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While people are familiar with Social Security benefits, and know that most U.S. workers will be able to claim this monthly payout when they retire, there are a number of myths about Social Security that persist. Common Social Security myths include a range of misconceptions, from the notion that you can’t work and collect benefits — to the rumor that Social Security itself is about to dry up.

Perhaps all these myths mask a bigger truth. Social Security is complicated, but it can be an incredibly valuable part of your retirement plan — it works like an annuity — if you know how to maximize your benefits. Either way, it pays to sort out the myths from the realities.

What Is Social Security?

Quick historical recap: The Social Security Act was signed into law by President Franklin Delano Roosevelt on August 14, 1935. The aim was to provide financial support to those 65 and older, who would be able to collect a monthly payout based on payroll tax contributions that each worker made during their working years.

Social Security was later expanded to include benefits for the disabled and for children, among other features. But the basic tenets of Social Security still stand decades later: Social Security provides a steady, if minimal, income for older Americans, based on the amount they earned, and therefore the amount they paid into the system, while they were working.

Social Security was never designed to be a sole source of income for retirees, but rather a protection against poverty in old age — a fact that is also still true today. While it is possible to live only on Social Security benefits, and many do, when preparing for retirement your Social Security check is ideally only one “leg” of a three-legged stool, as some say. The other two legs should ideally include your personal savings/investments and employer-sponsored retirement plans.

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9 Common Social Security Myths

With the basics of Social Security in mind, it’s time to explore the most common social security myths. With a better understanding, it will be easier for you to make a better, smarter retirement plan. Because these benefits can be complicated, and there are various strategies you can use to maximize your payout, you may need to consult a professional who can answer specific questions.

1. You Need to Start Claiming Social Security at Age 62

This is a Social Security myth that seems to cast a person’s earliest eligibility for Social Security as some sort of mandatory starting date for collecting. While you can claim benefits starting at age 62, you’re not obligated to do so.

In fact, you may not want to. If you file for Social Security at age 62, you get a permanently reduced benefit amount. You don’t qualify for 100% of your benefit, which is based on your earning history, until full retirement age — which is 66 and 4 months for those born in 1956, gradually increasing to age 67 for those born in 1960 or later.

Starting your benefits at the earliest possible age does provide income, if you need it. Every year you wait to claim Social Security, the more you’ll receive: 8% more per year, up to age 70.

2. Social Security Will Cover All Your Income Needs in Retirement

As noted above, some people are able to live on their Social Security benefits alone. That said, the intention behind Social Security was always that it would provide a form of basic or supplemental income — not that it would or should cover all of an individual’s income needs in retirement. For that, most people will also need a retirement fund of some kind.

When Social Security was first created, in the midst of the Great Depression, people’s lifespans weren’t as long as they were today. So, a person might live in basic comfort as they age, with only Social Security as a source of income. That’s not the case today.

Retirement includes many expenses, and as people continue to live into their 80s, 90s, and sometimes longer, the overall cost of getting older is likewise increasing. Health care needs may grow, and the need for long-term care may also enter the picture for many people.

Therefore it’s imperative for people to have additional forms of savings, whether that’s a tax-advantaged plan like a 401(k) or traditional or Roth IRA, or a taxable investment portfolio.

3. Social Security Is Going Away

Many Americans are worried that Social Security could run out, and will not be there for them when they’re ready. As of 2024, Social Security’s trust funds will be unable to pay full benefits starting in 2035 — after that, it’d only be able to pay 83% of its benefits, according to the 2024 annual report of the board of trustees that oversees the retirement and disability programs of Social Security.

However, even if Social Security reserves are depleted, the fund would continue to receive deposits — in the form of Social Security taxes that workers pay. This would keep the system going, even if benefits were reduced. The government is contemplating remedies that could address a potential shortfall like this, including raising the full retirement age or increasing the payroll tax.

4. You Can’t Claim Social Security If You’re Still Working

You can get Social Security benefits when you’re still working in retirement. The question is: Is that your best move? Depending on your age, your benefit amount could be reduced.

For example, if you’re working and you’re not yet at your full retirement age (66 or 67, depending on when you were born), it’s a potential double whammy: You would get a reduced benefit amount to begin with, because you’re not at full retirement age. The specifics will depend on how much you earn and your age, but it’s something to keep in mind – because these rules can be complicated it’s best to consult a professional to maximize your benefit situation.

If you’re at full retirement age and can claim 100% of your benefits, you can keep working and collecting benefits but you may owe taxes on up to 85% of your social security.

