14 Common Misconceptions About Social Security

What is Social Security?

Social Security is a federal program that issues benefits to eligible retirees, people unable to work due to a physical or mental condition, spouses, and children of beneficiaries. The Social Security Act was signed into law on August 14, 1935. Social Security is the term used for the “Old Age, Survivors, and Disability Insurance” (OASDI) Program in the United States. Social Security is run by the Social Security Administration (SSA). Social Security is known for retirement benefits, survivor benefits, and income for workers who become disabled. Social Security provides a source of income when you retire or if you cannot work due to a disability. It may also provide benefits for your legal dependents after death.  

How Social Security Works.

Social Security is financed through a 12.4% tax split among employers and employees; self-employed individuals pay the entire 12.4. This tax money is deposited into the two Social Security trust funds: the Old Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. The Social Security Administration pays current benefits and administrative costs out of those funds. Unused money is left in the trust funds and invested in Treasury Bonds.

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Common Misconceptions about Social Security.

  1. Social Security will fully cover retirement income needs. The Social Security program provides cash during retirement years, but additional sources of income may be needed. Social Security benefits represent approximately 33% of the income older adults receive. Social security benefits are based on the earnings brought in during working years. An individual’s benefit will be calculated by considering their highest 35 years of earning history. 
  2. It is better to take social security benefits early. Drawing retirement immediately can reduce monthly payouts by 30%. 
  3. Full social security benefits are not guaranteed at 65. When Social Security was created in 1935, 65 was set as the eligibility age. In later decades, the minimum age was lowered to 62, allowing people to claim a reduced benefit, but 65 remained the standard for full retirement. In 1983, retirement changed. The retirement age was raised to reduce social security costs. The increase is being phased in over time. 2002 was the last year in which people turning 65 could claim their full benefit. Full social security benefits depend on when you are born. Retirees born between 1943 and 1954 have a normal retirement age of 66. People born between 1943 and 1954 have a normal retirement age of 66. Individuals born after 1960 will start receiving full benefits at age 67. Full retirement age (FRA) is the age when a worker qualifies to file for 100 percent of the benefit calculated from lifetime earnings history. This age is 66 and 4 months for people born in 1956 and 66 and 6 months for those born in 1957. This will increase two months at a time, settling at 67 for those born in 1960 or after.
  4. Going to the Social Security office to apply is required. Social Security benefit applications can be submitted at the Social Security office or online. 
  5. Individuals can still work and receive Social Security benefits. Individuals can continue working after they begin receiving Social Security, but their job could impact the amount they receive in benefits. This amount depends on age and income. During 2020, individuals between 62 and full retirement age could earn up to $18,240 and not have benefits temporarily reduced. Individuals who made more than $18,240 had benefits reduced by $1 for every $2 made above the limit. When a person is at full retirement age, the limit climbs to $48,600. Then, $1 in benefits is deducted for every $3 earned above the limit. The earnings are counted to the month before you reach full retirement age. Once a person reaches full retirement age, there is no limit to what they can earn. 
  6. Social Security isn’t taxed. Social Security benefits may be subject to income taxes. It depends on your total income. All income is added up, then half of a person’s Social Security benefit. A single individual with an amount of $25,000 or less won’t have benefits taxed. A person who is married and the amount is less than $32,000 won’t be taxed; however, individuals at higher income levels may be taxed.
  7. Once Social Security benefits begin, it continues for life. Changes can be made within a certain time frame. Social Security provides a one-time do-over option, allowing you to withdraw your application within 12 months of filing. You are required to repay the benefits and file again later. After 12 months, you cannot start over. Individuals who are normal retirement age or older can temporarily suspend payments and qualify for bigger payments later. 
  8. Ex-spouses are not eligible to receive benefits. If you were married for ten years or longer, you could be eligible to receive benefits based on your ex-spouse’s work record. To qualify, you’ll need to be at least 62 and unmarried. An individual’s benefits will not be reduced if an ex-spouse begins to receive benefits. 
  9. Social Security is going broke. Social Security will not run out of money if workers and employers pay payroll taxes. It is a pay-as-you-go system. Revenue coming in from FICA (Federal Insurance Contributions Act) and SECA (Self-Employed Contributions Act) taxes largely cover the benefits going out. Social Security does face funding challenges. At first, Social Security collected more than it paid out, generating a surplus of $2.83 trillion at the end of 2022. Now the system is paying out more than it takes in. This is largely due to the retiree population growing faster than the working population and living longer. The surplus is projected to run out in 2034 without changes in how Social Security is financed. Social Security will still be fine. It will still collect tax revenue and pay benefits. It will only bring in enough to pay 80% of scheduled benefits. To avoid that outcome, Congress would need to intervene as they did in 1983. The steps included raising the full retirement age, increasing the payroll tax rate, and introducing an income tax on benefits. 
  10. The annual Cost of Living Adjustment (COLA) is not guaranteed. Since 1975, Social Security law has mandated that benefit amounts be adjusted annually to keep pace with inflation. There is no requirement that this cost-of-living adjustment produces a yearly increase. COLA is tied to a federal index of prices for select consumer goods and services called the CPI-W. Benefits are adjusted annually based on changes in the CPI-W from the third quarter of one year to the third quarter of the next. In 2022, the index showed an 8.7 percent increase in prices so benefits will be 8.7 percent higher in 2023. If the index does not show a statistically measurable rise in prices, there will be no adjustments to benefits. An increase has occurred 3 times in 2010, 2011, and 2016. This process is automatic and does not involve the president or Congress.
  11. Members of Congress do not pay into Social Security. Members of Congress came under the Social Security umbrella in 1984, along with the rest of the federal workforce, as part of the sweeping changes to the program enacted previously.
  12. The government borrows from Social Security and repays with interest. Social Security revenue is, by law, invested in special U.S. Treasury securities. With Treasury bonds, the federal government can spend the proceeds on different programs. The Treasury must pay the money back, with interest. Social Security redeems the securities to pay benefits. 
  13. Undocumented immigrants cannot receive Social Security benefits. Noncitizens who live and work in the U.S. can legally qualify for Social Security under the same terms as native-born or naturalized Americans. Undocumented individuals are unable to claim benefits. 
  14. Social Security is not like a savings account. The government does not store payroll tax contributions in a personal account. Benefits are based on how much money is earned through an individual’s working life, not how much you pay into the system. 


Questions on Social Security Disability Benefits (aarp.org)

8 Myths About Social Security (usnews.com)

10 Myths and Misconceptions About Social Security (aarp.org)

Social Security Explained: How It Works, Types of Benefits (investopedia.com)

Social Security | USAGov

What Is Social Security? (thebalancemoney.com)

Timeline of Key Events in the History of Social Security (aarp.org)

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