The Changed Role of Employers in Retirement Education

In the past, employers had a relatively straightforward job regarding retirement education. Most companies offered defined benefit pension plans, and employees only needed to understand eligibility requirements and benefit amounts. Today, however, retirement planning is more complex, requiring a broader understanding of employer-sponsored defined contribution plans like 401(k)s.

While employers recognize the importance of educating workers about these plans, one critical component is often overlooked—Social Security benefits. Employees may make uninformed decisions that negatively impact their long-term financial security without proper guidance.

Common Social Security Misconceptions Among Employees

Misinformation about Social Security can lead to poor retirement planning. Here are key facts that many employees don’t fully understand:

1. Claiming Social Security at 62 Permanently Reduces Benefits

Many workers assume that claiming Social Security at age 62 is standard. In reality, about 60% of beneficiaries begin collecting benefits as soon as they become eligible. However, doing so results in a permanent reduction of about 25% compared to waiting until full retirement age. Over a lifetime, this reduction can amount to thousands of dollars in lost benefits.

2. Early Benefits Often Don’t Lead to Higher Lifetime Payouts

Even when employees understand that early retirement reduces their monthly benefits, many believe they will collect more overall by starting early. This misconception stems from a “break-even analysis” that compares cumulative benefits over time. However, this strategy only pays off if a retiree dies before reaching their break-even age. Delaying benefits results in significantly higher lifetime earnings for those who live into their 80s and beyond.

3. Social Security Benefits Are Subject to Taxes

Many employees are surprised to learn that their Social Security income may be taxable. If a retiree’s total provisional income exceeds $25,000 (single filers) or $32,000 (married couples), 50% to 85% of their benefits may be subject to federal income tax. Since these thresholds are relatively low, many middle-income retirees find themselves paying taxes on their benefits.

4. The Average Social Security Benefit is Lower Than Expected

For 40% of older Americans, Social Security is their sole source of income. However, the average monthly benefit for January 2025 is around $1,976, which falls short of covering basic living expenses in most parts of the country. Employees who overestimate Social Security’s role in their retirement may find themselves financially unprepared, especially if the retiree’s healthcare costs rise with age.

Why Social Security Education Matters in the Workplace

Incorporating Social Security education into workplace financial wellness programs can bridge this knowledge gap. According to the Society for Human Resource Management (SHRM), one major benefit of offering Social Security education is an increase in 401(k) enrollment and contributions. Employees who understand the limited role of Social Security are more likely to prioritize personal savings and employer-sponsored retirement plans.

The Bottom Line: Help Employees Make Informed Retirement Decisions

Many employees mistakenly believe that Social Security will fully support them in retirement. Employers integrating Social Security education into their financial literacy initiatives empower their workforce to make smarter decisions, boosting retirement preparedness and job satisfaction. Businesses can foster a financially secure and engaged workforce by addressing these common misconceptions.

Disclaimer: This information is for educational purposes only and should not be considered legal or tax advice. Finivi Inc. makes no representations regarding the accuracy or completeness of linked third-party content and assumes no responsibility for any outcomes resulting from its use. External links do not imply endorsement.

Please consult a professional before making financial decisions. Social Security benefit amounts and regulations are subject to change. For personalized guidance, consult the Social Security Administration at www.ssa.gov.

Post updated March 2025