Three to Know
Some myths to know about Social Security payments
There’s a good chance you’re going to rely on Social Security payments during retirement. That means the more you know about those benefits, the better. Here are three myths about Social Security benefits that you should know before starting your golden years.
Benefits Increase at Full Retirement Age
You can start claiming your Social Security benefits when you hit 62. However, the payments will be smaller than if you wait until you hit your Full Retirement Age (depending on when you were born, 66 or 67). If you choose to take payments at 62, they’ll be 25 to 30 percent smaller than if you wait until your FRA. And here’s the myth: If you take payments early, the payments do not increase once you hit FRA. That’s an important thing to keep in mind.
Delaying Payments Means Indefinite Increase
Waiting as long as possible to take Social Security payments is a good thing. If you can wait past your FRA, each year you delay your benefits increases by eight percent. However, that’s not indefinite. Once you reach 70, there is no more pay bump. If you can wait until 70 to take payments, in many cases it makes sense to do it. (The math can get complicated for married couples particularly if there is a big age or income difference between spouses.) Just know that it doesn’t help to wait any longer than 70.
Benefits are Tax-Free
Unfortunately, you might end up paying taxes on your Social Security benefits. As USA Today notes, it depends on your provisional income. This is calculated by adding half of your Social Security payment to your non-Social Security income. The bigger that total number, the more taxes you’ll be paying. This is yet another reason to save as much as possible in other vehicles. Social Security will be there for you, but you don’t want to fully depend on it.
Chris O'Shea/SavvyMoney - May 2021