The Impact of Misperceptions About Social Security on Saving and Well-Being

Earlier research suggests that many people in their fifties and early sixties are not well informed about their Social Security entitlements. This paper investigates the effect of deviations between predicted 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 individual is worried about having enough income to get by in retirement. 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 clear evidence 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 simply misinformed