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Plan Sponsors Can Help Participants Choose Tools for Estimating Social Security

Some tools make simple estimates, while others consider more parameters, an analysis finds.

By John Manganaro editors@plansponsor.com | March 24, 2017

A new analysis published by Corporate Insight compares a number of Social Security benefit calculators available today, with the aim of helping investors and advisers make better choices about which might fit their particular purposes.

“While employer-sponsored plans and personal individual retirement accounts play a critical role in determining an individual’s level of retirement preparedness, Social Security benefits are a paramount consideration,” the firm says. “People across the political spectrum have strong and varying opinions on Social Security, particularly concerning its stability and permanence. Regardless of one’s beliefs about the future of the program, it is important to understand what can reasonably be expected from Social Security benefits in order to gain a holistic understanding of one’s level of retirement readiness.”

To this end, the firm says it examined the Social Security benefit estimators offered by 13 institutions. Most of tools are free and publicly available and are provided by “financial institutions and recognized organizations.” Two of the tools examined are “popular paid tools,” and the Social Security Administration’s own Retirement Estimator is also examined.   

The underlying analysis involved considering two theoretical personas, “one of a 28-year-old and another of a 57-year-old, to understand if the consistency of the results varies depending on a user’s time until retirement.”

“Contrary to our findings in [a previous, similar] study, we found that the free, publicly available Social Security benefit estimators provide relatively consistent results across the board,” the firm concludes. “The average estimated benefit at full retirement age for the 57-year-old is $2,712, with a standard deviation of $163 and a relative standard deviation of 6%. The results were even more consistent for the 28-year-old, with an average estimate of $2,534, a SD of $144 and a RSD of just 5.7%.”

Corporate Insight reports this is a far more consistent picture than it found in its previous analysis; however there are still important differences among the tools to consider.

“Most notably, we found that it is imperative for tools to provide multiple benefit metrics within the results to accommodate the different manners in which people conceptualize their finances,” the analysis contends. “Calculators that provide visual aids within the results, such as interactive charts and graphs, were found to be particularly helpful. We also found that the best tools provide context to the results that help users understand how the benefits will factor into their retirement.”

The full analysis, including a closer look at the 13 tools analyzed, is available for download here

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