Social Security: The knowledge gap, pessimism, and no popular fix

Social Security is the cornerstone of the American retirement system, providing critical financial support to millions of retirees. According to the Social Security Administration, 50% of people aged 65 and older receive at least half of their income from Social Security, with approximately 25% relying on it for 90% or more of their income.¹ However, data from our 2024 Retirement Savings and Spending (RSS) Study² revealed that a significant portion of participants, including preretirees, lack a basic understanding of this crucial program.

This paper delves into the implications of this knowledge gap—particularly how it influences claiming decisions—and also examines the widespread concerns regarding the program’s long‑term sustainability. Furthermore, we explore views on potential solutions to the challenges facing Social Security and outline the broader implications for individuals, plan sponsors, and advisors.

The Social Security knowledge gap

Encouragingly, strong majorities of older workers correctly answered questions about the basics of the Social Security program. Our 2024 RSS Study showed that accuracy rates for the workers over the age of 62 ranged from 66% to 94% depending on the question (Figure 1). Still, there were notable gaps in understanding, a trend observed among both workers under age 50 and those age 50 and older.

First, the vast majority (92%) of preretirees (age 50 and above) were aware that benefits are reduced if Social Security is claimed before reaching full retirement age (FRA), but only 62% of them understood the advantages of delaying claims beyond FRA. This finding underscores our emphasis on how postponing benefits—especially for those with longer life expectancies—can lead to higher monthly payments and provide greater financial security.³

“Limited understanding of the full retirement age and its connection to benefit levels can lead to lack of proper planning.”
Roger A. Young, CFP^®, Thought Leadership Director

Second, a surprising 28% of those age 62 and above mistakenly believed that Social Security benefits start automatically at age 65 if not claimed earlier. This misconception indicates that some workers are likely mixing up Social Security FRA (which varies by birth year) and the Medicare eligibility age (which is age 65 for nearly everyone), highlighting the need for clearer communication and education on these distinct programs.

As expected, younger workers in our study—especially Generation Z and millennials—answered fewer questions about Social Security correctly. While over 80% knew that Social Security is funded by payroll taxes and 73% understood the 10‑year work requirement for benefits, many were unaware of key details. A majority of workers under 50 did not realize that benefits are adjusted for inflation, and two‑thirds incorrectly believed that benefits start automatically at age 65 if not claimed earlier. This lack of understanding could cause them to overlook the positive impact these benefits can have on their long‑term retirement outlook and diminish their perceived value of the system as a whole.

Many workers ages 50 to 61 (71%) and those older (63%) struggled to correctly identify their FRA for Social Security, which is determined by their year of birth.⁴ The most common incorrect age reported  was 65, with 31% of the 50–61 age group and 18% of older workers making this error, perhaps confusing it with Medicare eligibility. Another common FRA selection was age 70, with 20% of both groups making this mistake. Limited understanding of FRA and its connection to benefit levels can lead to lack of proper planning. Examples include claiming benefits early while still employed and married couples not coordinating their benefit claims effectively.

An examination of the sources of Social Security knowledge for workers age 50 and above presented a somewhat encouraging picture, yet it also highlights areas for improvement. One of the most frequently utilized sources was the official Social Security website, SSA.gov, used by 64% of respondents. Meanwhile, although most people relied on their employer-sponsored retirement plans for advice, only 33% used them to learn about Social Security benefits. 

Among those who work with financial advisors, 67% turned to them for Social Security benefit information, which is on par with other top sources. This leaves an opportunity for advisors to better engage the remaining 33% who do not currently seek their guidance. Interestingly, individuals who used advisors tended to explore all available information sources more than those without advisors, suggesting either a natural inclination to seek advice or encouragement from their advisors.

A concerning trend emerged among respondents with household investable assets under $50,000, as they were less likely to cite any sources for Social Security information. While it’s expected that they might consult financial professionals less frequently, their reliance on SSA.gov was also significantly lower (50% compared with the 64% average). Given that Social Security will likely make up a large portion of retirement income for this cohort, this lack of engagement is troubling. Similarly, individuals who felt that they were not saving enough for retirement also tended to utilize information sources less often.

On average, 45% of workers over age 50 said they knew their approximate monthly Social Security benefit. However, among those with less than $50,000 in investable assets, only 33% were aware of their approximate benefit amount (Figure 2).

