The average American feels like they know what they need to know when it comes to Social Security benefits. New research shows that they don’t – including those currently receiving benefits.
According to a recent survey (1), more than half of Americans express confidence that they know exactly how to optimize their Social Security benefit. However, only 6% actually understand all the factors that determine the maximum benefit someone can receive. In addition, the report highlighted additional knowledge gaps:
- A full 39% don’t know the eligible age to receive full benefits.
- Just over half (51%) do not have a clear understanding of how much they will receive in future income.
- Over one-third (37%) incorrectly assume that Social Security benefits are not protected against inflation.
- Nearly half (45%) mistakenly believe if they claim their benefits early, their benefits will go up automatically when they reach full retirement age.
- Over half (55%) of retirees currently receiving benefits don’t know what percentage of their pre-retirement income is being replaced by their Social Security payments.
Respondents Worry About Social Security’s Future
The report suggests that one big reason that Americans may not be staying informed on the benefits of Social Security is that they have doubts that it will be around when they need it. Approximately seven in 10 adults age 25 or older (71%) worry about the Social Security program running out in their lifetime. When comparing across generations, 77% of millennials, 83% of Generation X and 61% of baby boomers have this concern. Nearly half of millennials (47%) currently believe that they “will not get a dime of the Social Security benefits they have earned.”
What might the future of Social Security look like? As of this writing, the 2021 Social Security trustees report on expected solvency has not been issued yet. It is expected to show what impact COVID-19 has played in funding obligations. The 2020 Social Security report estimated that the combined reserves of the various Social Security programs (retirement, survivor, and disability) would be depleted in 2035 unless changes are made. The Social Security Board of Trustees believes the most likely adjustments will come in the form of a reduction in benefits or an increase in taxes (or some combination of both). But it’s extremely unlikely that Social Security will go away.
The Opportunity for Plan Sponsors and Advisers
This may be a timely opportunity to help close the knowledge gap that many employees may have about Social Security benefits. Plan sponsors should work with their advisor and plan recordkeeper to provide educational materials (or possibly provide employees with a quick education campaign) that cover the following:
- Realistic Social Security pre-retirement income replacement expectations
- Eligible ages to receive retirement benefits (the range of eligible ages is 62-70)
- Definition and clarification of “full retirement age” (for the majority of employees, this will be age 67)
- Factors to consider when deciding whether to take benefits earlier versus later
- Annual COLA adjustments to Social Security benefits (as an example, in 2021 the COLA is 1.3%)
Nationwide’s 8th Annual Social Security Consumer Survey can be found at:
(1) Nationwide’s 8th Annual Social Security Consumer Survey, https://tinyurl.com/yxjt8xwf