How accurate are older Americans expectations about their future Social Security benefits? Now very, finds a new working paper from the National Bureau of Economic Research.
“…while older adults generally have accurate expectations about their claiming age, they underestimate their annual Social Security income by approximately $1,896 (11.5%) on average”
NBER working paper
“We find that, while older adults generally have accurate expectations about their claiming age, they underestimate their annual Social Security income by approximately $1,896 (11.5%) on average,” say the paper’s authors, Grant M. Seiter of American Enterprise Institute and Sita Slavov of the Schar School of Policy and Government at George Mason University.
The $1,896 average means people are shortchanging what they’ll actually receive by $158 per month—fairly significant when the average monthly Social Security benefit is currently $1,827 in 2023, up from $1,681 in 2022 thanks to this year’s historic 8.7% cost-of-living adjustment (COLA).
The authors also note there is considerable variance: 25% of those studied underestimate their benefit by $5,167 ($431 per month) or more, and 10% overestimate by $5,319 ($443.25 per month) or more.
This despite the fact that people have fairly accurate expectations of their claiming age: they underestimate by less than one month on average, and more than half the forecasts are within six months of the observed claiming age.
The paper relies on data from the University of Michigan’s Health and Retirement Study (HRS)—a biennial panel survey of roughly 20,000 households representative of the U.S. population aged 51 and older—to compare people’s self-reported expectations of their Social Security benefits in their 50s and early 60s to their observed Social Security benefits. The research did find the gap decreases when Americans reach their 60s.
Another interesting but logical thing the researchers found was that benefit estimation 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.
This comes at a time when a bipartisan group of U.S. senators recently wrote a letter to the Social Security Administration saying Americans are confused about their claiming options and that the SSA needs to do a better job at communication. The group also proposed legislation that would change the language the SSA uses around the claiming process and increasing the mailing of paper Social Security statements.
These updates, they say, would encourage more Americans to avoid the common mistake of claiming Social Security benefits too early—potentially costing them well into six figures in benefits had they waited until age 70 to claim.
Read the NBER working paper here.
SEE ALSO:
• 2024 Social Security COLA Could Drop Below 3%
• 4 Senators Want Americans to Wait Until 70 to Claim Social Security
• Bernie Sanders Reintroduces Bill to Increase Social Security Benefits, Extend Solvency