UPDATED: May 15, 2019
Many pre-retirees still don’t understand how Social Security works and significantly overestimate how much they will receive, suggesting a need for financial advisors to discuss optimizing benefits with their clients.
In fact, future retirees expect to receive $1,805 a month, but retirees currently collecting Social Security receive $1,408 a month on average – amounting to a 28% difference, according to the Nationwide Retirement Institute’s 6th annual Consumer Social Security PR Study.
The survey of 1,315 U.S. adults ages 50 or older who are retired or plan to retire in the next 10 years further shows that nearly half (44%) say Social Security will be their main source of retirement income, followed by just 23% of older adults who plan to rely on their pension. Additionally, more than 1 in 4 older adults (26%) believe they can live comfortably in retirement on Social Security alone.
Other common misconceptions show that 7 in 10 older adults 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 age 63. Another 26% of respondents think if they claim early, their benefits will automatically go up once they reach full retirement age.
To combat these fallacies, Nationwide suggests there’s a need for greater understanding and education around Social Security. “Social Security is one of the most confusing retirement topics that America’s workers are facing today,” says Tina Ambrozy, president of sales and distribution at Nationwide. “In fact, our survey reveals fewer than one in 10 older adults know what factors determine the maximum Social Security benefit an individual can receive.”
And while future retirees on average expect to begin collecting benefits at age 65, retirees say they began collecting Social Security at age 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%).
Health issues have been a game-changer for many retirees, revealing the importance of planning for health care costs, the report emphasizes. According to the findings, 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 five years or more. Moreover, health care expenses keep nearly a quarter (24%) of retirees from living the retirement they expected.
Not surprisingly, those who work with a financial advisor, however, appear to be much better prepared to maximize their Social Security benefits.
Nationwide found that about one in three future (37%), recent (28%), and longer-term (30%) retirees currently work with a professional financial advisor. Those working with a financial advisor report:
- receiving nearly 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%); and
- being more able to do the things they wanted in retirement (90% versus 56%).
Surprisingly, however, of those who work with a financial advisor, less than 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 advisor, 34% of respondents say that advice is something they expect. What’s more, if a financial advisor could not show them how to maximize Social Security benefits, 76% of future retirees who currently work or plan to work with an advisor say they would likely switch to an advisor who could advise on Social Security.
The survey was conducted online by The Harris Poll on behalf of Nationwide from Feb. 11-21, 2019.
For those who may be looking for a deeper dive on the survey results, the American Enterprise Institute's Andrew Biggs offers a different perspective in his May 13 post on Forbes.com, “All Retirement Journalism Stinks, Part #127.”