The vast majority of consumers — 77% — say maximizing Social Security benefits is very important, but only 9% consider themselves very knowledgeable about how benefits are determined, according to a new joint survey released Monday by the Financial Planning Association and AARP.
An even larger percentage of financial planners — 85% — think that maximizing Social Security benefits is crucial to retirement security but they estimate that only 1% of their clients grasp the nuances of the program's complicated rules and claiming strategies.
The study, titled “Social Security Planning in 2015 & Beyond: Perspectives of Future Beneficiaries and Financial Planners,” suggests that the vast majority of future retirees could risk leaving thousands of dollars in benefits on the table each year due to their lack of knowledge about this critical retirement program.
The study, which was released during the FPA's annual conference in Boston, also indicates that financial advisers who take the time to learn key Social Security rules and claiming strategies can significantly boost their clients retirement security.
More than 1,200 consumers between the ages of 45 and 64 and 1,279 Certified Financial Planning professionals participated in the online survey last summer. Only 16% of consumers who participated in the survey reported that they work with a financial adviser.
CORNERSTONE
“For consumers to maximize their financial potential in retirement they need to consider Social Security and the important role it plays as one of the primary cornerstones of a sound retirement plan,” said FPA President Ed Gjersten.
People can help themselves significantly if they develop a personalized and strategic approach to taking Social Security benefits many years before they are eligible, added AARP President Jeannine English.
“Anyone getting ready to claim Social Security may risk losing out if they don't educate themselves," she said.
The study demonstrates that Americans have a lot to learn about how their age, earnings history, marital status and decision to continue working can affect their Social Security benefits.
Mr. Gjertsen said clients often say they want to file for Social Security earlier because they are worried the government system could disappear or pay out less in the future.
In reality, Social Security is expected fully fund benefits through at least 2034, and hopefully lawmakers will figure out ways to extend that, Ms. English said.
Eighty-three percent of consumers either overestimated or underestimated the amount of money they would receive if they waited until their full retirement age to collect Social Security benefits, according to the study. Collecting benefits at the earliest age of 62 can reduce monthly benefits by 25% or more. Waiting until age 70 to collect the maximum benefits can boost monthly payments by up to 32%.
The vast majority of respondents — 80% — who were either married or had been married at some point did not know that they should wait until age 70 to collect Social Security benefits if they wanted to maximize survivor benefits for their widow or widower. Nearly three-quarters of that same group did not know that they must be married at least 10 years to collect spousal benefits if they divorce.
ADVISERS RECOMMEND WAITING
Nearly three in 10 financial planners recommend that clients wait until age 70 to claim Social Security benefits, according to the study. Yet only 13% of consumers say they plan to wait that long.
Consumers reported getting information about Social Security claiming strategies from a variety of sources. The primary source is families and friends (46%), followed by the Social Security Administration (45%), newspaper articles (33%) and financial magazines or books (22%). Financial professionals and AARP were each cited by just 16% of consumers as a source of information on Social Security benefits.
Nearly all the advisers (96%) reported addressing Social Security with their clients as part of their retirement planning, including claiming strategies and income projections.
More than 90% of financial advisers recommend that clients check their estimated Social Security retirement benefits at least once every couple years yet only 64% of consumers have done so in the past two years.
The Social Security Administration recommends checking one's benefit statement not only for estimated benefits, but also to be sure there are no errors in reported earnings or taxes paid on those earnings that could affect future benefit amounts.
Paper copies of estimated benefits are now sent to workers once every five years but the same information is available online at any time by setting up a personal account on the
Social Security Administration's website.
“Choosing when to claim Social Security is one of the most important financial decisions many Americans will make as they prepare for retirement,” said AARP chief public policy officer Debra Whitman. “We found that far too many consumers don't understand the rules of the road and this is a case where lack of knowledge can have major impact for the rest of their lives.”
Liz Skinner contributed to this report.
