Social Security is a vital program that provides benefits to millions of Americans, but there are many misconceptions about how it works. One common myth is that you can live comfortably in retirement on Social Security alone. The truth is, Social Security is designed to replace only about 40% of your pre-retirement income.
The average benefit for retired workers is around $1,900 a month, which may not be enough without additional savings or income. Another myth is that Social Security will run out of money before you retire. While the future of the program is uncertain, it is not going bankrupt.
Social Security is funded by a trust fund that uses its reserves and continuing income from payroll taxes. As long as workers and employers continue to contribute through payroll taxes, the program will not run out of money. However, if the trust fund becomes insolvent, which is projected to happen in 2035, it will only be able to pay 83% of the benefits retirees are entitled to.
Debunking Social Security misconceptions
Many people also believe that they won’t have to pay taxes on their Social Security benefits. In reality, about 40% of beneficiaries pay taxes on their benefits because they have other sources of income, such as from jobs or investments.
If 50% of your benefit amount plus other earned income exceeds $25,000 as a single filer, or $32,000 if you’re married filing jointly, then you may have to pay taxes on your benefits. Finally, some people think they are too young to worry about Social Security. However, even if you are years or decades away from retiring, it’s never too early to start thinking about how the program works and how it could impact you.
The program could look different by the time younger generations retire, so it’s important to be flexible about how Social Security will fit into your plans. To set yourself up for success in retirement, you should also save and invest so you have other sources of income outside of Social Security. Understanding how Social Security works and debunking these common myths can help you make better decisions about your retirement planning.
Consulting with a financial advisor can also help you determine the best strategy for your individual situation.
