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March 15, 2023 at 03:04 PM
Related: 7 Big Social Security Claiming Mistakes Couples Make
Despite the foundational importance of Social Security benefits for many Americans’ financial stability in retirement, there remains a sizable and damaging knowledge gap regarding the best ways to claim and manage the federal benefit.
In the experience of Mike Lynch, managing director of applied insights at Hartford Funds, the outlook for Social Security is more complicated than ever, and while the advisor community is slowly getting better at addressing Social Security topics, there remains a lot of room for improvement.
As one recent analysis from the National Bureau of Economic Research details, the average annual Social Security income forecast error made by older Americans is $1,897, or nearly 12% lower than the actual benefit due. According to NBER researchers, there is considerable variance in the forecasting error, as well, with about 25% of older Americans underestimating their benefit by $5,000 or more, and 10% overestimating by $5,000 or more.
The NBER’s data further shows that approximately 10% of survey respondents — all of whom will eventually collect Social Security — do not expect any benefits. Ultimately, the analysis suggests that the provision of additional information to pre-retirees, both from the Social Security Administration and from the advisor community, can reduce such errors.
In a new interview, Lynch covered seven common areas where clients get caught up by confusing rules or counterintuitive planning scenarios in the Social Security claiming process. As summarized in the following slideshow, points of confusion range from the specific impacts of delayed claiming to misunderstandings about annual cost-of-living adjustments and the financial stability of the social Security Program as a whole.
Armed with better insights across these topics, Lynch says, advisors can do a lot to help their clients achieve a stable and dignified retirement.
(Image: Shutterstock)
Slideshow
