New research reveals Americans have a significant knowledge gap regarding Social Security benefits.
According to a recent survey1, more than half of Americans express confidence that they know exactly how to optimize their Social Security benefits. 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 at what age they are eligible to receive their full
- Just over half (51%) do not have a clear understanding of how much they will receive in future
- Over one-third (37%) incorrectly assume that Social Security benefits are not protected against
- Nearly half (45%) mistakenly believe if they claim their benefits early, their benefits will go up automatically when they reach full retirement
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 7 in 10 adults age 25+ (71%) worry about the Social Security program running out in their lifetime.
What might the future of Social Security look like? The 2020 Social Security trustees report2 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 reduced 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 Advisors
This might be a timely opportunity to help close the knowledge gap that many employees have regarding 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 preretirement income replacement expectations
- Eligible ages to receive retirement benefits (the range 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 cost-of-living adjustments to Social Security benefits (as an example, in 2021 the cost-of-living adjustment is 3%)
Nationwide’s 8th Annual Social Security Consumer Survey can be found here.
1 Nationwide’s 8th Annual Social Security Consumer Survey, click here.
2 At the time of the publication of this newsletter, the 2021 trustees report has not yet been released.