How the Social Security Optimizer Works With Tax Lab and the Rest of the Plan

The Social Security Optimizer helps answer a focused question: When should each client claim Social Security?

It does not choose the household’s withdrawal order or determine how much the client should convert to Roth. Those decisions are evaluated within the broader retirement plan and Tax Lab.

Because Social Security timing, taxes, portfolio withdrawals, and Roth conversions can affect one another, this article explains what each tool does and provides a practical workflow for evaluating them together.
What the Social Security Optimizer Does

The Social Security Optimizer focuses specifically on the claiming decision. For a couple, it can evaluate more than 9,000 possible claiming-date combinations.

The analysis can incorporate:

• Each spouse’s birth date and estimated Social Security benefit
• Life expectancy for each spouse
• Spousal and survivor benefits
• Opportunity Cost
• Potential future reductions in Social Security benefits
• Inflation assumptions

The Optimizer provides:

• A recommended claiming date for each spouse
• A heat map of the available claiming combinations
• Lifetime-benefit comparisons
• Break-even analysis
• Cash-flow details showing when retirement, spousal, and survivor benefits begin

The Optimizer does not determine:

• Which investment accounts should fund spending
• The household’s liquidation order
• Whether Roth conversions should be completed
• The appropriate Roth conversion amount
• The client’s complete tax strategy

Those decisions belong in the full retirement plan and Tax Lab.

How Social Security Taxes Are Calculated

The Social Security Optimizer does not select a claiming strategy based on the household’s complete tax picture. Once a claiming strategy is applied to the retirement plan, however, Income Lab estimates the taxable portion of the client’s Social Security benefits each year. The calculation considers the household’s income mix for that specific year. This is important because anywhere from 0% to 85% of Social Security benefits may be taxable. 

The taxable amount can change from year to year depending on income from sources such as:

• Employment
• Pensions
• Traditional IRA distributions
• Required minimum distributions
• Roth conversions
• Capital gains
• Tax-free Roth distributions

Therefore, the full plan may show different levels of Social Security taxability depending on the household’s withdrawal and conversion strategy.

What Tax Lab Evaluates

After establishing an initial Social Security claiming strategy, Tax Lab can evaluate how the household should source portfolio withdrawals and whether Roth conversions may be beneficial. Tax Lab simultaneously runs 20 distribution strategies while keeping other parts of the plan, including the selected Social Security claiming dates, constant.

These strategies include:

• Pro-rata withdrawals
• Different sequences of taxable, tax-deferred, and tax-free accounts
• Roth conversions targeting specific federal tax brackets
• Roth conversions targeting Medicare IRMAA thresholds
• Maximum Roth conversions

Tax Lab allows advisors to compare the effects of these strategies on areas such as:

• Spendable income
• Portfolio withdrawals
• Federal and state taxes
• Medicare IRMAA
• Roth conversion amounts
• Projected legacy

This is where liquidation order and Roth conversions are evaluated—not within the Social Security Optimizer.

How the Opportunity Cost Setting Works

Opportunity Cost is a discount rate used to express future Social Security benefits in present-value terms. For example, without an Opportunity Cost, one dollar received 35 years from now is still counted as one dollar. With a 3% Opportunity Cost, that future dollar is worth approximately $0.36 today.

As the Opportunity Cost increases, benefits received sooner receive more weight in the comparison. This can move the break-even age further into the future and may make an earlier claiming strategy appear more attractive.

In general:

• A 0% rate compares the total lifetime dollars expected from each strategy without discounting future benefits.
• A higher rate gives greater weight to benefits received earlier.
• A lower rate gives relatively more weight to the larger benefits available through delayed claiming.

Income Lab does not prescribe one correct Opportunity Cost rate. The appropriate assumption depends on the client’s circumstances and the advisor’s methodology.

