Studies have found that workers overestimate how much they will
receive in Social Security benefits when they retire. Having a good
understanding of the realities can help you plan for retirement.
Researchers from the University of Michigan studied the expectations
of workers and found great uncertainty about future Social Security
benefits as well as a tendency to overestimate the amount they think
they will receive. Half of the workers surveyed in the study did not
know their benefit amount. The average overestimation of the benefit
was $307 a month, more than one-quarter of the average forecasted
benefit.
The study found that as workers got older, however, they were more
likely to understand their benefits and less likely to overestimate
benefit amounts.
Nationwide Retirement Institute’s annual Social Security
survey similarly found that future retirees over age 50 expect to
receive a higher payment than what actual retirees receive. In this
survey, respondents were off by nearly $200 a month. And almost 70
percent of Baby Boomers mistakenly believe that if they claim Social
Security early, their benefit will go up automatically when they reach
full retirement age. Not surprisingly, the Nationwide survey also found
that more than half of workers are not confident in their understanding of Social Security or how much money they will receive.
Not understanding how much you will get from Social Security could
lead to you to save less money for retirement while you are working.
Setting aside money in a retirement account early can lead to big
dividends later. The University of Michigan study found that spending
and saving choices based on incorrect expectations lead to less ability
to spend in retirement.
Confusion about benefits could also cause you to start taking benefits
before you should. Both the University of Michigan study and the
Nationwide survey found that workers have misconceptions about
claiming Social Security benefits early. Many people do not
understand that if they take Social Security benefits early, it will
permanently reduce their benefits.
Individuals who file for Social Security benefits at age 62 – before their
full retirement age — will receive around 72 percent of their full
benefit. On the other hand, if you delay taking Social Security benefits
beyond your full retirement age your benefit will increase by 8 percent
for every year that you delay, in addition to any cost-of-living
increases, up to age 70.
For those retiring in 2021 at their full retirement age, the average
monthly Social Security benefit is $1,543 for an individual and $2,596
for a couple who both receive benefits, meaning that many will
receive less than this amount based on their work and earnings
history. The maximum monthly Social Security benefit that an
individual can receive in 2021 is $3,895 if they wait until age 70 to
collect. And keep in mind that many retirees have their Medicare Part
B and Part D premiums deducted from their Social Security checks.
To gain a solid understanding of your expected Social Security
benefits, you can create a my Social Security account. The account
will give you retirement benefit estimates based on what you are
currently earning.
For more information about Social Security, click here.
You May Be Overestimating Your Social Security Benefits
