Income - Social Security
In this tab model each individual's Social Security. Define when they will start and their expected benefits, or have the program determine the benefit amounts start age for you.
If this section is skipped, with no start age or benefit amounts entered for anyone, then Moneytree Plan will still report Social Security benefits estimated from earned income and starting at the optimal age. Moneytree Plan determines the optimal age based on the filing age that produces the greatest cumulative investment potential. This is calculating by comparing the net present value of all Social Security benefits through across all filing strategies. Benefits are discounted by the discount rate entered in the Default Rates tab of the Assumptions section.
Related:
General Inputs and Table
At the top of the Social Security inputs there are 2 general inputs to define the Social Security increase rate and taxable Social Security benefits in Aspire projections. The table summarizes the current Social Security information for each individual.
Increase Rate (COLA Rate): This is the rate Social Security benefits are expected to increase annually on average. Benefits increase by this rate both before they begin and after. Entered benefits are assumed to be in today's dollars.
Percent Taxable: Select a percentage of Social Security benefits that will be subject to taxation between 0%, 50%, and 85%. This field only effects the goal based Aspire projections that use an effective tax rate. Prosper reports calculate precise tax bills each year and, by extension, the percentage of benefits subject to taxes.
Additional reading:
Taxable Social Security in Prosper [should add a basic Guru card as well]
Table: The table shows the start age and monthly benefits for each individual. If choosing to have the program optimize Social Security, the start age will show 0 and the monthly benefits represent full retirement age benefits. When entering the exact age to begin benefits the monthly benefit cell shows the expected benefits at that age. Select an individual from the table to enter benefit details for that individual.
Benefit Inputs
After selecting an individual from the table, the fields to enter their Social Security benefit information appears. Use these options to define the selected person's Social Security. The fields differ slightly between manual and optimal inputs. The image above shows the manual Social Security inputs. The image below shows the optimal inputs.
Not Qualified to Receive Social Security: Check this box if the selected individual is unable to receive any Social Security benefits whatsoever, whether they are their own, spousal, or widow benefits. For example, some individuals receive pensions in lieu of Social Security and, as a result, can never receive any type of Social Security benefits.
Social Security Claim Age(s): Choose between Manual and Optimal filing types.
Manual: Allows you to enter the exact age the client files and enter the exact benefits they receive when they file. When both the start age and monthly benefits are 0, the program reverts to optimal, calculating benefits based on earned income.
Optimal: Has the program calculate the best age to file Social Security based their full retirement age benefit. The optimal filing age is determined by finding the start age that produces the greatest cumulative investment potential. This is calculated by taking the net present value of all possible Social Security benefits received through the projection for all filing strategies. Future Social Security benefits are brought to a present value by the discount rate entered in the Default Rates tab of the Assumptions section. Moneytree Plan also recognizes restricted filing as a potential strategy for clients born before January 2, 1954.
Percent of Social Security Benefit to Show on Report: If desired, enter a percentage of current estimated benefits to appear on the reports. This also effects the potential taxable Social Security benefits. This field is best used when looking at the possibility of benefits being reduced by the Social Security Administration.
Enter Benefit Details: This field is only available when manually entering Social Security. When checked, additional fields will appear to differentiate benefit amounts for specific reports. It is extremely uncommon for the benefits to differ in the other reports, so it is typically recommended to leave the box unchecked.
Retirement: The expected benefits during retirement under normal circumstances. These benefits will be used for the retirement projections, appearing on most reports.
Disability: The expected benefits for the selected individual in the event that their spouse becomes disabled. This is NOT the selected individual's own disability benefits. The amount entered here will only be used in Disability.
Survivor: The expected benefits for the selected individual in the event that their spouse passes away. This is NOT the selected individual's expected widow benefits. The program will automatically switch to the widow benefits if higher on the reports. This field will only be used for the Survivor and Life Insurance reports.
Stare Age: Enter the age you want the selected individual's Social Security to begin when electing to manually enter Social Security. If both the start age and the monthly benefits are 0, then the program reverts to the optimal strategy, calculating benefits from the individual's earned income.
Monthly Benefit: Enter the expected monthly Social Security benefits at the entered age for the client. This field appears when manually entering Social Security. The program will use exactly what is entered, even if spousal benefits are entered. If the selected individual is taking spousal benefits, it is recommended to enter the spousal benefits here. For clients that will switch from their own to spousal (or vice versa if they qualify for restricted filing), enter the benefits they will receive first, then use Future Changes to model the change.
Monthly Full Retirement Age Benefit: This field only appears when choosing the Optimal option above. Enter the client's benefits at their full retirement age (usually 66 and some months, or 67). The program will use this benefit as a baseline to calculate potential benefits at all other potential start ages, between ages 62 and 70.
Estimate: When choosing Optimal above, this button will appear next to the Monthly Full Retirement Age Benefit field. For Manual, this button appears in Future Changes when there is an entry. Click this button to have the program calculate the client's benefits based on their earned income. For Optimal, the full retirement age benefit is calculated. For Manual, the benefits at the entered age are calculated.
Future Changes
If you choose to enter Social Security benefits manually, then the Future Changes section will appear. Use Future Changes to change the clients benefits. A common example would be switching from their own benefits to spousal for clients that file for Social Security before their higher earning spouse. There are also additional options below the table to specify the client's Principal Insurance Amount (PIA) used for the Social Security optimization reports. Reports ultimately take whatever is used in Future Changes on the reports. When the benefit information is entered in the fields above a Future Change entry is created automatically based on that information.
Add New Entry: Click this button to enter benefit information into the table.
Age: The age the expected benefit change will occur.
Monthly Benefit: The expected monthly benefit at the selected age.
Estimate: Click this button to have the program calculate Social Security benefits based on the selected individual's earned income.
Delete: Click the icon with the 'x' on the far right to delete an entry.
Estimated PIA: The selected clients "Principal Insurance Amount". This is equal to their benefits at their full retirement age (FRA). This amount is used for the Social Security optimization reports. If the amount in the field does not match their FRA benefit click the Advanced button to change it.
Advanced: Click the button to modify the selected client's PIA. A window will appear with various options to choose a PIA.
Use Estimate from Current Salary: Select this option to use the PIA calculated based on the selected client's combined salary & wages and self employment.
Use Estimate from Manual Social Security Entries: Select this option to base the PIA based off of existing entries. The program will determine the client's FRA benefits based on the start age and benefits at that age. If there are additional entries in Future Changes, there will be options for each entry.
Enter Estimated PIA: If none of the above options calculate the correct amount, it can be entered manually in this field. This option is recommended when the client's have an estimated FRA benefit provided by the Social Security Administration.