Deciding when to take Social Security is an important detail to nail down for clients, and there is no shortage of online calculators to help determine this.
The problem is that some are better than others, and many come up with different answers.
For instance, some haven’t been updated for the Bipartisan Budget Act of 2015 which eliminated the so-called double dipping strategies. These strategies allowed one spouse to take the spousal benefit while their own benefit continued to grow.
What then is the best free online calculator? To answer that question, I turned to Mike Piper, author of Social Security Made Simple, who has reviewed many calculators.
Some calculators have serious issues such as not coordinating spousal benefits, not factoring in when client’s plan to stop working or not even asking for the client’s primary insurance amount estimate from the Social Security Administration itself, he says.
Profile of the modern adviserOthers appear to ask the right questions but produce what are called dominated strategies which, by definition, mean that there are alternative strategies that are guaranteed to be superior, irrespective of how long the other spouse lives, Piper says.
“This suggests that there was something going on behind the scene that wasn’t working properly,” he says.
Piper’s recommendation is United Capital’s SSAnalyze.
“It is the free tool that I've been most impressed with,” he says. “In short, I like it because it's free, it's easy to use, it asks for the right inputs, and it provides output that appears sensible.”
I decided to kick the tires on SSAnalyze myself and am impressed.
The number of inputs was relatively small but important such as when each spouse plans to quit working, which impacts the benefit, and estimated life expectancy. Thus, if one either had a chronic condition or a family history of living past 100, that could easily be included.
social-security-calculator-fp-2016Another thing I love is that, rather than just add the total benefit payments, SSAnalyze takes into account the cost of money, calculating the net present value of the payments and allowing users to pick the discount rate.
The default discount rate indicated is 2%, with which I agree, as this is a U.S. government-backed inflation-protected income stream. Don’t game it by using a high stock-like rate that would result in taking the benefit early.
Further, I like that, in addition to the NPV of the optimal solution, it gives the NPV of alternatives. Thus, the adviser and client can see whether it is a close call.
So give SSAnalyze a try and check out Piper’s Blog, the Oblivious Investor, for more Social Security and innovative financial tips.