Social Security is easier to understand than you may think.
The benefits of Social Security can vary by age.
You can estimate what your Social Security benefit will be.
You’re financially savvy and have taken steps to ensure you’re well prepared for retirement — right? But how much do you really understand about the ins and outs of Social Security?
While the government program has been around for nearly 90 years,1 it’s still a benefit that’s often misunderstood.
Myth: Social Security is tax-free
Whether you’re planning ahead or already enjoying your retirement, it’s important to understand the tax implications of your Social Security account. Start by logging on to your account at Social Security for an idea of what to expect in monthly Social Security retirement benefits. You may very well see a decent-looking number. Before you get too attached to that number, bear in mind that you’ll likely need to cut it back a bit. If you have alternate sources of income like wages, self-employment, dividends, and other taxable income, your benefit may be taxable.2 In addition, how you’re taxed depends on whether you file as an individual or as a couple. Keep this in mind as you calculate your retirement budget so you can prepare accordingly. Even in retirement, Uncle Sam gets a taste.
Myth: Social Security won’t be there for me
This widely held mantra is popular, despite being inaccurate. Numbers don’t lie, and they tell a different story. Social Security’s accounting shows the agency will continue collecting more than it pays out for the next few years. Then, it will still have its trust fund — a kind of savings account — to draw from until 2034. After that, it will be taking in less than it pays out, but will still be able to fund 78% of benefits.3 A lot can happen between now and 2034. The best thing you can do is to stay informed and prepare accordingly.
Myth: Quick, you’re 62, time to claim Social Security
The idea of “maximizing” Social Security benefits has likely come up in conversations about planning for retirement. But the fact is, until someone invents a test to determine exactly how long you’ll live, there’s no way to identify “maximum” benefits. That’s because Social Security calculates essentially the same lifetime benefit no matter when you retire. Therefore there is no “best age” to claim your benefits. There are pros and cons to filing early and later, it comes down to personal choice and your unique situation. If you choose to claim early at 62, you’ll receive less each month, but probably for many more months. On the other hand, if you claim later at 70, you’ll receive a higher monthly benefit, but it could be for less time. Making this decision may be a great time to include your financial professional in the discussion. They can help you determine the time that’s right for you and your retirement goals.4
Myth: Everyone is entitled to Social Security
Not exactly. Social Security is pay for play. Unless you’re disabled, all Americans need to have 40 credits to qualify for benefits. Those credits are earned gradually while earning income. For example, in 2022, workers earn one credit for each $1,510 in covered earnings per year, with a maximum of four credits per year. So, $6,040 in covered earnings generates the yearly maximum of four credits. And even then, some workers won’t qualify. For example, you wouldn’t qualify if you contributed to a government or railroad retirement program instead of Social Security.5,6
Myth: Medicare is free
Just like Social Security, Medicare requires you to have a record of earned wages. Medicare primarily consists of three key parts: A, B, and D. Part A covers hospital costs for qualified recipients over 65 for free. Part B covers doctor visits and other medical services at a cost of about $170 a month for most people, and depending on your earnings in retirement, that premium can go as high as $578 a month. Part D is available to those who have Parts A and B and want help covering prescription costs. Keep in mind, Medicare doesn’t cover all medical expenses and unless you have additional coverage, you’ll likely be responsible for premiums, deductibles, and copays. It’s important to understand the full benefits and costs of Medicare before you need them so you can accurately budget for them as part of your retirement plan. Want a plan that fills the gaps? Read up on Medigap plans, they’ll cost you more but can help cover costs not included in Parts A, B, and D.7,8
Myth: When a spouse passes, the survivor gets that benefit too
Well … sort of. If a higher earning spouse dies, his or her survivor can claim that higher retirement benefit. But that survivor gets a “combined” benefit, not both benefits. The survivor might get a “raise,” but total household income will decrease because Social Security doesn’t continue sending two checks. Unfortunately, property taxes, cable TV, landscaper, and HOA costs don’t decrease because one less person lives in the household. That’s why it’s important to explore alternate sources of income such as annuities and investments.9
Myth: When a spouse passes, Social Security provides for final expenses
Not really. A surviving spouse is entitled to a payment of $255, an amount that hasn’t changed since 1954. That’s it. Trust us, that will not cover final expenses. You may want to work with your financial professional to explore additional options to help cover final expenses.9,10
Myth: You must visit a Social Security office and wait in a long line for help
Au contraire mon frère (if you’ll pardon our French). Social Security is getting better at providing services online. From checking anticipated benefits at SSA.gov/myaccount to filing for benefits, even requesting a replacement Social Security card (in most states).11
Things to Consider:
Visit SSA.gov for a quick estimate of your anticipated benefits.
Consider registering at SSA.gov/myaccount for a custom report on your anticipated benefit, based on your actual earnings.
Look into how Medicare will work for you to help cover your healthcare costs.
Transamerica Resources, Inc. is an Aegon company and is affiliated with various companies which include, but are not limited to, insurance companies and broker dealers. Transamerica Resources, Inc. does not offer insurance products or securities. The information provided is for educational purposes only and should not be construed as insurance, securities, ERISA, tax, investment, legal, medical or financial advice or guidance. Please consult your personal independent professionals for answers to your specific questions.
