How much do Americans really know about Social Security?

While Social Security is a significant part of a retirement strategy, the majority of Americans lack knowledge about the benefits, according to the 2024 Annual Retirement Study from Allianz Life Insurance Company of North America. A few financial advisors recently shared some information on how they work with their clients to close this knowledge gap.

More than half (53%) of Americans said that they do not know much about Social Security or how it will fit into their retirement plan, the survey said. Younger Americans are more likely to have knowledge gaps about Social Security.

For example, 60% of millennials and 51% of Gen Xers said they do not know much about Social Security, or how it will fit into their retirement plan. Still 23% of boomers who are all over the age of 60 said that they do not know either. Hispanic respondents (63%) were more likely than Asian/Asian American (56%), white (54%), and Black/African Americans (47%) to say they do not know much about Social Security, or how it will fit into their retirement plan.

Most Americans (53%) also said they are not sure about the best time for them to start taking their Social Security benefits. While millennials (57%) and Gen Xers (56%) may have time to learn more, this lack of knowledge continues with boomers. Nearly one in four (23%) of them said they are not sure. In addition, only 44% of Americans said they have a plan for how they will take Social Security in retirement. Boomers (71%) are more likely than Gen Xers (27%) and millennials (30%) to say they have a Social Security plan.

In addition, the survey said that Americans have unrealistic expectations about their transition into retirement. Even though many younger Americans plan to work past the Social Security retirement age, few do. While 41% of millennials and 38% of Gen Xers said they plan to work past Social Security retirement age, just 28% of boomers said they are working past the Social Security retirement age. And most Americans (57%) worry that Social Security will not be available throughout their retirement.

Closing the knowledge gap

This knowledge gap is often encountered among the clients of MDRT member Brandon Wellman, financial planner with Prudential Advisors. However, he pointed out, it seems to be mostly outdated information rather than purely incorrect information.

“I hear from several every year who want to use the “restricted application” and “file and suspend” strategies, which are no longer allowed. I believe this is because they either heard of this strategy years ago or they searched on the internet and found articles on these and did not realize the articles were out of date. Either way, this is good because it means people are actively thinking about how to maximize Social Security benefits, and people are eager to learn more about it. It is definitely top of mind for many clients,” he said.

As Wellman educates his clients, he keeps in mind that since every person’s situation is unique, it is important to discuss how Social Security benefits fit into their overall plan. Discussions include health, longevity, marital and family situations, taxes, and the percentage of Social Security benefits that are in their overall income.

“Sometimes it makes sense to begin receiving payments as soon as possible, and on other occasions, we like to delay payments so we can maximize the amount received. It’s important to assess all of these factors because delaying benefits usually means we are depleting other assets which might be taxable.

"Rules of thumb don’t work well in this space because there are so many variables that come into play. It’s recommended for someone to sit down with their advisor so they can look at social security benefits from a holistic point of view to make the most educated decision they can,” he said.

Demonstrating the impact of various scenarios

Sharing similar sentiments is another MDRT member Scott Fligel, wealth management advisor with FA Wealth Advisors. Clients of various incomes and net worth regularly reach out with questions regarding their Social Security benefits, Fligel said. Since clients have been paying into this system for decades, they want to avoid making a mistake when it is time to begin receiving their benefits, he added.

Fligel and his team educate their clients by showing them the impact that various scenarios can have on their retirement income plans. “Our plans always include Social Security as part of our clients’ retirement models,” he said.

“A basic rule of thumb that we incorporate is the guaranteed 8% increase in Social Security benefits for every year a distribution is delayed from age 62 to age 70. We also show clients how to calculate provisional income to illustrate whether the Social Security benefit will be taxed,” Fligel said.

Some make emotional decision

Another MDRT member, Damon Winter, also frequently encounters lack of knowledge among his clients, but to varying degrees.

“The biggest misconceptions I encounter are about when retirees should begin drawing Social Security benefits, as people tend to make this decision emotionally instead of mathematically. Many retirees would benefit financially from waiting to draw benefits, for instance, and married couples especially are often unaware of how much flexibility they have at their disposal,” said Winter, financial planner with OnMark Asset Management, LLC.

In addition, Winter said that his clients hear a large amount of misinformation from those around them. Family, friends, neighbors and coworkers can all provide faulty information, but so can the Social Security Administration itself. “SSA call center representatives often err in their verbal guidance to retirees, due to not knowing all the viable strategies that retirees have. This makes it even harder to navigate the system,” he said.

So, what does Winter do to educate his clients?  He said that while they used to do group Social Security workshops, they now have clients pull their year-by-year earnings from the Social Security Administration (SSA). These records are not benefits statements, which often obscure all the available options (again, especially for married couples), he explained.

“We use the earnings records, which show how much a worker earned in Social Security benefits each year of their life, to calculate how much in benefits clients can expect. Many clients need an advisor who has the experience, willingness and expertise to do the math for them, so that there’s more to base a decision on than feelings,” he said.

Many years ago, Winter said that he was connected to an SSA liaison through NAIFA, and this liaison has been an invaluable resource over the years. “I work with them to verify that clients can, in fact, use certain strategies even if they’ve been told otherwise by an SSA call center representative. Many clients appreciate having a seal of approval from an SSA employee for their plan,” he added.

Allianz Life conducted the 2024 Annual Retirement Study online in February and March of 2024 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) or investable assets of $150k+.

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