New Social Security Calculator for Estimating Retirement Benefits

The questions and debates about when to start receiving Social Security retirement benefits continue to rage. The news coming from DC about deficit reduction and increasing the debt ceiling has made things worse. While this is going on, new concerns have arisen about changes that may come to the Social Security Retirement System.

For most boomers the concerns about changes in Social Security should be minimal. Even those who believe aggressive changes are needed to Medicare and Social Security tend to agree that the changes should not affect those who are near retirement. Means testing may come into play at some point but I doubt it will be applied to those who are at least age 60.

On the other hand, some folks who are hitting age 62 are taking another approach to the Social Security benefit question, one that I think is irrational. Their argument is that if you don’t claim the retirement benefit now, you may lose it. Rubbish.

The more rational approach is actuarial, as I have discussed before. The AARP has recently released its new online Social Security benefit calculator. To use the calculator, you enter your age, gender, and estimated monthly benefit at your full retirement age. The calculator immediately graphs your different anticipated benefit levels at different ages.

You can also enter your estimated retirement living expenses so that the calculator will determine the percentage of your retirement income needs will be met by Social Security.

I give credit to the AARP calculator for including a section that graphically explains what will happen to your Social Security retirement benefit if you claim the benefit early (before full retirement age) and also work.  (Here is more information on working past age 62 while claiming Social Security.)  There are data sliders that you can manipulate to dynamically show the effects of changes in the different data inputs. The calculator also reports the odds that you will live beyond a certain age. Consideration of impact of your life expectancy on your income plan is imperative.

The concluding “What does it all mean?” section of the AARP calculator allows you to print a summary report personalized for you. It doesn’t answer the question of when you should claim your Social Security retirement benefit but it gives you plenty of information to consider.  I particularly liked these tidbits on my report:

• It may be better to spend your savings than claim earlier.
• For every year you wait, your benefits go up by $2,109 annually.

The idea that you should spend savings first so that you can delay claiming Social Security may appear counter-intuitive but it’s not. Remember that Social Security has three important attributes: (a) it provides income like a lifetime annuity; (b) the benefit is indexed to inflation; and (c) it has almost zero risk. A conventional retirement nest egg has none of these attributes.

I strongly recommend that you give the calculator a try for you and your spouse. Here is the link: Social Security Calculator – Estimate SSI Retirement Benefits and Income

Meanwhile, I have learned about yet another new tool for determining the best age to start Social Security. I am evaluating it now and will report on it soon.

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