There are a lot of misconceptions surrounding the Social Security system. Here are four common myths and the truth about how Social Security works and its future prospects.
Myth 1: You Should Collect Benefits Early
This is one of the biggest Social Security myths. In 2015, around half of Social Security recipients began collecting benefits before their full retirement age (66 for those born between 1943 and 1954), potentially costing themselves thousands of dollars in additional benefits. If you take Social Security between age 62 and your full retirement age, your benefits will be permanently reduced to account for the longer period you will be paid.
On the other hand, if you delay taking retirement, depending on when you were born your benefit will increase by 6 to 8 percent for every year that you delay, in addition to any cost of living increases. There are a lot of factors that go into the decision as to when to take Social Security benefits, but if possible it is usually better to wait until your full retirement age or older.
Myth 2: Your Money Goes into an Account with Your Name on It
When you pay into Social Security, the money is not set aside in a separate account, as with a 401(k) or IRA. Instead, your contributions are used to pay current recipients. When you start receiving benefits, people paying into the system will be paying your benefits.
Myth 3: Social Security Will Be Out of Money Soon
Many young people believe the Social Security system will run out of money before they have a chance to collect anything. Currently, the Social Security trustees predict that the trust fund will run out of money in 2034. Politically, it seems unlikely that Congress and the President would let this happen. Changes will likely be made to the system by either raising taxes (such as by lifting the cap on income subject to Social Security tax), reducing benefits for high-income individuals, increasing the retirement age, or doing something else that will allow Social Security to be fully funded. However, even if the trust dries up and there isn’t enough money to pay all the promised benefits, people will still be paying into the system and Social Security will be able to pay at least 75 percent of benefits.
Myth 4: If You Haven’t Worked, You Cannot Collect Benefits
If you haven’t worked outside of the home, you will not be able to collect Social Security benefits on your own record, but you may be able to collect them based on your spouse or ex-spouse’s record. Spouses are entitled to collect as much one half of a worker’s retirement benefit. This rule applies to ex-spouses as well, as long as the marriage lasted at least 10 years and the spouse applying for benefits isn’t remarried.
Saying that there has been “undue influence” is often used as a reason to contest a will or estate plan, but what does it mean?
Undue influence occurs when someone exerts pressure on an individual, causing that individual to act contrary to his or her wishes and to the benefit of the influencer or the influencer’s friends. The pressure can take the form of deception, harassment, threats, or isolation. Often the influencer separates the individual from their loved ones in order to coerce. The elderly and infirm are usually more susceptible to undue influence.
To prove a loved one was subject to undue influence in drafting an estate plan, you have to show that the loved one disposed of his or her property in a way that was unexpected under the circumstances, that he or she is susceptible to undue influence (because of illness, age, frailty, or a special relationship with the influencer), and that the person who exerted the influence had the opportunity to do so. Generally, the burden of proving undue influence is on the person asserting undue influence. However, if the alleged influencer had a fiduciary relationship with your loved one, the burden may be on the influencer to prove that there was no undue influence. People who have a fiduciary relationship can include a child, a spouse, or an agent under a power of attorney. For more information on contesting a will, go here.
When drawing up a will or estate plan, it is important to avoid even the appearance of undue influence. For example, if you are planning on leaving everything to your daughter who is also your primary caregiver, your other children may argue that your daughter took advantage of her position to influence you. To avoid the appearance of undue influence, do not involve any family members who are inheriting under your will in drafting your will. Family members should not be present when you discuss the will with your attorney or when you sign it. To be totally safe, family members shouldn’t even drive or accompany you to the attorney’s office. You can also get a formal assessment of your mental capabilities done by a medical professional before you draft estate planning documents. For more information on preventing a will contest, go here.