Americans nearing retirement age have some studying to do, judging by the results of a recent test of retirement benefits.
More than 40% of adults ages 55 to 65 who took a quiz on Social Security basics received a failing grade. And while that’s an improvement over last year, gaps in their knowledge could show a lack of preparation that could hurt them in retirement.
Top Misconceptions About Social Security
In January, the insurance company MassMutual surveyed 1,500 U.S. adults ages 55 to 65 who said they had not yet claimed Social Security benefits (retirees can do so as early as age 62). The test portion of the survey, which is conducted annually, included about a dozen true or false questions about Social Security.
41% failed, meaning they received a score of 54% or lower. That’s actually better than last year, when 47% of respondents failed. This year, 37% earned a D grade and only about 10% earned a B or higher.
Surprisingly, just under half of those surveyed said they believe the full retirement age is 65 (it’s 67). The majority also incorrectly stated that they believe an applicant must be a U.S. citizen to receive Social Security benefits (in reality, noncitizens working in the U.S. may qualify as long as they are legal permanent residents and have a Social Security number) .
When asked whether it is true that Social Security benefits are subject to income tax like withdrawals from traditional individual retirement accounts, only 38% correctly answered “false.”
Respondents, however, did better in other areas: More than 80% were aware that continuing to work after claiming Social Security could reduce their income based on how much they earn. They’ve also been pretty clear that claiming before full retirement age will reduce their benefits.
Older workers are not ready for retirement
MassMutual also found that pre-retirees are not very confident in the sustainability of their retirement income. A whopping 44% said they aren’t sure what percentage of their income will come from Social Security once they stop working, though 40% said they believe it will be their primary source of income.
More than a third said they expect their retirement income to last between 0 and 10 years, up from 27% last year. Given that the average life expectancy in the United States is about 76 years for both sexes, this implies that a good portion of people think they will outlive their savings if they retire at 67. 27% said they expect their income to last 11 to 20 years. and 21% estimate they will make it for 21-30 years.
At the same time, 31% of early retirees were unsure how much money they would need to retire comfortably. Twenty-three said they would need at least $500,000, and 22% thought they would need $1 million or more. (For what it’s worth, government data shows that households aged 65 and older spent an average of $4,345 per month in 2021, or about $52,000 per year.)
Lack of organization may be to blame for early retirees’ uncertainty about their retirement budgets. Most said they don’t yet have all of their financial information, including online usernames and passwords, documented, but plan to do so. Paul LaPiana, head of brand, product and affiliate distribution at MassMutal, advises early-retirement workers to accomplish this task as soon as possible.
“Those nearing retirement should make this a priority if they want to ensure they have a say in their finances and health care in their later years, and beyond,” he says.
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