When employees decide to retire could depend on a number of factors, including their accumulated vested assets in a company’s plan. Another key variable might be Social Security. While an individual’s best Social Security benefit “claiming strategy” may not always be easy to determine, online calculators can help.
The Elements of Choosing When to Retire
The basic task for most people is weighing the pros and cons of retiring and claiming benefits at different stages, such as:
- the earliest possible age (62),
- “normal” retirement age (which varies depending on birth year), or
- age 70 (at which point deferring benefit claims does not affect the amount).
According to the Social Security Administration (SSA), about 40% of men and 47% of women claimed benefits at age 62 in 2015. Those percentages have fallen from 56% and 60%, respectively, during the past decade. Additionally, in 2015, 21% of men and 15% of women worked until their full retirement age of 66.
Keep in mind that life expectancy is a key component of the assumptions to be considered when determining when to claim social security. This differs for everyone depending upon their individual and family history, career and lifestyle. While waiting until you are 66, or 70, yields a higher monthly amount, it can take 18 years to make up for the amounts that would have been taken starting at the earlier age.
Powerful Online Resources
The SSA recently issued a study, A Comparison of Free Online Tools for Individuals Deciding When to Claim Social, comparing six free online calculators that focus exclusively or primarily on Social Security benefits. Rather than rating the calculators, the study describes how each works and details their advantages and limitations. It also concludes that no single tool meets every need. However, the online calculators can provide some useful guidance to employees.
The study involved calculators from the following providers:
- AARP. The AARP’s calculator is beneficial particularly for married couples because it allows users to enter their spouse’s information. However, this calculator does not allow users to alter the assumed claiming age, inflation rate, and salary growth.
- Bankrate. With Bankrate’s calculator, individuals can change salary and inflation rate assumptions while viewing all information on a single page. Additionally, Bankrate does not require calculator users to complete all questions before receiving a sample result. One con of the tool is users cannot enter their spouse’s information. Plus, the study found that the calculator’s estimates are inaccurate for younger workers or those with uneven earnings.
- Center for Retirement Research. The Center for Retirement Research’s Target Your Retirement calculator accounts for a variety of income – including Social Security, personal savings, and employer-sponsored retirement plans. It helps users understand how they can increase their savings and plan contributions to boost their financial standing. Because the calculator provides more information than others in the study, users are required to input more information than they do in the other tools.
- Consumer Financial Protection Bureau (CFPB). The CFPB’s Planning for Retirement tool requires much less information than the other calculators in the study. First, users input their date of birth and highest annual income. Then, they answer five questions about marital status, income sources, retirement age, longevity, and spending habits. Although the tool is simple, the study found that the tool does not provide accurate estimates for younger workers or those with irregular work histories.
- Financial Engines. This investment guidance company’s Social Security Retirement Calculator enables users to compare benefits and claiming strategies under different marital and survivor circumstances. It also offers a specific date by which claiming Social Security would maximize benefits. Whereas the other calculators present benefit amounts by month, the Financial Engines calculator does so only in annual and lifetime terms. Additionally, the calculator assumes a constant salary growth rate.
- SSA. The SSA’s Retirement Estimator is one of 11 different calculators available on the agency’s website. It uses an individual’s actual earnings history to determine benefits. It also allows the user to compare the outcomes of retiring at different ages. However, it does not account for other retirement income (e.g., a 401(k) plan) or a person’s marital status.
Information is Key to Determining When to Claim Social Security
Advising your employees to review the SSA study and the different online tools could be helpful as they begin to contemplate the timing of their retirement. Consider sharing the information as part of your overall employee retirement benefits education. Please contact CRI professionals if you need further assistance advising employees regarding the best time to retire.