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Published: Feb 26, 2024 5 min read
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Money, Getty Images

Americans nearing retirement age have some studying to do, judging by the results of a recent test on retirement benefits.

More than 40% of 55-to-65-year-old adults who took a quiz on Social Security basics received a failing grade. And while that’s an improvement from last year, the gaps in their knowledge may show a lack of preparation that could hurt them in retirement.

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Top misconceptions about Social Security

In January, insurance company MassMutual surveyed 1,500 U.S. adults between 55 and 65 years old who said they haven’t yet claimed Social Security benefits (retirees are eligible to do so as early as age 62). The test portion of the poll, which is conducted annually, included about a dozen true-or-false questions about Social Security.

Forty-one percent 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% scored a D grade, and only about 10% got a B or better.

Surprisingly, a little under half of respondents said they think that the full retirement age is 65 (it’s 67). The majority also incorrectly said they believe that a claimant must be an American citizen to collect Social Security benefits (in reality, non-citizens who work in the U.S. can qualify as long as they're permanent legal residents and have a Social Security number).

On a question asking whether it’s true that Social Security benefits are subject to income tax like withdrawals from traditional individual retirement accounts, only 38% correctly answered "false."

Respondents did better in other areas, though: Over 80% were aware that continuing to work after claiming Social Security might reduce their income based on how much they make. They were also pretty clear on the fact claiming before the full retirement age will reduce their benefits.

Older workers aren't ready for retirement

MassMutual also found that pre-retirees aren’t very confident in the sustainability of their retirement income. A whopping 44% said they weren’t sure what percentage of their income would come from Social Security after they stop working, even though 40% said they believe it will be their largest source of income.

More than a third said they expect their retirement income to last between 0 and 10 years, an increase from last year’s 27%. Given that the average U.S. life expectancy is about 76 for both sexes, that implies that a good chunk of people think they’ll outlive their savings if they retire at 67. Twenty-seven percent said they expect their income to last 11 to 20 years, and 21% estimate they’ll get by for 21 to 30 years.

At the same time, 31% of pre-retirees were uncertain about how much money they’d need to retire comfortably. Twenty-three said they’d need at least $500,000, and 22% think they’ll need $1 million or more. (For what it's worth, government data shows that households 65 and older spent an average of $4,345 a month in 2021, or about $52,000 a year.)

A lack of organization could be to blame for pre-retirees' uncertainty about their retirement budgets. The majority said they don’t have all their financial information, including online usernames and passwords, documented yet, but they plan to. Paul LaPiana, head of brand, product and affiliated distribution with MassMutal, advises pre-retirement workers to get on this task ASAP.

“Those nearing retirement should make this a priority if they’d like to ensure that they have a say with their finances and health care in their later years, and beyond,” he says.

More from Money:

Killing 401(k) Tax Benefits Could Help Save Social Security, New Research Shows

Employers Have a New Way to Help Student Loan Borrowers Save for Retirement. Will They Use It?

Why More Americans Are Buying Annuities for Retirement

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