New tool for those debating retiring

PERSONAL FINANCE

July 22, 2008|By EILEEN AMBROSE

Retirement planning has always been more art than science.

You try to figure out how much you need to save even though there are so many unknown variables. Without good numbers, you could end up retiring too early and find yourself having to look for a job after a few years. Or you could end up working longer than you have to.

The Social Security Administration is now bringing a little more precision to the art.

The agency yesterday unveiled an online calculator that will project your Social Security benefits based on your actual work record.

The agency has other online calculators and every year mails benefit estimates to adult workers. But this latest calculator goes further than these, allowing you to quickly run various scenarios based on earning projections and differing retirement ages.

"I'm impressed. It's a wonderful tool. It brings some clarity to one of the key sources of income for people in retirement," says Stuart Ritter, a T. Rowe Price Associates financial planner who tried the calculator yesterday. "Knowing more about your Social Security benefits will help you plan better for what you need to be saving."

You can find the Retirement Estimator on the agency's home page at www.ssa.gov.

You won't be able to use it if you don't have enough credits to qualify for benefits - 10 years of earnings - or you are already receiving benefits.

You will need to plug in your Social Security number and mother's maiden name. The agency says the site is secure. And when you print out your information, it won't include these identifying details.

The calculator will ask when you plan to stop working and your average future earnings. It combines these with your earnings history so far.

With the click of the mouse, you can see what your monthly benefit will likely be at 62 - the earliest year to receive benefits - and at other ages. You can, for instance, calculate the difference in benefits by working one more year, something the annual paper estimates don't tell you. In my case, retiring at 63 instead of 62 would mean an extra $100 a month.

Mary Jane Yarrington, who writes a column on Social Security for the National Committee to Preserve Social Security and Medicare, says she's frequently asked about the impact on benefits if a worker goes from full-time to part-time work. That's not an easy answer without a lot of details, she says. But the calculator can answer that in seconds.

Of course, the calculator's numbers are still estimates. The older you are, the more accurate the figures will be. Even so, younger workers could benefit by calculating their benefits and getting an idea of how much more they need to save for a comfortable retirement.

"The earlier in life the better," says Dallas Salisbury, president of the Employee Benefit Research Institute, which reviewed the calculator during its testing stages. "These types of calculations early in life will allow people to begin saving small amounts early, and small amounts early add up to big amounts."

The majority of today's retirees took reduced benefits in their early 60s. Given expanding life spans, you're often better off delaying benefits until your full retirement age or longer to collect higher monthly benefits. Generally after age 80, retirees who delayed benefits come out financially ahead of those who took them early.

Could the calculator persuade some workers to delay benefits?

"It's possible it will have that effect," but the goal is to give people the information so they can make the best choice for themselves, Social Security Commissioner Michael J. Astrue told reporters in a telephone conference yesterday.

The calculator will be updated if Congress and the new president change benefits to shore up the system. Often questions about the soundness of Social Security lead many workers to say they aren't counting on benefits when they retire.

But many workers underestimate the role of Social Security. Benefits now replace about 38 percent of the average retiree's pre-retirement income, Salisbury says. And benefits are the only or primary source of income for two-thirds of retirees, he says.

The two biggest factors that will affect your financial security in retirement, Price's Ritter says, are how long you work and when you start taking Social Security. These are more important than how much money you withdraw from your portfolio each year in retirement and your asset allocation, he says.

So, try out the calculator.

Also, other online changes are coming from Social Security. The agency in October will simplify the online application for benefits, reducing the time to apply from 45 minutes to 15 minutes.

eileen.ambrose@baltsun.com

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