We build upon the growing literature on financial literacy, which studies the prevalence of lack of knowledge about various financial issues, and propose to analyze how much people know about the Social Security rules using both a small pilot survey we have already conducted, and a follow-up and extended survey funded by MRRC. We then assess the consequences of the apparent prevalence of lack of information by individuals about the rules governing the Social Security system using a realistic and empirically based life-cycle model of retirement behavior under uncertainty. We investigate the individual’s retirement and savings decisions under incomplete information and unawareness, in which a portion of the population does not know some or all of the rules of the system. We compare the outcomes in these cases to the outcome under full
information, computing the welfare gain resulting from the acquisition of information regarding the Social Security system. Our analysis can illuminate the need for policies that foster knowledge of the system, which can improve welfare among Americans of all ages, and can result in better policy outcomes.