While not an official federal holiday, many remember August 14th as Social Security Day in celebration of the signing of the Social Security Act on August 14, 1935.1
As the day approaches, it’s a good time to reflect on the importance of this critical income source for many retirees and its impact on their retirement plans. Take a look at these interesting Social Security facts and consider how these benefits play a role in the advice you give to your clients.
FACT #1
Approximately 65 million Americans receive Social Security benefits each month, with an average monthly benefit of $1,544.2
ADVISOR TAKEAWAY
Have you asked your clients to estimate their projected monthly Social Security income? You likely have, but have they followed through? If not, you’re missing a major potential wild card in their retirement strategy. Without knowing the estimated monthly “paycheck” that will serve as their guaranteed base income, it’s nearly impossible to determine supplemental income goals.
If you have clients who have put off this simple task, consider walking them through the process which can easily be completed on the Social Security website using a quick calculator. This tool only provides an estimate; to more accurately determine future benefits, it’s advisable for clients to log into their individual Social Security account.
FACT #2
On average, Social Security represents only about 40% of a person’s pre-retirement income.3
ADVISOR TAKEAWAY
Some clients may overestimate how big of a role Social Security will play in retirement. While significant, they will likely need to secure additional income sources to make up any shortfalls. Discuss how important it is to maximize contributions to any employer-sponsored retirement plans as well as annual contributions to their Roth IRAs. An exploration of annuities to supplement social security income should also be part of the mix.
A conversation that sometimes gets overlooked includes an examination of how clients spend their current earnings. Are clients living beyond their means? Does debt have the potential to threaten their retirement years? A frank yet delicate discussion might be appropriate so that their finances are in order when the time comes to transition from accumulation to distribution.
FACT #3
The number of Americans 65 and older will increase from approximately 56 million today to over 78 million by 2035.2
ADVISOR TAKEAWAY
The average age of Americans is getting older. Someone who reaches age 65 today can expect to live another 20 years or so.4 This brings up a major concern: will your clients have enough money to last the rest of their lives?
While traditional market investments have the potential for greater gains for older clients, they also carry the risk of catastrophic losses at a stage of life when there’s less time to recover. Guaranteed income from an annuity might help bring the peace of mind your aging clients are looking for. Discuss options to protect beneficiaries while ensuring they won’t outlive their savings.
FACT #4
If a person delays claiming Social Security until age 70, they could receive a 77% increase in their monthly benefit compared to if they began taking Social Security at age 62.5
ADVISOR TAKEAWAY
Do you have a product or investment strategy that can guarantee a 77% increase over an eight-year span? If you did, you’d likely have clients pounding at your door, yet discussions about Social Security during client meetings likely receive a passing mention.
Stressing the significant “growth” potential of waiting to claim Social Security benefits may help frame your conversations in a different way. After all, who wouldn’t want those types of guaranteed results? It’s easy to see why Social Security needs to be a bigger part of the typical conversations you have with clients, and why it helps to get creative in how you present the topic.
FACT #5
The full retirement age for anyone born after 1960 is 67, meaning they’ll receive a reduced benefit if they claim Social Security at a younger age.6
ADVISOR TAKEAWAY
Just because someone might want to wait to claim benefits until they reach full retirement age or even age 70 doesn’t mean they have to wait until then to leave the workforce. Help them bridge the gap by exploring investment options that may provide supplemental income and delay their filing period.
A deferred income or immediate annuity may be an ideal way for clients to create their own pension and provide a guaranteed income stream during the transitional period between retirement and claiming Social Security. Mutual funds or a stable value fund for 401(k) investors may also help cover expenses during that time. Even if these options help a retiree delay claiming benefits by a few years, it will likely prove beneficial.
As the observance of Social Security Day approaches, keep these conversation starters in mind. Help your clients further by using our Elevate™ Advanced Planning Resources as a guide. It contains additional insights on legacy planning, rollovers, annuity strategies and other complex scenarios - get appointed to receive access to the full library.
