Why can’t Americans put more effort into understanding Social Security?

This article with discussion appears on HumbleDollar

The lack of knowledge about one of our most important social programs is unfortunate because it minimizes the understanding of its value and distorts acceptance of necessary changes. Misinformation can also distort retirement planning.

Several surveys show that Americans do not understand Social Security, including how it’s funded. It has been funded the same way since 1939 by the way. 

A major point of confusion is when full benefits kick in. According to Allianz Life research, more than half of Americans still believe FRA is 65. In reality, FRA is 66 or 67, depending on birth year.

Many workers overestimate how much of their pre-retirement income the SS benefit will provide. Roughly one in five Americans believe Social Security alone will cover all their retirement needs. The reality is Social Security benefits will replace about 40% of an average worker’s pre-retirement earnings. That percentage varies with income.

Studies by the RAND Financial Literacy Center highlight widespread confusion regarding taxation. A quarter of respondents incorrectly believe their benefits are completely tax-free regardless of overall income, or are unaware that combined income (including investment income or earnings from continued work) can trigger federal income tax on up to 85% of their benefits. Some people believe they will actually pay a 50% or 85% tax on their benefits. 

Reports from AARP show that only about 23% of adults correctly understand how the Social Security Trust Fund operates. Many younger workers fear the system will “go completely bankrupt” and pay zero benefits. In truth, even if the trust funds are depleted, incoming payroll taxes and income taxes paid on SS benefits would still cover roughly 80% of scheduled benefits unless Congress acts. However, that percentage declines over time.

Benefits surrounding spousal, ex-spousal (for marriages lasting 10+ years),and survivor benefits are frequently overlooked, leading many households to claim benefits at sub-optimal times.

A 2025 survey by the Cato Institute, conducted with YouGov, found substantial gaps in Americans’ understanding of the program. 

Nearly 49% didn’t know that current workers’ payroll taxes pay current retirees’ benefits. Some believed the money was being saved in a personal account for them. Social Security is not a personal savings account in which your individual payroll taxes are held until you retire.

Only 39% correctly identified age 67 as the full retirement age in the survey. 

Only 27% of respondents in a separate Social Security Administration study correctly understood the benefit calculation. Earnings history and the age at which someone claims benefits both matter. 

Most people receive in benefits all they paid in SS taxes within six years of starting to collect benefits. 

The taxes we pay are available on SocialSecurity.gov and yet that doesn’t stop some people from falsely claiming they paid hundreds of thousands of dollars more than they will collect.  

Over my working years since 1959 I paid: $132,891 and my Employer(s) paid  $133,571 (why the difference I don’t know). Connie and I have collected many times that amount since starting benefits in 2008. I also paid $98,097 in Medicare taxes which equal a small fraction of the Part A benefits we have received. 

At the extreme, there are people convinced Social Security is “a scam” and that Congress stole the trust fund assets. It is also widely believed that the annual COLA does not reflect inflation or that it does not include key spending measures. It does. 

Many people believe Congress or an administration determine the COLA. They don’t. 

Even if the experimental CPI-E were used and generated modestly higher COLAs in most years, there is the matter of inadequate funding to support higher payments. 

Much of the rhetoric about SS ignores that the system is insurance and also provides spousal, disability and survivor benefits, not just retirement income. 

A popular myth is that just removing the taxable wage cap not only solves the funding problem, but allows for significantly increased benefits. That is not true. Only 6% of workers earn above the wage cap. While eliminating it extend solvency twenty years or so, it does not make SS sustainable. 

It’s hard to solve a problem if we refuse to accurately understand it.