A Great New Tool for Deciding When to Take Social Security

Last Updated Oct 4, 2011 12:20 PM EDT

"Social Security won't be there when I retire, so why bother learning about when to start benefits?" This commonly expressed attitude is a big mistake for anybody approaching retirement. Why? Well, for one thing, Social Security income accounted for an average of 64.8 percent of total income for all households with someone aged 65 or older, according to a recent report by the Social Security Administration. Deciding when to start Social Security benefits is probably one of the most important financial decisions aging boomers will make.

Social Security income is a valuable source of retirement income that protects against three significant retirement risks -- inflation, market volatility, and longevity. For many boomers, given the shift away from traditional pension plans, Social Security will provide them with the only income that's guaranteed for life.

But making the best decision about when to start Social Security can be complicated, particularly for married couples. So where can you get good advice? According to a recent survey conducted by Social Security Timing, a financial planning firm that helps people determine optimal Social Security claiming strategies, 77 percent of survey respondents expect to receive advice from Social Security representatives. But the reality is that these representatives are actually prohibited from giving any advice! Social Security representatives are trained to answer factual questions about the benefit rules to help you make an informed decision, but they can't tell you what to do given your specific circumstances.

According to the same survey from Social Security Timing, 84 percent of respondents expect advice about claiming your Social Security benefits to be free, while 92 percent would expect to pay less than $100 for such advice. This is particularly short-sighted, since making the best decision on when to start Social Security benefits has the potential to increase your lifetime payout by $100,000 or more.

Over half of all survey respondents want their financial planner to give them Social Security claiming advice, yet many financial planners don't understand Social Security's complex rules or the nuances regarding life expectancies. In fact, financial advisors often tell their clients that the best approach is to start Social Security benefits early and invest the income, which, according to my recent analyses, is a strategy that has significant risks.

At last, however, there's a software system that can help individuals and financial planners analyze the best decisions regarding when to start Social Security; it's available at www.socialsecuritytiming.com. The free version for individuals estimates how much money is at stake in your decision, and it outlines the top three strategies given your exact circumstances. There's also a version that can be leased by financial planners that provides more details to help them make specific recommendations for their clients. On the website, individuals can also find financial planners in their area who are both familiar with Social Security claiming strategies and who lease the software.

I recently talked with Joe Elsasser, who designed the software. "Choosing between investment A or investment B is unlikely to make or break a retirement. Choosing when and how to claim Social Security definitely can," says Joe. So I took the version of the software that's available to individuals for a spin. Stay tuned for my next post that reports on the results from my test drive.

Of course, not all people need to consult a financial planner to make the best decision about when to start their Social Security benefits -- some people will be able make decisions on their own by studying the informative Social Security Administration website, reading articles like mine on the topic of Social Security benefits, reading Andy Landis' excellent book, Social Security: The Inside Story, and using the software mentioned here. I suspect, however, that most people will feel better getting professional help for this important decision. Finding an informed financial advisor may be your best approach, particularly if you need an advisor to help in other areas of retirement planning, such as how to use your retirement savings to generate reliable lifetime retirement income. If this is the case with you, consulting with an expert will be well worth your time and effort.

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    For more than 35 years, consulting actuary Steve Vernon helped large employers design and manage their retirement programs. Now he's a Research Scholar for the Stanford Center on Longevity, where he helps collect, direct, and disseminate research that will improve the financial security of seniors. He also delivers retirement planning workshops and has authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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