What Pre-retirees Don't Know About Social Security Could Be Hurting Them, Says T. Rowe Price

A new white paper from T. Rowe Price highlights significant gaps in Americans’ understanding of Social Security benefits, with younger generations also expressing deep skepticism about the program’s future.

The findings, drawn from the firm’s 2024 Retirement Savings and Spending Study, are based on responses from 401(k) participants across different age groups.

The report suggests that even as retirement approaches, many savers are unclear about key elements of how Social Security works.

Among those age 50 and older, a vast majority (92 percent) were aware that claiming benefits before full retirement age leads to a reduced payout. However, just over three-fifths (62 percent) knew that delaying benefits beyond that age results in higher payments. Beyond that, just 45 percent of these pre-retirees said they were aware of their approximate Social Security benefit amount.

Younger respondents, including millennials and Generation Z, demonstrated even less familiarity. Over 80 percent correctly identified payroll taxes as the program’s funding source, and 73 percent were aware of a 10-year work requirement for benefits eligibility. However, around two-thirds mistakenly believed benefits begin automatically at age 65 if not claimed earlier – a larger knowledge gap compared to the 28 percent of people 62 and over who incorrectly thought the same.

Confidence in the system was also low across all age groups. Just 38 percent of those surveyed said they believed Social Security would pay out its currently scheduled benefits in full. Millennials and Gen Z respondents were particularly doubtful, estimating they would receive just over half of their expected benefits. Baby boomers were more optimistic, anticipating about 88 percent.

The long-term sustainability of Social Security has been a point of concern in recent years. According to a 2022 report by the Social Security Board of Trustees, the combined retirement and disability trust funds are projected to be depleted by 2035. Without legislative changes, the program will be able to pay only around 80 percent of promised benefits after that date. Although several reform proposals have been floated in Congress – including increasing payroll taxes or raising the full retirement age – no agreement has been reached.

When survey participants were asked about potential fixes to the Social Security solvency dilemma, no single solution emerged with broad support. Allowing the trust fund to run out – triggering automatic benefit cuts – was the least popular option, with 60 percent of respondents rejecting it outright. Removing or raising the income cap on payroll taxes received the most backing, but still only garnered support from slightly more than one-third.

The report also explored where savers are turning for information. SSA.gov, the official Social Security website, was cited by 64 percent of respondents, with usage rising to 85 percent among those who knew their approximate benefit amount – suggesting a link between benefit awareness and proactive research.

Among those who work with financial advisors, 67 percent said they rely on their advisor for Social Security guidance. The findings point to a key opportunity for advisors to expand client education efforts as retirement questions grow more complex.