Retiring Soon? Check These 3 Social Security Misconceptions

As retirement approaches, many Americans turn to friends, family, or even social media for advice on Social Security retirement benefits. No doubt, it is convenient and easy, but it is risky as well, especially when any of the myths or misconceptions could end up costing you thousands of dollars for your retirement.

So, here are three continuous myths about Social Security you should get clear of, along with accurate information to help you make smarter financial decisions.

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Myth 1: Social Security Benefits Are Never Taxed

One of the most common misconceptions is that Social Security income is always tax-free. However, in reality, many retirees do end up paying taxes on their benefits, depending on their total income and filing status.

According to the IRS, you may have to pay taxes on up to 50% or even 85% of your benefits if your combined income crosses a certain threshold, and this will include wages, dividends, pensions, and half of your Social Security benefits.

Myth 2: You Must Be Retired to Start Collecting Benefits

Another well-known myth is that you must quit working to get Social Security retirement benefits, but the truth is that you can start collecting benefits while still working, although your earnings may affect how much you receive, especially if you haven’t reached your full retirement age (FRA) and once, you reach your full retirement age there is no such boundation on earnings. 

Myth 3: You’ll Always Receive a COLA Each Year

Many retirees believe they’ll automatically get a cost-of-living adjustment (COLA) every year. While it’s true that most years include a COLA but it’s not guaranteed. COLAs are based on inflation and determined by changes in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). So, if inflation is flat or negative, retirees receive no increase at all. Even when a COLA is granted, it may not increase your payment as much as you expect. That's because it's applied to your Primary Insurance Amount (PIA), not necessarily the exact amount you're receiving if you claimed early or delayed benefits.

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Conclusion

Whether you’re already nearing retirement or just starting to plan, make sure you rely on trusted and official sources like the Social Security Administration (SSA) website or a qualified financial advisor.