal Revenue Service Internal showed that the IRS is paying out billions of dollars in fraudulent tax refunds to identity thieves and that the numbers of such thefts are increasing “exponentially.”
7. You can calculate the amounts of all of your Social Security benefits on the SS website: True to a limited extent; however Social Security’s online benefit calculators can’t factor in spousal benefits, those for divorcees, widows and widowers, children, parents, or file options for filing or suspending benefits. For these figures, try using the calculators at MaximizeMySocialSecurity.com, or visit your local Social Security office, taking with you every piece of paper the agency has ever sent you.
8. Everything on the Social Security website is correct: Only if you know all the “ifs, ands and buts” that can apply. For example, according to the website, “your spouse can receive a benefit equal to one-half of your full retirement benefit amount if they start receiving benefits at their full retirement age.” True enough, but only if your spouse isn’t collecting his/her own retirement benefit. When spouses collect their own retirement benefits, those benefits are calculated differently, so that instead of being equal to one half of your full retirement benefit, they are calculated as half of your full retirement benefit minus your spouse’s full retirement benefit, a difference known as the “excess spousal benefit.”
9. Divorced people can’t collect on the benefits of a former spouse: Yes, they can.Both you and your former spouse can collect spousal benefits based on each others work histories if you are at or past full retirement age and not taking your own retirement benefits until, say, age 70, when they are as high as can be. There’s a hitch here: A divorcee who applies for spousal benefits before full retirement age must apply for retirement benefits even if the former spouse isn’t collecting retirement benefits.
10. Delaying benefits has no disadvantage: In times of low inflation, a disadvantage of delaying collecting your retirement benefit until, say 70, happens with the Medicare Part B premiums you are charged. If you were collecting benefits last year, the increase in the Medicare premium this year cannot be more than the increase in your Social Security check. But, if you’re not collecting a benefit now because you’re waiting to collect a higher benefit later on, the increase on your Medicare Part B premium won’t be limited, and also locked into every future year’s Medicare Part B premium that you have to pay. You can, of course, wait to join Medicare, but the premiums you’ll pay will be higher and stay higher forever.
Social Security Office Information
While the information contained herein is believed to be correct, individual circumstances vary. Readers should always check with their local Social Security offices for analyses of their accounts and benefits amounts.
Written By: Julie Crawshaw