The following review is a part of a series of posts that look at new Social Security calculators, which help you figure out when to begin collecting benefits. Below, we take a look at the last one.
We can’t predict precisely how long we’ll live, which is why figuring out the optimal time to take Social Security is so difficult.
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But the creators of a new tool called Social Security Solutions said that they’ve come up with a way to hedge your bets: Their tool generates a claiming strategy based on how long you expect to live, but it also takes into account that you might actually live longer than you anticipate.
“We look to maximize benefits at the exact mortality assumptions and then assess if there are other tweaks that could be made so that if you live longer than you expect, you collect more money,” said William Meyer, founder of Social Security Solutions who also built products for big firms like Charles Schwab.
The algorithm that powers the tool is based on research he conducted with William Reichenstein, professor of investment at Baylor University and head of research for Social Security Solutions. The pair also co-wrote the book “Social Security Strategies: How to Optimize Retirement Benefits.”
Of all the calculators I’ve tested, this one was the easiest to manipulate. It allows you to change your life expectancy (and that of your spouse) and see how the recommended claiming strategy may change. All of this information is presented in colorful, easy-to-read charts.
It also allows you to see how their strategy compares with collecting at another time, say, as soon as your eligible or at another age. On top of that, you can see how much you would collect if you live a decade longer — or less.
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You start by entering the basics: your name, date of birth, gender, marital status and your projected benefit amount at full retirement age, which can be found on a Social Security statement or the Social Security’s retirement estimator.
Then, you’re asked to select the level of service you want: for $19.95, you’ll get a report that includes a recommended claiming strategy. For $49.95, you can play around with the firm’s online tool, which means you can compare their recommendations with your own scenarios, all of which are cleanly illustrated. You can also print out as many reports as you like. For $124.95, you also can call one of their experts, who have been trained by the co-creators and have access to an even more powerful tool that is designed for advisers.
I chose the $50 version, which is more expensive than the other calculators I tested, though this one is certainly the most elaborate. I ran the report for a married couple: Don, 62, and Betty, 58, who expect to collect monthly checks of $2,100 and $1,500, respectively.
Once you’ve paid and reach the main screen, you’ll find the recommended claiming strategy based on a life expectancy, which you can — and should — change based your expectations. (When I tested it, it already included a life expectancy of 85 for Don and 90 for Betty. I increased Don’s life expectancy to 90 as well.)
Based on that information, the tool came up with a recommended strategy: Betty should begin spousal benefits at full retirement age, or 66. (If Don is not yet 70, he should file and suspend benefits before Betty reaches full retirement age.) Don should begin collecting his own benefits at 70, and Betty should switch to her own benefits when she turns 70. If they both live to 90, they’d collect $1.3 million in lifetime income, with a maximum monthly benefit of $5,016 a month.
You can also compare how much you would receive in benefits over your collective lifetimes if you and your spouse live a decade more — or less — and how all of those numbers can change if you take benefits early (at 62), at 65, delayed (at 70) or a date that you enter (this option may be confusing, especially for married couples who aren’t intimately familiar with how spousal benefits works because you will be asked to enter when you want to collect them).
The recommended strategy was summed up in a 14-page report, which also includes case studies that discuss how your outside savings can last longer based on when you file for benefits. This tool doesn’t, however, go as far as performing that analysis, though the firm has a more comprehensive program that does — Retirement Benchmark (which it pitches on the last page of the report).
In fact, the idea for the Social Security calculator sprang from the more comprehensive tool, which takes into account all of your savings and comes up with a plan on how to draw down those assets most efficiently. That plan also includes the optimal time to start Social Security, which the firm claims will make your money last longer.
“We combine the tax impact of Social Security, part- or full-time work, and each withdrawal someone makes from their savings,” Mr. Meyer said. “If you coordinate these decisions and create a tax-efficient retirement income plan, you can make your money last up to seven years longer just by being smart on how you withdraw and select Social Security.”
That tool is a bit more expensive ($500 to $2,500 depending on the value of your investable assets), but it includes the retirement income plan and the Social Security analysis, and it could save you money in the long run. In addition, Mr. Meyer said one of their experts will walk you through the process over the phone, and the firm acts as your fiduciary, which means it is required to put your interests before its own.
An advanced version of the Social Security calculator will be introduced in coming weeks. For instance, it will factor in whether your children may be eligible for benefits. It will also present your total benefits as a net present value. In other words, it will account for the time value of money, or the fact that receiving $100 today is more valuable than receiving the same amount in the future because you could have invested it or spent it today.
Keep in mind that access to the tool (for the $49.95 and $124.95 versions) expires after 90 days, though the company will give you access for a longer period of time if you ask.
What do you think of this new calculator?
Article source: http://feeds.nytimes.com/click.phdo?i=8c6c546a39f4dba81649ce930851b11d