Social Security remains a cornerstone of retirement income for millions of Americans, yet many are unsure about what will happen to the program when they reach retirement age. A 2024 Annual Retirement Study by Allianz Life highlights the prevalent fears and confusion surrounding Social Security’s future. According to the study, there is a persistent knowledge gap about how the system works, when to claim benefits, and whether the program will continue to be solvent as the retiree population grows.
Will Social Security play a role in your retirement plan?
The Allianz survey, which polled 1,000 respondents, found that most Americans are unsure of Social Security’s place in their retirement plans. This uncertainty is particularly pronounced among millennials and Generation X, with 60% of millennials and 51% of Gen X respondents admitting to a limited understanding of the system. Even 23% of baby boomers, those closest to or already at retirement age, are unsure of how to approach Social Security, despite having lived through more active years of the program.
Confusion about when to claim benefits
One of the most pressing concerns is determining the right time to claim Social Security benefits. Timing is crucial, as claiming early can reduce the monthly payout while delaying can significantly increase it. However, the study shows that 57% of millennials and 56% of Gen Xers have no plan or clear idea of when they should claim Social Security. Even among baby boomers, a notable 23% are still unsure about when they will begin claiming their benefits.
The confusion surrounding this decision stems from various factors, including misconceptions about how Social Security works and insufficient financial education. Claiming benefits at full retirement age (currently 66 to 67, depending on birth year) guarantees the full benefit, but many Americans are unaware of the financial advantages of waiting until age 70 when benefits reach their maximum potential. In 2024, individuals who wait until age 70 can receive up to $4,873 per month.
Important facts people don’t know about Social Security
There are several other aspects of Social Security that people misunderstand or are unaware of, and these can significantly impact their retirement planning:
- Survivor benefits: Many mistakenly believe that after a spouse dies, the surviving spouse will continue to receive both benefits. In reality, the surviving spouse will receive only the larger of the two benefits.
- Taxation of benefits: Up to 85% of Social Security benefits can be subject to federal income tax depending on the recipient’s total income.
- Earnings limit: If you claim benefits before full retirement age and continue working, your benefits may be temporarily reduced if your earnings exceed a certain limit. This is an often-overlooked factor for those who plan to continue working while drawing early benefits.
The current state of Social Security benefits in 2024
As of July 2024, the average monthly Social Security benefit for retirees stands at approximately $1,919.40. However, this figure varies widely based on the individual’s earnings history and the age at which they claim benefits. For those claiming benefits at the earliest eligible age of 62, the maximum monthly benefit is around $2,710. For those who wait until full retirement age, it rises to $3,822, and for those waiting until age 70, the maximum monthly benefit is nearly $4,873.
