Some myths & misperceptions keep circulating about Social Security. These are worth dispelling, as more and more baby boomers are becoming eligible for their retirement benefits.
Myth #1: Social Security will go away before you do. The federal government has announced that Social Security may become insolvent between 2033 and 2037 if no action is taken – but it is practically a given that Congress will act on the program’s behalf. Social Security provides 40% of the total income of the 40 million Americans receiving retirement benefits.1
Did you know that Social Security has had a surplus each year since 1984? That situation is about to change. By about 2020, the program is projected to face a deficit, which it will tap incoming interest payments to offset. It will only be able to use that tactic until the mid-2030s. The program will not “run dry” or go bankrupt at that point, but by some estimates, its payments to retirees could become about 25% smaller.1
Myth #2: Your Social Security benefits are “your” money. It would be a fitting reward if your Social Security income represented the return of all the payroll taxes you had paid through the years. Unfortunately, that is not the case. The payroll taxes you paid decades ago funded the Social Security benefits that went to retirees at that time. Your Social Security benefits will be funded by the payroll taxes that a younger generation pays.2
If you received a 2014 health insurance subsidy, you may get an unpleasant surprise. When the Health Insurance Marketplace (HIM) went online in late 2013, Americans shopping for coverage were asked to see if they qualified for a subsidy called the Premium Tax Credit. Millions of Americans did receive this federal assistance, which made it easier for them to pay health insurance premiums. PTCs were awarded based on household size and estimated 2014 household income.1
Of course, estimates don’t always match reality. Some households earned more than they thought they would in 2014. Others experienced life events like divorces, births or deaths. Because of these developments, certain households ended up receiving PTCs that were too large for their incomes and family size.
Is yours among them? If it turns out that way, you may have to pay a percentage of that federal credit back.