6 Things I Didn’t Know About Social Security That Came Back To Bite Me
Most people’s retirement plans include the Social Security benefits they count on accessing as early as age 62. For some people, Social Security might even be the primary income they live on, even though it is not designed to replace a full income after retirement.
For some retirees, it’s not until after they begin drawing upon those benefits that they learn hard truths that would have been helpful to know many years earlier.
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For example, in 2017, Amy Rogers — a journalist now living in Florida — needed to access her Social Security benefits at age 62 due to factors such as job loss and divorce.
Having worked freelance for years, she’d gotten used to an unpredictable income stream and workload, so while she wasn’t fully retiring, her circumstances necessitated taking these funds as early as she could. Social Security now accounts for between one half to two thirds of her total income.
She was surprised to learn that it wasn’t as simple as just getting her money from Social Security.
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Social Security Income Is Taxable
Given how low her freelance income is, she said, “I was astonished that my Social Security income was taxable.”
She found it confusing when filing her Form 1040 because it asked her to enter her Social Security income on a single line, with no separate schedule for it. She learned later that you need to look closely at the fine print in the instructions, which walk you through your determination.
“That was my mistake when I started drawing Social Security benefits. I just entered the amount but didn’t know I needed calculate the taxable amount. Well, the IRS did that for me. As a result, I got an adjustment from the IRS and a not-small (for me) bill.”
Frustrated, she paid it, explaining, “I am not a person who dodges taxes. I believe in paying for the common good.” However, she remained shocked that you can have an income below the poverty line and still own income tax while “rich folks can skirt them entirely.”
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You May Not Qualify for Medicare by the Time You Draw Social Security
Additionally, Rogers was still paying for her own health insurance without an employer plan or contribution because Medicare doesn’t kick in until you’re 65.
“This confuses a lot of folks but there is no connection between when you start Medicare and when you start drawing Social Security. This should be mentioned over and over again.”
Wages Have Not Kept Up
If she’d known how her Social Security income would be taxed, Rogers felt she would have been braced to owe more money, though she’s not sure she would have been able to adequately prepare, either way. In addition, it has made her reflect upon the egregious state of wages in the U.S.
“It is shameful that we have not raised the [federal] U.S. minimum wage in 15 years. It’s still $7.25. Any economic calculator tool will show you how many hours a person needs to work to afford housing and basic needs. Nowhere in the U.S. can a minimum or underpaid worker manage this. But as a country we allow it to continue.”
Her biggest takeaway from all of this was, “You cannot budget your way to solvency — much less to wealth — in the system our country operates under. It is emphatically not a matter of giving up an occasional coffee at Starbucks.”
She has certainly tried, cutting corners wherever she can, but finding it to not be enough. “Like lots of low-wage people, I spend a disproportionate amount of my income on housing. Medical care is exorbitant and out of control. I can’t fix it.”
Don’t Blame Yourself for Systemic Problems
What she’s trying hard not to do anymore is blame herself, though she acknowledged it is a natural tendency “ingrained by our stupid bootstraps mentality” to blame oneself when times are tough.
If she could go back in time, she said, “I would not have blamed myself for a systemic problem I’m unable to fix. I would have stopped believing people would understand without it happening to them.”
Coping With Higher Lifestyle Costs
While common retirement advice is to wait as long as you can to draw upon Social Security, that may not be the best advice in high inflationary times. Rogers finds it ironic that the full retirement age keeps going up, based on people living longer but rising costs are outpacing the gains people might receive by waiting longer to take their benefits.
“In other words, if I had waited another year to start drawing Social Security, my monthly increase would have been less than $100. But during that time, my actual expenses went up far more than that.”
Don’t Go It Alone
Rogers’ advice is to seek professional advice as needed, but be ready to make ongoing adjustments to reprioritize your needs as life happens.
“Don’t let anyone shame or blame you for the pivots you may need to make,” she said.
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This article originally appeared on GOBankingRates.com: 6 Things I Didn’t Know About Social Security That Came Back To Bite Me