Your friend’s cousin on Facebook may be a smart guy, but since he’s not a tax expert, you might want to avoid taking advice from him on the latest Social Security benefit rules.
If you have questions about Social Security, your best bet for information is the Social Security Administration (SSA) website or your financial advisor.
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Still, there are hundreds of friend’s cousins out there propagating myths about Social Security on social media. Here are three persistent myths that could wind up hurting your retirement.
Myth 1: You don’t pay taxes on Social Security benefits
Most Americans don’t have a retirement tax plan, according to a Northwestern Mutual study. If you’re one of them, it could be worth speaking to a financial advisor, since minimizing the taxes you pay in retirement can have a material impact on how much money you’ll have to spend.
One thing you’ll need to account for is that Social Security benefits may be taxed — contrary to a common myth that they’re not. The Internal Revenue Service (IRS) has a tool to help you determine, based on your gross income and the type of benefits you’re receiving, whether your benefits are taxable. The IRS also publishes a guide to help you calculate the taxes you might owe.
In general, how much you’ll be taxed on your benefits will depend on your income and filing status. To determine whether your benefits are taxable, add half the amount of benefits you’ve collected during the year to your other income, which may include pensions, wages, dividends, interest and capital gains. If you’re married and filing jointly, then take half of each spouse’s Social Security benefit and add that to your combined income.
According to the IRS, half of your benefits may be taxable if:
- You’re single, the head of a household or a qualifying widow or widower (with an income of $25,000 to $34,000).
- You’re married but you and your spouse lived apart for the tax year and are filing separately (with an income of $25,000 to $34,000).
- You’re married and filing jointly (with a combined income of $32,000 to $44,000).
Up to 85% of your benefits may be taxable if the calculated income exceeds the upper range in any of the above cases, or if you’re married and filing separately but you lived with your spouse at any point during the tax year.
Also, for the 2025 tax year, there are nine states that could tax your Social Security benefits. If you live in Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, Vermont or West Virginia, you may want to familiarize yourself with the rules around taxation of your benefits.
Read more: Want an extra $1,300,000 when you retire? Dave Ramsey says this 7-step plan ‘works every single time’ to kill debt, get rich in America — and that ‘anyone’ can do it
Myth 2: You must be retired to draw Social Security
Another myth is that you have to be retired to collect your retirement benefit. However, you may be able to collect Social Security even if you’re still working.
If you haven’t reached your full retirement age (FRA) — which ranges from 66 to 67, depending on the year of your birth — some of your benefits may be withheld. They’re also more likely to be taxed because you increase the chances that your income is above the threshold for Social Security taxation.
The SSA sets an annual earnings limit for people who haven’t reached their FRA but are collecting benefits. For 2025, this limit is $23,400, which includes wages, bonuses, commissions and vacation pay. If you exceed that limit, the SSA will deduct $1 for every $2 you make above $23,400.
In the year you reach your FRA, the 2025 earnings limit is $62,160 for the months before you hit your FRA. In this case, the SSA will deduct $1 for every $3 you make above $62,160. However, once you reach your FRA, there’s no limit on how much you can make, which means there’s no deduction for earnings.
To help you plan, the SSA provides a Retirement Age Calculator, a Retirement Earnings Test Calculator and an explanation, with numeric examples, of how work affects your benefits.
Myth 3: The annual COLA is guaranteed
Some Americans believe their benefits are guaranteed a cost-of-living adjustment (COLA) every year, but if you’re budgeting based on this assumption, you may need to rethink your planning.
A COLA adjusts your benefit for inflation so that your benefit checks can retain purchasing power. Most years, retirees can expect to receive one (in 2025, the COLA is 2.5%). But, since the COLA calculation is based on inflation — and because of the way it’s calculated — it’s possible for the COLA to be zero, so you’re not guaranteed to see a bump in your benefit every year.
In October of each year, the SSA announces the COLA that will be applied to the following year’s benefit payments. The COLA is based on the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), calculated monthly by the Bureau of Labor Statistics.
According to the SSA, the COLA is “equal to the percentage increase (if any) in the CPI-W from the average for the third quarter of the current year to the average for the third quarter of the last year.” It’s then rounded to the nearest tenth of 1%.
However, if — after rounding — there’s no increase in the average CPI-W, then there’s no COLA for the year. This occurred in 2009, 2010 and 2015.
Not only is it possible for there to be no COLA in some years, it’s also possible that the increase in your benefit amount may not be equal to the COLA multiplied by your benefit. This occurs because the COLA is applied to your primary insurance amount (PIA), which is the benefit you would receive if you elected to start receiving benefits at your FRA without adjustment for early or delayed retirement.
These myths can affect your retirement planning and cost you money. When planning for retirement, you may want to engage a qualified financial advisor and use reputable sources for information — no matter how well-meaning your friend’s cousin may be.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
