Debunking 2 Common Social Security Planning Myths
Filed under: Retirement
Retirement is right around the corner, and you’re in the final planning stages. Social Security probably plays heavily into your post-work plans. You wouldn’t be alone. In fact, almost 90 percent of people age 65 and older use Social Security to fund their lifestyle.1
Despite the heavy reliance on Social Security, most people don’t fully understand how complicated it really is. Many people assume that you simply retire, file for benefits and start collecting your payments. The fact is, however, Social Security can be complex.
Because people sometimes don’t fully comprehend the complex nature of their benefits, they often fail to plan. And failing to plan means they don’t take full advantage of their benefits. It’s possible to avoid these mistakes by fully understanding how Social Security works and how you can maximize your benefits. Below are two common myths about the program that can help you with your planning:
Myth #1: Limited work or low earnings mean you’ll have a small benefit.
You may think that if you have a limited work history or a work history of low earnings, your Social Security benefits will be small. That assumption is understandable considering that your work and earnings histories are some of the most important factors that determine your benefits. But it’s not all bad news for people who fall into this category.
For example, spouses who put their career on hold to raise children or to support their spouse’s work can claim their benefits based on the higher-earning spouse’s work history. That means that even if you have a limited or low-income work history, you may be able to receive more benefits.
What if you were married but have since divorced? Not to worry. Divorced individuals can still file for a spousal benefit. In fact, if your marriage lasted longer than 10 years, you haven’t remarried, you’re age 62 or older and your former spouse is eligible for Social Security, then you are eligible for a spousal benefit if it would be greater than your own.2
Myth #2: You don’t have to pay taxes on Social Security benefits.
You may think that once you retire and stop earning income that your income taxes will end, too. This is a common misconception. In fact, you will more than likely have taxable income during retirement. Some of this taxable income will be from things like pension benefits and investment earnings. Some of it will come from Social Security.
Depending on your combined income, up to 85 percent of your benefits could be subject to tax. Combined income, as determined by the IRS, is the sum of your adjusted gross income, nontaxable interest and half of your Social Security benefit. The higher your combined income, the more your benefits will be taxed.3
It’s important to fully understand how your retirement income will be taxed. Failure to plan for this can result in serious financial challenges.
Not sure you fully understand your Social Security options? Let’s talk about it. Contact us today at Ambrose Financial & Insurance Services. We can help you examine your options and decide on the best path for you. Let’s connect today and start the conversation.
1https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
2https://www.ssa.gov/planners/retire/divspouse.html
3https://www.ssa.gov/planners/taxes.html
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov
16241 – 2016/11/15
