Explore how Social Security misconceptions have been influencing saving, planning, and benefit decisions, and what it may mean for plan sponsors.
Social Security plays a central role in retirement income and has continued to shape how employees save, invest, and plan. However, growing uncertainty is eroding confidence and influencing participant behavior inside retirement plans.
Confidence in the Social Security program has been declining. In a recent Principal® survey, the share of employees who believe they will receive Social Security fell from 61% in 2023 to 46% in 2025, with even lower expectations among younger workers. Just 24% of Generation Z and 35% of Millennials expect government programs to play a meaningful role in funding their retirement.
This rising pessimism—fueled by persistent myths and misconceptions—can affect both morale and savings behavior if left unaddressed.
Fact: Social Security is primarily funded through payroll taxes and is expected to continue paying benefits. The Social Security program also relies on the Old-Age and Survivors Insurance (OASI) Trust Fund, which is now projected to be depleted sometime in 2032.
The reality is … Social Security operates largely on a pay-as-you-go basis, with current workers funding benefits for current retirees through payroll taxes. The OASI Trust Fund helps cover gaps when benefit costs exceed payroll tax revenue.
Demographic shifts have changed the balance between payroll taxes and benefits. As the population ages and fewer workers support the growing number of retirees, that gap has widened. The OASI Trust Fund has helped absorb that difference, but it isn’t a permanent solution.
If the OASI Trust Fund is depleted and no changes are made, incoming payroll taxes would still support the program, but at a reduced level.
Plan sponsor implication: Misunderstanding may lead to inconsistent saving. Sponsors can reinforce savings habits through plan design that includes automated features like automatic (auto) enrollment and auto-escalation.
Fact: Social Security is designed to replace a portion of income, not the full amount. For many workers, benefits may cover only about 40% of preretirement income, so additional savings are often needed to cover retirement expenses.
The reality is … Social Security is designed as a foundational income source, not a comprehensive solution. Many rely on a mix of employer retirement plans, personal savings, and other income to maintain their standard of living.
At the same time, reliance on Social Security remains significant, particularly among lower- and middle-income households. This can create a gap between expectations and outcomes, especially when participants overestimate what Social Security benefits alone provide.
61% of retired Americans use Social Security as their major income source
Plan sponsor implication: Overestimating Social Security benefits may lead to savings gaps and delayed retirement, increasing workforce costs. Sponsors can help by aligning plan design and education with income-replacement goals.
It costs an average of $103,000 each year in added compensation and benefits when an employee works past age 65
Fact: Social Security uses a progressive benefit formula that replaces a larger share of income for lower earners and a smaller share for higher earners. This results in different outcomes across participant groups.
The reality is … Social Security is designed to provide a greater level of income protection for those who may have fewer resources heading into retirement. This structure reflects the program’s role as a social insurance system rather than an income replacement program for everyone.
As a result, participants with similar retirement plan account balances and contribution rates may experience different levels of overall retirement readiness when Social Security is considered. Income amount, earnings history, and work patterns can influence the Social Security benefits that participants receive and how those benefits fit into overall retirement income.
Plan sponsor implication: Varying replacement rates may lead to uneven readiness across income groups. Sponsors can tailor education and consider advice offerings, such as a managed account service, to support more personalized decisions.
Fact: Potential Social Security reforms could affect a range of participant groups, including those currently receiving benefits, individuals nearing retirement, and current workers, depending on how changes are structured and implemented.
The reality is … Policy discussions often consider phased approaches that may apply changes across age groups or income levels over time. While the path forward remains uncertain, proposals aren’t always limited to those far from retirement.
This broader scope means expectations may shift across every career stage, not just among younger workers. For those closer to retirement, even modest adjustments could influence how they plan and make decisions.
Plan sponsor implication: Changing expectations across career stages can shape planning and engagement. Sponsors can offer tools and guidance to help participants model different retirement scenarios as policy evolves.
Fact: Perceptions and realities of Social Security can influence contributions rates, retirement timing, and engagement with employer-sponsored retirement plans. As a result, they may place greater reliance on workplace retirement plans.
The reality is … Social Security remains a central part of the retirement income picture. Potential changes—through reform or trust fund depletion—may adjust benefit levels or calculations over time.
Uncertainty can shift saving behavior, retirement timing, and reliance on workplace plans.
Plan sponsor implication: Misconceptions can shape participation levels, contribution rates, and retirement timing. Sponsors can strengthen engagement by connecting plan features, income strategies, and education into a more cohesive approach.
Social Security will remain an important part of the retirement income picture, even as change and uncertainty continue.
For plan sponsors, the opportunity is clear. When participants better understand what Social Security may and may not provide, they are better positioned to make informed saving and planning decisions.
By reinforcing this understanding through plan design, education, and tools, sponsors can help improve outcomes and support a more confident, prepared workforce.