5. You Can’t Collect Social Security If You Retire and Live Abroad

This Social Security myth falls under the category of “it depends.” The SSA actually has an entire pamphlet about how payments to U.S. citizens and non-citizens work while they’re outside the United States, and even an online tool to determine if you can receive benefits in the country or territory where you’re hoping to plant a flag.

For example, payments cannot be made to people residing in North Korea or Cuba, due to the U.S. Department of Treasury’s sanctions.

There are other countries where payments cannot generally be sent, e.g. Azerbaijan, Belarus, and a few others, but exceptions can be made. The SSA states that if you’re heading to one of those countries, they will withhold your payments until you return to a country where they can send payments.

The rules vary for U.S. citizens and non-citizens, and it’s not always easy to open a bank account abroad, so be sure to check on your particular circumstance. And if you’re planning to retire abroad in one of the hundreds of other countries that the SSA can extend payments to, you should be in the clear.

6. If You’re Self-Employed, You Won’t Qualify for Social Security

Freelancers, consultants, and others who are self-employed pay Social Security taxes like everyone else, and they absolutely qualify for Social Security benefits.

When you’re a W-2 employee, the 12.4% Social Security wage tax is usually split by employers and employees. But because self-employed folks are their own bosses, they pay the full 12.4% instead of 6.2% on wages earned. Ultimately that’s good news, because it means independent contractors qualify for Social Security like everyone else.

And like everyone else, those who are self-employed also need a retirement plan that includes more than just federal benefits.

Independent workers actually have a number of retirement fund options that can also help mitigate taxes, when they open an IRA or a SEP IRA, for example.

7. You Don’t Pay Taxes on Social Security

People often refer to Social Security as a “tax” that workers pay (in that it gets withheld from your paycheck). So it might seem strange that you could then owe federal taxes on your Social Security benefits, but that’s the case.

In regard to federal taxes, according to the Social Security Administration: “You must pay taxes on your benefits if you file a federal tax return as an ‘individual’ and your ‘combined income’ exceeds $25,000. If you file a joint return, you must pay taxes if you and your spouse have ‘combined income’ of more than $32,000. If you are married and file a separate return, you probably will have to pay taxes on your benefits.”

(Combined income here doesn’t refer to joint income, but rather to the sum of your adjusted gross income, nontaxable interest income, and ½ of your social security income.)

But tax on Social Security is different from the tax you pay on other retirement income, like 401(k) withdrawals, for example. You only owe taxes on a portion of your benefits, and nobody will need to pay taxes on more than 85% of their Social Security benefits. How much tax will you owe? It depends on your marginal tax rate, which would include all forms of income (wages, earnings, interest, etc.).

In regard to state taxes: There are 40 states and the District of Columbia which considers Social Security benefits exempt from state tax, so be sure to check what the tax laws are where you live.

8. Divorce Reduces Social Security Benefits

Divorce itself doesn’t reduce your Social Security benefits (although divorce in general can reduce one’s income overall, and preparing financially for divorce is wise).

This Social Security myth reflects the confusion over spousal benefits rules, which are complicated. If you are married, divorced or widowed, you may be able to receive Social Security benefits based on your spouse’s record, but there are many rules and restrictions. Here are the basic rules for divorced spouses.

If you are 62, divorced, and not remarried, you may be able to receive Social Security based on your ex’s record (i.e. their earning history).

According to the Social Security Administration: “To be eligible, you must have been married to your ex-spouse for 10 years or more. If you have since remarried, you can’t collect benefits on your former spouse’s record unless your later marriage ended by annulment, divorce, or death.”

Also, the maximum you can get is 50% of your ex-spouse’s benefit. And if that amount is lower than your own benefit, Social Security will pay you the higher amount.

Last, a divorced spouse’s claim will not impact their ex’s Social Security check. So if a wife gets $2,000 per month from Social Security, and her ex-husband decides to claim based on her record (because she was the higher earner), her $2,000 benefit will remain unchanged no matter what amount he gets.

If the ex-husband qualifies for the divorced spouse benefit, he could expect up to $1,000 per month. If, however, his own benefit is higher than that — say $1,200 per month — Social Security would pay his benefit amount, not the spousal amount. Again his ex-wife’s benefit would remain unchanged: $2,000 per month.

9. You’ll Never Get the Money Back You Put Into the Program

If you’ve read through even a few of these Social Security myths and realities, you’ll already know the answer here. What determines your total payout, i.e. how much you earn from Social Security and for how long, is a highly individual and complex calculation. It includes many factors — from how old you are when you start claiming benefits, to how long you worked (and how much you earned for your top earning years), to whether you’re claiming benefits based on your own record or a spouse’s.

