American investors admit they don’t know much about Social Security or how they can use it to maximize their retirement income, but only 22% talk to their advisors about their concerns, according to a survey by Allianz Life.
Fifty-three percent of Americans in the survey said they have limited knowledge of Social Security or how it will fit into their retirement plan.
Hispanic respondents (63%) were more likely than Asian American (56%), white (54%), and Black/African Americans (47%) to say they do not know how Social Security works.
“It’s worrisome that so many Americans don’t know how Social Security will fit into their retirement strategy,” said Kelly LaVigne, vice president of consumer insights at Allianz Life. “Social Security benefits are a foundational part of a retirement strategy. This is a guaranteed source of income for a lifetime that increases with cost-of living adjustments and is tax advantaged. There are decisions to be made around Social Security that will affect you for the rest of your life—making the right choice is important.”
Just 44% of Americans say they have a plan for how they will take Social Security in retirement. Boomers (71%) are more likely than Gen Xers (27%) and millennials (30%) to say they have a Social Security plan, according to Alllianz.
In contrast, 53% of Americans say they are not sure when it will be best for them to start taking Social Security.
Adding to investors’ anxiety is the fact that 57% worry Social Security will not be available throughout the entirety of their retirement, Allianz’s research found.
Perhaps most eye-opening for advisors is the fact that despite the limited knowledge, only 22% of those with a financial professional have talked to them about their worry that Social Security will run out of money. That means 78% of investors have never discussed their Social Security concerns with their advisors. Moreover, just 17% have talked to their financial professional about maximizing their Social Security income in retirement, according to Allianz.
ThThe majority of Americans (60%) would like to talk with a financial professional about their concerns regarding the survival of Social Security and whether it will be available throughout the entirety of their retirement, Allianz said. In particular, 81% of millennials and 60% of Gen Xers would like to have this discussion. Just 35% of boomers, many who have already started collecting Social Security benefits, said the same, Allianz found.
The knowledge gap creates huge opportunities for advisors to educate investors, add value and even prospect for new clients, LaVigne said. “I’ve been helping advisors with seminars on Social Security for years and they’re always very well attended. It will gain you clients, no question about that. Even during Covid I did Social Security seminars online and got several hundred people each time. It’s one of the best ways for you to introduce yourself as a financial professional,” LaVigne said.
If an advisor doesn’t have expertise, they should recruit a CPA, estate attorney, wholesaler or expert from their broker-dealer to speak before investors, he advised. “You want someone there who is an expert and can field questions. It will gain you clients, no question about that,” he said.
It’s important to get in front of clients and prospects in their 50s to begin to have Social Security discussions, he said. By starting early, advisors can really begin to educate clients and help them determine critical information such as how much money they can expect to have in retirement and what their draw-down rate is. This can help them make decisions and modify spending and investing behavior early enough so they can meet their goals and optimize their retirement income, the Allianz executive said.
Beyond providing potentially substantial monthly income, “you can’t mimic Social Security. We have products that can offer guaranteed income for for one or two lives, but the one thing we can’t offer is tax-advantaged income. One of the features of Social Security that is often overlooked is that 15% of your benefit is coming to you tax free. That’s very difficult to replace,” LaVigne added.
Anxiety around the survival of Social Security and potential lack of financial and investment planning have led 41% of millennials and 38% of Gen Xers to report that they plan to work past Social Security retirement age—which can be an important factor in meeting retirement goals, provided investors have done the other planning work necessary, Allianz said.
Still, Americans also have unrealistic expectations for their transition into retirement, according to Allianz. “Even though many younger Americans plan to work past Social Security retirement age, few do. While 41% of millennials and 38% of Gen Xers say they plan to work past Social Security retirement age, just 28% of boomers say they are working past Social Security retirement age,” the company reported.
Advisors can also be instrumental in helping investors avoid major mistakes that can really cut into their Social Security benefit. “Yes, I have seen investors make bad decisions and if it happened more than 12 months ago, they can’t even change it,” LaVigne said.
The survey was conducted in February and March. Allianz said it surveyed 1,000 people aged 25 or over with annual household incomes of at least $50,000 ($75,000 for married couples or partners) and investable assets of at least $150,000.