How I Actually Use Open Social Security

There are three factors that should be considered in the Social Security filing decision:

• Actuarial math,
• Longevity risk, and
• Tax planning.

Open Social Security looks at factor #1. It takes the user’s inputs — including mortality assumptions — and determines the filing age(s) that would be expected provide the greatest present value (i.e., greatest spending power) over your lifetime(s). But that still leaves factors #2 and #3.

Here’s the wording from the calculator’s “about” page:

The calculator runs the math for each possible claiming age (or, if you’re married, each possible combination of claiming ages) and reports back, telling you which strategy is expected to provide the most total spendable dollars over your lifetime.

Please note that this calculator should not be the only analysis you do, as there are various factors that it does not consider, such as:

The fact that delaying benefits reduces longevity risk and therefore may be preferable even in some cases in which it is not the strategy that maximizes expected total spending, or

Tax planning reasons or other unrelated reasons why it might be better for you to file earlier or later than the calculator suggests.

In other words, the idea isn’t just to take the strategy that the calculator spits out and automatically use that strategy. Rather, the idea is to take the suggested strategy as a starting point, and then see if there’s any reason to adjust.

Longevity Risk

From a longevity risk point of view, delaying is usually the best decision. That’s simply because Social Security lasts your entire lifetime. So if you’re concerned about depleting your savings due to living a long time, delaying is usually wise from that point of view.

However, there are two cases in which that doesn’t apply.

Firstly, some people have essentially no longevity risk. That is, their desired level of spending relative to their accumulated assets is such that they simply aren’t going to run out of money, so a further reduction in longevity risk isn’t very meaningful.

And second, for some married couples (especially those in which one person is very ill or much older than the other), the longevity risk scenario that we’re concerned with isn’t actually the “both people live a long time” scenario but rather the scenario in which one specific person lives a long time. And in those cases, the strategy that best protects the person expected to live longer is usually not for both people to delay but rather for the lower earner to file early.

Tax Planning

Tax planning is always case-by-case, but it’s usually a point in favor of waiting to file, for two reasons.

Firstly, benefits are themselves tax-advantaged. So waiting to file has the effect of increasing your tax-advantaged income.

And second, waiting to file often gives you a longer window of time to take advantage of Roth conversions. (The most common time for Roth conversions to make sense is in the window of years after retiring but before Social Security and RMDs have begun.)

Accounting for All Factors

For most people, a reasonable approach is to look at the strategy suggested by the calculator, and then see how it compares to a strategy in which you wait somewhat longer (e.g., for married couples, a strategy in which both people wait to age 70 or a strategy in which the higher earner waits until age 70 and the lower earner begins their benefit in the same calendar year as the higher earner).

If a) the expected present value of that alternative strategy is, for example, just 1-2% lower than the expected present value of the suggested strategy and b) there’s a compelling reason to prefer the alternative strategy from a tax or longevity risk point of view, then it probably makes sense to use the alternative strategy.

Conversely, when the strategy that’s preferred from a tax or longevity risk point of view has a much lower expected present value than the strategy recommended by the calculator, then it often makes sense to go with the calculator’s recommendation.