Most Americans Don’t Know Their Social Security Benefits

Most Americans Don’t Know Their Social Security Benefits

If you’re feeling uncertain about your Social Security benefits, please know you’re not alone. A recent 2024 study from the National Institute on Retirement Security found that only 11% of working Americans understand exactly what monthly retirement income they can expect from Social Security. Even fewer—just 13%—grasp how early claiming affects their benefits and long-term retirement planning.

This knowledge gap is concerning because Social Security typically provides about 40% of a retiree’s income. The good news is that understanding your Social Security benefits isn’t as difficult as it might seem. The Social Security Administration (SSA) offers personalized statements that can help guide your retirement planning, no matter where you are in your journey.

Finding Your Social Security Information

Getting your personal Social Security statement is straightforward. Simply sign in to your SSA account or create one if needed. Once logged in, you can download your statement right away.

At the top of your statement, you’ll find important retirement information, including:

• Your full retirement age (between 65 and 67, depending on when you were born)
• Your monthly benefit amounts at different claiming ages—from as early as 62 to as late as 70
• Estimated benefit calculations based on your earnings history

Your Social Security benefit is based on your highest 35 years of earnings, and you need at least 10 years of work to qualify. Remember, you’ve been contributing to this benefit throughout your working years. Currently, you pay 6.2% of your W-2 salary (up to $176,100) into Social Security, or 12.4% if you’re self-employed.

It’s worth noting that your statement assumes you’ll maintain your current income until retirement. If you expect your income to change, keep this in mind when planning your Social Security strategy.

Making the Most of Your Social Security Benefits

Understanding your statement helps you decide when to start receiving benefits—a choice that greatly affects your monthly retirement income.

The principle is clear: waiting longer to claim Social Security means receiving more money each month for life. Your benefit typically increases by 7% to 9% for each year you delay claiming.

Ideally, you should wait until reaching your full retirement age and after you’ve stopped working. However, your personal circumstances—family needs, lifestyle, health, and work situation—will influence this decision about Social Security eligibility.

If you need the money for essential expenses, starting at 62 might make sense, especially if you’re no longer working and your other income is passive. This way, your benefit won’t face income tax complications or reductions.

However, be careful about potential penalties. If you claim before full retirement age while earning more than $23,400, your benefit could be reduced by half of what you earn over that threshold, before taxes are even considered.

Working while receiving Social Security benefits before full retirement age can also lead to significant tax implications. For married couples filing jointly with earnings over $32,000 (or singles over $25,000), up to half of your benefit may be taxable. This increases to 85% at higher income levels.

Understanding Your Options: A Real Example

Let’s consider 55-year-old John, who has enough savings to meet his current needs. His Social Security statement shows that claiming at 62 would give him $2,747 monthly, but waiting until 70 would nearly double that to $5,013 monthly.

What if John wants to retire between these ages? Looking at the yearly increases:

• He’d see a 9.1% jump at age 65 compared to 64
• But only a 7% increase from 69 to 70

If a significant boost is coming soon, waiting until 65 might make more sense than claiming at 64.

John should also think about his health and life expectancy. If he’s likely to live beyond 83, waiting until 70 maximizes his lifetime Social Security benefits. But if his health is declining and he might not live past 75, claiming at 62 would be better.

These decisions become even more complex when considering a spouse’s benefits and life expectancy. A financial advisor can provide valuable guidance for your specific Social Security planning situation.

The Reality of Social Security’s Future

It’s important to acknowledge that Social Security faces funding challenges. The trust fund is projected to pay full benefits only until 2033. After that, without government action, recipients may receive reduced benefits.

The system also faces operational challenges, including staffing cuts and potential disruptions. While Social Security remains a vital resource for millions of Americans, these uncertainties suggest we should prepare for various scenarios.

Working with a financial advisor to create a personalized plan is especially valuable. If you’re more than a decade from retirement, consider developing a strategy that doesn’t rely entirely on Social Security. This might include annuities for guaranteed income or life insurance to provide for your partner.

Understanding your Social Security benefits is essential for retirement planning, but in today’s changing landscape, it shouldn’t be your only financial safety net. Taking steps now to build a comprehensive retirement plan can help ensure your future security and peace of mind.