Half of working Americans expect their 401(k) or similar savings plan to be a major source of income when they retire, according to a new Gallup poll. That is the highest percentage of nonretirees reporting that in old age they anticipate having to depend heavily on 401(k)s and similar plans since this same survey was conducted in 2008 (54 percent) ahead of the financial crisis. Moreover, the all-time high for this particular survey question was 58 percent in 2001 near the end of the dot-com bubble, suggesting that responses tend to ebb and flow with the stock market (401(k) balances).
As for Social Security benefits, 34 percent of surveyed U.S. workers said that they believe the government program will be a major source of their retirement income. That is just below the 17-year high of 36 percent hit in 2015, and there has been a gradual uptrend in anticipated Social Security dependence over the past two decades. Unsurprisingly, only 28 percent of near-retirees recently surveyed by Fidelity Investments said that they plan on claiming their Social Security benefits as early as possible. That represents a significant decline from 45 percent in 2008 and suggests that more Americans are starting to recognize that they can receive a larger benefit from the government by waiting.
However, a more detailed understanding of Social Security appears to still be lacking for many Americans because only 14 percent of surveyed pre-retirees said that they actually know how much their expected Social Security payments will be, and nearly twice as many (26 percent) said that they currently have no idea what their government benefit will be. What is worse is that two-thirds of surveyed pre-retirees claimed to be “confident they understand the rules of Social Security” even though their answers to basic questions suggested otherwise. For example, 38 percent of respondents said that they believe it is possible to change one's Social Security claiming strategy throughout retirement.
That means that these individuals expect to be able to claim Social Security early at age 62 and then have payments increased when they are older to the amount corresponding to full retirement age benefits. That is only possible in special situations, such as the voluntary suspension of benefits. Sixty-five percent of surveyed pre-retirees were also unaware that they typically need to apply for Social Security no earlier than four months before they want to start receiving benefits (three months if they want their first benefit on their 62nd birthday). In fact, nine percent of respondents incorrectly believed that the Social Security Administration (SSA) will contact them when it is time to start receiving benefits.
Only 26 percent of surveyed pre-retirees said that they know what their full retirement age is, and half thought their Social Security benefits could be reduced if an ex-spouse made a claim. Ken Hevert, senior vice president of Retirement at Fidelity Investments, added that “Since most of us can expect to spend 20 years or more in retirement, it's imperative to maximize your guaranteed income streams during these years so you can enjoy the fruits of your labor and live comfortably.” Regularly consulting with a professional financial advisor can help with this endeavor by making it easier for you to make informed retirement decisions and get the most out of your earned Social Security benefits.
Sources: Gallup, Fidelity InvestmentsPost author: Charles Couch