Background: Social Security is a cornerstone of the American retirement system. According to the Social Security Administration, 50% of people ages 65 and older receive at least half of their income from Social Security, with approximately 25% relying on it for 90% or more of their income. Despite its importance, recent data from the T. Rowe Price 2024 Retirement Savings and Spending Study* reveals that there is a significant knowledge gap among workers about this key program. This Research Minute sheds light on these gaps and underscores the urgent need for better education and guidance around this critical aspect of retirement planning.

Findings: The study found that older workers had the highest accuracy rates on Social Security questions, but notable gaps exist. A vast majority of pre-retirees age 50 and above (92%) knew that there is a penalty for claiming benefits early; however, far fewer understood the benefits of delaying claims beyond their full retirement age (62%).

Alarmingly, 28% of individuals age 62 and above mistakenly believed that Social Security benefits automatically start at age 65 if not claimed earlier, perhaps confusing Social Security with Medicare eligibility. On average, only 45% of workers over age 50 knew their approximate monthly Social Security benefit.

More broadly, people are worried about the future of Social Security. Only 38% of respondents expressed confidence in the program’s ability to pay future scheduled benefits. Younger workers, including Gen Z and Millennials, expect to receive less than 60% of their currently scheduled benefits. This level of pessimism is probably unwarranted and is likely due to a lack of understanding about how the program works, as well as the fact that these younger workers are far from retirement and actually benefiting from the program. In reality, the latest Social Security Trustees Report indicates that, even without Congressional intervention, workers should receive around 80% of their Social Security benefits.

Younger workers may be too pessimistic about Social Security

The study also found strong opinions about potential policy solutions. The prospect of allowing the Social Security Trust Fund to deplete—resulting in a 20% benefit cut—was widely unpopular. Eliminating the tax break for 401(k) contributions was almost as unpopular. While raising or eliminating the income cap on payroll taxes was slightly more favorable, the option only garnered approval from just over a third of respondents.

Bottom line: The Social Security knowledge gap underscores the need for comprehensive retirement education. For individuals, understanding the implications of claiming age and changes to the system is crucial for effective retirement planning. Plan sponsors and advisors have a significant opportunity to enhance education efforts and provide integrated guidance to help individuals make informed decisions. To bolster the financial future for retirees across all income levels, policymakers must work toward finding a fair and sustainable solution to strengthen Social Security’s future.

Insights shared by guest contributors are their own and do not represent the views of DCIIA or the RRC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

ENDNOTE

*The T. Rowe Price 2024 Retirement Savings and Spending Study was conducted between July 17, 2024, and August 7, 2024. It included 3,005 401(k) participants, full-time or part-time workers who never retired, are currently age 18 or older, and are either contributing to a 401(k) plan or eligible to contribute and have a balance of $1,000+.

NMG Consulting administered the survey on behalf of T. Rowe Price.

**Projected benefits if the Social Security fund is exhausted in 2033. “The 2024 Annual Report of the Board of Trustees of the Federal OldAge and Survivors Insurance and

Federal Disability Insurance Trust Funds,” Social Security Administration, May 6, 2024. https://www.ssa.gov/oact/TR/2024/tr2024.pdf

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