In the past, an employer had a fairly simple job when it came to educating employees on retirement: most companies offered defined benefit pension plans, and education only had to cover the specific details of when employees were eligible for benefits and how much they could expect from those benefits

These days, employers must offer more in-depth and detailed retirement education, since employees now have to understand the many options available to them through employer-sponsored defined contribution plans like 401(k)s. While employers recognize their obligation to retirement plan education, there is a specific aspect of retirement that workers don’t understand and aren’t learning about in their employer-sponsored retirement seminars: Social Security benefits.

Unfortunately, misinformation about Social Security can negatively affect your employees’ retirement, and can even cause them to underfund their employer-sponsored retirement plans. It is a mistake for employers to assume their responsibility ends once they educate their employees about general retirement planning and investment principals regarding the company’s retirement plan options.

When you assume that your workplace retirement education begins and ends with the employer-sponsored retirement plan, then you are leaving some pretty big holes in your employees’ knowledge. In particular, the majority of your workers don’t know the following facts about Social Security:

Taking Social Security at Age 62 Means a Permanent Reduction in Benefits

Many workers assume that taking benefits at age 62 is the standard. In fact, research indicates 60% of Social Security claimants take benefits within the first few months of turning 62 or the date of retirement, whichever comes later. Unfortunately, beneficiaries who do take Social Security as of age 62 will receive a 25% lifetime reduction in benefits compared to what they would receive if they waited until their full retirement age. That difference can mean the loss of thousands of dollars over the beneficiary’s lifetime.

Early Benefits Probably Won’t Make You More Money in the Long Run

Even when workers are well aware of the fact that they will receive reduced monthly benefits by taking them at age 62, many are still under the impression that they will receive more money in the long run if they accept early benefits. This belief stems from “break-even analysis,” which shows that it takes several years for the higher, later benefits to catch up to the lifetime amount collected through early benefits.

The problem with this common belief is that the only way to “win” at this kind of financial game is to die young, before the break-even point. That’s hardly a good outcome to hope for, and it can negatively affect your employees’ ability to afford a long life in retirement.

Social Security Benefits Will Likely Be Taxed

It can come as quite a shock to many Social Security beneficiaries to learn that their benefits may be subject to taxation. Unless beneficiaries have a total provisional income below $25,000 for singles or $32,000 for married couples, then between 50% and 85% of Social Security benefits will be subject to Federal income tax.

Since these taxation thresholds are relatively low, beneficiaries may be surprised to learn that their modest incomes result in taxation of their Social Security benefits.

The Average Monthly Benefit is $1,404

For 23.7% of Social Security beneficiaries, the monthly Social Security check is their sole source of income. While the good news is that more than 76% of beneficiaries have another source of retirement income, it’s worrisome that nearly a quarter of beneficiaries are living on just their benefit income.

What makes this trend even more alarming is the fact that the average monthly benefit for 2018 is only $1,404. This low dollar amount can come as a major surprise to many workers who planned to rely on Social Security in retirement. Just over $1,400 per month is not nearly enough to live on in most areas of the country, particularly if a retiree’s healthcare costs rise with age, as they so often do.

Bridging the Social Security Education Gap Increases 401(k) Contributions

Incorporating Social Security education into the workplace retirement education plan will help workers to be better prepared for the realities of benefits. However, the Society for Human Resource Management also suggests one additional benefits of Social Security education in the workplace: increased enrollment and contributions to employer-sponsored defined contribution plans.

Employees who have a better understanding of exactly how much (or, more accurately, how little) to expect from their Social Security benefits will often feel much more motivated to make up the difference between their benefits and what they will need to enjoy a financially independent retirement.

It can be difficult to save for retirement, and many employees mistakenly believe that Social Security will take care of them if they miss the mark for their savings. Making sure that your employees understand their Social Security options and benefits can help them to make better retirement decisions – and to be more contented and focused on the job.

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This information is not intended to be legal or tax advice. The author can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov.

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