Review
Evaluating new financial products and services.
Last week, we reviewed AARP’s new Social Security calculator, which helps you figure out when to begin collecting benefits. This week, we’re reviewing some more tools that will help you make this decision. Below, we take a look at the second one.
When you want to start collecting Social Security isn’t necessarily when you should begin to collect Social Security. Another new calculator, called MaximizeMySocialSecurity, helps you compare those two options.
This tool, which costs $40 a year, was developed by Laurence J. Kotlikoff, an economics professor at Boston University, who also created the more comprehensive ESPlanner financial planning software.
His latest calculator generates two big numbers: the present value of your Social Security benefits based on when you think you’d like to file, and how that compares with the maximum amount you would collect if you filed at the best possible time — all based on a specific life expectancy.
This calculator accounts for several things that some of the others do not. It works for widows and those who have been divorced, for instance. It also factors in the effects of working and collecting benefits before your full retirement age, since that could cause a portion of your monthly benefits to be withheld and recalculated later. The program also considers whether your children may be eligible for benefits. (Some children are eligible if they meet certain conditions, like having a disabled or retired parent who is entitled to benefits.)
Meanwhile, certain government employees and other workers whose employers did not withhold Social Security taxes but provided pensions may be affected by the so-called Windfall Elimination Provision and Government Pension Offset. Those could reduce their Social Security benefits. The calculator factors that in, too.
Do you believe that politicians will ultimately prevail in cutting benefits in some way? If so, you can factor that in as well — say, a 2 percent benefit reduction beginning in 2025. Users can also set their own life expectancy.
The results aren’t quite as simple to read when compared with some of the other calculators, though Professor Kotlikoff says he is working on improvements.
Getting the results is also going to require a little more work on your part. Be prepared to manually enter what you expect to earn in the future, and what you earned each year for your entire career thus far (you can use your annual Social Security statement, if you have one; to save money, the government didn’t mail them out this year and will send them only to people 60 and older starting next year). Professor Kotlikoff said that using your past and projected earnings would make it possible to generate a result even more accurate than relying on the Social Security Administration’s retirement estimator.
Married people are also asked if they want to consider the “file and suspend” strategy, which allows one spouse to file for benefits, and then immediately suspend them so that the benefits continue accruing — while allowing their significant other to collect spousal benefits. The Web site explains how it all works; the rules can be confusing. That’s why it encourages you to test various assumptions, which will ultimately be compared against the optimal strategy, which the program will calculate on its own.
You’ll also be asked to plug in some economic assumptions, like a projected inflation rate and a safe rate of return that you would expect to receive if you collected benefits early and invested them (if you’re unsure, you can rely on the default values). This information is used to formulate the “present value” of your benefits, which is a fancy way of saying that the benefit amounts you see account for the time value of money, or the fact that receiving $100 today is more valuable than receiving the same amount at some point in the future, since you could have invested it or spent it today.
I tested the calculator using two different possibilities: a single woman and a married couple. The results show how much you could conceivably leave on the table if you don’t file for benefits at the optimal time, though it doesn’t list all the various less-than-perfect possibilities, like the SocialSecurityChoices calculator does.
The results also don’t spell out what steps you need to take to follow a particular strategy, though you can figure it out by reading the chart that’s generated on the results page. (Professor Kotlikoff says he’s working on making those results more specific.) For instance, if there is a number in the “spousal benefits” box, that means you would take those benefits until the year that “retirement benefits” show up. There’s some helpful commentary on the last page, too.
What do you think of this calculator?
Article source: http://feeds.nytimes.com/click.phdo?i=ed90e5674f1e401157f6020ff7d75d75