Getting your arms around Social Security can be pretty complicated. Misinformation, partially informed opinions, and complex benefits formulas can easily lead one down an incorrect—and costly—path.
Before you make your decision about claiming this valuable benefit, let’s clear up five of the most common myths and misperceptions.
Myth #1: You must claim your Social Security benefit at age 62
Many people are adamant that Social Security benefits must begin at age 62. This is a myth: 62 is the earliest age you can claim your benefit, but, it’s not the only age.
Your benefit is calculated based on your “Full Retirement Age,” or FRA. The year you were born determines your FRA. Your base benefit is calculated by the Social Security Administration based on your average indexed monthly earnings during the 35 years in which you earned the most (and payment of Social Security taxes) up to FRA (or later if you work past FRA).
- Tip: You’ll find your FRA at Social Security’s website, SSA.gov, or on a paper statement mailed to you by the Social Security Administration. For those born between 1943 and 1954, your FRA is 66. Those born later have an FRA of 66 and some months or 67.
If you claim any time before your FRA, you lock in a permanent reduction in monthly income. Claiming at 62 translates to a reduced income of 25% to 30%, depending on your FRA. That means you may receive a lot less monthly retirement income, every year, for potentially several decades. You might think you are not going to live a long life, but many people do: 25% of men will live until 93; 25% of women will live to 961. A key consideration is maximizing your income for a retirement that could last longer than 30 years.
Wait until age 70 and lock in a “bonus”:
- Waiting to claim Social Security until after your FRA comes with a hefty bonus: 8% per year if you wait until your FRA rather than claiming at 62.
- If your FRA is 66, your monthly income would increase by 32% by waiting.
- If your FRA is 67, your monthly income would increase by 24% by waiting.
Read Viewpoints: “Longevity and your retirement“
Myth #2: You can claim early, then get a “bump up” once you reach Full Retirement Age.
Many believe there is a “bump up” or “added income” once they reach their full retirement age. They’ve heard they can claim early at 62, then when they reach 66 or older, their checks will increase to the amount that corresponds to their full retirement age benefit. That’s a big misperception.
There is no bumping up of income once you’ve claimed your Social Security retirement benefit. However, anyone receiving a benefit can voluntarily “suspend” that benefit after they reach FRA and resume it as late as age 70. If they do, the benefit will increase by 8/12% per month. You will not receive any benefits during the suspension. There is no increase after age 70. 2 You get an annual cost of living adjustment, but there is no increase when you reach FRA. If your benefit payments are suspended, they will start automatically the month you reach age 70 unless you specify otherwise.
Lastly, in general, you can cancel your Social Security claim if you do so within the first 12 months of receiving benefits. You must repay the full amount you’ve received, and the full amount a current spouse or family member received. Then, you are eligible to claim again at a later date and will receive a larger monthly payment. Each individual can only cancel a claim once in their lifetime.
Case Study: Lower-income spouses may get a “top up” or “auxiliary” benefit.
There is, however, one case where you could get a “top up” benefit at FRA, but you still need to wait until your FRA to claim your Social Security benefit. In this hypothetical example, Sally earned less during her career than her husband Brad. Her benefit is $700 per month; his is $2,000. As a spouse, she’s entitled to 50% of Brad’s benefit if she claims at her FRA. She would receive a “top up” of $300 to bring her benefit up to the $1,000 (half of Brad’s benefit) to which she is entitled. Social Security will calculate her options and pay out the higher benefit to which she is entitled.
Myth #3: Your monthly Social Security benefit could be reduced or denied if your ex-spouse claims Social Security in a certain way.
In a recent survey,3 Fidelity asked more than 1,000 people if an ex-spouse could influence their Social Security benefits . Fifty-two percent of them said yes, this is true.
The real answer: False.
There are a lot of things an ex-spouse might do to complicate your life, but Social Security is off limits. Your ex has no influence over your benefits. If you have an ex-spouse, you may be entitled to spousal benefits as if you had remained married. If you were married for 10 consecutive years and have not remarried, you are entitled to either your own benefit—or 50% of your ex’s Social Security benefit, whichever is higher—once you reach your FRA.
If you wish to claim on your ex-spouse’s benefit, you simply make an appointment with your local SSA office and bring documents that prove the marriage and divorce. They will calculate your benefit options and when you submit your claim, you’ll receive the higher benefit.
- Tip: There’s no need to discuss this with your ex-spouse, and your claim does not reduce or affect your ex’s benefit in any way. It’s your benefit, even if you’ve been divorced for many years. And, it may be larger than your own individual benefit.
Myth #4: Your benefits are only based on wages that you’ve earned before age 65.
How your Social Security benefit is calculated can seem mysterious. However, it’s important to know a few essential facts to aid your claiming strategy. You can use the tools on SSA.gov to do the calculations.
- Your benefit is calculated based on your highest 35 years of earnings; they do not have to be consecutive years or before age 65.
- If you work past age 65, those earnings years will be included, so long as they are high enough to be part of your highest 35 years.
- Even working part-time after turning 65 may be part of your highest 35 years of earnings.
- If you don’t have 35 years with earnings, zeros will be included in the calculation.
Read Viewpoints: “Social Security tips for working retirees“
Myth #5: You’ll never get back all the money you put into the program.
Although 70% of the respondents from our survey5 thought they might not get back all they money they put in, many will. Everyone’s situation is different. Simply put, if you live a long time, you may collect more than you contributed to the system.
Due to the complexity of claiming strategies and number of variables involved, the Social Security Administration no longer offers a break-even calculator on its website. Social Security is designed to provide a safety net of income for the retired, the disabled, and survivors. The contributions you and your employers make during your working years provide:
- Current retirees and other Social Security recipients with payments
- A guaranteed income benefit when you reach retirement
While the government does not have a specific account set aside just for you with your FICA contributions (the taxes for Social Security and Medicare paid by you and your employer), one of the most powerful features of Social Security is that it provides an inflation-protected guaranteed income stream in retirement, ensuring against the risk you will outlive your savings. Even if you live to 100 or more, you continue to receive income every month. And, if you predecease your spouse, he or she also receives survivor benefits until his or her death.
Social Security: Your contributions vs. potential benefits
Let’s look at a hypothetical case of an American worker, Steve, who reaches his FRA in 2016. He’s retiring in December and will begin collecting his Social Security benefit in January, 2017 at his FRA. In Steve’s case, if he lives past age 74, he will receive a larger benefit than he contributed to the system. There is no standard break-even point, but let’s look at Steve’s situation in more detail.
Checklist for your Social Security claiming strategy
- Know your numbers. Your FRA, earnings history, and estimated benefits.
- Stay current. Sign up for your most current statements on SSA.gov.
- Do the math. Use calculators on SSA.gov to check out your monthly benefit options.
- Get the facts. Don’t succumb to myths; use primary resources such as SSA.gov.
- Start planning early. Claiming Social Security is an important part of your retirement income plan, but it takes some time to understand the options—and the implications to your savings. It’s a good idea to develop your retirement income plan early with your financial advisor, and look at all your options.
For many, Social Security benefits are the foundation of their income in retirement. Social Security benefits provide guaranteed income that will last as long as you live. Know your numbers, do the math, and develop a plan for a claiming strategy that supports your overall retirement income strategy.
- Visit the Planning & Guidance Center or call 800-FIDELITY to get help understanding how to maximize your Social Security benefit and how it will fit into your overall retirement income plan.
- After answering five simple questions, the Social Security benefits calculator provides a ballpark estimate of projected monthly and lifetime benefits across different claiming ages
- Read Viewpoints: “How to get the most from Social Security.”
Past performance is no guarantee of future results.
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