Falling Short: The AARP Social Security Benefits Calculator

The AARP Social Security benefit calculator was introduced to much fanfare in July 2011. While the AARP calculator is free and easy to use, it is not as helpful as it first appears, especially for married couples.

According to the AARP, their Social Security benefits calculator “…will show you why most people should wait as long as possible to claim Social Security — and why a few people should claim earlier” (emphasis added), In fact, their calculator does no such thing.

The AARP calculator shows what nearly everyone knows: if you delay claiming your retirement benefits, you can get a higher monthly benefit up to age 70. It offers no explanation as to why most people should want to do this. It simply assumes people want the highest monthly benefit possible, and then it proceeds to show people how to get those benefits. There is nothing new or insightful here. AARP’s suggestion:: just wait until you are age 70 and then claim retirement benefits. (To be fair, the AARP calculator often recommends a special strategy for married couples–like file and suspend –that yields some extra money before the couple turns 70.)   Notably, only about 4% of Social Security claimants wait past their full retirement age to claim benefits. So, the AARP presumption that a married couple will have a serious interest in what they could collect if they both claimed at 70 seems unrealistic.

If a person has another objective in mind, the AARP calculator will likely not help them achieve it. For example, suppose a married couple is interested in maximizing expected lifetime Social Security benefits, discounted to today’s dollars. The AARP calculator won’t help them achieve that goal.  In fact, it will likely seriously mislead them if this is their objective.

To illustrate, consider a husband (H) with benefits at full retirement age (FRA) equal to $2,000 a month and a wife (W) with benefits at FRA equal to $1,900 a month. H is presently 61; W is 58. The AARP calculator advises H to file and suspend his retirement benefits at 69 so that W can claim spousal benefits of $1,000 a month for four years. Then, at age 70, H starts his retirement benefits, which have grown to $2,640 a month. Finally, when W reaches 70 she switches to her own retirement and gets $2,508 a month.

While the above claiming strategy maximizes monthly benefits starting at age 70 for both H and W, it does not maximize their expected lifetime benefits. Our calculator shows that the couple would maximize expected lifetime benefits by having W claim retirement at age 62, allowing H to claim spousal at age 66 and then his own retirement at age 70.  Compared to the AARP strategy, this claiming strategy gets the couple about an extra $35,000 in lifetime benefits (in present value terms), even though it does not maximize the couple’s monthly benefits. The money they gain during their 60s more than offsets what they give up as a result of lower monthly benefits in their 70s and beyond.

What is more, even if you accept the goal of the AARP calculator, it still can seriously mislead and cost you money. To illustrate, consider another example. H and W are both 61. H’s benefit at FRA is $2,400 a month; W’s is $900. The AARP calculator recommends that H file  and suspend at age 66 so that W can start collecting spousal benefits of $1,200 a month (adding up to a total of $57,600 by the time she reaches 70). When they both reach 70, H will be getting $3,168 a month and W continues with the $1,200 a month in spousal benefits.

Our Social Security calculator recommends another strategy that will yield more money but achieve the same end. It suggests that W claim retirement of $900 at age 66, allowing H to claim spousal of $450 at age 66. So, they get $1350 a month for four years, for a total of $64,800, or $7,200 more than provided by AARP’s recommendation. When they both reach 70, H claims his retirement benefits of $3’168 a month and W switches to spousal of $1,200 a month. In other words, once they reach 70 their monthly benefits are the same as under the AARP recommendation, but they have pocketed an extra $7,200.

To summarize: married seniors looking for serious guidance with respect to their claiming decisions are unlikely to get it from the AARP calculator.

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