Social security reform may first target high-income earners
Social Security costs reach $1.5 trillion annually, and demographic changes threaten the program’s survival.
News told by money
Myths about retirement abound.
Many Americans have basic misconceptions about Social Security, Medicare, and other pillars of retirement.
Here are the six biggest misconceptions about retirement planning. Our story is based on a June report from the Boston University Retirement Research Center.
Social Security disappears when you retire.
Anyone who follows Social Security news knows that retirement trust funds are facing a fiscal cliff.
There is more money going out of a trust fund than coming in. Unless Congress acts, federal programs will be underfunded by 2032.
News reports warn that Social Security is underfunded and in bankruptcy. Although the term is figurative and imprecise, many Americans take it literally.
Almost two-thirds of us believe that benefit payments will stop if a shortfall occurs. The findings come from a paper by researchers at UCLA and Cornell University.
In fact, AARP estimates that if no action is taken, federal agencies will have enough money to pay about 83% of all benefits if reserves are depleted.
There’s a big difference between 83% and zero, but many Americans don’t realize it.
“It seems like people are jumping to the conclusion that it’s going to go away,” said Luke Delorme, a certified financial planner in Great Barrington, Mass., and contributor to the Center for Retirement Research.
These across-the-board reductions will only occur if we do nothing. Policy experts widely believe Congress will intervene to rescue the program.
Many potential solutions include collecting more payroll taxes from the wealthy or capping benefits for the wealthy. In any case, experts say current retirees or those nearing retirement are unlikely to see significant benefit cuts.
No longer requires long-term care
The long-term care industry serves people who are unable to perform daily activities such as dressing and eating without assistance. And more than 80% of Americans will need that help at some point, according to research from the Center for Retirement Research.
But most Americans seem to think they don’t need long-term care. A 2024 survey of affluent older Americans conducted by researchers at Boston University found that long-term care ranked fifth among concerns about retirement finances, behind concerns such as stock market turmoil and Social Security cuts.
“People don’t want to think about it,” says Keith Singer, a certified financial planner in Boca Raton, Florida. “It’s hard to imagine not being able to take care of yourself.”
Retirees ignore long-term care at their peril. According to CareScout, assisted living communities cost an average of $6,200 per month. Delorme reports that a home health aide costs about $75,000 a year.
Medicare covers long-term care
Another common misconception about long-term care is that Medicare pays for it.
A 2025 survey by Nationwide found that 58% of U.S. adults incorrectly believe that Medicare covers long-term care.
Some confusion is natural. Federal health insurance programs for seniors cover some short-term stays in nursing homes.
However, Medicare typically does not cover long-term stays. Why: Most long-term care is not considered medical care.
“Imagine what you’re going to the hospital for,” Singer says. “That’s what Medicare covers.”
I need $1 million to retire
Americans love reading articles that estimate retirement “magic numbers,” or savings goals that will guarantee a comfortable retirement.
A recent study from Schroders says the magic number is $1.2 million. According to research by Northwestern Mutual, the amount was $1.46 million.
“Clients are always looking for a silver bullet: hit $1 million and retire,” said Dinon Hughes, a certified financial planner in Portsmouth, New Hampshire.
In an era when American workers are being asked to save for their retirement, the magic number could be a useful guide.
But retirement experts warn that every retirement plan is different.
Most retirees have less than $1 million in savings. Millions of Americans retire comfortably on Social Security income alone.
No need for stocks after retirement
Retirees often think they no longer need long-term investments such as stocks, Delorme writes.
This misconception is related to another misconception. The idea is that retirement won’t last that long.
Retirees commonly underestimate their longevity. For example, a 65-year-old woman has the potential to live another 22 years.
Retirement planners often envision longer retirement periods to cover the scenario of living to age 90 or 100.
That means newly retired people may still be spending money 20 or 30 years from now. Given that period, it makes sense to stay in the stock market, experts say.
“Most clients have a 20-year time span, whether they’re 60, 65 or even 70, which is plenty of time to invest in the stock market,” Hughes said.
Taxes will be much lower after retirement
In general, Americans can expect lower tax rates in retirement. Usually, your income will be reduced. Retirees tend to spend less. Not all Social Security income is taxable.
But retirees may be surprised at how much taxes they pay.
Withdrawals from traditional 401(k) and IRA accounts are taxed as income. “Some retirees are earning more than they expected,” Delhomme wrote, when Social Security, pensions and other income are taken into account.
Experts say large IRA balances displayed on computer screens can give retirees false expectations because they haven’t been taxed yet.
“The tax burden in retirement increases tenfold because you don’t have the income,” Hughes says. “It’s coming out of an account that is your life’s savings, and it should last for the rest of your life.”
