It’s rarely (if ever) said about a government-run benefit program—Social Security enjoys widespread popularity. Yet the majority of the public admit they know little about how it works and what to expect.
Nearly two in three future retirees say they are not confident in their knowledge of Social Security. More concerning, just over half say Social Security will be their main source of retirement income, followed far behind by just 18 percent of older adults relying on their pension, according to the Nationwide Retirement Institute.
A quarter of U.S. adults in retirement also say their Social Security payment is less than expected, and one in four future retirees believe they can live comfortably in retirement on Social Security alone.
“It’s problematic that so many people are planning to rely solely on Social Security for income in retirement,” Tina Ambrozy, president of sales and distribution at Nationwide, said in a statement. “There’s a major disconnect between what consumers think their Social Security benefit will be—and cover—compared to reality.”
Eligibility and benefit misconceptions
Most older adults think they are eligible for Social Security benefits sooner than they actually are, including 57 percent of future retirees.
Most older adults not currently collecting Social Security (53 percent) don’t plan to start collecting early, with future retirees expecting to collect Social Security benefits at age 66, on average. Despite those plans, the most common age at which retirees start collecting Social Security is 62—the earliest age a person can do so.
Future retirees also expect to receive $1,628 on average as a monthly payment from Social Security. However, that’s almost 30 percent more than what current retirees say they collect ($1,257).
There are also key differences between how future retirees anticipate spending their Social Security compared to how current retirees actually do.
Around four in 10 (41 percent) older adults do not expect to spend any of their Social Security income on health care, yet 58 percent of recent retirees report spending their benefit on health care.
Consumers’ social insecurity
A third of future retirees plan to draw Social Security early because they do not believe Social Security will be around when they reach their full retirement age.
However, retired Americans who decided to draw early report doing so to pay living expenses (52 percent) and to supplement their income (43 percent). Other reasons retirees draw early include being laid off or unemployed (24 percent), having no other source of income (22 percent) and because of health issues (16 percent).
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Its incredible that as effective plan for social security hasn’t been developed.