FPA, AARP Study Detects Social Security Knowledge Gap

Research released today indicates that close to 100% of Americans could lack critical information about how to get the most from their Social Security benefits. According to “Social Security Planning in 2015 & Beyond: Perspectives of Future Beneficiaries and Financial Planners,” just 9% of consumers consider themselves “very knowledgeable about how Social Security benefits are determined,” and 1% of Certified Financial Planners (CFPs) say their clients are very knowledgeable on the subject.

The survey was a joint effort of the AARP and Financial Planning Association (FPA), an organization for CFPs, as well as educators, financial services professionals and students in that field. In it, the two organizations sought to explore how the experiences and knowledge of future Social Security beneficiaries compare with the experiences and recommendations of professional financial planners related to Social Security’s role in retirement income.”

Not surprisingly, the survey indicated that Social Security beneficiaries would gain from better education, such as the help of a CFP. Whether you are a financial planner—that term being interchangeable in the study—or an adviser specializing in retirement plans, the key takeaway is that many pre-retirees lack key information that could significantly help their retirement readiness. Even survey consumers who claimed to be “somewhat knowledgeable” on the topic comprised just 38% of the responding group. From the CFPs’ perspective, just 31% of their clients are somewhat knowledgeable about the benefit.

“For families and individuals looking to claim their Social Security benefits soon, this survey shows that far too many face a claiming knowledge gap potentially leaving thousands of dollars on the table,” says AARP President Jeannine English.

“Social Security in retirement requires more than just retiring and collecting a monthly check from the government,” agrees FPA President Ed Gjertsen II, CFP. “There are many nuances to Social Security and ways to maximize benefits.”

NEXT: The breadth of the gap

The 1,215 responding consumers—ages 45 through 64, all unretired—indeed recognized the value of exploiting Social Security: 77% called maximizing benefits “very important,” as did 85% of the 1,279 CFPs.

The reality, however, according to the survey, was that 83% of consumers overestimate or underestimate how much they would receive if they defer claiming Social Security until they reach 70—the maximum age to do so; 67% underestimate and 16% overestimate the hardship they would incur in waiting that long. “Only 57% know that even waiting past one’s full retirement age can result in further increases in benefits—leaving 42% who believe benefits will stay the same or be reduced after age 66 or 67,” the report says. Even while nearly three in 10 (28%) CFPs recommend that clients postpone drawing benefits until age 70, only 13% of consumers plan to heed the advice.

Additionally, fewer than four in 10 consumers (39%) believe Social Security will make up at least half of their income, even though AARP has reported that Americans increasingly rely on Social Security as they age—for upwards of 50% of their income by age 80.

Just over four in 10 CFPs, however, estimate that Social Security will be a major source of retirement income. Ninety-four percent of CFPs said most of their clients, likely to be affluent, will rely on Social Security to make up 50% or less of their retirement income. CFPs factor that into a comprehensive picture including income from retirement plans, a spouse, if any, and post-retirement work; along with the client’s health, life expectancy, and so on. The goal with Social Security, as with the other income sources, is to maximize the benefits, the study says.

NEXT: How financial planners bridge the gap

To minimize ignorance on the subject, many financial planners report discussing it with their clients. According to the survey:

• Ninety-six percent of CFP respondents address Social Security with their clients as part of retirement planning; 91%, in fact, say it is very important to help clients strategize for Social Security in their retirement planning—this includes claiming strategies (96%) and income projections (97%).
• Nearly half (46%) of CFPs recommend that their clients review their estimated Social Security retirement benefits at least once a year and almost as many (45%) say they should review their estimated benefits every two years. 
• CFPs are also twice as confident in the Social Security system’s solvency as are consumers—14% believe their clients will receive benefits at least equal in value to those received by today’s retirees—vs.7%, respectively.
• CFPs most often keep their knowledge current by attending professional conferences (81%), along with looking to the Social Security Administration (78%), virtual learning (58%) and media coverage (50%).

As to where most consumers get their information, professional financial advisers ranked even with current and former employers—at 16% each. More common were family members or friends, at 46%; the Social Security Administration, 45%; newspapers, 33%; financial magazines or books, 22%; and financial television shows, 17%. Other sources looked to included financial services firms, at 9%; accountants, at 7%; and attorneys at 3%.

For AARP’s contribution, GfK Roper conducted a national survey of the 1,215 adults, all eligible to receive Social Security at age 62, between June 22 and July 3. FPA completed an online survey of the 1,279 CFPs, all active FPA members, also between June 22 and July 3. The full results of both surveys may be found here.