Investor Toolkit

Social Security calculators aim to take the complexity out of deciding when to claim

Key Points
  • Because there are thousands of rules for claiming Social Security benefits, identifying the right claiming strategy for you can be a daunting undertaking. 
  • Social Security calculators on the market aim to help consumers and financial advisors streamline that decision by using key data to identify the best strategy to pursue.

In school, you were taught that 1+1=2, and that that worked out no matter what kind of calculator you used.

But the same doesn’t hold true for Social Security calculators, tools that have been developed to help you determine the best time for you to claim your retirement benefits.

Both companies and individuals have stepped in to develop their own software and tools to help consumers answer the complicated question: When is the best time for me to claim benefits?

The answers to that question are not so simple.

That is because there are thousands of different rules for calculating benefits, according to Laurence Kotlikoff, professor of economics at Boston University and president of Economic Security Planning, a provider of financial planning tools.

The ideal age for you to claim benefits will vary based on age, health, work history and marital status, among other factors.

And the answers you get from a Social Security calculator may also vary based on how much of that information a given tool takes into account.

Focusing on your maximum age

There are a couple of key sources that can throw you off track when it comes to deciding when to claim Social Security benefits, according to Kotlikoff.

That includes the Social Security Administration and the financial services industry itself.

“Social Security can’t be trusted to make the right benefit estimate for you, because they assume zero inflation in the future and zero wage growth,” Kotlikoff said. “They can easily get your benefits off by 20 percent.”

At the same time, much of the financial community is erroneously focused on targets such as life expectancy and break even, Kotlikoff said.

Believing these Social Security myths could make you poorer in retirement
Believing these Social Security myths could make you poorer in retirement

“The financial community, by and large, apart from the insurance part of the industry, is focused on getting people to take the benefits early so they can then invest the benefits for those people at a fee,” Kotlikoff said.

Kotlikoff provides a Social Security tool for both consumers and financial advisors through his company that he hopes will help steer them in the right direction.

The calculator, called Maximize my Social Security, aims to differentiate itself in the market by focusing instead on maximum age of life, or the highest age to which you could live.

While your life expectancy may be 90, your maximum age of life may be 110. And planning for those extra years is crucial, according to Kotlikoff.

“You can’t play the odds when it comes to how long you’re going to live, because there’s no guarantee you’re going to die on time,” Kotlikoff said.

The tool costs $40 per year for consumers and $250 annually for professionals. The only difference between the two is professionals can evaluate more households, according to Kotlikoff.

You can’t play the odds when it comes to how long you’re going to live, because there’s no guarantee you’re going to die on time.
Laurence Kotlikoff
president, Economic Security Planning

The product has earned the respect of its competitors.

“For a consumer who … wants a detailed report without using an advisor, that’s a valuable tool,” said Joe Elsasser, president of Covisum. “It takes all the necessary inputs in order to get you a good result.”

Working with an advisor

For most other tools, Elsasser said there is a vast difference between the information consumers can access on their own and that which they can get with the help of a financial advisor.

“A consumer doesn’t know what they don’t know,” Elsasser said. “They also can’t spot the situations where they might be forgetting an important input and as a result get an answer that is just wrong.”

Covisum’s tool, called Social Security Timing, works to help advisors control the assumptions with which they are calculating benefits at a granular level, according to Elsasser.

That includes the ability to take specific rules into account, such as the government pension offset, the windfall elimination provision or the earnings test.

As years go by, the tool will re-calculate benefits estimates with the most current earnings history.

The tool costs $50 per month, or $500 per year for financial advisors.

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There is also a version of the tool on Social Security Timing’s website that consumers can try out.

Results from the consumer version include the earliest claiming strategy and a suggested claiming strategy. It does not take into account some of the more complex nuances included in the advisor version.

“The intent is for people to begin to understand the decision,” Elsasser said.

Ideally, a consumer will try out several calculators to get an idea of the kinds of results they can get and factors to keep in mind, Elsasser said.

Those results should also provide fodder for questions for consumers to ask their financial advisor to gauge their expertise, he said.

One question consumers should ask to get started, according to Elsasser, is “Do you have a process for analyzing all of my options when it comes to claiming Social Security, and can you outline that process for me?”

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Getting started

The Social Security Administration offers its own calculators on its website.

Those tools are “super helpful” for evaluating what happens to your benefits in specific circumstances, said Mike Piper, a certified public accountant and author of a book “Social Security Made Simple.”

“What they don’t do is do any math as far as, ‘OK, so what is actually the best age to file?’" Piper said. “Just knowing your monthly benefit amount doesn’t tell you whether filing at 67 or 68½ is better.”

Piper, who said he saw a gap in the market for a free reliable Social Security calculator, decided to create his own.

Piper’s tool, named Open Social Security, debuted online a few weeks ago.

The calculator asks for four key personal pieces of information — marital status, gender, date of birth and your estimated full monthly retirement benefit — in order to determine what age to claim is best for you.

The calculator is set to default to the life expectancy according to data from the Social Security Administration. But that can be adjusted to use other tables based on if the individual’s health is better or worse than those expectations, Piper said.

Piper also plans to expand the tool — which currently addresses retirement, spousal and survivor benefits — to also take disability and children’s benefits into account.

While other companies offer more fully featured tools, Piper is hoping his calculator inspires individuals to at least start thinking their claiming decision through.

“I’m hoping that, by this being free, people who might otherwise have not used those calculators and just kind of made the decision without very much analysis, that now they’ll at least do some analysis,” Piper said.