Social Security is a major source of retirement income for many American seniors, meaning they have a vested interest in knowing what they can expect when they file for benefits. But a large number of people who are nearing retirement age don’t know what they’ll get when they start claiming Social Security.
Although most older adults have accurate expectations about their claiming age, they underestimate their annual Social Security income by an average of about $1,896, according to a new study from the National Bureau of Economic Research (NBER). That’s 11.5% lower than the actual benefit due.
In many cases the gap is much wider than that. About one-quarter of older Americans underestimate their annual benefit by $5,167 or more, the study found, while 10% overestimate it by $5,319 or more.
The gap decreases when Americans reach their 60s, but research still indicates that many older Americans are not well informed about Social Security benefits.
The NBER study was written by researchers Grant M. Seiter and Sita Slavov, who analyzed data from the University of Michigan’s Health and Retirement Study survey series. That survey collects data from about 20,000 U.S. household members ages 50 and older every two years, Think Advisor reported.
One thing the researchers found was that errors can be reduced through better information provided by the Social Security Administration. This information can be provided via statements, which would have a “statistically significant effect” on reducing forecast errors and helping Americans plan for their retirements more accurately.
Similar conclusions were reached in an earlier study published in 2021 by the SSA. That study was conducted by John Turner, director of the Pension Policy Center, and Dr. David Rajnes, a research analyst with the SSA’s Office of Research, Evaluation, and Statistics.
Turner and Rajnes compiled and analyzed data from surveys and associated economic studies conducted from 1971 to 2020. The surveys found that some workers “substantially underestimate” their future Social Security benefits relative to projections from Social Security actuaries.
“This finding suggests that efforts to inform workers about the value of their future Social Security benefits need to improve,” Turner and Rajnes wrote.
There have been recent attempts to ensure that the SSA provides more frequent and detailed information to American workers so they can better plan for their retirements.
As previously reported by GOBankingRates, Social Security statements sent to adult workers who are not yet receiving benefits have been revamped so they are more streamlined and easier to understand.
Information is now divided into sections, such as different types of benefits, that let people quickly reference all materials. There is also a new bar chart illustrating your personalized Social Security benefit estimates based on nine different ages, depending on when you want to start your retirement. Information like this is crucial in making retirement decisions such as claiming retirement benefits at age 62 vs. age 70.
Meanwhile, a bipartisan group of U.S. senators recently proposed a bill that would alter the language the SSA uses when people reach a certain age. The bill also would redesign and bring back paper statements to American workers to give them a better idea of the benefits they can expect in retirement. The SSA has cut back on paper statements over the last decade and now mainly sends them only to Americans who are over 60 and not receiving benefits.
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