When is the best time to claim Social Security?
Faced with cracked nest eggs and shrinking pensions, baby boomers on the brink of retirement are turning to a growing number of free online programs that aim to help them squeeze the maximum from their Social Security benefits. But before implementing the programs’ recommendations, it’s important to verify the results with a financial adviser or service with expertise in Social Security.
The main reason to use a calculator is to learn about little-known claiming strategies — including some the Obama administration is threatening to eliminate. For couples, the Social Security claiming decision can be especially complicated because of the availability of spousal and survivors’ benefits.
Moreover, because your benefit will rise by 6% to 8% for every year you delay claiming between the ages of 62 and 70, those who file early may reduce the lifetime benefits they (and their surviving spouses) stand to receive by tens of thousands of dollars.
In the coming months, companies including Morningstar and Fidelity Investments also plan to unveil free Social Security tools. To test the new offerings, we entered data for two fictional couples into five free programs. Bill and Jill Smith plan to retire in four years, when he turns 66 and she is 64. At $2,217 a month, his benefit at “full retirement age” — available at 66 to those born between 1943 and 1954 — is twice her full benefit of $1,076.
Pat Jones, meanwhile, plans to retire next year at age 66 and collect a full benefit of $1,293 a month. Her husband Matt, 61, expects to work another three years and, like Bill Smith, is entitled to a full benefit of $2,217.
In the end, all five tools generated similar claiming strategies for the Smiths, whose profile is fairly typical. But for the more unusual Joneses, the recommendations were more diverse. A caveat: While all five tools help both single and married people, some don’t handle projections for widows, widowers, divorced people and spouses with significant age gaps. Sites including SocialSecuritySolutions.com and MaximizeMySocialSecurity.com, which charge from $20 to $250 (depending on the level of advice), can help with these situations and find ways to minimize taxes.
The five tools, rated 1 to 5 stars (*) for user-friendliness, accuracy and the variety of household configurations they address:
Social Security Calculator
AARP’s tool shows how to claim the highest monthly (rather than lifetime) benefit. That usually means one spouse delays benefits until 70 while the other claims a spousal benefit earlier. Result: a higher cumulative lifetime benefit if you live longer than expected, but possibly a lower one if you and your spouse don’t live long past 70. It also calculates how much of your monthly expenses Social Security will cover.
Go to: aarp.org, then type “Social Security calculator” into the search window.
The verdict: User friendly but doesn’t allow you to input estimates of your future salary or longevity. * * * *
Created by Los Altos, Calif., wealth-planning firm Bedrock Capital Management, this tool allows users to adjust everything from life expectancy to the discount rate used to calculate the current value of future benefits. It’s also one of only two calculators we looked at that allow government employees with non-covered pensions to calculate the resulting reductions to their Social Security benefits.
Go to: bedrockcapital.com, click on “SSAnalyze.”
The verdict: Best of the bunch. User-friendly and easy to customize. * * * * *
Social Security Planner
Financial Engines’ tool doesn’t allow users to adjust life expectancies. Instead, it calculates the probability that a user and spouse will live to various ages, and picks the strategy that generates either the highest expected lifetime benefit, or a figure very close to it. The tool sometimes makes a recommendation that falls short of the optimal strategy if it allows the claimant to start taking benefits at a younger age (many prefer starting at or near 62), says Financial Engines’ Mr. Jones. As a result, the program advised Pat Jones to file for her own benefit at 67, three years sooner than the other tools.
Go to: financialengines.com, then click on “For individuals” and “Retirement Readiness.”
The verdict: Easy to use and full of colorful charts, but it’s not as customizable as some. * * * *
Social Security Benefits Evaluator
The tool from T. Rowe Price requires assuming that one spouse lives to 83 and the other to 95. Couples can choose from among seven goals, including generating the maximum lifetime benefit or the biggest survivor benefit. It doesn’t handle projections for widows, widowers, divorced people or spouses more than six years apart. When we ran numbers for the Smiths (goal: maximum lifetime benefit) the calculator told Jill to file for a spousal benefit at age 66 and stick with it. Rival programs told Jill to switch to her own benefit at 70. T. Rowe’s suggestion could have cost the couple about $3,700 a year in benefits over 11 years.
Go to: troweprice.com, then search for “Social Security Benefits Evaluator.”
The verdict: Easy to use. But doesn’t always produce optimal results. * * *
Social Security Maximizer
This tool from Omyen Corp., a developer of financial-services technology, told Matt Jones to start his spousal benefit at 65 years and 11 months. But it overlooked the fact that a person who claims Social Security before full retirement age (for Matt, 66) doesn’t necessarily have the option of claiming just a spousal benefit. If the claimant’s work history produces a benefit larger than the spousal benefit, the person will automatically be locked into a payout tied to his or her earnings record. Indeed, the other tools recommended that Matt file for a spousal benefit at 66 and leave his own benefit unclaimed until 70, to receive the maximum monthly amount. Notified of the hitch, Omyen changed its program.
Go to: omyen.com.
The verdict: Deals with a variety of situations, such as couples after one has started taking benefits. But the glitch we encountered gives us pause. *