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The Biggest Problem With Social Security, Revealed

By Sean Williams - Jun 28, 2015 at 7:16AM

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A recent survey uncovers the plain-as-day problem with Social Security and why so many people may be failing to maximize their benefit payouts during retirement.

Source: Social Security Administration via Facebook

For many, retirement is the ultimate goal. Unfortunately, this is also a goal that hangs perilously out of reach for far too many people.

Baby boomers, in particular, are facing a number of challenges. First and foremost, Boomers who weren't able to withstand the stock market's wild vacillations between 2007 and 2009 and sold wound up losing a substantial portion of their retirement nest egg.

Additionally, Social Security -- the financial backdrop designed to protect lower-income retirees, the disabled, and survivors of deceased workers -- is facing what could be a substantial cut in benefits sometime between now and 2033 if Congress can't find a way to increase revenue or cut expenses for the program. In other words, if boomers haven't diligently saved and invested for their retirement, then they could be in serious trouble.

However, the stock market may only be partly to blame for some Americans failing to reach their retirement goals, at least according to a recent survey from MassMutual Financial Group.

The biggest problem with Social Security, revealed
According to MassMutual, the greatest deficit when it comes to Social Security is actually a lack of education among retirees and workers. MassMutual came to this conclusion after KRC Research completed an online survey in late February and early March on behalf of MassMutual in which 1,513 people across the United States were asked 10 questions. In general, these were 10 fairly basic true or false questions pertaining to Social Security. A passing grade was considered three or fewer incorrect answers, while four or more incorrect answers would represent a failing grade.

Care to try your hand at the quiz (link opens PDF)? No cheating!!!

Source: Social Security Administration via Facebook

The data showed that just 28% of Americans knew enough about Social Security to get a passing grade on MassMutual's quiz. Perhaps even more impressive and depressing at the same time, just one person (yes, one person) out of 1,513 managed to get all 10 true/false questions correct! Just 8% of respondents were self-described as "very knowledgeable."

In other words, most people have very little understanding of the program that could be critical to providing them income during retirement.

What were some of the biggest misconceptions among Americans? Per MassMutual, approximately three-quarters believed you needed to be an American citizen in order to receive Social Security, which is false, 71% incorrectly identified age 65 as the full retirement age (it actually varies based on the year you were born), and 55% believed they could continue to work and collect full retirement benefits from Social Security, which is false.

Tackling another major misconception
Amazingly, MassMutual's survey didn't really touch on what I believe is the most dangerous Social Security misconception of all in much detail.

Source: Flickr user Joi Ito

This prevalent misconception is that far too many Americans believe the Social Security program will be insolvent by the time they retire. To some extent MassMutual scratched the surface on this issue with one of its questions concerning benefits payments remaining the same forever once you file for benefits (which is false, by the way). However, a survey conducted by the Pew Research Center recently showed that 41% of Americans believe Social Security will not provide them any benefits come retirement.

In reality, the Social Security trust fund, known collectively as the Old-Age. Survivors and Disability Insurance Trust, or OASDI, is slated to run out of its cash reserves by 2033, primarily due to the demographic shift of boomers retiring and people living longer than ever (and thus being paid benefits for a longer period of time). But this is no way means it's going insolvent.

If Congress does nothing, benefits will drop by 23% to 77% of inflation-adjusted full retirement benefits in 2033 and the OASDI should be able to continue making payments to eligible beneficiaries through 2087. Congress has between now and 2033 to raise revenue through taxes, cut costs, or do some combination of both to help protect Social Security benefits. But no matter what happens, Social Security will be there for you when you retire.

How can we fix Social Security's education problem?
The primary takeaway from MassMutual's study is that Americans need to do a better job of seeking out information when it comes to their Social Security retirement benefits, because what they don't know could actually cost them a substantial amount of money over the long run.

Source: Social Security Administration via Facebook

One of the easiest ways to improve your Social Security knowledge is to peruse the Social Security Administration's website, where you can do everything from estimate your retirement benefits to learn how those benefits can adjust based on your choice of when to take benefits. Everything you need to know about Social Security can be found on the SSA's website, but it can also, understandably, read a bit dry.

Another solution? Consider talking to a financial advisor or a retired friend or family member. I can't guarantee you that a current retiree has made all the right moves, but they can certainly lend you knowledge about their personal experiences with Social Security that you may not be aware of. Likewise, a financial professional should know the ins and outs of Social Security and may be able to help you maximize your long-term take-home pay, but it still never hurts to double-check their suggestions against what you find on the SSA's website. Of course, you'll also find a mountain of information on Social Security from my Foolish colleagues and me as well.

The point being that the tools to become more knowledgeable with regard to Social Security are within your reach, so take the initiative and don't put off this necessary retirement education for a minute longer than you have to. Your retirement could depend on it!

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