Knowledge Gap on Social Security May Lead to False Sense of Security
Future retirees expect to receive significantly more in benefits than what they actually will receive, setting themselves up for potential financial difficulties in retirement, new survey results show.
According to the Nationwide Retirement Institute’s 5th annual consumer Social Security survey, future retirees believe they will receive, on average, a monthly Social Security payment of $1,628, but that’s nearly 30% more than what current retirees say they collect ($1,257).
In addition, more than half (55%) of future retirees plan on Social Security being their main source of retirement income, while one in four (26%) believe they can live comfortably in retirement on Social Security alone. Yet a similar amount of currently retired U.S. adults (27%) say their Social Security payment is less than they expected.
“It’s problematic that so many people are planning to rely solely on Social Security for income in retirement,” says Tina Ambrozy, president of sales and distribution at Nationwide. “There’s a major disconnect between what consumers think their Social Security benefit will be – and cover – compared to reality.”
The survey of more than 1,000 U.S. adults aged 50 or older who currently collect or plan to collect Social Security benefits and retire within the next 10 years also finds older adults lack understanding when it comes to Social Security benefits. Nearly 9 out of 10 (88%) older adults do not know what factors determine the maximum Social Security benefit an individual can receive.
Moreover, many older adults think they are eligible for Social Security benefits sooner than they actually are, including 57% of future retirees. In addition, more than half (53%) of respondents not currently collecting Social Security do not plan to start collecting early, with future retirees expecting to collect benefits at age 66, on average. In reality, however, the most common age at which retirees start collecting is at the earliest age of 62, according to the findings.
Key differences also exist between how future retirees anticipate spending their Social Security benefits and how current retirees actually spend those benefits. For example, the analysis shows that many older adults expect to spend 15% of their Social Security income on health care, but in reality 64% of their Social Security income could be spent on health care. In addition, more than a third of retirees said that health care interfered with living the retirement they expected.
Not surprisingly, those who work with a financial advisor appear to be much better prepared to maximize their benefits. Those working with an advisor report receiving over 20% more in Social Security benefits than those who do not ($1,500 vs $1,234).
Yet, only 13% of respondents say they have a financial advisor who provides them Social Security advice. Nationwide’s findings further show that 72% of future retirees currently working with a financial advisor say they would likely switch to work with an advisor who can help them maximize their Social Security benefits.
“Social Security is undoubtedly one of the most complex retirement topics facing American workers, and most are likely unable to grasp the thousands of rules that apply to Social Security,” Ambrozy explains. “Preparing for retirement holistically by working with advisors and online tools can help adults maximize their benefit and achieve personal goals.”
Nationwide’s 2018 survey was conducted online by The Harris Poll from Jan. 22 to Feb. 5, 2018, among 1,013 U.S. adults aged 50 or older who currently collect or plan to collect Social Security benefits, and who are either retired or plan to retire within the next 10 years.