Social security benefits make up a big chunk of monthly income for most retirees. Though you can claim social security benefits as early as 62, claiming benefits early means taking a reduction in payout. But approximately, 60% of seniors start collecting social security benefits before reaching the full retirement age of 66.
Even though you can claim full social security benefits at age 66, your payout will be the highest if you can wait until 70. At age 70, benefits stop accruing on an annual basis and there is no benefit in waiting after that.
Guaranteed for life and adjusted for inflation every year
Social security payments are guaranteed for life and adjusted for inflation every year. Because these payments come from the government, there is no market risk or risk of non-payment.
How are payments calculated?
The Social Security Administration (SSA) considers your 35-highest earning years when calculating your monthly benefit. If you worked less than 35 years, a zero value will be averaged in for each earning year less than 35, which will reduce your payout.
Online account
You can sign up for your mysocialsecurity account online and look at your social security stats. The online account gives you personalized retirement benefits for you and your spouse. You can also look at your social security contribution for each year you have been working.
Online tools to maximize your Social Security benefits
There are online tools that will help you maximize your Social Security benefits.
Social Security website
The website offers a free retirement estimator to calculate your benefits based on your earnings history. The tool only provides individual benefits, not spousal or survivor benefits. It also does not calculate lifetime cumulative benefits and lacks the ability to compare options side by side. The website has a wealth of information you can read through to understand your social security benefits.
Opensocialsecurity.com
The Opensocialsecurity tool is free and open source. You can review the code to find out how calculations are done.
Open Social Security is a more sophisticated free option. It can run the numbers for each possible claiming age for an individual or married couples, and it provides a report indicating the strategy expected to provide the most total dollars over your lifetime.
Maximizemysocialsecurity.com – $40/year
The standalone cost of Maximize My Social Security is $40/yr. Designed by Laurence Kotlikoff, Boston University Economics professor, the tool helps you choose the right benefits at the right time.
It has an add-on service MaxiFi Planner ($109/yr). The tool calculates how much you can spend on a sustainable basis to maintain your standard of living in retirement. MaxFi also looks at ways to increase your standard of living to the highest possible value by including IRAs, annuities, and social security payments. If you purchase MaxFi, you won’t need to purchase Maximize My Social Security.
Socialsecuritysolutions.com – $20 one time
Social Security Solutions allows you to maximize your lifetime income by helping you choose the best way to tap social security benefits. Social Security Solutions also offers an add-on service, Income Strategy, which recommends a sequence for withdrawing money from tax-deferred accounts such as a 401(k) and claiming social security. The tool helps you preserve the tax benefits of tax-deferred investments for as long as possible.
Income Strategy taps tax-deferred accounts first to reduce the tax burden – either by withdrawal or by converting those accounts into Roth IRA – before claiming social security benefits. This works great because your marginal tax rate is lower before you start claiming social security..
Bottom Line
Online tools will help you choose the right age to start tapping social security benefits and answer what-if scenarios. Since social security payments make up a significant portion of retirees’ retirement, paying a small amount of money for advanced analysis is a no-brainer for most people. There are free online tools too but they offer limited features. Doing these calculations on your can be tedious and prone to errors.