Social Security has become an increasingly important component of financial well-being for retirees in the United States since it was established in 1935. More than 68 million Americans receive Social Security benefits and nine out of 10 US adults who are at least 50 view Social Security as a critical component of their financial security in retirement. With good reason: among Social Security beneficiaries aged 65 and older, 39 percent of men and 44 percent of women receive at least half of their income from Social Security.
For such a popular and well-known federal government program, there are many misconceptions, outdated notions and outright fabrications associated with Social Security, including the following four. Please note all information below pertains to the Social Security program as of the first quarter of 2025 and is subject to change.
Misconception #1: You must file for Social Security benefits at age 65.
This is incorrect. Often, people conflate Social Security and Medicare, which are two separate government programs with vastly different enrollment procedures.
The earliest possible Social Security claiming age is 62. It’s important to note that if you file for Social Security before your full retirement age, you will receive lower benefits than you would if you waited. What is considered full retirement age?
It depends on when you were born:
- Those born in 1957 or earlier are already eligible for a full Social Security benefit.
- Anyone born from 1943 to 1954 has a full retirement age of 66.
- The full retirement age increases gradually if you were born from 1955 to 1960 until it reaches 67.
- Anyone born in 1960 or later, has a full retirement age of 67.
Learn more at https://www.ssa.gov/pubs/EN-05-10035.pdf.
Misconception #2: Social Security benefits are not taxable income.
According to the Social Security Administration (SSA), 56 percent of beneficiaries will owe some level of tax on the benefits they receive.
Recipients must pay taxes on up to 85 percent of their Social Security benefits if they file a:
- federal tax return as an "individual" and have a "combined income" above $25,000.
- joint return and both spouses have "combined income" of more than $32,000.
In addition, these states tax Social Security benefits:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
However, state income taxes on Social Security benefits only apply after a relatively high adjusted gross income (AGI) threshold is met.
Misconception #3: The benefit amount never changes once you start claiming benefits.
The Internal Revenue Service computes a worker’s initial monthly benefit amount using a formula that includes data such as their "average indexed monthly earnings,” as well as their age when they begin to collect from the program. Since 1975, benefits have included COLA (Cost of Living Adjustment) increases designed to help Social Security recipients keep pace with inflation. COLA adjustments are effective beginning in January of each year.
How is COLA calculated for Social Security payments?
The SSA uses the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) – which is determined by the Bureau of Labor Statistics in the Department of Labor – to calculate COLA adjustments.
It is important to remember that while annual COLA adjustments vary in degree, they can never be negative and reduce benefits, nor are they guaranteed. No COLA was payable in January 2010, January 2011 or January 2016. Why? Because the CPI-W Index did not show that the cost of living rose enough to warrant an increase.
Misconception #4: You cannot work and receive Social Security benefits at the same time.
Many individuals receiving Social Security retirement benefits work as well. However, depending upon the circumstances, there may be a financial impact if you decide to work while collecting monthly benefits and you exceed an established yearly earnings limit. For 2025 this limit is $23,400.
If you are younger than your full retirement age, will not reach full retirement age during the year and exceed the annual earnings limit, the SSA deducts $1 from your benefit payments for every $2 you earn above the annual limit.
Will you reach full retirement age this year?
- In the year you reach full retirement age, the SSA will deduct $1 in benefits for every $3 you earn above a different limit (in 2025, this limit is $62,160). However, starting the month you reach full retirement age, there are no reductions to your benefits, no matter how much you earn.
Note: The SSA does not consider pensions, annuities, investment income, interest, veteran’s benefits or other government /military retirement benefits as part of the earnings yearly limit.
The Social Security program is very nuanced. Working with an experienced financial advisor can help you develop a plan to optimize your benefits, mitigate taxes and get the most out of Social Security benefits. Connect with a SageView advisor to learn more.