The use of the Social Security website was significantly higher among individuals aware of their approximate Social Security benefits, with a utilization rate of 85%. This suggests a strong correlation between proactive information‑seeking behavior and benefit awareness. The trend is especially evident among individuals with higher asset levels, reinforcing concerns about the knowledge disparity, as those with fewer assets generally depend more on Social Security. Notably, individuals planning to claim Social Security around their FRA showed greater engagement with these key information sources compared with those intending to claim earlier or later, suggesting an anchoring around this milestone.

Concerns about Social Security’s sustainability

Confidence in Social Security’s ability to pay out currently scheduled benefits was remarkably low among workers, with only 38% overall expressing confidence. This sentiment did not significantly improve with age until reaching the baby boomers, 59% of whom were confident about receiving their scheduled benefits.

Pessimism about the level of future benefits is widely prevalent, particularly among younger workers. This was apparent when workers were asked about the percentage of their currently scheduled benefits they expected to receive. For instance, on average, Gen Z workers expect to receive only 53% of their currently scheduled benefits, not far from millennials, who expect to receive only 56% of their currently scheduled benefits. Baby boomers expect, on average, to receive 88% of their scheduled benefits (Figure 3).

“The level of pessimism among younger workers is probably unwarranted and is likely due to a lack of understanding about how the program works.”
Sudipto Banerjee, Ph.D., Global Retirement Strategist

According to the 2024 Social Security Trustees Report, payroll taxes should cover 79% of projected benefits after the trust fund is exhausted in 2033.⁵ The level of pessimism among younger workers is probably unwarranted and is likely due to a lack of understanding about how the program works, as well as the fact that they are far from retirement and actually benefiting from the program.

The reported level of confidence in the Social Security program and expected benefit percentages generally improved with the use of financial advisors, higher investable assets, lower debt, higher income, and a belief that the respondent is contributing enough for retirement. Additionally, knowing one’s approximate Social Security benefit also boosted confidence.

Various other concerns about the future of the Social Security program were also notable, with 76% of respondents worried about potential decreases in benefits and increases in the FRA and 75% at least somewhat concerned that they might not receive any benefits at all. Concerns about higher payroll taxes were also significant, with 72% worried about increased rates and 68% concerned about more income being subject to taxes.

However, there may be a disconnect between this pessimism and how it is (or isn’t) affecting financial planning. For example, only 25% of Gen Xers expect to receive full Social Security benefits, but among the Gen X preretirees who have done any retirement planning, 48% included the full benefit in those plans (Figure 4a). This discrepancy might indicate that their financial plans more accurately reflected their true expectations than survey responses suggest. Alternatively, it could mean that they lack a better strategy and, thus, include the full benefit by default. Interestingly, higher‑net‑worth individuals and those who used advisors were more likely to exclude Social Security benefits from their planning, possibly because they have sufficient assets and could afford to exclude Social Security from their calculations.

Are these concerns about the program influencing claiming decisions?

On the positive side, our study found that only 10% of workers age 50 and above intended to claim their benefits earlier than planned due to concerns about the system’s funding challenges (Figure 4b). This finding is somewhat reassuring, as there has been a fear that people might overreact to alarming headlines and make the potentially harmful decision to claim benefits prematurely. In fact, a greater percentage of individuals revealed that they would consider delaying their claims in response to these challenges, indicating a more measured approach to their retirement planning.

However, there remain a significant portion of workers age 50 to 61 who plan to start collecting Social Security before reaching their FRA, with 46% indicating such intentions. This is concerning, especially for married individuals who could benefit from delaying claims to enhance potential survivor benefits. While 59% of married workers over 50 consider their spouse’s benefits based on earnings, only 46% take survivor benefits⁶ into account, highlighting a gap in planning that persists for both men and women.

The most common age identified for claiming Social Security among workers age 50 to 61 was age 65, again suggesting possible confusion about Social Security and Medicare eligibility. With 42% of this age group basing their decision on their desired retirement age, it is not surprising that many align their retirement and claiming decisions with that common retirement age.

Overall, many respondents appeared conflicted about their Social Security decision‑making process. While 79% indicated that maximizing their monthly benefit is a factor in their planning, which would typically entail later claiming, 68% expressed a desire to generate income as soon as possible. This dilemma reflects the complex considerations individuals face when planning for retirement: balancing the need for immediate income with the long‑term benefits of delayed claiming.

