A growing number of online tools can help you figure out an optimal ‘claiming strategy’

By Anne Tergesen / online.wsj.com
(Sept. 8, 2013)

When is the best time to claim Social Security?

Would-be retirees are turning to a growing number of online programs to answer that question and squeeze the maximum from their Social Security benefits. For couples, the claiming decision can be especially complicated because of the availability of spousal benefits and the need to consider the financial security of the survivor.
We decided to test five of these services, from AARP, the lobbying group for older Americans; T. Rowe Price Group Inc., the Baltimore-based investment manager; and three websites started by academics—SocialSecuritySolutions.com; MaximizeMySocialSecurity.com, from Economic Security Planning Inc.; and SocialSecurityChoices.com, from SocSec Analytics LLC. The AARP and T. Rowe Price programs are free; the others charge a fee.

At each site, we entered data for a fictional couple, Bob and Wendy, each age 65. At age 66—their full retirement age—Bob and Wendy are eligible for monthly Social Security benefits of $2,182 and $815, respectively. The two believe they will both live to age 85.

Richard Mia
Richard Mia

The challenge: Identify a claiming strategy likely to yield the most money over both spouses’ projected life spans.

Easy and Educational
In the end, all five programs generated similar claiming strategies and similar numbers, with projected lifetime benefits ranging from $763,222 to $773,500. (All figures are in 2013 dollars.) Each tool has advantages and drawbacks, but all of them educate users about claiming strategies that many people don’t know are available.

For instance, an individual who first claims Social Security at his full retirement age might have a choice of benefits: one based on his own earnings record, or a spousal benefit. If he selects the spousal benefit, he can switch at some future date to his own benefit, which will have grown larger thanks to his delay in collecting it. Steps like these can help maximize a claimant’s lifetime payout.

All five programs proved relatively easy to navigate. Within a few minutes of prompting a user to enter his or her date of birth and estimated monthly Social Security benefit, as well as those of a spouse, each generates clear recommendations.

While all five tools provide help for both single and married people, T. Rowe Price doesn’t currently handle projections for widows, widowers, divorced people, or spouses more than six years apart in age.

Mark Social Security graphic lg

SocialSecuritySolutions.com, MaximizeMySocialSecurity.com and SocialSecurityChoices.com will offer recommendations for couples after one has already started claiming benefits, and can help those with government pensions calculate and potentially mitigate the resulting reductions to their Social Security benefits. AARP, MaximizeMySocialSecurity.com and SocialSecuritySolutions.com also account for Social Security’s earnings test for individuals who work while collecting benefits before reaching their full retirement age.

Two Favorites
The best tool? Two programs—SocialSecuritySolutions.com and MaximizeMySocialSecurity.com—take into account the widest variety of household configurations and the impact on Social Security of a higher number of other sources of retirement income, and thus allow for greater customization.

SocialSecuritySolutions.com gets our vote for the most user-friendly. Its colorful screens make it easy to get a handle on complex topics, including how much of your benefits are likely to be taxed and how a specific strategy will perform over different life expectancies. Those willing to pay more can also get a consultation with an adviser.

MaximizeMySocialSecurity.com will appeal to those who want maximum control over the inputs and assumptions that go into their results. It also lets users rerun the numbers using a variety of scenarios at no extra charge.

1. AARP Social Security Calculator

Price: Free

• Bob applies for his benefit at 66 so Wendy can apply for a spousal benefit, but he suspends his benefit so that it will be larger when he starts collecting it.
• Wendy files for a spousal benefit at 66.
• Bob resumes his benefit at 70, with Wendy continuing to take the spousal benefit.

Cumulative benefits: $767,148

Comments: Identifies the way to claim the highest monthly—rather than lifetime—benefit. That usually means one spouse putting off receiving benefits until age 70. One result is that you may collect a higher lifetime benefit if you live longer than expected, but possibly a lower cumulative benefit if you don’t live many years past 70. Also, if the higher-earning spouse waits until 70 to claim and then dies first, the surviving spouse will collect more benefits than if the deceased had started earlier.

This tool also calculates how much of your monthly expenses Social Security will cover, assuming you pay average prices for items including food, housing, transportation and health care. (It also allows you to input the amounts you actually spend.)

2. MaximizeMySocialSecurity.com

Price: $40

Developer: Laurence Kotlikoff, Boston University

• Wendy begins her benefit at 66.
• Bob files for a spousal benefit at 66.
• Bob switches to his benefit at 70.
• Wendy switches to a spousal benefit at 70.

Cumulative benefits: $769,780

Comments: Currently requires you to input or import (from Social Security’s website) your earnings history, but soon plans to allow the use of estimated full retirement benefits instead. Asks you to estimate your future earnings, the rate of return you expect to earn on your investments, and whether Uncle Sam will reduce future benefits—and provides defaults for those who aren’t sure. Allows you to rerun numbers using different scenarios at no extra charge.

3. SocialSecurityChoices.com

Price: $39.95

Developers include: Russell Settle, former professor at the University of Delaware

• Wendy begins her benefit at 66.
• Bob files for a spousal benefit at 66.
• Bob switches to his benefit at 68.
• Wendy switches to a spousal benefit at 68.

Cumulative benefits: $768,216

Comments: Generates a 14-page report with advice under three scenarios: “normal” life expectancies of 82 for men and 86 for women; “long” life expectancies of 88 and 92; and life expectancies you specify. Report includes a grid telling how much you would forfeit by pursuing suboptimal claiming strategies. A downside: Users generally can’t rerun numbers without buying a new report.

4. SocialSecuritySolutions.com

Price: $20 to $250, depending on level of service

Developers include: William Reichenstein, Baylor University

• Wendy begins her benefit at 66.
• Bob files for a spousal benefit at 66.
• Bob switches to his benefit at 70.
• Wendy switches to a spousal benefit at 70.

Cumulative benefits: $773,500

Comments: New feature identifies the strategies that perform best over the greatest number of projected life expectancies. Site also allows you to enter your salary data or an estimate of your Social Security benefits and override the program’s defaults for such items as tax rates and inflation. With the $20 service, users can rerun the numbers using different mortality assumptions. With the more expensive versions, you can also compare different claiming strategies.

(Cumulative benefits differ from those on MaximizeMySocialSecurity.com, despite the same claiming strategy, because of slightly different starting dates for benefits.)

5. T. Rowe Price Social Security Benefits Evaluator

Price: Free

• At 66, Bob files for and suspends his benefit.
• Wendy files for a spousal benefit at 66.
• At 70, Bob resumes his own benefit, with Wendy continuing to take the spousal benefit.

Cumulative benefits: We calculated a total of $763,222 for a 20-year life expectancy for both spouses, based on the numbers the tool provided for its default life expectancies (83 for one spouse and 95 for the other).

Comments: Doesn’t allow users to adjust life expectancies, but lets them choose from among seven goals, including generating the maximum lifetime benefit and maximizing survivor benefits.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.