Lack of knowledge about Social Security is like getting a new job but not asking when you would start and how much you would make.
When it comes to Social Security benefits, many Americans may be leaving a lot of money on the table – but financial professionals and employers can help with that, according to Nationwide’s 8th Annual Social Security Consumer Survey, conducted by The Harris Poll on behalf of Nationwide Retirement Institute in Columbus, Ohio.
“Too many people think claiming Social Security is as simple as flipping a switch once you turn 62. Because of that, they don’t educate themselves and often have misconceptions that can have costly repercussions,” Tina Ambrozy, senior vice president of Strategic Customer Solutions at Nationwide, told BenefitsPRO.
What US adults don’t know
For many Americans, Social Security is their primary — if not only — source of retirement income, and so it’s important to know how Social Security works to ensure their filing strategy aligns with their long-term planning and retirement goals, Ambrozy said.
While more than half (54 percent) of the 1,931 US adults surveyed say they know exactly how to maximize their Social Security benefit, only 6 percent know all the factors that determine the maximum benefit someone can receive.
Indeed, two in five (39 percent) don’t know the eligible age to receive full benefits, and 45 percent mistakenly believe if they claim early, their benefits will go up automatically when reaching full retirement age or don’t know this is false.
The truth about claiming
The truth is this: If an individual claims Social Security at age 62 rather than waiting until full retirement age (which varies by birth year), the person can expect up to a 30 percent reduction in monthly benefits. For every year the individual delays claiming Social Security past FRA up to age 70, the person gets an 8 percent increase in benefits. So, if an individual starts receiving retirement benefits at age 67, the person will get 108 percent of the monthly benefit. If the individual waits until age 70, the person will receive 132 percent of the monthly benefit.
Costly, yet common, knowledge gaps
According to the survey, other common knowledge gaps include:
– Half of those not already receiving Social Security (51 percent) don’t have a clear sense of how much they will receive in Social Security income.
– More than half of current beneficiaries (55 percent) don’t know what percentage of their pre-retirement income Social Security is replacing.
– Nearly a third of all of the respondents (30 percent) don’t know that Social Security may offer benefits for spouses and children.
– More than a third (37 percent) incorrectly believe that Social Security benefits are not protected against inflation.
Financial professionals’ help appreciated
The survey also found that more than half (53 percent) of the respondents age 25+ who work with a financial professional say that person doesn’t provide advice about how and when to file for Social Security benefits. However, two thirds (66 percent) say they would be likely to switch to a financial professional who could.
“Financial professionals need to have more in-depth client conversations and ask clients the important questions that will help create a comprehensive plan for optimizing and planning for Social Security,” Ambrozy said.
Professionals can leverage online planning tools, such as Nationwide’s Social Security 360 Analyzer, to facilitate such conversations.
Employers can do their part and enhance workplace financial literacy programs to include more education on optimizing Social Security benefits, which can especially benefit individuals who don’t work with a financial advisor, she said.
“As the bedrock of the U.S. retirement system, it’s critical for employers to educate their employees on how Social Security works so they can best optimize their benefits,” Ambrozy said. “This strategy starts with solid educational content that can either be shared to employees via email or on the company intranet.”
Nationwide Financial offers several resources on topics that help participants prepare for retirement, including how to navigate Social Security, she said. Employers should also consider partnering with a financial professional to host in-person or virtual workshops with employees so they can get hands-on support.
“Having in-depth client conversations with a financial professional about how to maximizing your Social Security benefits is one of the best ways to effectively and holistically prepare for the future,” Ambrozy said.
A wake-up call
The survey found 33 percent of Americans contact the Social Security administration directly to learn more about Social Security, 18 percent talk with a financial professional about Social Security, 15 percent conduct independent research, 10 percent use a personalized filing report that shows different options and outcomes and 8 percent talk with family or friends about Social Security.
In this post-pandemic economic environment especially, it’s smart to optimize Social Security benefits, Ambrozy said.
“Imagine you are offered a job, and you were counting on it to provide income for you and your family for many years, but you didn’t ask about your starting date, salary and benefits,” she said. “Now, change ‘job’ to Social Security, and you get a sense of the lack of knowledge many Americans have about an expected, important future income stream.”
According to the survey, the pandemic has been “a wakeup call” for Americans to reevaluate their finances and retirement plan, including their reliance on or plan for Social Security benefits, Ambrozy said. More than two-thirds (68 percent) of respondents say it is now more important than ever to optimize their Social Security claiming strategy. This percentage jumps to 80 percent for Gen Xers and 71 percent for millennials.