Are your employees ready for retirement? More than likely, the answer to that question is “no.” A recent Newsweek article1 provided the following statistics:
- 21 percent of Americans have nothing saved for retirement
- 35 percent of millennials do not know how much they should save for retirement
- Due to COVID, nearly one-third of Americans stopped or reduced saving for retirement
- One out of 10 Americans have withdrawn funds from their retirement plan
- Most Americans save between 3 and 5 percent of earnings instead of the recommended 10 percent
- The national 401(k) value is $100,000 – only enough to pay for healthcare needed in retirement
Many people nearing retirement cannot rely on their savings, so they turn to social security benefits instead – assuming that social security will cover their living expenses.
Unfortunately, social security is meant to be used as a safety net, not as a complete retirement plan.
Here are three myths employees often believe about social security benefits, and learn how offering financial wellness can help your employees prepare more adequately for retirement without relying on social security benefits.
Myth #1: Social Security Benefits Replace the Paycheck
Many people pay into the Social Security system assuming that the retirement benefits they receive will be equal to their paycheck.
This is not true.
The truth is that for average earners, a month of Social Security checks will equal about 40 percent of earnings before retirement.
For those who are high-wage earners, this percentage is even less.
Experts suggest that retirees should plan on creating a retirement income that is about 80 percent of their former earnings.
At the very least, your employee’s retirement earnings need to make up the 40 percent that Social Security benefits won’t cover – just to maintain their current standard of living.
Myth #2: Filing Early Doesn’t Reduce Social Security Benefits for Life
Retirees are entitled to their full monthly Social Security benefit as soon as they reach full retirement age. Their full retirement age depends on your employee’s birth year.
According to the Social Security Administration, here is the current full-retirement chart:
|Birth Year||Full-Retirement Age|
|1943 - 1954||66|
|1955||66 and 2 months|
|1956||66 and 4 months|
|1957||66 and 6 months|
|1958||66 and 8 months|
|1959||66 and 10 months|
|1960 and later||67|
Although your employees can receive full benefits at their full retirement age, they do have the option to file for benefits once they turn 62.
However, doing so has a cost.
Instead of receiving the full benefit, your employee will receive a reduced benefit. And, unfortunately, that reduced benefit is permanent.
On the other hand, employees can choose to delay receiving Social Security benefits (up to turning 70) and receive delayed retirement credits that can increase the amount in their monthly checks.
Myth #3: Social Security Income Is Not Taxable
Believe it or not, Social Security benefits may be taxable. It all depends on:
- Total income
- Your state of residence
Understanding the tax burden on retirement income will help employees make appropriate plans for their retirement.
How Offering Enrich Financial Wellness Helps
Enrich is a holistic financial wellness program that offers education, skills, and tools about personal finance.
Offering this benefit can help your employees make appropriate decisions about their financial future and improve financial wellbeing.
When getting started, your employees will first be able to evaluate their retirement readiness. Then, as they work through the retirement course and corresponding tools, they will learn:
- The importance of early planning
- The time value of money
- How compound interest works
- The role of asset allocation in retirement planning
- The different types and benefits of individual retirement accounts and employee-sponsored accounts
- Other financial vehicles that help employees save for retirement
- Information about Social Security benefits
- Common pitfalls in retirement planning and how to avoid them
As employees bust the myths associated with Social Security benefits, they will have a better understanding of their estimated monthly Social Security earnings and be able to map out appropriate savings goals.
The more your employees know about retirement and Social Security benefits, the better prepared they will be for retirement and the more likely they'll retire on time.
1 - https://www.newsweek.com/amplify/why-americans-are-under-prepared-retirement-5-mind-boggling-facts-you-must-know