Social Security: 5 Common Misconceptions and Myths

Clients who continue to earn money from employment or self-employment can increase the level of their benefits even if they've already accumulated a 35-year earnings history. Continuing to work a few more years can increase the amount of their benefit if these additional earnings will replace some of the lower-earning years that make up that 35-year history, perhaps some of the early years in their working careers.

4. Social Security Account

Blankenship cites the misconception that many have about having their own Social Security account. He says, "A big misconception about Social Security is that each individual has a specific "account" which holds all the money you've had withheld from your paycheck over the years. Nothing could be further from the truth… the Social Security system is a pay-as-you-go system (largely) where withholding today is used to pay benefits for current recipients."

5. Benefits Are Tax-free

Many people think Social Security benefits cannot be taxed. But if your client's income exceeds certain levels, their benefits will be taxed. For single individuals, if their income is above $25,000, a portion of their benefits will likely be subject to taxes. For married couples, the floor is $32,000 of combined income – an income formula that adds a portion of their benefits plus tax-exempt interest to other income. Taxes apply to all types of income that clients might have, not just earned income from employment or self-employment. And taxes will apply regardless of the client's age. Beyond federal taxes, Social Security benefits are taxed all or in part by 13 states.