Nearly nine out of 10 seniors 65 and older receive Social Security benefits, and more than a third of them rely upon it for more than half their income. So, you’d think that Americans would be pretty familiar with how the program works. But there are a shocking number of misconceptions out there.
This is a problem because failing to understand the ins and outs of Social Security could cause you to make costly mistakes, like signing up at the wrong time or skipping Social Security altogether because you don’t think you qualify. We’re going to clear up three of the top misconceptions as outlined by a recent Mass Mutual survey right now.
Image source: Getty Images.
1. Only U.S. citizens can claim Social Security
Being a U.S. citizen isn’t a requirement for earning Social Security. Even noncitizens may qualify for a spousal benefit if they’re married to a qualifying worker. Noncitizens can also become eligible by working long enough to earn 40 credits.
A credit is defined as $1,730 in earnings in 2024, and you can earn a maximum of four credits per year. So, most people who have worked and paid Social Security taxes for at least 10 years should qualify.
It’s even possible for those with fewer work credits to qualify if the country they’re a citizen of has an agreement with the United States. In this case, their work credits from their home country could make them eligible for Social Security benefits once they’re old enough.
2. Social Security benefits are taxed just like retirement account withdrawals
The government doesn’t require you to pay income taxes on all of your Social Security benefits as it does with traditional 401(k) and IRA withdrawals. Some seniors don’t owe taxes on their Social Security checks at all, but it’s becoming increasingly common for retirees to give a slice of their benefit back to Uncle Sam.
Whether you’ll owe taxes on your Social Security checks depends on your marital status and provisional income — that’s your adjusted gross income (AGI) plus any nontaxable interest you have and half your annual Social Security benefits. The following table outlines what percentage of your benefits could be taxable:
|
Marital Status |
0% of Social Security Benefits Taxable |
Up to 50% of Social Security Benefits Taxable |
Up to 85% of Social Security Benefits Taxable |
|---|---|---|---|
|
Single |
Provisional incomes under $25,000 |
Provisional incomes between $25,000 and $34,000 |
Provisional incomes greater than $34,000 |
|
Married |
Provisional incomes under $32,000 |
Provisional incomes between $32,000 and $44,000 |
Provisional incomes greater than $44,000 |
Source: Social Security Administration.
To be clear, the above table only reflects what percentage of your benefits could be subject to taxes, not what rate you’ll pay. The IRS will tax the appropriate portion of your Social Security checks at your income tax rate.
You should also keep in mind that some states tax Social Security benefits as well. But each sets its own rules for which seniors owe these taxes.
3. Delaying Social Security grows your checks indefinitely
It’s true that delaying Social Security benefits boosts your checks over time. How much you get depends on your age at the time and your full retirement age (FRA). This is the age when you become eligible for your full benefit based on your work history. For most workers, it’s between 66 and 67.
The following table illustrates how quickly your benefits will grow per month for those with FRAs of 66 and 67.
|
Rate of Increase |
Full Retirement Age of 66 |
Full Retirement Age of 67 |
|---|---|---|
|
5/12 of 1% per month |
From 62 to 63 |
From 62 to 64 |
|
5/9 of 1% per month |
From 63 to 66 |
From 64 to 67 |
|
2/3 of 1% per month |
From 66 to 70 |
From 67 to 70 |
Source: Social Security Administration.
You’ll note that benefits stop increasing at 70 regardless of your FRA. This is when you qualify for your maximum Social Security benefit. There’s no reason to delay checks beyond this age, as you’ll just cost yourself money.
Hopefully, none of the above information surprised you, but if it did, you may want to rethink your Social Security claiming strategy. And if you have any questions about your specific situation, it doesn’t hurt to reach out to the Social Security Administration for clarification.