Most Americans (63%) believe it is more important to optimize Social Security now than it was before the COVID pandemic and more than one in four who are eligible (28%) say the pandemic has caused them to change their decision on when to file for benefits.
These are among the key findings from two new 2020 surveys, conducted by The Harris Poll on behalf of The Nationwide Retirement Institute both during and before the pandemic began.
The surveys highlight concerns consumers have about Social Security, and demonstrates how the pandemic has had a dire impact on Americans’ plans for retirement.
More than a third of Americans surveyed (38%) say their retirement plans have been impacted, most commonly, because they will have to retire later than planned (19%) or won’t be able to retire at all (10%).
“Americans are facing complex retirement scenarios as a result of the COVID-19 pandemic and market volatility,” said Tina Ambrozy, senior vice president of Strategic Customer Solutions at Nationwide. “On top of this, adults across generations lack a basic understanding of Social Security benefits and ways to maximize those benefits.”
While many retirees receive Social Security as a source of retirement income, COVID-19 has adults across generations (61%) even more worried than before about Social Security running out of funding.
Concern about saving enough and being financially prepared for retirement was present even before the pandemic. A majority of adults worried Social Security would run out of funding in their lifetime before COVID-19 (79% Millennials, 81% Gen Xers, 66% Boomers+), and many feel they will need to continue working because Social Security won’t pay enough (75% Millennials, 72% Gen Xers, 48% Boomers+).
Better grasp of Social Security needed
As consumers assess their plans for retirement, general misconceptions and uncertainty around Social Security need to be addressed to ensure adults plan effectively and can maximize benefits. Less than half of each generation are confident in their knowledge of Social Security (44% Millennials, 40% Gen Xers, 37% Boomers+). Common misconceptions and uncertainties include:
- The (incorrect) belief that if adults claim benefits early, their benefits will go up automatically when they reach full retirement age (Only 45% Millennials, 49% Gen Xers, and 69% Boomers+ correctly identify that this statement is false)
- Not understanding eligibility—nearly all Millennials (97%), most Gen Xers (90%), and over three in four Boomers+ (80%) incorrectly identify the age at which they are eligible for full benefits
- Fewer than one in 10 adults know all of the factors that determine the maximum benefit (4% Millennials, 6% Gen Xers, 7% Boomers+)
- Half or more say they do not know how much of their income will be replaced in retirement by Social Security (49% Millennials, 49% Gen Xers, 57% Boomers+)
Americans believe system needs change
While two-thirds of Millennials (67%), compared to 61% of Gen Xers and 51% of Boomers+, believe there will be cuts to Social Security under the current administration, funding isn’t the only concern.
A majority across each generation believes the Social Security system is in need of change (82% Millennials, 85% Gen Xers, 80% Boomers+). To keep Social Security financially viable in the future, most of them support ideas such as:
- Privatizing a small portion of Social Security benefits so people are free to invest that portion as they see fit (64% Millennials, 61% Gen Xers, 51% Boomers+)
- Applying cost of living increases for Social Security benefits only to lower- or middle-income households (62% Millennials, 70% Gen Xers, 63% Boomers+)
- Eliminating the payroll tax earnings cap, which limits the amount of income that can be taxed for Social Security (61% Millennials, 61% Gen Xers, 63% Boomers+)
- “Means testing” where people above a certain income threshold would receive no or reduced benefits (58% Millennials, 60% Gen Xers, 53% Boomers+)
Consumers looking to advisors
Given the lack of knowledge of Social Security across generations, the need for guidance from financial professionals is significant.
Most are open to learning more about Social Security, particularly Millennials (94%) and Gen Xers (92%) (compared to 84% of Boomers+). Among them, 29% of Millennials, 25% of Gen Xers and 13% of Boomers+ would prefer to talk with a financial professional to learn more about Social Security.
Further, most adults who either work with a financial advisor or plan to ask one about Social Security (86% Millennials, 93% Gen Xers and 74% Boomers+) say if a financial professional could not show them how to maximize their Social Security benefits, they would find one who could.
“With so much uncertainty, many people are looking for help in identifying ways to take better control of their finances. In fact, in an April poll we found that one in four adults (24%) say they have reached out to a financial professional for the first time as a result of the pandemic,” Ambrozy said. “Preparing for retirement holistically by working with a financial professional and using online tools can help Americans better understand their options and achieve their retirement goals.”
Ambrozy adds that financial professionals can help consumers effectively and holistically prepare for the future by having more in-depth client conversations around understanding and maximizing Social Security benefits.