Accurate Social Security Benefit Calculations

MoneyBee forecasts your Social Security benefits for all retirement ages. Calculates spousal and survivor benefits too.


Retirement Calculator with Social Security

MoneyBee exactly matches the Social Security Administraton's (SSA) online benefit calculators. And since it automatically finds all achievable retirement ages, it calculates your Social Security benefit for each retirement age scenario.

In addition, MoneyBee's estimates are based on "future dollars". This means that all components that go into your benefit calculation are projected using the SSA's intermediate assumptions. Future dollars is the correct basis to use in retirement planning where your assets are also projected forward.

But before we delve more into these important considerations, let's briefly touch on an issue that is currently a hot topic of debate.


Will there even be Social Security by the time you retire?

We have all heard that our Social Security system is expected to run into serious financial difficulties in the not-so-distant future due to our aging population. According to the 2022 OASDI Trustees Report, the system will no longer be able to pay full Social Security benefits by 2035. However, even in the highly unlikely event Congress won't act to solve the problem, the system will still be able to pay 75% of all Social Security benefits at least for the remainder of their 75-year projection period. That said, this is not the first time we are in this situation and Congress has always acted in time to avoid any benefit cuts, usually by raising the Social Security tax. The Social Security Administration (SSA) has identified and priced literally hundreds of alternative solutions that can keep the system solvent.

At one extreme, the problem can be solved by increasing the Social Security tax from 12.4% (6.2% paid by both employer and employee) to about 16.4 (8.2% paid by both employer and employee) starting from 2035, or less if action is taken earlier. Other options include increasing the full retirement age, changing the basis for determining the cost-of-living increases, raising the taxable wage base or applying an extra tax on very high incomes.

The ultimate solution will probably include some combination of these options. It is unlikely to include outright benefit cuts, although you may need to wait longer to get an unreduced benefit if the full retirement age is increased further.

The right way to project your Social Security benefit

If your Social Security benefits are not going anywhere, what is the right way to include them in your retirement planning? Getting accurate Social Security estimates is not difficult. Using the right numbers in your retirement planning is where things get tricky.

The SSA offers a set of highly accurate and free calculators. They take into account all the details that go into your actual benefit calculation. The main difference between them is how they handle your earnings history:

Quick Calculator estimates your past earnings based on your current salary, with an option to overwrite the historical pay used.

Online Calculator lets you enter your earnings history manually (from your Social Security statement).

My Social Security Retirement Calculator pulls out your actual earnings history automatically but requires online registration and a rigorous verification process.

All of these calculators deliver the most robust and reliable estimates of your benefit. For your convenience, MoneyBee exactly matches these calculators, provided you use the same earnings history. This way, you don't have to go back and forth between the SSA's calculators and your retirement calculator for each retirement age scenario.

One calculation. Two answers?

The SSA calculators produce two sets of results - measured in current dollars and future dollars. Picking the right set for your retirement planning purposes is where things get a little confusing. And the choice makes no small difference - the future dollars estimate can easily be twice as large as the current dollars value!

The current dollar estimate helps you understand the value of your future benefit

Your current dollars results illustrate how much your Social Security benefits are worth in today's dollars or how much you would receive if both your salary and the national wage index remain fixed forever. Therefore, unless you are within a couple years of retirement, this number is far below the actual dollar amount you can reasonably expect to receive.

Put simply, if your current dollar Social Security benefit estimate is $2,000 a month, it means that your actual benefit at the time you retire will be enough to afford what $2,000 a month can afford today.

However, while the current value estimate seems like a great number to have for your own understanding, it is NOT the number to use in your retirement planning.

Accurate retirement planning using future dollars

Your retirement planning is only as accurate as the projections it makes for all aspects of your financial reality. Each aspect has its own reasonable growth rate:

Your savings should be increased with a reasonable investment return.
Your personal expenses - with the consumer price inflation.
Your salary - with a reasonable earnings growth rate.
Your home value and property taxes - with an appropriate real estate inflation rate for your area.
Your fixed-rate mortgage payments should be kept flat, and then reduced to zero when paid off.
Your health care costs should be projected with health care price inflation and health care age inflation, and reduced appropriately when Medicare kicks in.

Your Social Security benefit should also reflect a best estimate projection of each of its building blocks - exactly what the future dollars estimate does.

We also cannot use some uniform growth rate across all financial aspects, based on some national average. We all have a unique basket of these items, and that basket changes over time. A robust and reliable retirement planning tool should use future dollars projections for each major component, including your Social Security benefits, based on well-researched assumptions appropriate for that aspect.

Best assumptions to use in future dollar Social Security estimates

MoneyBee uses the same projection assumptions as the SSA calculators. These are the intermediate assumptions from the most recent OASDI Trustees Report, which is based on considerable economic research and is used by Congress for budgetary purposes. We consider these to be the most reliable projection assumptions based on currently available data.

What about cost-of-living adjustments to your Social Security benefit?

The future dollars estimate tells you how much you can reasonably expect to receive in Social Security benefits the day you start collecting them. This number will further grow every year to keep up with cost-of-living increases. MoneyBee applies these increases automatically, again using the intermediate assumptions from the latest OASDI Trustees Report. In the 2022 OASDI report, this assumption is 2.4% per year after 2023.

Can you use the numbers from your Social Security statement?

Your Social Security statement uses a current dollars approach, which means that it assumes that neither your earnings nor the average wage index will increase past the statement date. Thus, unless you are within a couple years from retirement, your Social Security statement is likely to grossly understate your projected benefit at retirement.

However, there is one piece of valuable information you can get from your statement - your Social Security earnings history. These are the numbers you can plug into MoneyBee to get a more accurate projection of your Social Security benefit.

Nobody knows the future! So why fuss about assumptions?

Uncertainty doesn't mean you should not or cannot make reasonable financial forecasts based on the best available data and models. The correct way to manage uncertainty is to make conservative but well-researched assumptions and then update your calculations on a regular basis to reflect actual data. This approach allows you to make timely adjustments to your plan along the way.

This is the general process used by insurance companies and retirement systems to manage uncertainty. It will likely work well for you, too. In fact, while these organizations are often required to fund any short-term shocks immediately, you have the luxury of spreading their impact over the rest of your life!

Can you add up your and your spouse's Social Security benefits?

MoneyBee forecasts your and your partner's Social Security benefits separately, based on your respective ages, pay histories, retirement timing, benefit commencement timing and life expectancy. This allows couples to model different scenarios where they retire and/or start their Social Security benefits at different times.

MoneyBee also automatically factors spousal benefits and survivor benefits. Spousal benefits can be significant if your spouse has limited earnings history, in which case they may get close to half of your benefit. Survivor benefits can also make a difference during that challenging period after one spouse dies.

Conclusion

MoneyBee strives to match the high bar set by the SSA calculators in terms of accuracy and research-based assumptions. It is probably not a coincidence that both were developed by actuaries, who are held by very high standards when it comes to financial forecasting and setting data-driven, internally consistent assumptions. An advantage of MoneyBee over the SSA calculators is that it factors all other financial aspects as well and automatically finds all feasible retirement ages.