For example, an advisor may consider whether claiming earlier would:

• Allow the client to preserve invested assets
• Reduce the need for portfolio withdrawals
• Provide funds that could remain invested
• Help meet an immediate spending need

It can be helpful to run the Optimizer using more than one Opportunity Cost assumption. If the same claiming strategy remains favorable across several reasonable rates, the recommendation may be more resilient. If the result changes after a small adjustment, the decision may require further discussion.

 

Recommended Workflow

1. Build the retirement plan

Enter the household’s accounts, income sources, expenses, Social Security estimates, and other planning assumptions. This provides the foundation for evaluating how Social Security fits into the client’s broader retirement strategy.
 

2. Run the Social Security Optimizer

Enter or review:

• Social Security benefit estimates
• Life expectancy for each spouse
• Opportunity Cost
• Any Social Security stress-test assumptions

Use the results to establish an initial claiming strategy. Review the recommendation, heat map, lifetime benefits, and break-even analysis with the client.
 

3. Apply the claiming strategy to the plan

4. Open Tax Lab

Use Tax Lab to compare:

• Different withdrawal orders
• Roth conversion strategies
• Federal tax-bracket targets
• Medicare IRMAA targets
• Total taxes
• Income and legacy results

Tax Lab will hold the selected Social Security claiming dates constant while it compares its distribution strategies.
 

5. Test an alternative claiming strategy when appropriate

The Social Security and Roth conversion decisions can affect each other. For example, delaying Social Security may create lower-income years during which Roth conversions are more attractive. Conversely, claiming earlier may reduce the need for portfolio withdrawals but also add income that affects Social Security taxability and the available room for conversions.

If two claiming strategies are close, create a separate plan scenario for each strategy:

• Scenario A: Delay Social Security and potentially complete larger Roth conversions before benefits begin.
• Scenario B: Claim Social Security earlier and potentially complete smaller Roth conversions.

Apply the appropriate Social Security dates in each scenario, recalculate the plan, and compare the results in Tax Lab.
The goal is to evaluate the complete strategy—not simply select the option with the greatest lifetime Social Security benefit or the lowest taxes in one particular year.

Frequently Asked Questions

Does the Social Security Optimizer consider taxes?

The Optimizer does not determine its claiming recommendation using the household’s complete tax strategy.
After the selected claiming dates are applied, the full plan estimates the taxable portion of Social Security each year. Tax Lab can then help evaluate how the claiming strategy interacts with withdrawal order, Roth conversions, state taxes, and Medicare IRMAA.

Does liquidation order affect the Social Security Optimizer?

No. The liquidation order does not change the Social Security Optimizer’s recommendation. Withdrawal order is evaluated in the full plan and Tax Lab. Tax Lab compares its distribution strategies while keeping the selected Social Security claiming dates constant.

Does the Social Security Optimizer run Roth conversions?

No. Roth conversions are modeled in Tax Lab, including strategies designed to target federal tax brackets and Medicare IRMAA thresholds. Establish an initial claiming strategy first, apply it to the plan, and then evaluate the available Roth conversion strategies.
 

Should Opportunity Cost be set to 0%?

Not necessarily. A 0% Opportunity Cost compares expected lifetime benefits without discounting future payments. A higher rate places greater value on receiving benefits sooner and may make earlier claiming appear more attractive. There is no single correct assumption for every client. Consider testing several reasonable rates to see whether the recommendation remains consistent.
 

Why might the preferred claiming strategy change after reviewing taxes?

The Social Security Optimizer and Tax Lab answer different questions. A claiming strategy may produce the greatest lifetime Social Security benefit but leave less room for tax-efficient Roth conversions. Another strategy may provide benefits earlier but increase taxable income during important conversion years. Reviewing both strategies within the complete plan allows the advisor to consider:

• Lifetime Social Security benefits
• Social Security taxability
• Roth conversion opportunities
• Medicare IRMAA
• Portfolio withdrawals
• Spending sustainability
• Projected legacy

The strongest strategy is the one that best supports the client’s complete retirement plan—not necessarily the strategy that wins within one tool or produces the lowest taxes in one year.