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It’s difficult to overstate how important Social Security benefits are to retirees in the United States. Consider the following:
Social Security benefits typically replace about 40% of pre-retirement income for average earners.
The system provides inflation-adjusted benefits to over 70 million Americans.
50% of the senior population rely on Social Security for at least half of their income.
The US Social Security program celebrated its 90th birthday in 2025. In 1940, Ida May Fuller became the first recipient of recurring Social Security benefits, receiving a check for $22.54. In 2026, the average monthly Social Security benefit is $2,071. The system has transformed over the years and adapted to changing times.
Questions about the longevity of the Social Security system are on the minds of retirees in 2026. When discussing income planning with retirees, we encounter common myths about Social Security benefits that can cause serious harm to a retirement plan if acted upon. The most expensive mistakes may not be obvious at the time, but can reduce income for the rest of your life.
In today’s post, we’ll look at three common myths about Social Security that can cost retirees thousands of dollars.
Myth #1: I should claim my benefits as early as possible because the entire system is running out of money.
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One of the biggest concerns highlighted by the media is that Social Security is running out of money. The trust fund reserves that are being drawn down to pay out current benefits are projected to be depleted by the mid-2030s.
Retirees who currently receive Social Security benefits hear this and become alarmed because they fear a reduced income.
Those in their early 60s might hear this and start making plans to claim benefits now before they lose out. According to a 2023 Schroders US Retirement Survey, 40% of non-retired respondents said they plan to take their Social Security benefits between ages 62 and 65, citing concerns that Social Security may run out of money.
Myth #1 on our list is believing that you should claim benefits as early as possible because the Social Security system is running out of money.
Reality
Social Security benefits are not expected to stop paying out once the trust reserves are depleted in 2033.
The current estimate is that there will be enough revenue from ongoing payroll taxes to fund about 80% of promised benefits once the reserve is used up.
It’s true that the benefits currently being paid out exceed the tax revenue. With around 10,000 Baby Boomer generation retirees turning 65 every day, workplace demographics have shifted.
Historically, adjustments have been made to the system and proposals have been discussed. Suggestions have included increasing payroll taxes, increasing full retirement age, and modifying the cost of living adjustment.
A reduction in benefits is not off the table, though many proposals focus on younger workers.
How This Can Cost You
Claiming benefits before full retirement age results in:
- Reduced monthly income for life
- Reduced survivor benefits for a spouse
- Further reductions if you’re still working prior to full retirement age
The concern that retirees have is that their income will be reduced once Social Security runs out of its trust reserve. In fact, claiming benefits before full retirement age locks in reduced monthly income for life. Claiming at age 62 can result in a benefit 30% lower than what you would receive at full retirement age. Although it may feel safer to start your benefits early, doing so permanently reduces your income and could result in less income than a reduction caused by changes in Social Security.
Myth #2: I should claim my benefits as soon as I stop working.
Some people retire and think they should immediately start claiming their Social Security benefits. They see receiving benefits as a signal that retirement has truly begun. Some believe they are required to start claiming benefits by a certain age.
There are certainly cases when it makes sense to claim benefits upon retirement. But it’s not a given that claiming Social Security immediately after retirement is the right move to increase your lifetime benefits.
Reality
The truth is that deciding when to claim benefits is independent from your work status. Many retirees increase their lifetime benefit by delaying claiming even after retiring. This is because delayed credits increase your benefit by around 8% each year beyond your full retirement age up to age 70.
If you retire early but have a chance of returning to work later, you may want to hold off on claiming. Work earnings can temporarily reduce your benefits until you reach full retirement age.
When planning your retirement income, you might consider using portfolio withdrawals as a bridge between your retirement year and claiming Social Security to maximize your benefits.
How This Can Cost You
Similar to Myth #1, claiming benefits immediately upon retirement can have the following impact on your Social Security:
- Reduced lifetime benefits if claiming early
- Reduced survivor benefits for a spouse
- Temporarily reduced benefits if you go back to work prior to full retirement age
Instead of viewing retirement as a signal to automatically start your Social Security benefits, consider whether it makes sense to delay claiming until a few years after you retire. Your decision of when to claim should be based on your health, finances, and family situation instead of work status.
Myth #3: Social Security isn’t taxed.
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A common misconception about Social Security benefits is that it’s not taxed.
The taxation of Social Security on the federal level has gone through changes during its existence, making it a point of confusion for retirees. The formula used to calculate one’s Social Security tax burden is not straightforward.
There’s even a difference in some states between how Social Security taxes are treated at the federal versus state level.
Reality
On the federal level, up to 85% of Social Security benefits may be taxable. The amount subject to tax depends on a taxpayer’s combined income. Some taxpayers with a low enough combined income may not be taxed at all on their Social Security benefits.
States have their own treatment of state taxes on Social Security benefits. As of 2026, 41 states (including Hawaii) do not tax Social Security benefits. This is a welcome tax break for retirees but can add to the confusion of whether benefits are taxable.
How This Can Cost You
Not knowing if your Social Security benefits are taxed may bring a nasty surprise during tax time. It may also result in a large tax bill owed and underpayment penalties.
It’s important to know how much of your income is being taxed, especially in retirement. Items like your Medicare premiums, net investment income tax, and room in your marginal tax bracket are all affected by annual income.
In Summary
Getting your Social Security claiming strategy “right” can be crucial to the success of your retirement income plan. Myths and misunderstandings about Social Security are common. Remind yourself to look beyond the news headlines and focus on what strategy best fits your personal situation. If you’re within a few years of claiming Social Security, it’s worth reviewing your strategy to understand how it fits your retirement and tax plan and maximizes your family’s lifetime benefit. Schedule a conversation to review your claiming strategy [link to https://www.andrewsllc.com/contactus].
Travis
Investment advisory services offered through Andrews Advisory Associates LLC, a registered investment advisor. This blog is not meant to give investment advice. Before investing in any advisory product please carefully read any disclosure documents, including without limitation, the firm’s Form ADVs. The information herein is provided for informational purposes only, and does not constitute an offer, solicitation or recommendation to sell or an offer to buy securities, investment products or investment advisory services. Nothing contained herein constitutes financial, legal, tax, or other advice. These opinions may not fit your financial status, risk and return profile or preferences. Investment recommendations may change, and readers are urged to check with their investment adviser before making any investment decisions.
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