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This Excel spreadsheet was created to provide a simple means for someone at or near retirement to compare the outcomes from starting Social Security benefits at different ages.
The program also provides a way to explore whether or not it may be advantageous to use money from your IRA while waiting until age 70 to receive SS benefits.  Using IRA money in place of SS benefits has the advantage of lowering required minimum distributions from the IRA (a smaller IRA) when they begin at age 70 1/2.  This has the effect of lowering the amount of income tax that is paid after age 70 when you are taking RMDs and receiving SS benefits since the tax rate on SS benefits is less than the rate on RMDs. Delaying the start of SS benefits until age 70 also assures a larger survivors benefit upon the death of the primary beneficiary.  
The program allows the user to compare the different scenarios by estimating the amount of useable cash generated by the different options.  Useable cash is the amount of money that can be spent or invested after you have paid federal income taxes.  Looking at useable cash may  provide more meaningful answers since the cash one has to use is usually more important than the total received.  Many decisions about when to start SS are based on the total amount received and ignore the tax consequences.
User Inputs
Inputs to the program are the primary beneficiary's and the spouse's birthdays, the most recent estimate of their SS benefits, the year these estimates were produced, and the year the spouse has or will start receiving SS benefits.  The birthdays are used to look up the normal retirement ages (also called full retirement age, or FRA, by the SSA), the primary beneficiary's normal retirement date, the date the spouse will start receiving SS, and the size of the bonus earned by delaying benefits past FRA. 
Other information entered by the user includes the value of their IRA(s) an estimate of other taxable retirement income, and a selection of whether or not the user wants to use IRA money to replace the cash from missed SS benefits while they wait to start SS.   
The user can enter the value of CPI-U that they would like to use for the annual cost of living adjustments to SS benefits, the general inflation factor, and the real growth (after inflation and expenses) expected for investments.
Finally, the user is asked to select the two starting points they wish to compare.  They can compare starting benefits at 62 vs. starting at normal retirement age, starting at 62 vs. starting at 70, or starting at normal retirement age vs. starting at age 70.
If the user is single or wants to investigate filing federal income taxes as a single taxpayer, the inputs for the spouse should be left blank and the user should select filing status = 1.
Reports
The first sheet in the Excel workbook includes the user inputs and a summary report showing estimated values at various ages..  The second sheet in the workbook shows the estimated values calculated for each year for ages 62 to 95.  Keep in mind that as the estimates go further out in time, the assumptions used in the calculations are much more likely to be incorrect.
Social Security Calculations
The first SS payment is made the first month after the start date.  The start date may be your 62nd birthday or the normal retirement age as defined by SS rules.  This program assumes that a spouse's first SS payment will be the first month after their birthday in the year they elect to start receiving SS benefits. 
COLA adjustments to SS use the CPI value entered by the user.  Prior to the start of the calculations, the SS estimates entered by the user are adjusted to make them current with the years used for the calculations.  If the date of an estimate is after the start date for receiving benefits, the estimate is adjusted downward.
Benefit estimates provided by the SSA are for normal retirement age and include estimated credits for working until FRA.  The actual SS benefit when retiring before normal retirement age may be somewhat less since the credits for the final years of high earnings will not be available.
The calculations for early retirement (retirement prior to the normal retirement age) assume that the individual will have no earned income between the date of early retirement and their normal retirement date.  Earnings during this period would offset part of their SS benefit.
The program ignores Social Security's special treatment of a January 1 birthday or a birthday on the first day of any month.  If your birthday is the first day of the month, enter your birthday as the last day of the previous month.  
The program assumes the spouse starts receiving SS based on their earnings the month following their birthday in whatever year they elect to start SS.  If the spouse qualifies for spousal benefits, the spousal benefit also starts the month following the spouse's birthday unless the primary beneficiary has not yet started receiving benefits.  In that case, spousal benefits will not begin until the month the primary beneficiary starts receiving benefits.  
Spousal benefits do not increase if the primary beneficiary delays receiving benefits past their normal retirement age.  This program assumes that the primary beneficiary, even if they plan to delay benefits until their 70th birthday, will start and immediately suspend benefits at their normal retirement age.  This tactic allows the spouse to start receiving spousal benefits at the primary beneficiary's normal retirement date and yet the primary benefit will continue to increase until the primary beneficiary's 70th birthday.
The family maximum limitation for spousal benefits is ignored in this program.  This should not be an issue in most cases.
Tax Estimates
Income tax estimates are based on 2006 brackets and rates using the standard deduction and exemptions.  Appropriate adjustments to the standard deductions and exemptions are made when the user and the spouse reach their 65th birthday.  
The program does not handle AMT or the phase-out of deductions at higher taxable incomes.  The tax estimation program is designed for incomes that are no greater than the top of the 28% tax bracket ($178,650 MFJ, $146,750 for single filers in 2006).  Over the 30-year span of the program, it is not unusual for modest incomes to exceed the 28% bracket limit.  An error message will be generated and the rate for 28% bracket will be used for the income that exceed that bracket.
The taxation of SS benefits follows the same procedures, thresholds,  and calculations used in the current form 1040.
The program ignores state and local income taxes.
IRA Growth and Distributions
This program assumes that the primary beneficiary owns the IRA.  This IRA is used to provide cash in lieu of SS benefits and the primary beneficiary's age is used to determine the timing of required minimum distributions from the IRA. 
The first required distribution from the IRA is taken in the calendar year the owner reaches age 70½.  This prevents the possibility of having two taxable distributions the next year and removes the first RMD before calculating the second.  There are no distributions from the IRA other than required distributions after age 70.
Payments from the IRA to cover missed SS benefits are made at the beginning of the year but all required IRA distributions (age 70 and beyond) are taken at the end of the year.  The timing of withdrawals effects the growth of the IRA.
Estimated increases in this IRA are compounded annually and include both the inflation and the real growth estimates.  Other retirement income increases by only the inflation rate.
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September 12, 2006