By Alyson Dorosky
I wish I had $ 1 for every time someone told me it was simple and straightforward to apply for Social Security retirement benefits. That is often not the case.
Unfortunately, some clients are “do-it-yourself” types who dare to apply for social security benefits without consulting a financial advisor. And some advisors do not take advantage of software available to them to map out the best case scenario for each client situation.
Here are five social security “myths” that I regularly encounter in my work with financial advisors and their clients who are planning to retire and want to optimize their social security services.
Myth # 1: Social benefits come without taxes or other deductions.
Sorry, not true. The Social Security Administration (SSA) itself says that about 40 percent of the people who receive benefits have to pay income tax on them. There are income limits that dictate who pays income tax on benefits and what part of the benefits they must pay tax on.
If e.g. people who file joint returns earn a total income of more than $ 44,000, up to 85 percent of their social benefits are liable to income tax.
So if you have income from other sources, such as investments or pensions, you will probably have to pay federal income tax on a good portion of your benefits.
If you are enrolled in both Social Security and Medicare Part B health insurance, your Part B premium will be automatically deducted from your benefit. And if you choose a Medicare Advantage or Part D plan (prescription coverage), you can choose to have Social Security deducted and pay those premiums directly to your insurance company.
Myth # 2: There is no “do over” with social security filing.
Making a hasty and unexamined decision to file can cost you a penny in the total number of benefits you stand to collect throughout the rest of your life. But social security allows beneficiaries some leeway.
You can change your mind about archiving and withdraw your application within the first 12 months after collection. You can only do it once and you have to pay the government back for what you have collected. Reimbursement includes all Medicare benefits you had deducted from your Social Security benefit.
People who have reached theirs full retirement age but is not yet over 70 can also suspend their services. They can earn pension credits for each month in which the benefits are suspended, leading to a higher benefit in the future.
Myth # 3: You must be retired (not working) to charge social security.
Social security was started before medication improved physical health and increased life expectancy. Now many people work well into their 60s and even 70s. And many of them collect social security.
Here are the rules in brief:
- If you collect Social Security before your full retirement age (OFF), the SSA can deduct $ 1 from your benefit for every $ 2 you earn, above an income ceiling that it sets annually (for 2022 it is $ 19,560).
- In the year you reach your full retirement age, the income ceiling is higher ($ 51,960 in 2022), and $ 1 is deducted from your benefits for every $ 3 you earn.
- When you reach full retirement age, there is no limit and no penalty for earning income.
Myth # 4: If you worked, you are eligible for Social Security.
Not true. Certain government and railway employees do not pay the taxes used to finance social security benefits and are not entitled to them. Teachers in public schools and some universities are examples of these groups. Likewise, survivors from persons who fall into this category do not qualify for survivor benefits from Social Security.
Of course, some people who fall into this category worked some of their careers in jobs where they paid social security taxes. They may be entitled to social benefits – although these benefits may be reduced.
This is a particularly complicated part of the social security regulations. If you fall into one of these categories, you should consult your staff or pension expert.
Myth # 5: When a spouse dies, the widow’s spouse is entitled to both a survivor’s benefit and their own benefit.
In a way, but not both. In other words, no one gets two benefits. Again, many factors can come into play and the rules can be confusing. Check that: They is confusing.
A widow can receive survivors’ benefits at the age of 60 and not before. And there is a full retirement age for survivors’ benefits that is different from a person’s FRA.
If a widowed spouse is eligible for their own Social Security benefit, they can collect a survivor benefit and then apply for their benefit when they choose to do so, perhaps at their FRA or 70 years of age. Much will depend on whether they work or have other sources of income.
These last two examples point to why spouses should decide together on when each will submit an application for social security.
In my next column, I will dive into several pieces of advice for married couples and examples of the differences we sometimes reveal in what they thought they could do and what turns out to be best for them.
About the Author: Alyson Dorosky, CSSCS
Alyson Dorosky, CSSCS, is LifeYield Head of Social Security Support. She has seen thousands of different social security scenarios in five years of working with advisors and their clients to customize filing strategies and maximize retirement income.