Using the Online Social Security Retirement Benefit Estimator

Baby boomers and others thinking ahead about retirement wait patiently and sometimes anxiously for the delivery of their annual paper copy of their Social Security earnings record and benefit estimate.  Mr. GoTo’s statement arrives each September. 

The benefit estimate information in this statement is useful in several ways.  First, it is a reality check for baby boomers who expect to rely heavily on Social Security to maintain their lifestyle in retirement.  This reality check is particularly important for boomer retireees who are considering claiming retirement benefits at age 62, the age of initial eligibility.   The data shows that 50% of retirees do this.  For many, claiming Social Security benefits at age 62 can be a major financial mistake.

In 2008, the government introduced an online Social Security retirement benefit calculator. Unlike other retirement benefit estimators available, the newer online benefit calculator uses your actual earnings history.

To use the Social Security retirement benefit calculator, you have to identify yourself by providing your Social Security number and other identifying data.   You are then prompted to enter your most recent year’s earnings.   Within seconds, the benefit estimator/calculator outputs a page that looks like this:

Your Retirement Benefit Estimate
At your current earnings rate, if you stop working and start receiving Social Security benefits…
At age 62, your monthly benefit will be about…$1,699.00.
At full retirement age (66 Years and 00 Month(s) for you), your monthly benefit will be about…$2,315.00.
At age 70, your monthly benefit will be about…$3,104.00.

What I like about this for retirement planning purposes is that the numbers demonstrating the value of waiting to apply for Social Security retirement benefits are right there in front of you.  I’m speculating now, but I bet that a lot of retirees never carefully study their paper benefits estimates before they make a decision to retire at 62.   Let’s hope that baby boomers do a better job.

Financial planners know that for each year you delay past your full retirement age (up to age 70), you gain an additional 7% in benefits.  For many people, it is more beneficial and effective to discuss this issue in actual  dollars, as applied to their actual benefits.  In the example shown above for me, I can see immediately that a plan for retiring at 62 will cost me $1400 per month in Social Security benefits, for life.  This difference is even more significant if you also consider that the benefit is adjusted for inflation.  Moreover, a dependent spouse may really need that extra $1400 in survivor benefits, because the death of the spouse/retiree leaves only one benefit coming into the household.

Like many of you, I am counting on Social Security being there when I retire.  Taking Social Security retirement benefits at age 62 can be a poor money decision for lots of baby boomer retirees.  I recommend that you visit the Social Security Administration online benefit estimator tool to remind you of that.

Photo credit:  Kriss Szkurlatowski

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