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Social Security just upgraded its website in several very valuable ways. But the site still suggests you can accurately calculate your benefits using Social Security’s calculators. Not true. Those calculators, for several clear reasons, aren’t good enough for government work. Larry Kotlikoff is a Professor of Economics at Boston University and the founder and president of Economic Security Planning, Inc.

Like most of us, I just received an email from the Social Security Administration (SSA) entitled “What’s New With My Social Security.” It announces improvements in ssa.gov, including the ability to update our phone number, address, and bank account online. That’s terrific and long overdue.

But the best improvement is providing current beneficiaries access to their full covered earning histories. Beneficiaries need this information to understand if additional earnings will raise their monthly and, thus, lifetime benefits. For some, the increase can be dramatic, raising their lifetime benefits by far more than the associated additional Social Security payroll taxes.

This is a very big thing that SSA’s email didn’t convey.

How Additional Work Can Raise Your Real Benefits

First, you may need additional quarters of coverage to qualify for benefits. Working more can provide the extra credits needed.

Second, you can raise your highest 35 years of covered earnings. Doing so will produce a real benefit increase — an increase above and beyond Social Security’s annual Cost of Living Adjustment. This is true regardless of your age. You could be 100 and earn enough to raise your real benefit. Indeed, this will definitely hold for anyone over 60 who earns more than Social Security’s maximum taxable amount, currently $147,000.

Real benefit increases due to additional earnings are governed by Social Security’s annual Recomputation of Benefits. Social Security indexes your past earnings based on growth in annual average nationwide wages. But, this indexation pertains only to earnings prior to the year you reach 60. Nominal earnings (the actual dollar amounts you earn) after age 60 and pre age-60 indexed earnings are then ranked from top to bottom with SSA calculating your benefit based on the average of your highest 35 values. This is called your Average Indexed Monthly Earnings (AIME), which is a misleading acronym since only pre age-60 earnings are actually indexed.

Based on the math, none of your indexed earnings up to age 60 can exceed the current year’s maximum taxable amount. Hence, if you’re 60 plus and earning more than the covered-earnings ceiling, you’ll definitely experience a real benefit gain. But plenty of those earning less than the ceiling (e.g. those with short earnings histories or low past earnings) will also find that extra work raises their AIME and, thus, their real monthly benefit.

This is particularly likely given our current close to double-digit inflation. Nominal wages are also rising, albeit not enough to keep pace with inflation. This makes it easier for millions of older Americans to raise their AIMEs by returning to work or continuing to work. To see this point, suppose wage inflation was astronomical such that the average hourly wage was a billion dollars an hour. Then everyone over 60 could raise their AIME sky high by working even an hour a year.

Third, if your benefit is reduced due to the Windfall Elimination Provision (WEP), earning enough above The Substantial Earnings Level, now $27,300, can mitigate, if not eliminate the degree to which you are WEP’d.

Fourth, raising your AIME may raise benefits that your dependents can receive on your working record. The list here includes benefits potentially payable to spouses, ex-spouses, young children, disabled children, surviving spouses, ex-surviving spouses, and parents who had relied on you for most of their financial support prior to your death.

My financial planning software company has a tool called Maximize My Social Security that lets you enter all your past covered earnings and those of your spouse. It also inputs the ages of your children and whether they are disabled. If disabled, it asks about their Supplemental Security Income and Disability Benefits, which impact what children can receive on net. Once you have entered your information, you can determine, to the dollar, how much earning more money this year or in any future year will raise your household’s lifetime Social Security benefits. Other tools on the market may correctly show your benefit increase, if any, from additional earnings. Prior to this ssa.gov upgrade, Social Security beneficiaries couldn’t make this calculation, whether with our tool or any other, because they lacked the requisite past covered earnings data.


Social Security’s Benefit Calculators — The Massive Mislead

The upgraded ssa.gov website continues to encourage the use of Social Security’s benefit calculators, which can be highly inaccurate. The email link sends you to this statement:

A free and secure my Social Security account provides personalized tools for everyone, whether you receive benefits or not. You can use your account to request a replacement Social Security card, check the status of an application, estimate future benefits, or manage the benefits you already receive.

