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How Much do Americans Know About Social Security?

A growing body of research has shown that low levels of financial literacy are likely to adversely affect individuals’ ability to plan, save and invest successfully for the long-term. In the United States, the Social Security system forms a key pillar of retirement security. Hence, a sound understanding of Social Security benefits and how these may depend on individual choices is vital to long-term financial planning and wellbeing.

In 2010, researchers at the Financial Literacy Center conducted a study of Americans aged 25-65 regarding their retirement knowledge and planning, as well as their awareness of Social Security (Greenwald et al, 2010). This survey found low benefit literacy and belief in the program’s long-term future. Moreover, while the vast majority of respondents said it was very important for the SSA to educate people about how the system works and, more generally, how to prepare financially for retirement, few seemed to be taking proactive steps to get information from the SSA.

Five years later, it remains a concern that a dearth of knowledge may lead to suboptimal behavior for claiming, planning and saving – ultimately resulting in a lack of wellbeing in retirement. This year, researchers at USC’s Center for Economic and Social Research conducted a study as part of the Understanding America Study to update our understanding of what people know about Social Security, and its association with retirement planning, using the 2010 results as a benchmark for comparison. We also expanded the scope of the 2010 analysis to consider the experiences of individuals above the age of 65 and those who have already retired. The working paper can be found here.

In brief, we continue to find low levels of self-reported retirement preparedness as well as actual and self-reported retirement literacy. While most Americans can identify the general features of the Social Security system, few clearly understand how the system works and the impact of their individual claiming choices. Disparities in knowledge and preparedness by age, income and education are present across all our measures, with Hispanics and Blacks at a particular disadvantage relative to non-Hispanic Whites.

The results suggest surprisingly many individuals may be at risk of making sub-optimal choices about Social Security and other savings before they retire. About a quarter of pre-retirees/future beneficiaries mistakenly believe that benefits need to be claimed at retirement, while one in five are unaware that claiming early can negatively affect benefits. Furthermore, many do not understand their benefits are inflation-indexed or that Medicare premiums will be deducted after 65. A significant minority may not be taking account or full advantage of their actual entitlements: just over 10% are not aware of disability entitlements, almost 20% are unaware of the availability of survivor benefits for children and almost 40% do not know that spousal benefits can be claimed even without children.

We also note that respondents’ self-perceptions do not match their actual knowledge. For instance, while individuals are most likely to feel knowledgeable about eligibility ages, when evaluated objectively most are ignorant of the basic terminology or specific age requirements.

Finally, while many of our results are broadly comparable to the baseline survey five years ago, there are some differences in self-assessed and actual knowledge, generally for the worse. These findings are consistent with trends observed in other national surveys showing a decline in retirement-related financial literacy. While the extent of decreases may be debated, it seems clear there have been few if any large, systematic gains in retirement-related literacy over the last five years.

In other words, this 2015 survey suggests there is little room for complacency with respect to financial literacy and retirement preparedness as we look forward to new strategic priorities for the next five years and beyond.



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