Views on potential solutions for Social Security’s challenges

Social Security plays a vital role in supplementing retirement income from private defined benefit and defined contribution (DC) plans for most workers. Given its progressive benefit structure, Social Security typically provides the majority of retirement income for lower‑income workers, while private retirement plans tend to be the primary income source for higher‑income workers. This dual system helps ensure a more stable financial future for retirees across different income levels.

“...any steps Congress takes to address the long‑term outlook of Social Security are likely to be preferred over inaction.”
Sudipto Banerjee, Ph.D., Global Retirement Strategist

Given the role and importance of Social Security, we tested the reaction of workers to some of the potential solutions to address its long‑run funding challenges. Predictably, none of these potential solutions have wide appeal (Figure 5). If Congress fails to act and the Social Security Trust Fund is exhausted, an approximate 20% across‑the‑board cut in currently scheduled benefits is expected. This is the most unpopular outcome, with 60% of participants across different income levels expressing dislike for such a scenario. Consequently, any steps Congress takes to address the long‑term outlook of Social Security are likely to be preferred over inaction.

One proposed solution, eliminating the 401(k) tax deductions to address the Social Security funding gap, is also deeply unpopular, with 55% of respondents expressing disapproval and only 15% expressing approval.

Solutions that involve either raising the income cap on payroll taxes or eliminating it altogether are the least unpopular options, garnering more approvals than disapprovals. However, just over one‑third of workers approve of these solutions.

These views highlight the complexity of resolving these challenges and the need for thoughtful, comprehensive reform. Policymakers need to find a fair approach that strengthens Social Security’s future while considering the overall health of our retirement ecosystem, including private retirement savings plans.

Key takeaways

Implications for individuals:

• Claiming age matters: When planning for retirement, both Social Security and Medicare should be considered. However, the age 65 for Medicare eligibility is not the claiming age that maximizes Social Security monthly benefits (age 70), and it should not dictate that decision. Social Security can also be claimed independently from workplace retirement benefits. Additionally, while full retirement age affects benefit calculations, a delay in claiming beyond that age generally results in higher monthly benefits and can be a wise decision.
• Approach system changes cautiously: While potential changes to the Social Security system may involve benefit adjustments, it is important not to overreact by claiming benefits early due to concerns about the system’s viability. Younger workers, despite their skepticism, should focus on understanding the system better to enhance their financial planning process and make informed decisions.

Implications for plan sponsors:

• Enhance education efforts: Plan sponsors have a significant opportunity to enhance education efforts to help address the widespread lack of Social Security knowledge among participants. According to our plan sponsor survey,⁷ only 38% of sponsors offer educational materials on Social Security claiming strategies, and just 24% provide guidance, highlighting a clear need for improved educational outreach that can include retirement income options that may be available within the plan.
• Integrated guidance is important: While it is understandable that 26% of plan sponsors are hesitant to provide guidance on Social Security decisions, it is important to recognize that retirement income solutions, whether in plan or out of plan, are closely linked to Social Security claiming strategies. To offer a truly personalized income plan, incorporating Social Security assistance is essential.
• Tools can help with better planning: At a minimum, plan sponsors could enhance participant support by offering retirement income calculators that factor in Social Security claiming decisions. However, only 48% of sponsors currently provide access to such tools, highlighting an area where sponsors can significantly improve participant resources.

Implications for advisors:

• Offer comprehensive education and strategy: Advisors can educate clients on Social Security basics, including eligibility, benefit calculations, and the impact of claiming age. They can demystify complex terms and provide personalized claiming strategies, helping clients decide the optimal time to claim benefits based on their financial situations, health, and retirement goals. This includes strategies for couples to maximize their combined benefits.
• Integrate with broader retirement planning: By incorporating Social Security into a comprehensive retirement plan, advisors can recommend strategies that complement other income sources like pensions, 401(k)s, and IRAs. This holistic approach can help clients optimize their overall retirement income, providing a clearer picture of their financial future and enhancing their confidence in retirement planning.
• Address concerns and offer targeted support: Advisors can reassure clients about the viability of the Social Security system⁸ and potential changes to the program. This can help them make informed decisions without overreacting to uncertainties. Data show that 33% of workers who engage with financial advisors do not seek their guidance for Social Security benefit information. This is a significant opportunity for advisors to enhance their value proposition and deepen client relationships by offering expertise in this critical area.