Data and Research July 7, 2021

Need for Greater Social Security Education Continues

While 89% of U.S. adults said they were at least somewhat confident in their understanding of the benefit, detailed findings from Nationwide show most aren’t as knowledgeable as they think.

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In its annual “Social Security Consumer Survey,” Nationwide says most Americans have gaps in their knowledge when it comes to the benefit and what they’ll receive in retirement.

The latest Social Security Board of Trustees findings estimate that benefits will remain fully payable until at least 2034, but that the trust funds’ surplus could be depleted by 2035. If that’s the case, the administration says 79% of benefits will be payable thereafter.

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Still, the Nationwide study found that, of its nearly 2,000 participants surveyed, most continue to place confidence in the Social Security Administration and feel that they have a good understanding of the benefit.

According to the report, 89% of U.S. adults say they are at least somewhat confident in their Social Security knowledge. However, the findings suggested that confidence could be misplaced. Only 16% say they know what age they will be eligible for full Social Security benefits, and 45% either mistakenly believe or don’t know it’s false that if they file early, their benefits automatically go up when they reach full retirement age. Additionally, more than half (54%) of adults don’t know what percentage of their income will be replaced by Social Security, and 55% are not aware that Social Security benefits are tax-free for low-income taxpayers.

Younger adults, including Millennials, were less confident in Social Security than their older counterparts, as 47% in the study believe they won’t earn a single dime in benefits once they reach full retirement age. Ninety percent instead say they have additional sources of retirement income to rely on in the latter portion of their lives. Others (44%) said that if they do receive Social Security benefits, they will file early but continue to work after.

In its report, Nationwide highlights actionable steps plan sponsors and plan advisers can take to make sure employees understand what to expect when preparing for retirement and Social Security. The report recommends defining any essential income needs for employees’ post-career lives, planning for potential reduced amounts of Social Security benefits and taking advantage of current employer-sponsored retirement plans.

Administration July 6, 2021

Paths to Salvage Participants’ Retirement Savings

With a higher percentage of full-time workers leaving their jobs, experts suggest plan sponsors and plan advisers educate employees about self-funded retirement programs.

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More American workers are leaving their jobs for better opportunities in a post-pandemic world, and experts are telling them to take their defined contribution (DC) retirement plan savings with them, too.

According to the Bureau of Labor Statistics (BLS), about 4 million workers quit their jobs in April alone, a rate about 24% higher than before the pandemic and a phenomenon labor experts are calling “The Great Resignation.” Some retirement industry experts warn that mass job separations could lead to potential damages to retirement savings, which are generally accrued through employer-sponsored retirement benefits.

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“It’s been proven that a salary-deferral program is the best way to collect retirement savings for people, because they can set up their percentage and accumulate,” explains Chad Parks, founder and CEO of Ubiquity Retirement + Savings. “Leakage is an issue.”

Plan leakage occurs when employees leave an employer-sponsored plan and fail to roll the account over to a new employer’s retirement plan or to an individual retirement account (IRA). When an individual fails to roll his retirement account over, he misses out on accumulating retirement savings, and, thus, a larger sum of money for his retirement income. Depending on income levels, self-employed individuals can also opt to save in a solo 401(k), another tax-advantaged retirement plan, sources note.

As more workers leave their jobs—some without another role lined up—industry observers expert more plan leakage will occur. Josh Sailar, a partner at Blue Zone Wealth Advisors, tells PLANSPONSOR that there’s a need for enhanced education when it comes to savings at the participant level. “There’s always going to be a need for continued education, especially with a diverse set of IRA plans available,” he says.

Sailar says some former employees are leaving their jobs to build their own businesses, therefore turning into employers themselves. Funding their personal retirement and those of their employees can be costly or confusing, so offering a SEP [simplified employee pension] or a SIMPLE [savings incentive match plan for employees] IRA can help them build savings.

Other resources, such as state-run automatic IRA programs, offer retirement plans for employees who do not have access to an employer-sponsored qualified plan at work. Eligibility for these programs, which are only available in a few states, depends on the size of the business and whether an employer already offers a qualified plan.

For employees who are working only for themselves, Parks notes that a traditional IRA should be sufficient to build retirement savings. He recommends solo 401(k) accounts, or one-participant 401(k) plans, for self-employed workers who plan on allocating $500 or more a month to retirement savings due to their contribution limits and added loan benefits. For example, a contractor who has an irregular cash flow and is waiting for payments on services can borrow against himself with the account to afford expenses. Depending on the provider, an individual can even take more than one loan out, Parks adds.

“You must be sure of what you’re doing, so that when you do receive money, you’ll put some of that back in,” he says. “[This would be] a timing issue. We don’t want people thinking this is borrowing from your retirement.”

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