Retirement should be a time when your clients glide into the most peaceful and satisfying years of their lives. A time when finances aren’t so critical, and decisions are care-free.
However, retirement has changed, and some trends have reshaped our traditional view of retirement. One factor you may have heard discussed by some retirees is “Social Security regret,” which is them feeling like they made a mistake in their decision to collect. Many feel they’re taking benefits too soon.
As you likely know, many advisors recommend waiting until age 70 to begin receiving Social Security benefits, if a client is financially able to do so. After all, monthly payments are 32% higher than if benefits begin to be received at age 66 (it increases 8% per year). The higher monthly payments should make up for the income not collected during those four years, provided your client lives into his/her 80s.1
With nearly 75% of beneficiaries electing to collect Social Security benefits sometime between age 62 and full retirement age,2 it’s natural that some who start Social Security early do end up regretting their decision. In fact, according to a recent survey, more than ⅓ of respondents who filed for early retirement benefits ended up feeling some regret.3
So, what options do they have, and what can advisors do?
“I no longer want to collect Social Security. Help!”
You can explore four options with clients who have already filed for Social Security. A client wanting to reverse their decision can…
- …pay back the money received, if it’s been less than 12 months since a client started collecting, which wipes the slate clean. Officially known as a Request for Withdrawal of Application, this would be perfect if a client starts a high-paying job within the first year of receiving benefits.3 Spouses or children (auxiliaries) can also choose this option.2
- …start to work again (with some stipulations).2 Let’s assume your client isn’t yet at full retirement age and works after claiming benefits. Part of the payments could be temporarily withheld. Then, at full retirement age, he/she will receive larger Social Security checks when the benefit is recalculated.4
- …voluntarily suspend benefits.2 A client will then start to receive delayed retirement credits, which can increase future Social Security payments by 8% per year up until age 70.5
- …maximize benefits for his/her spouse, if a benefit has not yet been elected.2
“I’m not yet retired. What steps can I take now?”
“An ounce of prevention is worth a pound of cure,” right? Developing a plan with your clients well before retirement helps them understand their options and lowers the potential for a regrettable decision later on.
Feel free to bring it up to clients approaching retirement. They may not really know where their money will come from or what their options are. Consider recommending that the spouse with the record of higher earnings defers his/her benefit longer, which maximizes the survivor benefit for the spouse that outlives the other.
“I have some concerns about waiting until 70.”
With Social Security in the hands of government officials, some clients are uncertain about its solvency. The current administration and Congress could reduce Social Security benefits moving forward, such as raising the eligibility age to receive benefits to 70. If that soon turns out to be the case, and there’s no option of receiving benefits at age 66, deciding now to wait until age 70 may not be the best decision.
Social Security’s fate is in question, emphasized by this warning put in every Social Security benefits statement this year: “By 2034, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.”
Of course, many clients simply need the money now. Even though you explain that delaying could increase future Social Security payments, the client will elect to take it now if they need it.
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1MarketWatch, Why it Might Be Better to Take Social Security at Age 66 Instead of 70, August 30, 2019
2Financial Advisor IQ, Help Clients Avoid Social Security Regret, May 16, 2018
3The Motley Fool, Regret Taking Social Security Early? There May Be a Fix for That!, June 20, 2019
4U.S. News & World Report, What to Do if You Filed for Social Security Too Early, February 19, 2019