How to Use a Social Security Calculator for Estate Planning

Every few years, we all receive letters from the Social Security Administration (SSA) that include a Social Security calculator. You may be wondering why you receive this calculator and how it factors into your future.

By taking advantage of this tool, you can prepare for your life after retirement, ensure you'll have financial security during your golden years, and determine how to protect your loved ones after you pass away.

How the Social Security calculator works

To use the online Social Security calculator, enter your date of birth, earnings in the current year (or, if you're already retired, your earnings for the last year you worked), and the month and year you plan to retire.

Once you input that information, you can see your benefit estimate in today's dollars or inflated (future) dollars. For instance, let's say you were born on December 1, 1960, and you're still working and earning $100,000 per year. You plan to retire on January 1, 2028. In today's dollars, your benefit will be $2,586 per month. In inflated (future) dollars, it will be $3,100 per month.

The earliest possible age you can receive benefits is 62, while full retirement age is 65. Keep in mind that if you decide to retire at 62, your benefit is going to be lower than if you decide to wait longer.

Why it's important to use the Social Security calculator

Experts recommend that you calculate your retirement benefits even if you aren't close to retiring.

“You should use a Social Security calculator to determine your optimal age to start taking your security benefits," says David Aylor, founder and CEO of David Aylor Law Offices. “Though you can't take them until you're at the minimum age of 62, you can find the break-even point for the benefits based on 10-, 20-, or 30-year timelines."

“It is important to use this calculator because it will help you determine how much you will need to save to retire comfortably," says Michael Shea, financial adviser at Michael Shea Planning. “It will also force you to prepare a budget for retirement."

Aside from preparing for retirement, you can also utilize the Social Security calculator for estate planning. For instance, you may be wondering whether Social Security benefits are part of an estate. The answer is yes; Social Security and estate planning go hand in hand.

Ann Martin, director of operations CreditDonkey, says that, if you're earning benefits when you pass away, “your spouse or children may be eligible for certain payments if particular circumstances are met."

The timing of when you begin taking benefits dictates the amount your beneficiary will receive when you pass away. The later you begin, the larger your benefit—and theirs—will be. Additionally, if you retire later, you won't need to withdraw as much (if at all) from your investment portfolio.

“This will allow your portfolio to grow substantially during your retirement years, which will ultimately pass on to the next generation," Shea says. “The higher your Social Security benefits are in relation to your annual expenses, the higher the likelihood that you will accumulate a bigger balance in your portfolio to pass on."

Getting started with your estate plan

Now that you know that Social Security benefits are part of your estate, you can plan accordingly.

Aylor says that, unlike other financial assets, the SSA doesn't recognize an assigned financial power of attorney. When you are getting ready to receive benefits, “you need to contact the SSA and designate a representative payee, up to three people, ranked in order of priority," Aylor says. "Designation can be done at any time, so doing it now rather than later can give you peace of mind that your money will go where you want."

Keep in mind that whenever your life circumstances change, you need to update your beneficiary designations. According to Shea, this could be when you remarry or divorce, for example.

“Meet with an estate-planning attorney to make sure your wills, power of attorneys, and trusts are set up properly to protect your assets, and that your affairs are in order," Shea says.

The next time you receive a letter from the SSA, make sure you use the Social Security calculator to begin planning for your future. The sooner, the better.