Have you ever just sat and listened to a group of people discuss Social Security? If so, do you think everything you heard was accurate? Here’s the thing: the conversation was probably filled with misinformation. Very few Americans truly understand Social Security or how it works. That includes many of your employees.
A 2019 GOBankingRanks survey asked some 2,000 people about their retirement savings habits. The survey revealed that the majority of U.S. workers aren’t saving enough for retirement – if they are saving anything at all. What’s more, the majority don’t understand how Social Security works. They are happy to assume that Social Security benefits will be enough in retirement.
A Simple System to Understand
What makes Social Security ignorance so troubling is that the program isn’t hard to understand. Social Security payments begin when workers reach a particular age. Right now, that age is 67. The value of one’s benefits depend on two things:
1. Social Security Credits
Consumers earn Social Security credits by working. Beginning in 2023, a single credit is worth $1,640. This is to say that for every $1,640 a person earns, they also earn a single Social Security credit – up to a maximum of 4 credits per year. To qualify for full Social Security benefits in retirement, a person must have earned 40 credits. Fewer credits mean lower benefits.
2. Lifetime Earnings
Assuming a worker earns the full 40 credits prior to retirement, they will also be eligible to receive the full benefit payment. Yet this isn’t a static amount. Payments are based on a worker’s average lifetime earnings. Therefore, a well-paid white-collar worker with 40 credits will enjoy a more generous Social Security benefit than a blue-collar worker whose average salary was significantly less.
The Trust Fund Myth
Another big misunderstanding among Americans relates to the Social Security trust fund myth. The myth takes two forms. The first suggests that the trust fund was raided by Congress and replaced with IOUs, meaning there is actually no money in the fund.
The myth’s second iteration suggests that money contributed to Social Security is invested in a trust that is treated exactly like a company’s retirement fund. It supposedly earns generous returns that will guarantee eligible recipients a comfortable retirement.
Both myths are just that. The original trust fund established to pay for Social Security was not raided by Congress. It has always been treated as a separate fund. But that fund is not invested like your company’s retirement plan. Instead, the government invests the money in itself by purchasing bonds.
Workers Need to Be Educated
The fact that so many American workers misunderstand Social Security matters inasmuch as the misinformation they do believe affects how they save for retirement. What is the solution? Education.
BenefitMall, a Dallas general agency supporting thousands of benefits brokers around the country, proposed in a post in early 2022 that brokers should be able to trust their general agencies for industry expertise. But that street runs two ways. Brokers should also be willing to provide their clients with the necessary expertise to navigate workplace benefits.
Brokers have a golden opportunity to be benefits educators. They can offer clients all sorts of educational and training opportunities, including Social Security education. No doubt education is sorely needed in the American workplace.
How much do your employees really know about Social Security? How much do you know about it? Our collective ignorance about all things retirement is astounding. Not only that, but such ignorance is also only harming our ability to save for a comfortable retirement.