The Impact of Misperceptions about Social Security on Saving and Well-being

Published: 2006


Earlier research suggests that many people in their fifties and early sixties are not well informed about their Social Security benefit entitlements in old age. This paper investigates the effect of deviations between individuals’ anticipated and realized Social Security benefits on several measures of well-being in retirement, such as the change in consumption expenditures at retirement, a self-assessed measure of how retirement years compare to the years before retirement, and whether the retired individual is worried about having enough income to get by. The analysis is based upon US data from the Health and Retirement Study, following individuals over a long time period from their fifties into retirement. We find that people who over estimated their Social Security benefits are worse off according to several measures of well being in retirement.  This relationship seems to be more pronounced for respondents who claimed benefits earlier than anticipated than for those who were misinformed.

Key Findings

    • People who overestimate their Social Security benefits before retirement are worse off, across a number of measures of well-being, in retirement.
    • This connection is stronger for those who claimed Social Security retirement benefits earlier than they expected, perhaps because of unexpected poor health.