Why ESPlanner Projects Higher Benefits than Social Security

We have tested our benefit calculator against Social Security's ANYPIA calculator and generate the same benefits to with a couple of dollars in the case of workers who are 62 or older and have all their earnings in the past.

Where ESPlanner differs from Social Security's ANYPIA is with respect to projecting benefits for workers who have some of their earnings coming in the future. In such cases, Social Security appears to assume there will be zero future inflation and zero economy-wide real wage growth. These are unrealistic assumptions, to be kind, but they are invoked, we suspect, to prevent Social Security from ever providing a benefit projection that exceeds what the system is legally mandated to provide. Our benefit calculator assumes that there will be inflation in the future as well as real wage growth. Our assumptions in this regard are taken from the latest Social Security's Trustees Report, which needs to make these assumptions in order to project Social Security's long-term finances.

Social Security Projections. Most retirees get a third or more of retirement income from Social Security. Yet many retirement calculators don't gather the detailed information needed to project these benefits accurately, Turner says. "They often project Social Security income using a bare minimum of information: typically your current earnings, your age, and the year you expect to retire," he says. The Social Security Administration offers the best projection tool, customized to your actual earnings history.

What Turner said is correct. But I differ with Mark on his faith in Social Security's projections.

Turner is right that every calculator, but one (namely ESPlanner), makes incredibly crude Social Security benefit calculations because they don't ask users to input their precise past covered earnings history or their projected future covered earnings. ESPlanner does precisely this and then proceeds to calculate survivor, child, retiree, divorcee, mother and father, and spousal benefits taking into account earnings reductions, early retirement reductions, delayed retirement credits, family benefit maximums, recomputations of benefits, windfall elimination provisions, offset provisions, and the list goes on.

In contrast, Social Security doesn't calculate for you your spousal, child, retiree, divorce, mother or father, or survivor benefits. It only calculates your retirement benefit. And when it does this, either online or in the annual benefit statement it sends us, Social Security projects zero economy-wide real wage growth and zero inflation in all future years. This is clearly a highly unrealistic assumption. Social Security makes this assumption because it's afraid that people will compare their future benefit with their current pay, infering a higher replacement rate than will actually end up being the case because their earnings will also likely grow through retirement. So for younger people, in particular, Social Security is significantly understating their likely future benefit.