Things Most People Don’t Know About Social Security
For most Americans, Social Security is the foundation of retirement income. Yet despite how common it is, many people don’t fully understand how it works. The system has layers of rules, exceptions, and hidden opportunities that can make a big difference in retirement planning. Here are some of the things most people don’t know about Social Security:
Social Security Isn't Just a Retirement Program
Most people think of Social Security only as a retirement benefit, but it also provides disability benefits, spousal benefits, survivor benefits, and even benefits for children in some cases. In fact, nearly one-third of beneficiaries are not retirees but widows, disabled workers, or dependents.
Your Benefit Is Based on Your Highest 35 Years of Earnings
Your Social Security retirement benefit isn’t based on your last job or just a handful of years—it’s calculated using your highest 35 years of earnings (adjusted for inflation). If you worked fewer than 35 years, zeros are averaged in, which can reduce your benefit.
Benefits are Progressive
The system is designed to replace a larger percentage of income for lower earners. High earners receive bigger checks in dollar terms, but they get a smaller percentage of their pre-retirement income compared to lower earners.
You May Owe Taxes on Your Benefits
Social Security was originally tax-free, but since the 1980s, benefits can be taxed depending on your income. Up to 85% of your benefit can be taxable if your income exceeds certain thresholds.
You Can Claim as Early as 62—or as Late as 70
Many people assume everyone starts at 65, but the truth is you can claim as early as 62 or wait until 70. Claiming early reduces your benefit permanently, while delaying can increase it by about 8% per year after full retirement age—a powerful increase for those who live longer.
Working in Retirement Can Temporarily Reduce Benefits
If you claim Social Security before your full retirement age and continue working, your benefits may be reduced if you earn above certain thresholds. However, this is not a true loss—your benefit is recalculated at full retirement age to credit you for the reduction.
See Understanding the Social Security Earnings Test – Gilbert Wealth
Social Security Is Adjusted for Inflation
Each year, Social Security benefits are adjusted with a Cost-of-Living Adjustment (COLA). While this helps protect retirees against inflation, the formula is based on the CPI-W, which may not perfectly reflect retiree spending.
See Understanding the Different Adjustments to Social Security Benefits – Gilbert Wealth
It’s Not Going Bankrupt—But It Will Change
One of the biggest misconceptions is that Social Security is “running out of money.” The truth: the system faces a funding gap. By the early 2030s, without reform, the trust fund reserves may be depleted. At this point, Social Security won’t disappear—it will still collect payroll taxes and pay most benefits. The estimated payroll taxes collected will support benefits but at a level equivalent to a 20% to 25% reduction in benefits.