Social Security Benefits: Are Americans Realistic About What They’ll Receive?

Jacob Wade
eric1513 / Getty Images
eric1513 / Getty Images

Social Security is one of the most hotly debated topics in today’s political environment.

From fears of running out of money to threats of benefits being cut, many Americans are losing confidence in Social Security as a plan for retirement.

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But just because there are worries about Social Security doesn’t mean you should ignore it completely. It is a vital part of your investment plan and can help boost your retirement income and give you peace of mind if you’re feeling behind in your retirement savings.

We chatted with a financial planning expert to learn about how much Americans should expect to receive in Social Security benefits — and how to build that into your financial plan.

Americans Don’t Expect Much From Social Security

According to a recent survey by GOBankingRates, 71% of Americans expect less than $2,000 per month in Social Security benefits in retirement. And nearly 60% don’t expect more than $1,500 per month by the time they reach retirement.

This is in contrast to the reality of what people are actually receiving today.

According to the Social Security Administration, average monthly benefits for retirees are $1,767. This is around $21,000 in annual retirement benefits from the program, on average.

Gregory J. Kurinec, CFP at Bentron Financial Group, believes that Americans are dismissive of Social Security due to fears of funds running out by the time they are eligible to receive them.

“If they have fears of whether or not the system is solvent or will run out of money, then those are not necessarily unwarranted feelings,” Kurinec said. “However, in the short term, there is enough money coming in and in reserves to make people whole for the next decade.”

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Gen X Is the Most Pessimistic About Social Security

According to the GOBankingRates survey, those ages 45 to 54 are the most pessimistic about Social Security income. Nearly 82% don’t expect more than $2,000 in monthly benefits, and none expect to receive $4,000 or more — while most other generations do.

This may be with good reason. Gen X is closest to retirement, with ages ranging from 44 to 59. And they may have already projected their Social Security income with a financial planner or directly through the SSA.gov website. While the average benefit is much higher, some may be planning to claim early, causing a reduced benefit.

Either way, Gen X does not put much faith in Social Security income and feels it might need to find other ways to supplement retirement.

“For a lot of retirees, Social Security is making up a much larger portion of their retirement income than was ever intended,” Kurinec said. “Social Security should be used in unison with other retirement savings, pensions, personal savings, etc. It was never intended to be the full source of income in retirement.”

Will Social Security Run Out of Money?

If most Americans don’t believe they receive at least the average Social Security benefit, maybe they are onto something.

According to the Social Security Administration, there is a real risk of coming up short with Social Security funding in the next decade. In the SSA Board of Trustees report of 2022 analyzing the current state of funding and drawdowns from Social Security, the SSA found that fund reserves could be depleted by 2035.

“Changes will need to be made to the system as a whole,” Kurinec said, “but we all know that the wheels of change spin slowly.”

So while this “fiscal cliff” is about 10 years away, changes need to start sooner rather than later to head off a reduction in benefits. Whether it’s a decrease in benefits or increase in payroll taxes, it is a good idea to keep an eye on Social Security legislation.

Social Security Rises With Inflation

While the future of Social Security may feel bleak, it’s important to understand how it works. One of the benefits of Social Security is a cost-of-living increase in inflationary environments.

For example, in 2022, as inflation peaked near 9%, Social Security benefits saw the biggest jump in 40 years, with an 8.7% cost of living adjustment (COLA) for 2023. This increased benefits for retirees and bumped up the estimated Social Security benefit for future retirees.

So, if average benefits are near $1,800 per month right now, the number should increase by the time you retire.

When You Claim Social Security Benefits Matters

When planning for Social Security benefits in retirement, one of the most critical factors is when you choose to claim your benefits. It could be that the GOBankingRates survey respondents who don’t think they will have much in the way of monthly Social Security benefits are planning to claim early, which can hurt benefit amounts.

“Something else to consider is when are these people planning on filing for benefits,” Kurinec said. “Someone that claims at the earliest possible moment can expect to receive 25% to 30% less in benefits as opposed to someone who waits until their full retirement age. This can have a dramatic effect on what their take home amount is.”

What’s more, you can get a benefit boost by waiting until after your full retirement age to access your benefits. Currently, the full retirement age for retirees born 1960 or later is age 67. But you can wait until age 70 to claim your benefits, which would provide an 8% annual boost in benefits. This can drastically increase your retirement benefit amount and put you in the “above average” category of Social Security beneficiaries.

Social Security Is Just One Piece of the Retirement Puzzle

While Americans may be underestimating how much Social Security income they will get, it’s important to understand that Social Security should not be your entire retirement plan. When you zoom out and look at other income sources, it will help inform your Social Security strategy, including when to start taking benefits, how much to plan on receiving, and how taxes will work.

“Claiming your Social Security benefits is something that needs to be carefully examined before any decision is made,” Kurinec said. “You need to factor in all other sources of income and assets before making any financial decisions on when to take Social Security.”

Whether Social Security gets reduced a decade from now or whether taxes increase, it’s important to have other retirement income sources in place. Focus on funding your IRA accounts, 401(k) or other workplace retirement accounts — and even a standard brokerage account. Remember, Social Security is just a supplement, and it’s up to you to fund the rest.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: Social Security Benefits: Are Americans Realistic About What They’ll Receive?

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