While “it’ll figure itself out” might be a popular mindset when thinking about future Social Security benefits, particularly if you’re still relatively young, you don’t have to know much about the topic to understand that strategy probably won’t yield the results you might be hoping for in your retirement years. You also aren’t alone: Only 41% of people have actually figured out how much they need for retirement.
It’s totally understandable—and normal, even—to feel overwhelmed and prefer to avoid thinking about the actual logistics involved with setting yourself up to live kicked back without working.
But some Americans consider it a right of passage that’s never too early to start planning for. Even if you’re not necessarily counting on Social Security to be a silver bullet for living out your golden years, it often can be an important part of planning for the future.
What is Social Security?
The Social Security Administration has been in place for more than four decades, beginning life as the Social Security Board in 1935, when then President Franklin D. Roosevelt signed the Social Security Act.
The program is self-described as an “anti-poverty program,” which provides “retirement, disability, and survivor’s benefits.”
While the idea of a social security safety net didn’t really crystalize in the US until 1935 in part as a reaction to The Great Depression, during which about 15 million were unemployed, the concerns it serves to address about one’s economic uncertainty in the future are as old as human history itself.
Although, it should be noted that availability of official programs to assuage them are still a relatively new concept. In other words, it’s still a work in progress. Here are some important first steps to understanding the facts behind the Social Security myths.
Finding the Facts Behind the Social Security Myths
1: You Have to Start Claiming Social Security at Age 62
This is a Social Security myth that seems to confuse a person’s earliest eligibility for Social Security as some sort of mandatory starting date for collecting—but only if they were born between 1943 and 1954. If you were born between those years and started collecting Social Security at 62, your monthly benefit amount “is reduced by about 25%.”
If you delayed retirement past 62, annually the amount will be slightly boosted—after 66 you should start qualifying for a rate more than what you put in. But once you reach 70, the benefits will stop increasing even if you continue to delay.
These numbers might be different depending on your age and also if you were self-employed and didn’t have an employer paying into your social security on your behalf.
Obviously, there are all sorts of reasons and circumstances why you might not want to wait until 70 to start claiming Social Security: Health factors may be a consideration or maybe you’ll want to start a second career when the age draws closer. After all, there is more to life than money!
But still, these are decisions ideally not made at the absolute last minute—SoFi’s formula for helping to decide when to retire is one good place to start, and because not everyone alive today was born between 1943 and 1954, this SSA chart is useful for people born outside of that range.
2: You’ll Never Get the Money Back You Put Into the Program
This is another common Social Security myth, and one that exaggerates or bleakly imagines the way the system works or might change in the future. In 1936, the Supreme Court ruled on Helvering v. Davis, holding that Social Security was constitutional but: “The proceeds … are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way.”
Those last five words—not earmarked in any way (meaning, there’s a pervasive fear this money isn’t guaranteed)—have floated around the public consciousness for a long time, and because laws have a way of changing, it has helped create an uneasy attitude toward Social Security and what returns you can hope to see on your investment.
This Social Security myth is a great segue to the next, one of the most commonly spread Social Security myths.
3: Social Security is Going Away
Concerns about the program’s solvency are common. According to a 2019 survey by the Transamerica Center for Retirement Studies, 77% of workers are concerned Social Security will not be there for them when they’re ready.
The 2019 annual report of the board of trustees that oversees the retirement and disability programs of Social Security did outline a scenario wherein “… the projected hypothetical … asset reserves become depleted and unable to pay scheduled benefits in full on a timely basis in 2035.” However, this is based on hypotheticals. If the report’s estimates were too dire, the outlook might very well be brighter than it seems. Also, the fund continues to receive deposits—Social Security taxes that employed people pay.
There is the chance that the amount of payroll taxes going into the fund could increase in the future, which means that planning ahead is a smart thing to do. If you’re already putting money into a retirement plan, SoFi can help you consider other investment strategies that could potentially offset any possible changes to future Social Security income.
4: If You’re Self-Employed, You Won’t Qualify for Social Security
Freelancers and the self-employed live with trade-offs when it comes to Social Security. While they have greater independence in choosing their work, they also have no employer matching their contributions to retirement plans like 401(k)s and the like.
It also means they have no employer helping to offset the 12.4% taxes imposed on wages designated for Social Security. This rate is usually shared by employers and employees, but because self-employed folks are their own bosses, they pay the full 12.4% instead of 6.2% on wages earned.
So, if you pay your taxes, you’re paying into Social Security, which means you are eligible to receive Social Security benefits in the future.
If you’re freelance or self-employed, you likely don’t have an employer-sponsored 401(k) you can pay into, but there are still options potentially available to you. Many registered investment advisors, including SoFi, offer Traditional IRAs, Roth IRAs, and other retirement options for self-employed individuals. If you’re already working for yourself, your money should, too.
5: You Can’t Collect Social Security if You Retire and Live Abroad
This Social Security myth falls under the category of “it depends.” The SSA actually has an entire pamphlet about how payments to US citizens and non-citizens work while they’re outside the United States, and even a dedicated online tool to determine if your payments can continue in the country or territory where they’re hoping to plant a flag. For example, payments cannot be made to people residing in North Korea or Cuba due to US Department of Treasury sanctions.
There are other countries where payments cannot generally be sent, but exceptions are available. The SSA states that if you’re heading to one of those countries, they will withhold your payments until you return to a country where they can send payments. The rules vary for US citizens and non-citizens, so be sure to check on your particular circumstance.
But if you’re planning to retire abroad in one of the hundreds of other countries that the SSA can extend payments to, you should be in the clear. However, if you’ve already started planning for retirement in a country that would render you ineligible to collect Social Security, SoFi’s guide on how to rebuild retirement savings might be worth a look.
Don’t Go It Alone
These are just a handful of the most common myths about Social Security. It’s more than likely you’ve heard of some Social Security myths not on this list. It all can be very confusing, which is why SoFi offers complementary, personalized sessions with financial planners who can help clear up any confusion.
Whether you’ve literally never thought about retirement before or have already started to do your homework, you might want to consider having a conversation with a credentialed advisor about where you are and where you’d like to wind up someday, financially speaking.
Whether your style is more hands-off or hands-on, SoFi Invest® has options for you and is designed to make planning for retirement as easy as possible, no matter what your experience level is.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA / SIPC , (“SoFi Securities”).
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer to sell, solicitation to buy or a pre-qualification of any loan product offered by SoFi Lending Corp and/or its affiliates.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.