Survey: Crisis of confidence in Social Security system

Despite high levels of awareness that waiting longer to claim Social Security benefits earns higher payments, 40% of non-retired respondents said they plan to take their Social Security benefits starting between ages 62 and 65. In fact, only 10% of non-retired Americans say they will maximize their Social Security benefits by waiting for their 70th birthday to begin collecting, according to the Schroders 2023 U.S. Retirement Survey.

When asked why they don’t plan to delay Social Security benefits to maximize payments, 44% of respondents indicated they think Social Security will run out or reduce payments, 36% said they will need the money and 34% believe it is their money and they want access to it as soon as possible. Thirteen percent said they were advised to take Social Security earlier than age 70.

“We have a crisis of confidence in the Social Security system and it’s costing American workers real money,” said Deb Boyden, head of U.S. Defined Contribution at Schroders. “Fear about the stability of Social Security has people walking away from money that could improve their quality of life in retirement. Many are not even waiting for their full benefit let alone the maximum, which means they will have to create more income on their own, making it even more important to save and invest earlier for retirement.”

Undercutting their Social Security payments will mean retirees will have to find other ways to make up the $4,940 average monthly income the survey participants said they expect to need to enjoy a comfortable retirement. Millennials expect to need $5,135 per month while those aged 60-65 think they’ll need slightly less at $4,855 per month.

In reality, retirees said that including Social Security, their total monthly income is $4,170 on average. Thirty-seven percent said their monthly income is less than $2,500. Retirees who work with a financial advisor have a higher average monthly income including Social Security at $5,075, according to the report. Having a formal financial plan helps even more, driving monthly income to $5,810 on average compared with $3,000 per month for those without a financial plan.

More than half of respondents said the idea of not receiving a monthly paycheck in retirement is concerning, while 23% said the idea is terrifying. A large majority of Americans who are offered an income solution in their workplace retirement plan said they are likely to use it, although awareness about such offerings remains low. Nearly 40% of respondents said they didn’t know if their plan offered an income solution. Among those who don’t know or do not have a retirement income solution in their plan, 55% said they wish they did – including 64% of those nearing retirement (ages 60-65) – while 33% were unsure, and 12% said it wasn’t necessary.

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“Americans are increasingly looking to their employers for insights and solutions to their retirement income challenges,” Boyden said. “While this has been a topic of conversation for some time, we believe we are entering a phase of accelerated adoption among plan sponsors for solutions to meet these challenges, with products that provide lifetime income, while addressing sequence of return risk with principal protection, and giving investors the flexibility to take the income when they want or need it.”