4 misconceptions about Social Security
New surveys are always coming out showing we need to know more about our finances. One of the latest surveys that seems designed to make us worry about how we're handling money is a recent Fidelity Investments Social Security IQ Survey.
As you might expect, it showed that there is a lot of confusion around Social Security. For instance, only 14 percent of pre-retirees know how much Social Security they'll be getting when they retire. Twenty-six percent had no clue how sizable their checks would be.
The online survey was conducted with 521 respondents ages 55 to 61 and taken Oct. 18 to 25, 2016, but the survey results were just released a few weeks ago.
Actually, nobody should feel too bad for not being knowledgeable about Social Security. We live the majority of our lives not having to think about it. But as you get closer to retirement age, it becomes foolish to not start reading up on the topic. So if you're aware that you don't know much about Social Security, you may want to take a look at these misconceptions that many people have. After all, maybe you know even less about Social Security than you think you do.
Medicare and Social Security start at the same time. False. But a lot of people think this is true, according to Danielle Kunkle, vice president of Boomer Benefits, a Fort Worth, Texas-based insurance agency that specializes in Medicare.
You can start Medicare at the same time, if you want to and are 65, but the two aren't connected – and that's important to realize.
"You are eligible for Medicare at age 65 as long as you have worked 10 years in the U.S.," Kunkle says. "The reason this one is so important to mention is that your Medicare initial enrollment window is only seven months long – beginning three months before your birth month, and lasting through three months after your birth month."
She adds that if you miss that window and fail to enroll in Medicare without any other creditable coverage, you begin accruing a 10 percent per year late penalty on Part B.
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"What's worse is that when you realize the mistake, you have to wait until the following year's General Enrollment Period from Jan. 1 to March 31 to enroll, and your benefits won't begin until July," she says.
"I think the misconception occurs because you sign up for [Supplemental Security Income] benefits and Medicare benefits at the same place – the local Social Security office," Kunkle says. "This tends to make people think you don't need to do anything about Medicare until you select Social Security, and most people wait until 66 to get the full retirement benefit."
You'll make more money in the long run if you accept your benefits early. While most people probably know that they'll have a fatter paycheck if they hold off claiming their benefits until they're 70, some Americans feel that if they file at the earliest age – 62 – in the long run, they'll collect more money, because they have eight extra years to get those checks.
That could turn out to be true, but to win this game, you'll have to die sooner rather than later. (Spoiler alert: It isn't a very fun game.)
"About 50 percent of all Americans file early at age 62 for their benefits, believing they will receive more money for a longer period of time, rather than waiting until full retirement age, or even later at age 70," says Joseph Gissy, a financial advisor with Capital Management Services, Inc., in Westlake Village, California.
"By full retirement age, about 95 percent have already filed for benefits," Gissy adds.
But it's a financial mistake, if you can afford to wait until 70, he says. You may make more money by taking it out early if you die in, say, your mid-70s, but if you plan and hope to live longer than 80, generally you'll make far more by having waited until 70 years of age to begin collecting Social Security. As you can imagine, you'll really do well if you can wait until you're 70 to file for Social Security and then stick around into your 90s or beyond.
Social Security won't be around when you retire. That's a very real fear for people, and you may argue that it isn't a misconception, but you would have to tangle first with Gregory Kurinec, a retirement planner with Bentron Financial Group, Inc., in Naperville, Illinois.
By far, "the biggest misconception that I see is that the public believes the Social Security system is about to implode," he says.
"If no changes are made to the system as it exists now, then the reserves have enough funds to pay 100 percent of benefits until 2035. At that point, if no changes are made, recipients will receive 75 percent of their current benefits," Kurinec says, adding that, again, this is only if no changes are made.
In other words, it's extremely unlikely politicians in Congress, fearful of being voted out of office, are not going to make changes to keep Social Security solvent.
Kurinec adds that nobody should take out their benefits early because they think Social Security won't be around later. Take your benefits early, he says, and "this results in a permanently reduced benefit of up to 32 percent for the beneficiary's lifetime."
He has a point. If you're anywhere approaching your retirement age, or even if you're middle-aged, you'll likely recall that society has been predicting Social Security's imminent demise for decades.
If your ex-spouse makes a claim on your Social Security benefits, the money you receive will be reduced. Not true. Fifty percent of the people surveyed on the Fidelity survey thought this was the case.
As the Fidelity report states, if it will benefit your ex, he or she can make a claim for 50 percent of your Social Security benefits, provided you were married for 10 consecutive years and your ex hasn't remarried. But it won't impact what you receive in any way. The report notes that you don't even have to discuss your Social Security benefits; he or she will make a claim if they want to, and your income will remain unaffected.