Nearly 80% of near retirees fail or barely pass Social Security basics quiz

Nearly 8 out of 10 (78%) of near retirees failed or barely passed the latest Social Security retirement benefits quiz from MassMutual, showing a lack of knowledge of Social Security basics.

In fact, 37% got a D and 41% failed. This is a slight improvement from 2023, when 47% failed the quiz, the survey said. Less than 1% received an A+ by answering all 13 true/false statements correctly.

“We have been conducting this quiz with near retirees for the last ten years and with new cohorts nearing retirement each and every year, we see similar patterns of confusion when it comes to Social Security retirement benefits,” said Paul LaPiana, head of brand, product, and affiliated distribution with MassMutual. “What’s more, we are finding that people at this stage of their lives should have some basic estate-planning documents in place, and a staggering number do not.”

Key Social Security basics findings

Other key findings of the Social Security basics survey include:

• Spousal, survivor and divorcee benefits: More near retirees are knowledgeable about spousal, survivor and divorcee benefits compared to last year, but it is still not enough. Three out of four (75%) answered correctly that if they have a spouse, their spouse can receive benefits from their record even if the spouse has no individual earnings history. Seven out of ten (70%) answered correctly that a surviving spouse does not receive both their full benefit and their spouse’s full benefit in the event their spouse passes away. And 59% know that if they get divorced, they might be able to collect Social Security benefits based on their ex-spouse’s Social Security earnings history.
• Full retirement age: A surprising 45% of near retirees do not know the current full retirement age; however, most are knowledgeable about the consequences of receiving Social Security benefits before reaching their full retirement age. 92% know that if they take benefits before full retirement, their benefits will be reduced and 84% know that if they receive benefits before their full retirement age and continue to work, their benefits may be reduced based on how much they earn. However, more than half (52%) do not know that the ability to receive delayed retirement credit increases ends at age 70.
• Social Security: Social Security continues to be the largest anticipated source of income in retirement. 40% of near retirees believe Social Security benefits will be their biggest source of income in retirement followed by a 401k or 403b plan (17%), pension (13%) and investments (11%).
• Retirement income: More than one-third (36%) of near retirees believe their retirement income would not be able to sustain them for more than 10 years and only 20% believe their retirement plans account for inflation and market volatility.

What these findings reveal

“In the ten years that we’ve been conducting this survey of near retirees, we find the results to go up and down modestly as new cohorts of near retirees enter the population of nearing retirement,” said Social Security expert David Freitag, a financial planning consultant with MassMutual, as he discussed the survey’s findings. “This suggests that those nearing retirement have an on-ramp to get the facts straight about Social Security retirement benefits so that they do not leave money that they are eligible to receive for the rest of their lives on the table.”

And since Social Security continues to be the largest anticipated source of income in retirement, how is this lack of knowledge affecting the ability of near retirees to plan effectively for their retirement? “Knowledge is power when it comes to Social Security planning,” Freitag said. “This power can create income and secure benefits that are often overlooked.”

Mistakes can literally last a lifetime in the Social Security filing process, he added. “The capital equivalence of Social Security, the amount of money it takes to create lifetime inflation adjusted payments, for many people can be in excess of $1 million. So, in addition to thinking about how much money you can receive each month from Social Security, you also need to understand how much cash it would take to generate this type of income for life,” he said.

Ensuring a sound retirement plan

As they work with their clients to help them get ready for retirement, financial professionals can help them to see how all of the parts of a retirement-income plan fit together, Freitag said. “Income planning in retirement is a set of interconnected gears. Decisions are not made in a vacuum. One move will impact another part of the puzzle,” he added.

In addition to revealing near retirees’ lack of Social Security basics knowledge, the survey also pointed out that very few of them have estate-planning documents in place. In fact, only one third of near retirees have an estate-planning document in place.

Only 35% report having a will, 33% report having a medical advance directive, 29% report having a health-care durable power of attorney, and 25% report having a financial durable power of attorney. Furthermore, the survey said, only 22% have documented all of their financial information and online usernames and passwords in one place as part of their estate plans, and 23% never plan to do so.

Importance of estate planning documents

So, what can advisors do to prompt their clients to take care of this important task? “To ensure that you have a say with your finances and healthcare in your later years and beyond, it is important to have the basic estate-planning documents in place; yet, as our study suggests, many do not take the time to attend to these items,” said Freitag.

“Perhaps they have not yet dealt with end-of-life issues with aging or terminally ill family members and do not realize how planning makes things so much easier. Perhaps, it is a misunderstanding of the expenses associated with creating these documents. Or perhaps, it is just one of those ‘get around to it’ tasks that they never get around to do.”

Freitag added that “advisors have an opportunity to become a client’s planning ‘coach.’ Advisors can ‘assign’ these ‘homework’ tasks to their clients and follow up with them to be sure they are completed, he said. They can recommend or suggest different resources to their clients that will help them complete these documents. They can provide web links and informational articles on these topics and let the client learn more about their importance. And they can share client anecdotes about how planning helps make these life-planning issues easier to handle or how the lack of planning can create a giant set of problems.”

An online poll about Social Security retirement benefits commissioned by MassMutual was conducted by PSB Insights from January 23 to January 30, 2024, among 1,500 Americans nearing retirement (age 55-65) who have not filed for Social Security retirement benefits.

Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected]. 

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