Zombie Myths About Social Security That Could Hurt Your Retirement

In honor of Labor Day and the legacy of Frances Perkins

I am equally annoyed and exhausted by the relentless 24/7 marketing hellscape we live in. I was in Lowe’s on August 30, and already there was a massive display of giant skeletons and other assorted Halloween merchandise up. Don’t get me wrong, I love Halloween and every year enjoy transforming our front yard into Spookyville. But seriously? Can’t we wait until the end of September?

If that isn’t scary enough, it’s an election year and as always, politicians running for office have positions on Social Security. Because questions about Social Security come up so often with coaching clients, and because there are so many myths about Social Security that refuse to die, this seems like a good time to channel my energy into creating this primer on myths and facts. But first, a little history.

Social Security has only existed since August 14, 1935, when it was signed into law by FDR. The intent of the Social Security Act was to protect working Americans from falling into poverty once they were no longer able to work. It not only provides guaranteed monthly income in retirement, but also regular income for people who cannot work due to disability, as well as family members and survivors of those eligible to receive benefits. While Franklin D. Roosevelt gets a lot of the credit, it was the first female Cabinet member and Secretary of Labor, Frances Perkins who was the architect of the plan.

Perk was a tireless advocate for the average working person and is also responsible for many of the workplace standards we now take for granted. Such as the 40-hour work week, minimum wage, unemployment compensation and laws against child labor, which some states are trying to bring back to life (you can probably guess which ones,

Jess Piper

). She also tried to establish universal health care back then too. Read more about her work and life. She was pretty amazing and deserves wider appreciation. I will be drinking a margarita tonight and toasting her accomplishments.

Now, on to the myths!

Myth #1: Social Security is going to disappear in 2034

Really, it’s a myth. Social Security is the closest thing to a pension most of us will ever have.

A lot of Americans, 57% according to one recent survey, worry that Social Security won’t exist when it’s time for them to retire. I hope it’s because they don’t know how Social Security is funded, not because they are voting for candidates who are on the record that they want to cut it.

Have you ever really looked at a pay stub and wondered what the hell FICA is?

Social Security is funded by the withholding taxes you pay, split 50/50 between employers and employees. FICA stands for Federal Insurance Contributions Act, and funds both Social Security and Medicare. FICA is withheld from employees’ paychecks or paid by self-employed independent contractors, and employers contribute the remaining 50% through their payroll taxes. So even when the current surplus funds are spent by 2034, existing FICA withholding taxes means that Social Security will still be able to pay out about 80% of benefits. While it is sometimes referred to as an entitlement, Social Security is not a handout—it’s a system that everyone who works for a living pays into.

There is a relatively easy fix for continuing to pay 100% of benefits, including annual cost of living increases. The current cap on FICA is $168,600—meaning that once you’ve paid FICA on that amount, you’re done for the year, no matter how much money you continue to make. For someone earning a $500,000 annual salary, they will only pay FICA on the first $168,600 of that income. Remove the current ceiling on FICA, so that high income earners pay tax on all of their earned income, and voila!

So, bottom line: Social Security isn’t going anywhere. Unless we are collectively dumb enough to vote in more greedy billionaires who want to line their pockets and their friends’ pockets with our tax dollars. Consider writing to your elected representatives to urge them to remove the FICA cap entirely.

Myth #2: Social Security alone is enough for me to live on in retirement

Sorry, that’s also a myth. Social Security benefits are intended to replace about 40% of your previous income in retirement. The average benefit in 2024 is $1917 per month. It’s not nothing, but in a lot of major metro areas, that might barely pay the rent on a studio apartment, with little left over for anything else. And women are disproportionately affected.

How is your benefit amount calculated? It’s based on your 35 highest income-earning years, along with your age when you claim. The higher your earnings over those 35 years, the higher your Social Security benefit, while any years with $0 income will lower your benefit. Especially if you delay claiming past age 67 or you continue working part time in retirement, your benefit can actually increase, as higher income years replace lower or zero income years. And for every year you delay past your full retirement age (67 for most people) your benefit amount increases by 8%. So if your monthly benefit at your full retirement age is $1000, waiting a year to claim will increase your benefit to $1080.

