Now or later? AARP’s new Social Security calculator

July 12, 2011

When should you turn on the tap that gets your Social Security benefits flowing?

If you’ve got an itchy finger you might want to check out the brand-new calculator unveiled today by the AARP. It’s a clear and multi-featured tool that professes to help workers and retirees decide when they should start taking benefits. But what it really does is encourage everyone to wait as long as possible before they start collecting.

“It illustrates the benefits to claiming later,” Jean Setzfand, vice president of financial security for AARP, told reporters as she introduced the calculator. It opens with this introductory note: “The longer you are able to wait, the higher your monthly benefits will be … This guide will show you why most people should wait as long as possible.”

So, it’s not totally neutral, but it’s still worth checking out. Users can customize their benefits, their economic expectations and their personal data to get clear, detailed estimates of their own monthly and lifelong benefits under different scenarios. It allows planning for government workers, and those who are married, divorced, widowed or single. It also guides users through the complex “file and suspend” strategy that allows married couples to tag team their benefits for maximum income. (In that strategy, one spouse files and suspends his benefits, allowing the other spouse to take spousal benefits. She then defers her own benefits longer, claiming them after they’ve grown to their maximum level.)

But there’s much that the AARP calculator doesn’t do. It doesn’t allow you to figure out when you should start benefits if you’re no longer working and have to weigh savings withdrawals against starting benefits. It doesn’t allow you to figure out the tax impact of that decision, which can be sizeable. It doesn’t really allow you to play what-if games in which you and your spouse choose different start dates and try to coordinate your benefits.

So, it may not be your final answer to that complex question of when to start benefits, but it is educational.

Other websites that let you play what-if with your benefits include the “Should you Start Social Security Early” calculator created by Henry Hebeler, a former Boeing executive and spreadsheet hobbyist, or the simple break-even calculator posted by CPA firm Gray, Gray & Gray, or one of the calculators offered by the Social Security Administration itself.

In truth, the real calculus behind when to start benefits has so many variables — like tax rates, personal life expectancy, investment earnings, work prospects and more — that it’s a challenge to build it all into a calculator that the average working pre-retiree could actually use effectively. In the meantime, this one will help put some real numbers behind those dreams.

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