Personal Finance

9 in 10 Americans Count on Social Security but Only 1 in 5 Fully Understand It

Christy Bieber

Published: March 16, 2025 9:00 am

Social Security is one of the most important entitlement benefits in American history because it has helped millions of seniors have a financially secure retirement.  The program provides guaranteed lifetime income for those who earn at least 40 work credits, and that income is protected against inflation to help seniors maintain their standard of living throughout their later years. 

One of the unique features of Social Security is that it benefits nearly every retiree, regardless of income. The Employee Benefit Research Institute reports that 91% of retirees said Social Security benefits are a source of their retirement funds, and 62% described it as a “major” source. Yet, despite the fact that so many people collect this money, very few people actually understand how Social Security works. 

So, just how many people feel comfortable with the inner workings of the program, and why exactly is it so confusing? Here’s what you need to know.

How many people actually understand Social Security? 

According to EBRI, only 2/3 of current workers and 3/4 of retirees said they understand Social Security “somewhat” well, while just 1 in 5 workers and 25% of retirees said they understand it “very well.”

Other research also shows big knowledge gaps, with an Allianz Life Insurance survey revealing that 53% of Americans don’t know much about how these benefits will fit into their retirement plans. Over half of all Americans are also uncertain about how to determine when to claim Social Security.  

As troubling as this is, the knowledge gaps may be even worse than they seem. The American Society of Pension Professionals & Actuaries delved deeper by actually testing people’s knowledge rather than just relying on their self-reported knowledge. Unfortunately, while 49% of adults said that they understood how to maximize benefits, only 8% were able to identify the factors that determined the maximum benefit and just 13% knew their full retirement age. 

Why are there such big knowledge gaps?

It may seem shocking that so few Americans understand a benefits program that so many rely on. But, there are good reasons why people are confused. Social Security is confusing.

Under the law, retirees can claim benefits any time after age 62 but will only get their primary insurance amount (PIA) or standard benefit if they claim benefits at full retirement age (FRA). The standard benefit is based on a percent of average earnings during the 35 years when inflation-adjusted earnings were highest, but earnings only count up to the wage base limit.

All of that is confusing enough, especially considering that the full retirement age has changed over time. It used to be 65 for everyone but is now based on the year of birth with your FRA equal to:

• 67 if you were born in 1960 or later
• 66 and 10 months if you were born in 1959
• 66 and 8 months if you were born in 1958
• 66 and 6 months if you were born in 1957
• 66 and 4 months if you were born in 1956
• 66 and 2 months if you were born in 1955
• 66 if you were born in 1943 to 1954. 

On top of that, you also need to understand that if you file for benefits before FRA, you are hit with early filing penalties but if you wait until after, you can earn delayed retirement credits until you are 70 at which point no more credits are available. 

Plus, you could also potentially be eligible for spousal or survivor benefits. 

That’s a lot to understand already, even without getting into the weeds about exactly how the average benefit is calculated.  Social Security has to be complicated because it’s a huge program that gives retirees the flexibility to claim benefits at a time that works for them while trying to equalize the lifetime benefits seniors receive. 

What do you need to know?

Although there are a lot of nuances to Social Security, the most important thing to know is that you get larger Social Security benefits if you wait but of course, you get fewer checks. If you claim early, you get more checks but each is smaller. Claiming early would also shrink survivor benefits for your spouse if you were the higher earner and passed away first.

Your online Social Security account will show you estimates of benefits at different ages so you can understand the impact of early or late claims. You should calculate your “break-even age,” which is the age when you break even for a delayed claim before you decide which age is best for you. You can do this by:

• Determining what your monthly benefit would be at your younger and older claiming ages. For example, if you are deciding between claiming at 62 and a full retirement age of 67, your benefits might be $1,330 at 62 or $1,900 at 67. 
• Calculating how much money you would give up by delaying. So, if you could have claimed a $1,330 benefit at 62 and instead delayed benefits until 67, you’d miss out on $79,800 during that time. 
• Determining how long it would take to break even by dividing the money you miss by the extra you get later. Since you’d get an extra $561 at 67, it would take you just over 142 months to break even ($79,800/$561). 

Armed with this information, you can assess whether you’re likely to live long enough for the delayed payment to make sense. Once you break even, then if you continue to live longer, you’d end up with more lifetime benefits because of the fact you waited to claim. 

There are still other things to consider though, like access to survivor and spousal benefits. Since there are so many complexities, and since so few people do understand their benefits, the best thing you can do is talk to a financial advisor before you claim Social Security.

Your advisor can help you to effectively maximize this source of lifetime income so you can claim your payments at the age that makes the most sense given your needs.