To Improve Retirement Outcomes, Teach Employees Social Security Basics
Research reveals Americans have a significant knowledge gap regarding social security benefits.
According to a recent survey1, more than half of Americans say they know exactly how to optimize their social security benefits. Only 7 percent, however, understand all the factors that determine the maximum benefit someone can receive. The report also highlighted other knowledge gaps, including:
- Roughly 42 percent don’t know when they are eligible to receive full benefits.
- Less than half (47 percent) lack a clear understanding of how much they will receive in future income.
- Nearly one-third (32 percent) incorrectly assume that social security benefits aren’t protected against inflation.
- More than half (51 percent) mistakenly believe that, if they claim their benefits early, their benefits will automatically increase when they reach full retirement age.
Respondents Worry About Social Security’s Future
The report suggests that one big reason Americans aren’t staying informed about social security benefits is because they doubt whether it will be around when they need it. Roughly 7 of 10 adults ages 25 and older worry that social security will run out in their lifetime.
What might the future of social security look like? A 2021 Trustees Report estimated that the combined reserves of various social security programs (retirement, survivor, and disability) would be depleted by 2034 unless changes are made. The Social Security Board of Trustees believes the most likely adjustments will come in the form of reduced benefits, increased taxes, or a combination of both. It’s extremely unlikely social security will go away.
Opportunity for Plan Sponsors and Advisors
This could 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 perhaps provide employees with a quick educational campaign) that cover the following:
- Realistic social security preretirement income replacement expectations
- Eligible ages to receive retirement benefits (ages 62–70)
- Definition and clarification of “full retirement age” (for most employees, this will be 67)
- Factors to consider when deciding whether to take benefits earlier or later
- Annual cost-of-living adjustments to social security benefits (In 2022, the cost-of-living adjustment is 5.9 percent.)