Some people will get back what they put into the program — and more. Some will not. Hopefully this guide will help you maximize the benefits you’re entitled to, so that whatever you paid into the system is worth the additional income and security you’re getting now.

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How Much Can I Earn on Social Security?

The top monthly payout from Social Security in 2024 is $4,873 — but it’s rare that people qualify for that amount. You would only qualify for the highest benefit if you earned the maximum taxable amount every year for 35 years, and you waited until age 70 to start claiming benefits.

In 2024, the maximum taxable income amount is $168,600. The maximum taxable income amount is adjusted every year for inflation, and is capped at the inflation-adjusted equivalent of $147,000 every year. This was done in order to prevent wealthy individuals from being able to claim the highest benefit amounts.

However, since those two factors — a 35-year history of earning the maximum taxable amount AND waiting until age 70 to claim benefits — are unlikely for most people, your own monthly benefit is likely to be lower. For context, $1,776 is the average monthly benefit as of April 2024.

Bear in mind, though, that everyone’s benefit is different because Social Security payouts are based on very specific factors, and you have to consider all of them when estimating what your Social Security earnings might be. Here’s how it works.

Your Income History

Your Social Security benefit is based on a complex calculation that factors in how much you earned in 35 of your working years, indexed against the national average income for each year.

Because each person’s income is different, and can vary from year to year, this calculation is specific to each individual, and is one reason that it’s difficult to compare your Social Security benefit to anyone else’s.

Your Age When You First Claim Benefits

One of the biggest Social Security misconceptions is that you have to retire at age 62 or 65 or 67 to be able to claim benefits (as discussed above). In fact, you can claim Social Security at any of those ages, but the reason that the age when you first claim benefits is important is that it determines the amount you’ll receive.

According to the SSA, your benefits increase by a certain percentage for each month you wait to claim benefits, after you reach your full retirement age. Full retirement age is 66 or 67, depending on the year you were born.

The older you are, the more money you’ll get — with those who claim at age 70 getting the maximum benefit.

💡 Recommended: What Is the Average Retirement Age?

Your Marital Status

Whether you’re married, divorced, or widowed can also have an impact on the amount of your benefits.

A married couple with two working spouses, for example, would qualify for separate benefits based on each person’s earning history. If one spouse worked and the other didn’t (or didn’t for a period of time), they might be able to claim 50% of the other spouse’s benefit or their own, whichever amount is higher.

A divorced or widowed person may be able to claim Social Security based on their spouse’s income history, if their own benefit is lower.

Because the spousal rules that govern Social Security are complicated — and people may have more options than they realize — it might be wise to consult a professional in order to understand which strategy will help you maximize your benefits.

Where Can You Access Your Benefits Statement?

Workers 25 and older, who are not claiming benefits, will get a mailed statement each year. This statement lets you know what your monthly benefit is likely to be when you retire, based on the data the SSA has currently.

However, it may be easier to access your personal statement online. It’s quite easy once you set up what’s called a “my Social Security account.” Then you can check your benefits at any time. Here’s how it works.

Invest for Retirement With SoFi

What we’ve covered here are just nine of the most common Social Security myths — there are certainly others. The most important thing these misconceptions have in common is a lack of understanding about Social Security fundamentals. Simply understanding the difference between claiming benefits at age 62, when you get a reduced amount, versus claiming at full retirement age — or even age 70 — when you get the so-called bonus amount, is a distinction that could change your entire lifestyle in retirement.

Similarly, knowing that you can work and still get benefits; that you can retire abroad and get benefits; that divorce might even improve your benefits — are all realities, not myths. Knowing the truth can only improve your social security strategy, and your retirement plan.

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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is there really a Social Security bonus?

In effect, yes. By waiting to claim your benefits until full retirement age, you could get 32% to 40% more in benefits (an additional 8% for every year you delay claiming). That “bonus” is even bigger if you wait until age 70. After age 70, though, there is no further gain if you delay claiming your benefits.

How much does the government borrow from Social Security?

The revenue paid to Social Security, from workers’ payroll withholdings, is invested in special U.S. Treasury bonds, by law, which the federal government must pay back with interest. So while the government in effect borrows from Social Security, it must pay back the money — and the interest also helps to keep the system going.

Which president started Social Security?

President Franklin D. Roosevelt officially made Social Security the law of the land in 1935. But the idea of a federal support network for the elderly had been in the works for many years before then.

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