How and when to claim Social Security benefits is one of the most important decisions when planning for retirement, especially because timing can make a difference in the size of your benefit. There are many factors involved and dozens of free online tools and calculators to help with the decision.
But not all calculators are the same, the Social Security Administration (SSA) found in a recent comparative study of online retirement tools. While these resources can offer general guidance, it is still important for savers to work with a qualified financial professional.
Current income needs, longevity projections, marital status, health conditions, and the availability of other income sources are just a few of the many retirement income-planning considerations. Online tools can help pre-retirees gain some information, but every financial situation is different and no one solution will meet all retirement income goals.
In its study, the SSA examined six widely used online calculators. Although the same basic data was entered, every tool produced a different estimate of Social Security benefits. While some results were similar, others differed by hundreds of dollars.
Some calculators collected varying data and included different default assumptions and underlying data sets. The SSA study concludes with a description of each calculator and its advantages and limitations. The following calculators were reviewed:
SSA, Retirement Estimator. The Retirement Estimator is one of eleven online calculators available from SSA. It uses an individual’s actual earnings history to estimate the future value of his or her Social Security retirement benefits under various claiming-age scenarios.
CFPB, Planning for Retirement. The Consumer Financial Protection Bureau offers a calculator that presents options to users in three steps.
Several academic institutions and nonprofit organizations also offer popular retirement tools.
CRR at Boston College, Target Your Retirement. Users can set a goal for their monthly retirement income and Target Your Retirement will calculate amounts received from Social Security, retirement savings, and pensions.
AARP, Social Security Benefits Calculator. In just four steps, a user can see an estimated Social Security benefit at various claiming ages ranging from 62 through 70.
Financial services companies, such as Financial Engines and Bankrate, offer tools to educate online users about retirement.
Financial Engines, Social Security Retirement Calculator. The Financial Engines tool guides users through key planning questions and offers information about how to optimize Social Security.
Bankrate, Social Security Calculator. Bankrate’s single-page tool is built on simplicity and allows users to estimate Social Security benefits by entering just a few data points.
Recognize the limitations of technology
Similar studies of online tools echoed some of the findings of the SSA. A 2016 study of 36 planning tools identified more than 20 factors that provide education about retirement options, but the data were not used consistently by the calculators. The Texas Tech University researchers suggested that different input variables and default assumptions drove different results.
Another study concluded that online tools are helpful provided the users understand the limitations of the programs.
Understanding Social Security is critical for retirement income planning and maximizing your benefits. It is important to meet with a financial professional who will consider all aspects of your individual financial situation. For more information about strategies to claim Social Security, read Putnam’s investor education article, “Optimizing Social Security: Five things you need to know.”