T. Rowe Price has launched a free online Social Security calculator designed to help people estimate potential benefits and decide what strategy to use when planning for their financial goals—and to help advisors talk about those goals with their clients.
The Social Security Benefits Evaluator calculates the annual dollar amount of benefits plus the best timing for either single or married individuals to start claiming benefits. T. Rowe’s calculator not only estimates Social Security income, but also offers ways to take benefits based on the users’ goals and allows them to compare results of different Social Security strategies.
Meanwhile, T. Rowe has launched a campaign to help advisors initiate conversations with clients about social security and to better understand their clients’ social security goals. Called “The Social Security Conversation,” the campaign includes a video covering the rules, pitfalls and tax effects of Social Security benefits that advisors can share with clients.
In one scenario, T. Rowe offers up the example of a couple, Ken and Barb, who suffer from tunnel vision when it comes to taking benefits too early. Ken, 62, earns an annual salary of $200,000, and Barb, 59, earns $125,000, and they just want to retire and take benefits as soon as possible. Yet they want to get the maximum benefit possible as a couple over both of their lifetimes.
The Benefits Evaluator shows that instead of taking their benefits at 62, both should collect at age 70, with Barb also taking spousal benefits at age 66. If they start claiming Social Security at 62, the couple stands to collect only $1.28 million in their lifetime, but if they wait, they can take in as much as $1.63 million—$350,000 more in benefits.
Benefits Increase 7%-8% Every Year They’re Delayed
The "Social Security Conversation" video reveals that 78% of all Americans still claim their benefits at age 62 and consequently receive reduced benefits. A corresponding “investor map” lays out scenarios for both singles and couples, showing how taking benefits before age 70 can be like leaving money on the table.
“One of the biggest decisions when developing your retirement income strategy is when and how to begin collecting Social Security benefits,” writes Christine Fahlund, a senior financial planner and vice president of T. Rowe Price Investment Services, in “Social Security: Three Income Strategies.” “Although you may begin drawing Social Security at age 62, there is no requirement to do so. In fact, your payment increases by approximately 7% to 8% for every year you delay, up to age 70. And if you're married, there are other good reasons to postpone as well.”
Baltimore-based T. Rowe Price Group, with $576.8 billion in assets under management as of Dec. 31, is a global investment management organization offering mutual funds, subadvisory services and separate account management.
Wharton Study Shows Low Social Security Literacy Rate
Often, Social Security recipients don’t realize they can receive more income or adjust that stream of income to their needs by choosing one strategy over another. While 70% of respondents surveyed said they felt somewhat or very knowledgeable about Social Security, less than 20% actually scored well on a Social Security literacy test, according to a study by the Wharton School’s Pension Research Council.
Considering that the Social Security Handbook has more than 2,700 separate rules governing the program’s benefits, advisors can help clients navigate the program’s intricacies.
The Social Security Administration’s official website offers information and retirement calculators, but it doesn’t offer the range of goals that individuals can select on the T. Rowe version. For example, married couples can select one of seven goals in the T. Rowe tool, ranging from “we want to maximize cumulative benefits as a couple” to “we want to minimize the drop in income for the surviving spouse.” Singles can select one of three goals.
After users provide some background information and choose a goal, the T. Rowe calculator offers a benefits strategy and estimates Social Security income based on the strategy. Income is shown as an annual cash flow as well as a cumulative total, and users can easily change their goals and compare how different strategies might generate different income streams throughout retirement.
Read Nearing Retirement? Practice Makes Perfect, Fahlund Advises at AdvisorOne.
(CORRECTION: In an earlier version of this story some information provided by T. Rowe Price about the couple in the Benefits Evaluator scenario was incorrect. The corrected version changes the couple's ages, spousal benefits calculation and the dollar amount of benefits they stand to collect.)