The notion that you can use Social Security tools to “estimate future benefits” is a bad joke.

Social Security makes two crazy default assumptions in its calculators. The first is zero future inflation. The second is zero future growth in nationwide average nominal wages. These assumptions were always crazy. In the context of soaring prices and wages, they are beyond nuts. Depending on your age, these assumptions, which can be overridden in some calculators, as well as assumptions concerning the retirement date of older workers, can produce huge underestimates as well as huge overestimates of your future benefits.

But there’s a bigger reason that Social Security’s benefit calculators are not good enough for even government work.

Your future benefits consist of benefits you accrue on your own work record plus a) benefits you can receive based on your current or deceased spouse’s work record, b) benefits you can receive based on the work records of ex-spouses to whom you were married for a decade, c) benefits you can collect based on your living or deceased parents’ work records, and benefits you can collect based on your deceased child’s work records. These spousal benefits, child-in-care spousal benefits, child-in-care divorced spousal benefits, widow(er)’s benefits, divorced spousal benefits, divorced widow(er)’s benefits, child benefits, childhood disability benefits, child survivor benefits, and parent benefits come with all manner of catch 22s. But for many these dependent benefits are higher than the benefits they can receive strictly based on their own work record.

Here’s the rub.

You can’t go to ssa.gov’s website and calculate any of the dependent benefits for which you are eligible.

Why not?

Because calculating these benefits requires knowing your spouse’s or ex-spouse’s or parent’s or child’s work records — all of which is private information not subject to divulgence. Yes, if you are immediately eligible or close to immediately eligible to collect one of these benefits, SSA will give you an estimate. But they won’t divulge the relative’s or ex relative’s or dead relative’s or dead ex-relative’s work record on which your dependent benefits are calculated. Hence, you can never know if their calculations, some of which are done by hand, are correct.

This all matters enormously to determining the extra benefits from working. For example, some spouses receive not a penny more from earning more and paying, in conjection with their employers, additional Social Security taxes. Why? Because their benefits, as opposed to the description of their benefits, may be based solely on what their current or ex-spouse or current or ex-deceased spouse earned.

Unfortunately, there is no acknowledgement on ssa.gov that its benefit calculators can be totally off the mark, not because of their crazy assumption, but because the calculators don’t include what you’ll receive in dependent benefits.

Misleading SSA Website Statements

To make matters far worse, SSA hides the horrible complexity of its benefit provisions by posting incorrect statements about available benefits. Take their description of spousal benefits.

If a spouse is eligible for a retirement benefit based on his or her own earnings, and if that benefit is higher than the spousal benefit, then we pay the retirement benefit. Otherwise, we pay the spousal benefit.

This is simply not true. Take a spouse, Joan, who takes her retirement benefit at 62. Her husband, John, takes his retirement benefit three years later at 67. Joan’s benefit will not equal John’s check, which is larger when John starts collecting. Instead, Joan’s benefit will be the combination of her reduced retirement benefit plus her excess spousal benefit subject to the spousal reduction factor. I’ll spare you the details, but what Joan receives can be substantially below John’s check.

My Bottom Line

Here’s what Social Security’s email explicitly or implicitly told us: We can finally do administrative things online that we should have been able to do online for years ago. The system’s calculators are trustworthy and complete, which they aren’t.

My clearly entirely conflicted view: Social Security should get out of the benefit calculation business and leave these calculations to private companies who don’t make nutty inflation and wage growth assumptions and who can calculate not just individual-worker but total family benefits because their calculators are being jointly used by family members (e.g., husband and wife) who divulge to each other, in the course of using the tools, all relevant earnings histories. In short, private-sector Social Security tools can do things Social Security’s tools can’t. This doesn’t involve privacy violations. if simply lets household members make calculations jointly, which is crucial since so many benefits are jointly determined and so many benefit-collection decisions must be jointly made.


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