Retirement Calculator Limitations Within the My Social Security Portal

Note: This post is part of the Social Security Series. Follow the link to see all of my Social Security-related posts.

In my Estimating Retirement Benefits Using the My Social Security Portal post, I reviewed Retirement Calculator functionality within the My Social Security portal. The calculator is a starting point for forecasting monthly retirement benefits. However, three calculator limitations can skew results and increase the difficulty in accurately forecasting benefits.

No Accounting for Future Inflation

Inflation happens. The $20K you made in salary in 2004 dollars would be $33K in 2024. Social Security retirement benefits are based on the sum of your highest 35 years of wages. Those benefits need to account for the rise in the cost of living from when you started working to when you begin receiving benefits. Therefore, the government adjusts prior years’ wages to account for inflation.

The Retirement Calculator within the My Social Security portal uses inflation-adjusted wages for all wages up to the current year. It assumes 0% inflation in future years and does not attempt to adjust past or future wages based on estimated inflation rates from now until you reach full retirement age.

Imagine you are 40 years old and earn $50K in 2024. You have twenty years until you reach age 60, the age at which wage adjustments end. The Retirement Calculator uses $50K as your adjusted wage in forecasting your retirement benefits. However, if inflation averages 2.5% over the next 20 years, $50K in 2024 would be equivalent to $82K in 2044.

2024 Earnings2044 Equivalent in Retirement Calculator2044 Equivalent with 2.5% Inflation

20 years of 2.5% inflation makes a big difference

The previous example only exposes the discrepancy for a single year. When 35 years of earnings are considered, the difference between 0% inflation and a reasonable inflation percentage can lead to a forecasted benefit that is significantly lower in the Retirement Calculator than is realistic. The farther you are from age 60, the larger the discrepancy since inflation has a longer timeframe to impact adjusted earnings.

The Same Income For All Future Years

Most people’s wages differ from year to year. Wage changes result from raises, changing jobs, taking a second job, and losing a job.

Factoring in future annual earnings is essential to calculating retirement benefits. By default, the Retirement Calculator takes your most recent annual earnings and assumes you will earn that amount every year until full retirement age. If you want, the calculator allows you to set a single, custom value as an alternative.

Shows the settings at the top of the Social Security Retirement Calculator with the Average Future Annual Salary dropdown open
Only two options: use your previous year’s wages or choose a single, new, future wage

Providing the ability to set a custom value is a nice gesture, however, it poses significant obstacles in accurately forecasting benefits. These obstacles include:

  • There is no way to specify discrete annual wages for each future year. The annual salary set in the calculator is used for all future years until you reach full retirement age. The chance that you make the exact same salary every year in the future is very low
  • The calculator uses the future annual wage for every year until you reach full retirement age regardless of when you plan to retire. Therefore, if you are 45 years old and planning to retire at 55 there is no way to have the calculator set your annual wage to 0 between age 55 and age 67

If you are younger than full retirement age and have retired you can set your future annual earnings to 0. In that case, the estimate in the calculator is accurate. However, for all other people who are still working, especially those with a significant number of years left in their careers, this limitation within the Retirement Calculator makes it almost unusable.

No Adjustment for Potential Benefit Cuts

In my Social Security Solvency – Solving It Now vs. Later post, I reviewed possible outcomes should the government maintain the existing system and deplete trust fund reserves. In one outcome, the future monthly benefits for both current and future beneficiaries could drop by 25%. That is a huge drop and one that could cause significant financial harm for many recipients.

These possible benefit cuts are highlighted in the annual Social Security Trustees Reports. However, there is no ability within the Retirement Calculator to view adjusted benefits should these cuts be enacted. All retirement benefit amounts in the calculator are based on 100% of scheduled benefits.

2033 is the current estimate for the year in which trust fund reserves could be depleted. Hopefully, we will see an enhancement to the Retirement Calculator long before that in which users can model reduced benefits.

User Beware

The Retirement Calculator has great intentions. Show people what their retirement benefits will be based on the specific age they choose to begin receiving them. For people who are 60 and older and who are no longer earning income, the calculator works great. However, for all others whether they are including Social Security in their financial independence plans or just want to envision their future social security income there are several limitations that make the My Social Security Retirement Calculator difficult, if not impossible, the achieve realistic forecasts.

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