Social Security doesn't have a theme song. But if it did, one good candidate might be The Animals' 1965 hit, "Don't Let Me Be Misunderstood."
Although Social Security has been around for nearly nine decades, there's still some confusion about the federal program. Here's one thing about Social Security where most Americans are dead wrong -- and one they get exactly right.
Dead wrong
Allianz Life Insurance of North America recently released the findings from its 2023 1Q Quarterly Market Perceptions Study. This online survey focused on investing and retirement. It was conducted in March 2023 and included a nationally representative sample of 1,005 respondents ages 18 and older.
One finding from Allianz Life's survey especially stood out. A whopping 74% of Americans surveyed said that "they can't count on Social Security benefits when planning retirement income."
The survey didn't dig deeper into why so many Americans felt that way. Perhaps the most likely cause is a general awareness that Social Security's combined trust funds are on track to run out of money by 2034 or 2035, depending on which projections are used.
However, the view that Social Security benefits can't be counted on at all is mistaken. Even when the program's trust funds are depleted, ongoing payroll taxes will continue to fund around 80% of scheduled benefits, according to Social Security's trustees. And that benefit cut will be required only if no actions are taken to bolster Social Security.
Exactly right
Many Americans appear to be overly pessimistic about the future of Social Security. But most are exactly right on another count.
Allianz Life's survey found that 88% of respondents believe that it's "critical to have another source of guaranteed income beyond Social Security benefits in order to have a comfortable retirement." This take is spot on.
Social Security wasn't designed to supply 100% of retirement income. Allianz Life vice president of consumer insights Kelly Lavigne correctly noted, "Social Security benefits are often the backbone of a retirement strategy but it cannot be your entire strategy."
Some Americans can count on pensions from their employers to help fund retirement. However, pensions aren't as commonplace as they have been in the past.
Saving as much as possible in other retirement accounts, therefore, is important. Many for-profit employers offer 401(k) plans. Not-for-profit organizations often offer 403(b) plans. Most Americans can also put money into Individual Retirement Accounts (IRAs).
Another big mistake
Allianz Life's survey revealed another big mistake that many Americans could be making with their retirement planning. A solid majority (63%) of respondents are keeping more money out of the stock market than they think is appropriate. Nearly as many (62%) said that they'd "rather have their money sit in cash than endure market swings."
The main problem with this approach is that it's impossible to accurately time the market. By keeping too much money on the sidelines, many people could miss out either partially or completely on the inevitable rebound.
The right answers
What are the right answers for future retirees? There isn't a "one-size-fits-all" strategy.
However, saving as much for retirement as early as possible is a smart move for everyone. Most Americans will be better off investing in high-quality stocks and resisting the temptation to try to time the market.
Also, don't write off Social Security. The program will be able to fund a high percentage of benefits even if its trust funds run out of money in the future. And there are things you can do that can help you maximize your Social Security benefits.