Tools you can use to maximize your Social Security benefit

An article image

Choosing when to collect your Social Security benefits can have a large impact on your standard of living in retirement, especially if you didn’t save enough on your own. According to the Social Security Administration, Social Security benefits represent 30% of retirement income for the elderly. Deciding when to collect is a complicated task — you’ll have to consider factors like your spouse, your other sources of retirement income, your health status and the cost of Medicare deductions. 

“Because SSA maintains a neutral stance on the claiming decision, many other government, academic, nonprofit, and private groups have developed Social Security benefit calculators and tools for analyzing retirement finances to provide clarity on individuals’ retirement decisions,” states a 2016 report by the Social Security Administration. “The calculators may be very informative for older workers who have an established earnings record, but less so for younger workers whose future earnings may be unpredictable.”

While these tools vary in how much information they collect and how accurate the earnings estimates are, online calculators and tools can still provide individuals with an estimate of how much they’ll earn in benefits. The choice of when to collect could mean earning thousands or hundreds of thousands of dollars more. 

Below, Select highlights four online Social Security free and fee-based tools that people can use to figure out when to collect benefits. 

The social security Administration webdite

This one is a no-brainer, but the Social Security Administration website provides a number of different calculator tool— there’s a tool to help you figure out when your full retirement age is and another that calculates how your earnings (before full retirement age) could impact your benefit amount. 

The most useful tool that the Social Security administration has is the retirement estimator which calculates your monthly benefits from the administration’s own data on your earnings history. The closer you are to retirement, the more accurate the calculator will be because you’ll have fewer earnings years ahead of you. 

However, most of the calculators on the Social Security Administration website don’t account for many factors in the calculation of your monthly benefit. If you have a spouse or other sources of retirement income that could affect the percentage of your benefits that are taxable, you may have to use multiple tools.

Open Social Security

Open Social Security  is a free calculator developed by Mike Piper, a CPA. This calculator, unlike the Social Security Administration calculators, is more complex, accounting for multiple factors like whether an individual has a spouse, the average lifespan of men versus women and the potential for benefits to be cut in the future. 

The tool also provides individuals with a rundown of their yearly Social Security benefits and their cumulative earnings with a spouse over the course of retirement.

AARP Social Security Calculator

The AARP Social Security calculator is a basic calculator that provides a graphical depiction of how much your monthly benefit is depending on when you choose to collect. The calculator also provides information on how much of your living expenses (based on an average retiree’s monthly living expenses) your Social Security benefits will cover.

The major drawback of this calculator is that it determines your monthly benefit with your average annual salary, so it might not be entirely accurate if your estimate of your average annual salary is not correct. The calculator also determines cumulative benefits based on if an individual collected at age 70, a goal that may not be realistic for many.

Other options that you can apply for retirement

Since Social Security is only meant to supplement people’s retirement income, it’s vital for people to save for retirement on their own. Pensions, 401(k)s, traditional IRAs and Roth IRAs are other popular sources of retirement income. If your employer offers matching 401K contributions,your first priority shoukd be maxing out the match

If your employer doesn’t offer matching contributions or you have extra money leftover to save for retirement, you might consider opening a Roth IRA or a traditional IRA.

A Roth IRA has an income limit so not everyone is eligible. Individuals who make less than $144,000 and married couples filing jointly who make less than $204,000 are eligible to contribute to a RothIRA. These accounts offer a unique  tax advantage You pay taxes on your upfront contributions so your investments grow tax-free over time. And when you do withdraw, you won’t pay taxes on any of your distributions (as long as you withdraw after age 59 and a half).

For those who don’t qualify for a Roth IRA, a traditional IRA is a good option because there are no income requirements. A traditional IRA offers a different type of tax advantage. With a traditional IRA individuals pay taxes on their investments when they withdraw that money in retirement. However, depending on your income and whether your employer offers a retirement plan, your traditional IRA contributions may be tax deductible. This means your contributions reduce your taxable income now and therefore how much you owe in taxes.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: