Editor’s note: This is part four of a four-part series exploring financial fact vs fiction. Each article examines five of the top 20 most common financial myths — from investments to retirement and Social Security to life insurance. Parts one, two and three — This Roth Conversion Myth Could Cost You, Why Your ‘Magic Number’ Isn’t Actually Magical and Why Inflation Is Lower, But Prices Are Not — covered the first 15.
We’ve come to the fourth and final installment of our deep dive into the top 20 most common financial myths.
Throughout this series, we’ve examined a wide variety of topics, from stock and bond performance to retirement readiness, life insurance, Social Security, income taxes and more.
Kiplinger’s Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.
Here are myths 16-20, along with the facts:
16. Social Security and Medicare are ‘entitlements’ funded by the government (i.e. taxpayers)
Most people think of an entitlement as something they get for free, regardless of whether they work for a living.
But American workers pay into Social Security and Medicare their entire working lives (if you’re self-employed, you’re paying twice as much), so these programs aren’t freebies.
However, it’s important to remember that Social Security isn’t an income replacement. Those on the lower end of the spectrum might receive about 65% to 80% of their earned income.
Higher-income earners will get a lot less, as a percentage, since Social Security benefits plateau at $61,000 per year for 2025.
Ultimately, Social Security and Medicare are crucial benefits but should ideally work alongside your other investments (company-sponsored 401(k), individual retirement account and self-directed accounts) to provide you with income in retirement.
17. Since life insurance payouts are income tax-free to my heirs, I won’t owe estate taxes on these payouts
When someone with life insurance dies, their beneficiaries receive the policy’s face value as a tax-free benefit.
But when their spouse or child prepares the decedent’s final tax return, the estate might owe state or federal estate taxes, depending on how large the estate is.
While life insurance comes to you income tax-free, remember there are different types of taxes, and the decedent’s estate could still be taxed.
If you’re wealthy, you should consider taking extra steps to protect your estate. You can do this by transferring your life insurance policy into an irrevocable life insurance trust (ILIT), in which your beneficiaries, not the decedent, own the trust, so life insurance proceeds are not part of the decedent’s taxable estate.
Another similar option for married couples is to open a spousal lifetime asset trust (SLAT), which allows the decedent’s spouse to live off the income produced by the trust while the asset itself remains in the SLAT and is exempt from estate tax liabilities.
18. Reverse mortgages are ‘bad’ and make no financial sense for homeowners
As a financial planner, I reject the notion that any one financial strategy is inherently
The Truth About Entitlements (and Reverse Mortgages)
