David Giertz, president of distribution and sales at Nationwide, says the firm’s second annual survey of individuals nearing retirement and those who are retired unearthed numerous misconceptions about Social Security.
“Retirement is quite different from what they expected,” Giertz tells PLANADVISER. “They believe they should take Social Security early because it’s going to run out.” Other misperceptions about the benefit touch on cost—“Forty-one percent didn’t think any costs come out of it”—and longevity—“People believe they’re going to die much sooner than they do,” Giertz says.
These ideas are contributing to the retirement readiness crisis the country faces, Giertz believes, and plan sponsors and plan advisers have an opportunity to help educate participants about the best ways to claim the benefit.
One disconnect—the amount of retirement income future retirees believe Social Security will cover (52%) and the reality (40%)—is quite large, Giertz says. One reason for the disparity is the number of people who began taking the benefit early: 83% of survey respondents in their retirement years had to claim early because of health issues or job loss. “Those that take the benefit early receive 49% less than those who wait,” Giertz says, a source of real regret. “The survey showed one-third wish they had waited.”
One surprising finding, Giertz says, was how few of the survey respondents working with an adviser had conversations with the adviser about Social Security: just 17% versus last year’s 12%. The number rose slightly but is still low, he says. Coupled with that figure is the 71% of people who indicated they would seek out another adviser if their current adviser did not talk about Social Security. While the number of advisers discussing Social Security did show a slight rise, Giertz says he expected a bigger increase.NEXT: How plan sponsors can help
But perhaps the scant number of conversations about Social Security should not be surprising, Giertz concedes. “It’s a complex topic,” he points out, “with 2,800 rules, and it’s hard to understand.”
Two takeaways for plan sponsors are education and planning. “How can we help do a better job educating and helping people be more aware,” Giertz says. After that is planning. “The sooner people plan and understand some of the misconceptions, how to optimize their Social Security benefit, the better.” He recommends plan sponsors outline the misconceptions for plan participants, along with statistics and follow up with actions for plan participants to take, such as meeting with an adviser and devising an appropriate strategy, looking at other assets and perhaps making withdrawals from a 401(k) in order to delay the beginning of the benefit.
Says Charley Gillespie, communications consultant for Nationwide media relations, “The vast majority take it as soon as they can—and they don’t realize they’re leaving hundreds of thousands of dollars on the table if they do that. If people can get assistance getting through those eight years [age 62 to 70], or even if they just hold on for a few extra years, it can really help.”
Nationwide surveyed 902 U.S. adults online between June 15 and June 22 who currently collect or plan to collect Social Security benefits. Respondents, age 50 or older, are either recent or future retirees, or are 10 or more years into retirement.The survey can be accessed on Nationwide’s website.