3 Social Security Myths Retirees Still Believe — And What They’re Really Costing You

Understanding how Social Security fits into your financial planning can result in a comfortable retirement. But misconceptions about the program can set you back.

Using inaccurate information to make important decisions around your Social Security benefits can cost you and leave you with a false sense of security. These are some of the biggest myths that can result in significant financial challenges.

Myth #1: You should claim ASAP

One Social Security myth is that you should always claim as soon as you can in case the money runs out. But claiming Social Security as soon as possible also means taking a smaller benefit. The longer you wait to receive Social Security, the more you will get when it’s time to tap into the program.

If you take out Social Security at 62, you could receive up to $2,969 per month. However, waiting until 70 could result in up to $5,181 per month. Working a few extra years or bridging the gap between when you retire and when you take out Social Security by tapping money in a 401(k), individual retirement account (IRAs) or other savings and investment accounts can pay off.

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Myth #2: Benefits aren’t taxable

The second Social Security myth is that your benefits aren’t taxable. Up to 85% of the program’s benefits can be included as taxable income.

The amount of your benefits that are taxable is based on your tax filing status and combined income for the year. The combined income is determined by a complex formula that takes into account your adjusted gross income, tax-exempt interest income and half of your Social Security benefits.

Your benefits aren’t taxable by the federal government if your income, including benefits, is below $25,000 per year ($32,000 for married couples filing jointly). Up to 50% of it is taxable if your income ranges from $25,000 to $34,000 ($32,000 to $44,000 for married couples) with 85% of your benefits taxable if your income exceeds $34,000 ($44,000 for married couples). Some states also tax Social Security.

Keep in mind that withdrawals from a traditional retirement account will boost your ordinary income and can push you into a higher tax bracket. That’s why some retirees withdraw money from their retirement plans before tapping into Social Security to minimize their total tax burden.

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Myth #3: Your benefits will definitely cover your expenses

The final myth about Social Security is that your benefits will be enough to cover your living costs in retirement. Social Security should just be part of your retirement plan.

Building a strong nest egg will help. One rule of thumb is to aim to save at least 15% of your pre-tax income each year for retirement. It’s also important to take advantage of your employer's 401(k) matches. You can also make catch-up contributions to retirement accounts once you turn age 50.

Some people end up back at work after retirement once they realize Social Security isn’t enough. Keeping a detailed budget can help minimize your expenses and make it easier to invest more of your money. Monitoring your finances can prevent you from falling into two common pitfalls: undersaving and overspending.

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