Working Generations Are Uncertain about Social Security

American workers aren’t necessarily as ready for retirement as the industry may think, studies find.

According to a Nationwide Retirement Institute report, when provided with the definition of what a full retirement age is, four in 10 workers who plan to claim Social Security say they are not expecting to do so before age 66 or 67. Millennials, the youngest age cohort in the study, said they plan on drawing Social Security benefits at an average age of 63, either so they can invest the income and earn higher returns than by delaying benefits (41%) or because they expect benefits to be reduced before their full retirement age (39%).

Twenty-seven percent of Millennials are expecting to retire earlier than the full retirement age, while 18% do not believe Social Security will be around at their full retirement age. Sixteen percent of Millennials expect to need the money earlier; 15% do not think they would live long enough to delay benefits; 14% expect health problems before their full retirement age; and 4% anticipate a job loss.

The idea of a future without Social Security isn’t uncommon—even those currently in retirement are claiming smaller benefits than they expected. According to a study by the Michigan Retirement and Disability Research Center (MRDRC), most current retirees say the amount of Social Security retirement benefits they receive is lower than what they anticipated. The average expectation bias for monthly retirement benefits, or the difference between the forecasted future benefits and the subjective mean of the expected benefits, in the study sample was $307.

A 2019 Nationwide Retirement Institute survey found retirees expected to receive $1,805 a month in Social Security benefits, yet when their check stubs arrived, they collected an average of $1,408—a 28% difference.

The MRDRC study notes that failing to appropriately adjust for early or delayed claiming largely contributes to expectation biases on retirement benefits. In fact, the study finds 50% of survey respondents are significantly uncertain about the amount they’ll receive in Social Security benefits, and, in most cases, tend to overestimate these numbers.

Many Baby Boomers, the age group that has seen an uptick in retirement since the start of the COVID-19 pandemic, say they plan to use Social Security as their primary source of income. According to the 2020 Nationwide Retirement Institute study, one in five Boomers do not have sources of retirement income beyond Social Security, and four in 10 who do have other income options expect Social Security to be their primary source of retirement income.

Across all generations, workers understand they will need more income in retirement than what Social Security will offer, the survey finds. Generation X workers identify with this the most, as they tend to have the biggest gap between the amount of pre-retirement income expected versus what Social Security will replace, the study suggests.

This uncertainty surrounding Social Security is compelling participants to learn more about the program. Eight in 10 workers believe the Social Security system is in need of change, especially as younger workers are expected to take on its burden when they reach retirement. Additionally, more Millennials and Gen Xers are interested in learning more about Social Security with a financial adviser, while Boomers are more comfortable contacting the Social Security administration for questions.

It’s up to plan sponsors and financial professionals to provide education, whether that’s in the form of seminars, presentations or calculators. Additionally, offering savings tools—such as emergency savings accounts, student loan debt assistance programs and a 401(k)—can elevate a worker’s retirement income in the future.

Younger workers are more comfortable speaking to financial professionals than Gen Xers and Baby Boomers. Forty-one percent of Millennials say they currently work with an adviser on how to handle Social Security, while just 27% of Gen Xers and 30% of Boomers do. Among those who do not work with a financial adviser, 32% of Millennials say they are planning on asking one about Social Security, yet only 21% of Gen Xers and 6% of Boomers say the same. A majority of all age groups note they are likely to find an adviser who would help them maximize Social Security benefits, but Millennials and Gen Xers are more likely to than Boomers.