Debunking 6 Social Security retirement myths

Collecting Social Security benefits is an important component of any retirement income withdrawal strategy, but the federal program can also be complicated to understand.

Myths about Social Security are common and widespread. There are also many competing points of view on how to best utilize the program’s benefits.

Your Ameriprise financial advisor can provide guidance on how Social Security fits into your broader retirement income strategy.

Here are six Social Security myths debunked:

Myth #1: Social Security benefits won’t be there when I retire

Though the solvency of the Social Security program is an ongoing topic of conversation, if you’re already in retirement and receiving Social Security benefits, it is not likely to materially affect you. 

If you're not yet in retirement, your financial advisor can continue to track how much of an impact the changes to Social Security could have on your plan. They will work with you to regularly review and update your retirement income strategy to address any regulatory changes and make proactive adjustments.

Myth #2: Social Security will be a major source of retirement income

While it can be a supplemental income source for retirees, Social Security alone is unlikely to provide enough income for most individuals. Social Security is one piece of the retirement puzzle, and other streams of income are often needed by retirees to maintain their desired lifestyle. 

As you near retirement, your financial advisor can work with you to incorporate your Social Security benefits as part of your overall planning and budget. They will provide a personalized retirement income strategy that accounts for different income sources and incorporates a flexible tax-diversified approach.

Myth #3: Social Security benefits don’t keep up with inflation

Unlike other retirement income sources, monthly Social Security payments are designed to keep pace with the rise in the cost of living. Every year, the Social Security Administration evaluates inflation data and decides whether to institute a benefit increase called a cost-of-living adjustment (COLA). Since 1975, COLAs have ranged from 14.3% (1980) to 0.0% (2009, 2010, 2015).

For 2024, Social Security benefits increased by 3.2%, according to the Social Security Administration.

Myth #4: You can outlive Social Security

Regardless of when you choose to begin taking benefits, you cannot outlive Social Security. You will receive payments every month until your death. Unlike other income streams, it has the backing of the federal government and is designed to keep pace with inflation.

Myth #5: I should wait as long as possible to claim my Social Security benefits

While you can begin taking Social Security at age 62, the longer you wait to start collecting your payments, the higher your monthly benefit. Many retirees tend to hold off until the age of 70, when they receive the maximum benefit amount.

However, while waiting to collect Social Security benefits may be beneficial for some, it’s not the right choice for everyone. Here are a few factors to consider when deciding on the age to begin collecting payments:

• Capital gains and IRA withdrawals
• Health issues
• Life expectancy in your family history
• Varying tax rates on Social Security income

In general, it’s wise to meet with your financial advisor five years ahead of your estimated retirement date so you can begin planning your Social Security income strategy. One year out from retirement, you’ll work with your financial advisor to decide the exact age to begin claiming benefits.

Myth #6: Social Security income isn’t subject to taxes

Even though Social Security is paid out through a federal government program, you may have to pay taxes on the income if your total modified adjusted gross income is above certain limits. Up to 85% of your Social Security benefits may be taxable, depending on the amount of income you have from other sources.

Approximately 40% of people who receive Social Security have to pay income taxes on their benefits, according to the Social Security Administration.¹

Let’s discuss your Social Security options

If you have questions about when to begin collecting Social Security or how this income will fit in with your broader retirement plan, connect with your Ameriprise financial advisor.