Is Your Retirement Based on Social Security Fact or Fiction?

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It's surprising, but many Americans lack basic knowledge of one of their most important sources of retirement income — Social Security.

While the benefits are widely used — official statistics show nearly nine in 10 Americans over age 65 receive them — few understand how to use Social Security effectively.

According to the 2025 Annual Retirement Study from the Center for the Future of Retirement, part of Allianz Life Insurance Company of North America, one in two Americans (55%) said they don't know much about Social Security or how it will help fund their retirement.

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For example, some believe they'll start receiving checks automatically when they stop working. They don't realize that everyone has decisions to make around when to start claiming the benefit and how it will fit into their overall retirement strategy.

Having a plan for Social Security is essential. Otherwise, there's a risk you won't use the benefits effectively during retirement.

About Adviser Intel

The author of this article is a participant in Kiplinger's Adviser Intel program, a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

Here are three common misconceptions about Social Security. Once you understand how it all really works, you'll be in a far better position to know how to work your benefits into your retirement strategy.

The age at which you start claiming Social Security benefits affects how much of your full benefit, called your primary insurance amount (PIA), you will receive. At your full retirement age (FRA), you can claim the PIA you have earned through your work history.

For the average retiree in the United States in 2025, the monthly benefit was a little under $2,000.

While the 2025 Annual Retirement Study found that 55% of Americans believe the age for receiving full retirement benefits is 65, this is not true. Full retirement age varies between age 66 and 67, depending on your birth year. You can check your specific FRA with the Social Security Administration.

That doesn't mean you can't start to claim Social Security earlier or later. Qualified beneficiaries (recipients of Social Security) can start retirement benefits based on their own work record as early as age 62, but their payments will be reduced by about 30%.

Alternatively, beneficiaries can delay claiming Social Security and receive delayed retirement credits (DRC), equivalent to 8% simple interest per year, until age 70.

2. The best time to start claiming benefits

Even though delaying claiming Social Security benefits results in larger monthly payments, that doesn't mean waiting to start taking Social Security is the best decision for everyone.

Yet, according to the Retirement Study, 73% of Americans say it is best to wait as long as possible to claim Social Security benefits.

There are trade-offs to claiming Social Security earlier or later.

The timing of the decision to start taking Social Security benefits is highly personal, and important factors such as financial assets, life expectancy and marital status must be considered.

For example, a retiree may consider delaying Social Security payments and funding the first part of retirement from other sources. If their IRA is their largest future income source, it may be prudent to spend down the IRA to reduce future required minimum distributions (RMDs).

But if a retiree is worried about sequence of returns risk (the effect of negative investment returns early in retirement), taking Social Security benefits earlier could help them limit how much they are withdrawing from their other retirement funds.

Married couples may choose to take one benefit before another. Some couples may decide to delay taking the larger benefit and start the smaller benefit earlier. This can be a factor in planning for what happens after a spouse passes away.

It's a hard mental shift to go from accumulating funds for retirement for decades to starting to withdraw from those accounts. Some retirees may find it difficult to start seeing their account balances decline.

They may want to start taking Social Security benefits for a guaranteed source of income that helps give them reassurance to spend.

Social Security benefits are not enough to fund retirement for most Americans. Still, according to the Retirement Study, 53% of Americans say Social Security will be a major source of their retirement income.

Social Security replaces about 40% of the average worker's wages when retiring at age 65. That means the remaining 60% must come from other sources.

And if you were an above-average earner during your working years (more than about $69,000 annually before retirement), an even greater share of income will need to come from outside Social Security.

That means retirees will still need to make some withdrawals from their retirement accounts to maintain their pre-retirement lifestyle.

When planning for retirement, an important step is determining your Social Security gap — the difference between your essential expenses and your Social Security payments.

To help close that gap, other reliable income sources, such as a pension or financial products that offer guaranteed retirement income (e.g., annuities), can be added to your overall portfolio.

How annuities could help

Work with a financial professional to create a retirement strategy that details how you will use guaranteed income from Social Security and determine whether it makes sense to add an annuity to the portfolio to help cover essential expenses.

Annuities can help meet long-term retirement goals by offering tax-deferred growth potential, a death benefit during the accumulation phase and a guaranteed stream of income at retirement.

That may help you feel more confident to use your other retirement assets to help live out your dream retirement.

By learning about the nuances of Social Security, you can better evaluate the trade-offs in retirement planning.

A financial professional can help you make those decisions and create a strategy to use Social Security to its fullest. That way, you can pursue your retirement dreams.

Allianz Center for the Future of Retirement conducted an online survey, the 2025 Annual Retirement Study in January/February 2025 with a nationally representative sample of 1,000 respondents age 25+ in the contiguous U.S. with an annual household income of $50k+ (single) / $75k+ (married/partnered) OR investable assets of $150k+.

The Allianz Center for the Future for Retirement produces insights and research as a part of Allianz Life Insurance Company of North America.

Allianz Life Insurance Company of North America does not provide financial planning services.

This content is for general educational purposes only. It is not intended to provide tax, or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Allianz Life Insurance Company of North America, its affiliated companies, and their representatives and employees do not give tax, or legal advice or advice related to Social Security or Medicare. Clients are encouraged to consult their tax advisor or attorney, or Social Security Administration (SSA) office, for their particular situation.

Any distributions are subject to ordinary income tax and, if taken prior to age 59½, a 10% federal additional tax.

Products are issued by Allianz Life Insurance Company of North America (Allianz). www.allianzlife.com

This content does not apply in the state of New York.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Kelly LaVigne is vice president of advanced markets for Allianz Life Insurance Co., where he is responsible for the development of programs that assist financial professionals in serving clients with retirement, estate planning and tax-related strategies.