David Lerner Associates: Misconceptions and Realities about Social Security

Misconception: Social Security will provide the majority of the income you need in retirement.

Reality: It's likely that Social Security will provide a smaller portion of retirement income than you expect.

There's no doubt about it– Social Security is an essential source of retirement income for most Americans. According to the Social Security Administration, more than nine out of ten people age 65 and older obtain Social Security advantages.

But it may be unwise to rely too heavily on Social Security, because to keep the system solvent, some modifications will need to be made to it. The younger and wealthier you are, the more likely these modifications will affect you. But whether retirement is years away or just around the corner, remember that Social Security was never meant to be the sole source of income for retirees. As President Dwight D. Eisenhower said, "The system is not intended as a substitute for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which these other forms of protection can be soundly built."

No matter what the future holds for Social Security, focus on saving as much for retirement as possible. You can do so by adding to tax-deferred vehicles including IRAs, 401(k)s, and other employer-sponsored plans, and by investing in stocks, bonds, and mutual funds. When combined with your future Social Security benefits, your retirement savings and pension benefits can help you have enough income to see you through retirement.

Misconception: Social Security is only a retirement program.

Reality: Social Security also provides disability and survivor's advantages.

With all the focus on retirement advantages, it's easy to overlook the fact that Social Security also offers protection against long-term disability. And when you receive retirement or disability benefits, your family members may be qualified to receive benefits, as well.

Another important source of support for your family is Social Security survivor's insurance. If you were to die, certain members of your family, including your spouse, children, and dependent parents, could be eligible for monthly survivor's benefits that can help replace lost income.

For specific information about the advantages you and your family members could receive, visit the SSA's website at www.socialsecurity.gov, or call 800-772-1213 if you have questions.

Misconception: If you earn money after you retire, you'll lose your Social Security benefit

Reality: Money you earn after you retire will only affect your Social Security benefit if you're under full retirement age.

Once you reach full retirement age, you can earn as much as you want without affecting your Social Security retirement benefit. But if you're under full retirement age, any income that you earn may affect the amount of benefit you receive:

• If you're under full retirement age, $1 in benefits will be withheld for every $2 you earn above a certain yearly limit. For 2014, that limit is $15,480.
• In the year you reach full retirement age, $1 in benefits will be kept for every $3 you earn above a certain annual limit until the month you reach full retirement age. If you reach full retirement age in 2014, that limit is $41,400.

Even if your monthly benefit is reduced in the short term due to your earnings, you'll receive a higher monthly benefit later. That's because the SSA recalculates your benefit when you reach full retirement age, and omits the months in which your benefit was reduced.

Misconception: Social Security benefits are not taxable.

Reality: You may have to pay taxes on your Social Security benefits if you have other income.

If the only income you had during the year was Social Security income, then your benefit generally isn't taxable. But if you earned income during the year (either from a job or from self-employment) or had substantial investment income, then you might have to pay federal income tax on a portion of your benefit. Up to 85 % of your benefit may be taxable, depending on your tax filing status (e.g., single, married filing jointly) and the total amount of income you have.

For more information on this subject, see IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits.

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Some of this material has been provided by Broadridge Investor Communications Solutions, Inc.

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