COLUMBUS — When it comes to Social Security, there is a lot that America’s workers nearing retirement don’t know.
Future retirees expect to receive $1,805 a month in Social Security benefits, but retirees currently collecting Social Security receive $1,408 a month on average — a 28% difference.
Additionally, more than one in four older adults (26%) believe they can live comfortably in retirement on Social Security alone.
The sixth annual survey from the Nationwide Retirement Institute, conducted online by The Harris Poll among 1,315 U.S. adults 50 or older who are retired, or plan to retire in the next 10 years, finds that nearly half (44%) say Social Security will be their main source of retirement income, followed by just 23% of older adults relying on their pension.
To combat consumer misconceptions, there’s a need for greater understanding and education around Social Security. In fact, seven in 10 older adults (70%) believe they are eligible for full benefits before they actually are.
On average, future retirees incorrectly believe they will be eligible for full benefits at 63, and 26% think if they claim early, their benefits will automatically go up once they reach full retirement age.
Life events impact
On average, retirees say they began collecting Social Security at 62. Current retirees that drew early say they needed the money to pay for living expenses (61%), to supplement their income (36%), because they were laid off (26%), had no other source of income (24%) or had health issues (22%).
By contrast, future retirees expect to begin collecting benefits at 65, on average. As a result of collecting benefits early, retirees are foregoing a progressively higher annual Social Security benefit (for each year they wait up to 70) to be received over the course of their lifetime.
It’s no wonder workers take their Social Security benefit early; it is typically due to health reasons. One-third of retirees (33%) say health problems keep them from living the retirement they expected, and of those, more than three quarters (78%) say their health problems occurred earlier than expected (most often by 5 years or more).
In addition, health care expenses keep nearly a quarter (24%) of retirees from living the retirement they expected.
Confidence low
Retirees also expect a market downturn and have concerns about impacts to their investment portfolio.
Nearly six in 10 future retirees (57%) think a recession will hit the U.S. in the next two years, and over one-fourth (26%) foresee it occurring in the coming year.
Future retirees’ worries also expand beyond market volatility and a potential recession — two-thirds (66%) worry that Social Security will run out of funding in their lifetime, 40% believe there will be cuts under the current administration and 83% believe the Social Security system needs changing. Of those who recommend a change, about half believe the changes should include increased taxes on higher earners to increase funding (53%) and less taxation of benefits (47%).
Even those with more investable assets agree: 55% of those with $250,000 or more and 48% of those with $1 million or more believe higher earners should be taxed more to increase Social Security funding.
Financial advisers
Only 22% of future retirees have a formal written retirement plan, and almost a third (30%) say they did less Social Security planning because it’s too confusing.
About one in three future (37%), recent (28%), and longer-term (30%) retirees currently work with a professional financial adviser.
Those working with a financial adviser report:
- Receiving almost 15% more in benefits than those who do not — $1,551 versus $1,324
- Being less likely to plan to draw benefits before full retirement age — 68% versus 55%
- Being significantly less likely to draw Social Security early due to health problems — 7% versus 25%
- Being more able to do the things they wanted in retirement — 90% versus 56%.
Of those who work with a financial adviser, around half (46%) of future retirees have received advice on how to handle Social Security.
Of those who have not received advice on Social Security from their adviser, 34% say that advice is something they expect.
If a financial adviser could not show them how to maximize Social Security benefits, 76% of future retirees who currently work with — or plan to work with — an adviser say they would likely switch and find an adviser who could advise on Social Security.
