By 2030, all baby boomers will be at least 65 years old, according to the U.S. Census Bureau. As members of this influential generation enter retirement (if they haven't already), they'll be making big decisions about Social Security.
Sadly, many are missing vital information needed to make the right choices. In fact, just 37% of baby boomers say they are confident in their knowledge of Social Security, according to a study conducted earlier this year by Nationwide. Not understanding how the program works could lead to mistakes in when benefits are claimed, how they're taxed, or other key issues.
Perhaps most troubling, however, is that the majority of boomers don't know the most fundamental fact about their retirement benefits, according to the study: A full 57% of them don't know how much of their income will be replaced by Social Security. And that's a huge problem.
Boomers could be in for a shock
Social Security serves as a major source of retirement income for most Americans, many of whom couldn't afford the basics without it. As boomers get ready to leave the workforce, it's crucial they understand exactly what these benefits will do for them.
Knowing the amount of income Social Security will produce enables pre-retirees to determine if they actually have enough money to retire. Chances are good that retirement benefits, combined with investments, will be the only income most receive. Without knowing how much you'll get, you can't know if your income will be high enough to pay for the essentials.
Both pre-retirees and current retirees also need to understand how much Social Security provides in order to set a budget and determine a safe withdrawal rate from retirement accounts. Most seniors on a fixed income can't afford to just spend as they wish without setting some limits, or they'll end up draining their retirement accounts too soon. A basic understanding of the amount of income you'll receive is a key first step to creating a livable budget.
Perhaps most important, knowing what Social Security will pay is crucial so boomers don't overestimate how much support they'll offer. Benefits are intended to replace only around 40% of pre-retirement income, but you'll likely need at least 80% of that figure (and likely more) in retirement. Anyone unaware of this may assume they're on track to retire (or worse, actually do it) only to confront a major financial shortfall.
It's not hard to learn how much Social Security will provide, especially if you're nearing retirement. You can sign into your online Social Security account to get an estimate of your benefits at different retirement ages. To do this, you'll need to create an account if you don't have one already, but that can be done within minutes online. You can also use the calculators on the Social Security website to estimate retirement income.
If you're a baby boomer -- or one of the 49% of Gen Xers or millennials who, according to Nationwide's study, have no idea how much your Social Security benefits will provide -- now is the time to learn. Once you see how little income they'll offer, you may just be inspired to increase your retirement savings.