I speak frequently about Social Security. As many of the roughly 76 million Boomers approach retirement age the interest in this important part of the retirement income picture increases. Naturally many of the questions I get are the result of misinformation and rumor. Here are 5 of the most common myths that I hear.

1. Social security won’t be around when I retire – In my opinion it will be; it just may look different than it does today. It will need a makeover in the next few decades in order to sustain payments to retirees in the future so it may just not look like it does today. The reason? The next generation will see the largest drop in worker-to-beneficiary ratios in history. To compound the situation we are living longer so the benefits have to last longer; things cost more and the birth rate is declining. When Social Security was established there were 15 workers for every 1 person receiving benefits. Today its closer to 3 workers for every worker and it will probably decrease further in the next few decades. The bottom line is this; plan on receiving benefits just be prepared for the rules to change.
2. If I work in retirement I will lose my Social Security benefits. – The short answer is, “no, you won’t lose your benefits. Depending on how much you earn your benefits may be temporarily reduced. Over 30% of the workforce today is between the ages of 65 and 69 so the “new retirement” includes working to some degree for many Boomers either by choice or necessity.

   So just how does Social Security work when you work in their traditional retirement years? If you work after reaching age 62 Social Security will deduct $1 for every $2 that you earn over the 2013 limit of $15,120. In the year that you reach your “Full Retirement Age” (FRA) the rules change. You will have a deduction of $1 for every $3 that you earn over $40,080. Then…when you actually reach your FRA and thereafter there is no deduction.

   So, what happens to the money Social Security withheld? You will get it back. For every year that you work they will recalculate you benefit and pay you a hire benefit for life once you actually stop working.

3. Once I die, my spouse won’t be able to receive any of my benefits. Actually the surviving spouse will receive 100% of the Social Security the deceased spouse was receiving. Spousal benefits work differently. In the case of spousal benefits, the lower wage earner or no wage earner can receive spousal benefits once he/she reaches their Full Retirement Age.
4. It’s always better to take Social Security benefits sooner rather than later. There is no one-size-fits-all answer. If you absolutely need the income right away then many times it does make sense to start your benefit at age 62. Keep in mind, once you start then your benefits is set for life (with the exception of cost of living adjustments). There are strategies to increase your benefit. They are explained in the FREE Guide to Social Security. Social Security is designed to have you delay taking benefits. The longer you wait the more time the fund has to grow. Generally speaking the longer you wait to receive benefits the more you will receive; again, it’s a lifetime decision so plan carefully.
5. I should take Social Security as soon as possible and invest it. I am often asked if this strategy makes sense. People often make the decision on when to take benefits based on what will create the largest lifetime income. I can provide you with a projection of your lifetime benefits when you use the Social Security Estimate Form and return it to me.

   Anytime you make a decision to invest in the market you are making certain assumptions about rates of return. If your assumptions pan out it could make sense. According to Andy Landis, author of “Social Security, The Inside Story”, you are better off waiting until your age 70 when you will receive the highest benefit and keep putting money in your 401(k) or another tax deferred vehicle versus investing your age 62 benefit because the odds are against you strategy working out as planned.

Social Security is just one leg of your retirement 3-legged stool (or 4-legged if you have a pension).The other legs are your taxable retirement savings and your retirement accounts like your 401(k). It’s important to be informed about your options because once you decide, you are stuck with your decision for life. Be informed, work with an advisor and choose well!

Question: What have you heard about Social Security that causes you concern? You can leave your comments here.