Working-age individuals often look forward to retirement, when they’ll expect to experience less stress and more satisfaction — a time when finances shouldn't be so critical and decisions are carefree.
The reality for many can be quite different, however, especially for those who believe they’ve made the mistake of claiming Social Security too early.
Social Security plays a major role in most retirees’ retirement strategies. It’s hard to overstate the importance of discussing Social Security long before it’s time to retire, to allow ample consideration before deciding when to claim.
Consider the following information and conversation starters to help your clients avoid the pitfall of “Social Security regret.”
Fast facts on filing for Social Security
To receive full Social Security benefits, most non-retirees need to wait to claim until age 67. It’s possible for individuals to begin claiming Social Security as early as age 62. Those who choose to claim early, however, could see up to a 30% reduction in their benefits.1
At the same time, delaying benefits beyond full retirement — until age 70 — could see up to a 77% increase compared to claiming benefits at age 62.1 Depending on a client’s individual circumstances, it may be wise to encourage them to wait before filing for benefits.
Longevity risks need to be considered when deciding when to claim Social Security benefits. About one in three 65-year-olds today will live to age 90, and one in seven will live to age 95. Unlike most investments or savings accounts, Social Security benefits don't decrease over time.1
For most clients, they’d be better off waiting as long as possible to claim Social Security benefits. But that’s not always possible, or some may have already made the mistake of claiming too early. Here are a few scenarios you may encounter with clients and some approaches to consider as you seek solutions:
“I no longer want to collect Social Security early. What are my options?”
You can help your client explore three options if they’ve already filed for Social Security. A client who wants to reverse their decision can:
- File Form 521, Request for Withdrawal of Application, to rescind their claim. This is possible if an individual has not yet received a full year of benefits. Additionally, benefits received must be repaid.2
- Continue working and have some benefits withheld. Those younger than retirement age still working will have $1 in benefit payments deducted for every $2 they earn over a certain amount ($21,240 as of 2023) which can then be distributed once retirement age is reached.3
- Voluntarily suspend benefits if they've reached full retirement age. A client will then start to receive delayed retirement credits that result in a higher benefit payment by age 70.4
“I’m not retired yet. What steps can I take now?”
The well-worn adage, “An ounce of prevention is worth a pound of cure,” applies here. Developing a plan with your clients well before retirement helps them understand their options and reduces the potential for regrettable decisions later.
Identify opportunities to bring up the subject with clients who are approaching retirement. They may not have fully considered where their monthly income will come from or what their options are. You might recommend that the spouse with the record of higher earnings defer their benefit longer, which can help maximize the survivor benefit for the spouse who outlives the other.
Clients who still work may be interested in the potential benefits of deferral by using some of their retirement savings to purchase an income annuity, and defer payments for several years. A deferred income annuity can help clients create a personalized, guaranteed income stream to supplement their Social Security benefits later.
“I’m concerned about waiting until I turn 70.”
With Social Security in the hands of government officials, some clients may feel uncertain about its solvency. Social Security is a frequent hot topic with Congress and in the news, and the Social Security Administration itself warns that some of the Social Security funds are projected to be depleted by 2034.5
It’s understandable for clients to be concerned about Social Security benefits as they age and the world around them changes. You may also encounter cases where clients simply need the money now. Even though delaying their claim could increase their future Social Security payments, those clients may want to start receiving payments now, especially if they believe that’s income they can’t live without.
Such situations may call for a closer look at options including single-premium income annuities, which can help clients convert a lump sum of money into monthly payment options they won’t outlive.
Some of your clients may also feel skittish about investing because of potential market risks, volatility and financial insecurity. They may prefer annuity options that allow them to set their “comfort zone” on portfolio performance linked to index returns. Solutions that offer clients greater individual choice between upside potential and downside risk control can help them diversify their portfolio and approach retirement with greater confidence.
Talk with your TruStage™ wholesaler to explore options for various client scenarios, and consider working with them to host an educational Social Security Seminar for clients and prospects.