You may be overestimating your Social Security benefits

A pair of studies have found that workers overestimate how much they will receive in Social Security benefits when they retire.

Researchers from the University of Michigan found that half of the workers surveyed did not know their benefit amount. The average overestimation of the benefit was $307 a month, more than one-quarter of the average forecasted benefit. However, the study found that as workers got older, they were more likely to understand their benefits and less likely to overestimate benefit amounts.

Nationwide Retirement Institute’s annual Social Security survey also found that future retirees over age 50 expect to receive a higher payment than what actual retirees receive.  In this survey, respondents were off by nearly $200 a month.

Not understanding how much they will get from Social Security could lead individuals to save less money for retirement while working. The University of Michigan study found that spending and saving choices based on incorrect expectations lead to less ability to spend in retirement.

Confusion about benefits could also cause people to start taking benefits before they should. Both the University of Michigan study and the Nationwide survey found that workers have misconceptions about claiming Social Security benefits early. Many people do not understand that taking Social Security benefits early permanently reduces benefits.

Individuals who file for Social Security benefits at age 62 — before their full retirement age — will receive around 72 percent of their full benefit. Benefits increase by 8 percent for every year beyond full retirement age that beneficiaries delay receiving them, in addition to any cost-of-living increases, up to age 70.

For those retiring in 2022 at their full retirement age, the average monthly Social Security benefit is $1,657 for an individual and $2,753 for a couple who both receive benefits. The maximum monthly Social Security benefit that an individual can receive in 2022 based on their earnings history is $4,194, if they wait until age 70 to collect.