More than half of current or soon-to-be retirees cite Social Security as their primary source of income, well ahead of the 18% of those who identified a pension as their main income source, according to a new survey.
But that heavy reliance on Social Security as the main source of income may be misplaced as the
fifth annual survey from Nationwide Retirement Institute identified some yawning gaps in the public's knowledge about the program's retirement benefits. The Harris Poll was conducted online earlier this year among more than 1,000 Americans age 50 or older who are retired or who plan to retire in the next 10 years.
"It's problematic that so many people are planning to rely solely on Social Security for income in retirement," said Tina Ambrozy, president of sales and distributions at Nationwide. "There's a major disconnect between what consumers think Social Security will be — and cover — compared to reality."
Three years ago, MassMutual Insurance conducted its own poll about consumer knowledge about Social Security benefits and found similarly dismal results. MassMutual plans to release results of its latest poll soon. In the meantime, advisers may want to test their knowledge with MassMutual's excellent
quiz about Social Security rules or invite their clients to do so.
More than half of respondents who have not yet filed for Social Security say they plan to wait until age 66, on average, to claim their benefits, according to the Nationwide survey. In contrast, most current retirees claimed benefits at the earliest possible age of 62, resulting in permanently reduced benefits. Many current retirees said they claimed Social Security early because they were laid off, were unemployed or had health issues.
Perhaps that explains why future retirees in the Nationwide survey anticipate receiving a benefit averaging $1,628 per month, about 30% higher than the average monthly benefit of current retirees of $1,257.
The maximum Social Security benefit for someone who waits until the full retirement age of 66 to claim benefits his year is $2,788 per month. Those who postpone claiming until 70 can earn delayed retirement credits worth 8% per year, increasing their benefit by 32% to $3,680 per month.
The Nationwide survey found key differences between how future retirees anticipate spending their Social Security compared to how current retirees actually spend their monthly benefit. More than 40% of future retirees do not expect to spend any of their Social Security income on
health care compared to 58% of current retirees who report spending their benefits on health care.
The survey results highlighted some severe knowledge gaps about the nation's retirement program. Nearly nine in 10 respondents — 88% — did not know what factors determine the maximum Social Security benefit an individual can receive.
"One of the best ways people can understand what their benefits will cover and how to maximize them is by consulting a professional for advice," Ms. Ambrozy said.
However, only 13% of older adults say they have a financial adviser who provides them with Social Security advice. But it's not that they don't want it. In fact, 72% of future retirees who currently work with a financial adviser say they would likely switch financial advisers to work with one who can help them maximize their Social Security benefits.
Those relationships pay off. The survey found that those working with a financial adviser report receiving Social Security benefits that are at least 20% higher than those who don't ($1,500 vs. $1,234). Most current retirees said they relied on the
Social Security Administration for guidance on when to claim their 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," Ms. Ambrozy said. "Preparing for retirement holistically by working with advisers and online tools can help adults maximize their benefits and achieve personal goals."
Nationwide offers a
free educational site about Social Security for financial advisers as well as free access to its Social Security 360 Analyzer tool. Some of the other leading Social Security software services available to financial advisers for a fee include
Social Security Analyzer,
Social Security Timing, Maximize My Social Security and
Social Security Pro.
Social Security Advisors offers a concierge service to help advisers' clients with Social Security with their claiming decisions and filing for benefits.
