AARP's Social Security Benefits Calculator, which was unveiled today, gives folks planning for retirement a useful tool to answer a key question: When to file for those benefits? From first look, I'd say it's not a perfect tool, but it could help many people—and couples—get closer to that crucial decision.
Waiting to file can make a huge difference in your monthly benefit, and the overall value of your Social Security retirement pot. For each year that you file before your eligibility age for full benefits, you lose up to 8 percent in benefits.
The free calculator does some standard functions that are available with other calculators: Plug in your age and income, and it projects what you're likely to get from Social Security at your full retirement age. You can plug in more accurate estimates if you have your annual Social Security statement, and use sliders to see how that payout changes with the age of retirement. The calculator also estimates what portion of your monthly expenses would be covered by Social Security under those various scenarios. You can plug in your own expense information for a more accurate picture.
On a page titled "What if I claim and keep working?" you can play with a slider to see the difference in benefits by claiming at different ages. A single person aged 54 earning $45,000 would collect a total of about $391,000 from Social Security by claiming at age 62, but more than $506,000 by waiting until age 70.
The calculator also illustrates how married couples can make best use of Social Security's complex rules on spousal benefits. Click on the link, "Does it Matter If I'm Married?" and you'll come to a page that shows your combined monthly benefits if both of you were to wait 'til age 70 to claim full benefits, and a blueprint for how to do it. For example:
1. When you are 67, apply for Social Security and then request to have payments suspended.
2. When your husband is 66, have him apply for spousal benefit, which provides about $1,278 per month.
3. When you are 70 resume your own Social Security benefits, which provide about $3,271 per month.
4. When your husband is 70, he applies for his own SS enefits, which provide about $3,237 per month.”
Unfortunately, there's no slider here, so couples can't play around with scenarios, such as: What if one partner files at age 62 and the other at 67? Who should claim the spousal benefit in that situation? The benefit can vary significantly, depending on who files, and when, but the calculator doesn't specify.
Widows and widowers also may be disappointed. At this point, the calculator does not provide information on survivor benefits. And while tool discusses how to get the most from claiming a spousal benefit from one's ex, it only takes into consideration one divorce, not multiple splits.
Still, AARP has made a good start with this calculator. It's easy to use, and provides a free, downloadable PDF document that shows in clear pictures and language key personalized information: How much you'll get from Social Security at different ages, how much of your current expenses Social Security will cover. It is not a replacement for a true financial plan, but combined with the output from the AARP's own Retirement Calculator—or even better, T. Rowe Price's Retirement Income Calculator—it gets you a bit closer to clarity.