But what the average amount doesn’t show is the gender difference between men’s and women’s benefit amounts. Thanks to the gender pay gap and taking time out of the workforce to provide unpaid caregiving, the average woman receives about $350 less per month. Over the course of a 25-year retirement that difference adds up to more than $106,000. Combine that with longer lifespans, gray divorce, and higher health care costs, and it’s no wonder older women are twice as likely to live in poverty compared to men.

Myth #3: Social Security benefits aren’t taxed

This was true until the 1983 act passed by Congress and signed into law by Ronald Reagan. The full retirement age was raised from 65 to 67 then as well, and these changes helped to ensure that Social Security remained able to pay 100% of benefits. The good news is that only a percentage of your benefit is taxable, at most up to 85%. People with with low to moderate incomes may not have to pay any federal income tax on their benefit. You can estimate what that might look like using this handy calculator from the IRS. But some states (Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont, and West Virginia) do tax the benefit, just like any income from working at a job.

Myth #4: Illegal immigrants are to blame for the current financial state of Social Security

Complete and utter myth. Undocumented workers cannot claim benefits. People who are not citizens but who legally live and work in the US can qualify for Social Security under the same terms as native-born and naturalized Americans. And undocumented workers are helping to shore up Social Security’s finances. Some workers get Social Security numbers and have FICA taxes withheld from their paychecks even though they are not eligible to file and claim benefits. Social Security actuaries estimate that undocumented workers have made a net contribution of around $12 billion to the program. Unlike some deadbeat major corporations and billionaires we know who pay $0 in federal taxes.

Myth #5: I’m divorced, so I can’t claim Social Security based on my former spouse’s earnings

It depends. If you were married for at least ten years, you can indeed claim benefits on your ex-spouse’s earnings record. It won’t reduce their benefit, and they will not be notified of your claim. If you re-married, that later marriage needs to have ended through divorce, annulment, or death.

You can apply for benefits on your former spouse’s record even if they haven’t retired, as long as you divorced at least two years before applying. If, however, you decide to wait until full retirement age to apply as a divorced spouse, your benefit will be equal to half of your ex-spouse’s full retirement amount or disability benefit. The same rules apply if your former spouse died.

If you are entitled to benefits based on your own earnings record, you can apply for both and Social Security will calculate whether your own benefit or your ex-spouse’s is higher and then pay you the higher one. You can create a myssa.gov account and estimate your benefit amount. The closer you are to retirement, the more accurate your estimate will be.

Myth #6: You lose benefits permanently if you keep working

The earliest age anyone can claim Social Security is 62. However, starting Social Security before your full retirement age reduces your monthly benefit amount. If you have health issues, or just need the money to make ends meet, it can make sense to claim early and start getting that cash direct deposited. But it generally pays to wait. Once you reach your full retirement age, you can claim 100% of your benefit. Every year you wait adds another 8% of that amount to your monthly check. Very few investments offer that kind of guaranteed, risk-free return.

But let’s say you get laid off at age 64, and decide to look for part-time work. Your new job pays about $2000/month. You could file for Social Security to get additional income. However, when you claim before your full retirement age, Social Security withholds a portion of your benefit once your income reaches a threshold. If you are under full retirement age for the entire year, $1 is deducted from your benefit payments for every $2 you earn above the annual limit. For 2024, that limit is $22,320.

In the year you reach full retirement age, $1 in benefits is deducted for every $3 you earn above $59,520. Social Security only counts your earnings up to the month before you reach your full retirement age, not your earnings for the entire year. On the date when you hit FRA, the earnings limit goes away — there's no benefit reduction, regardless of your income. Social Security also adjusts your benefit upward so that over time, you recoup the money that was withheld.

If you claim and continue working your benefit may increase, especially if your income is one of your highest 35 years’ worth of earnings. Each year Social Security reviews the records for all beneficiaries who work. If your latest year of earnings turns out to be one of your highest years, your benefit is recalculated automatically, and the increased benefit is paid in December of the following year. For example, in December 2024, you would get an increase based on your 2023 earnings if those earnings raised your benefit. The increase would be retroactive to January 2024 and would result in a lump sum payment.

Bottom line: There’s no single ‘right’ time to claim Social Security. A lot depends on your individual situation and goals. But don’t let these myths that refuse to die slow your roll.

Thanks, Perk. You were a badass. Because of your work, Social Security now helps me pay my bills and allows me to offer some of my financial coaching sessions pro bono. Working people everywhere salute you today.

Photo credits: cottonbro studio via Pexels and the Frances Perkins Center