Financial matters, especially those involving complex government programs, can be challenging for many people to grasp. Social Security in particular might come with a lot of predetermined notions that could vary in accuracy. The role of a financial advisor can be crucial in helping clients understand the ins and outs of these important benefits.
Social Security was established in 1935 to help with financial challenges seniors were facing.1 The program’s longevity has made “getting Social Security” a foregone conclusion for most retirees. Many retirees depend on all or part of the monthly payment — averaging $1,555 in 2021 — to cover at least some living expenses.2
By debunking four common myths about Social Security with accurate information, you can help your clients better understand Social Security for the valuable retirement asset it is — and how to leverage it to their advantage.
Myth 1: “There’s only a certain amount of Social Security money set aside for me.”
Advice to clients: Social Security offers a set monthly amount based on a predetermined credits-based formula for eligibility and the amount you receive. Up to four credits per year can be earned.3
You cannot outlive this source of income, and it does not stop after you’ve claimed a certain amount.4
From every tax dollar collected, 85 cents goes to a trust fund that pays monthly benefits to current retirees and their survivors and families.5
That said, it is projected that some of the trust funds may be depleted by as early as 2033 and 2034.6 While that is not a guaranteed scenario, it’s still wise for clients and advisors alike to stay updated on current activity and congressional debates surrounding the future of Social Security.
Myth 2: “I have to claim Social Security starting at age 62.”
Advice to clients: No one has to start receiving Social Security benefits at age 62, but they can choose to do so. Anyone with enough working hours/credits earned can start receiving benefits at that age, but those benefits are reduced by a small percent for each month before full retirement age.7
But this is a choice. Waiting to make a claim until full retirement age, which varies based on birth year, entitles beneficiaries to 100% of their monthly benefit.
In addition, claiming benefits and retiring are not the same thing. Clients can retire early and continue to work while receiving Social Security payments, or put off claiming benefits even while retired, by using an income annuity or other option as a source of monthly income.
What’s important to keep in mind is that benefits are limited by the earnings test, meaning working retirees can only earn a set amount of income annually before Social Security benefits are withheld — generally, for every $2 above a certain amount ($18,960 in 2021) earned in income, the government will withhold $1.8
Furthermore, those who delay taking their benefits until age 70 can actually increase their monthly payments for each month they delay benefits until reaching age 70.9
Myth 3: “My spouse, who was the primary worker, died. I can’t collect his/her Social Security benefit.”
Advice to clients: A survivor can’t collect their spouse’s benefits, because they belonged to their spouse; however, widows, widowers and dependents of eligible workers can claim their own benefits.10 If the deceased person worked enough to be insured under Social Security, the deceased’s family members may qualify for benefits.10
Those eligible to receive benefits include:10
- A widow or widower who is age 60 or older, or age 50 or older if disabled.
- A widow or widower of any age who is caring for the deceased person’s child if the child is under age 16 or is disabled.
- An unmarried child of the deceased who is either under age 18 (or as old as 19 if a full-time student in an elementary or secondary school) or age 18 or older with a disability that started before they turned 22.
- A stepchild, grandchild, step-grandchild, or adopted child under specific circumstances.
- Parents who are age 62 or older who were dependent on the deceased for half of their support or more.
- A surviving divorced spouse under certain circumstances.
Myth 4: “Cost-of-Living Adjustments (COLA) are the only way to increase my monthly benefit.”
Advice to clients: COLA is an annual adjustment to benefits based on the Consumer Price Index,11 but it’s not the only way to make the most of Social Security benefits.
Those receiving Social Security benefits should bookmark and check in with the Social Security Administration website, especially this page on seeing what benefits might be due, on a regular basis. Certain life events after you start receiving benefits, such as the death of a spouse or ex-spouse, may alter the payment amount.12
Helping Clients Navigate Their Older Years
With health care costs and the pandemic causing unexpected stress to many people in their “golden years,” relying solely on Social Security to cover monthly expenses is risky and may even be insufficient.
By setting the record straight on Social Security, you can help your clients view these benefits as part of a larger retirement income strategy that may also include pensions, retirement savings and personal savings.
Round out the discussion with a risk assessment of their portfolios and use the quick checklists and assessment grids in A Guide to Conducting a Risk Control Review. Click the button below for your free copy.
1Social Security Administration, Historical Background and Development of Social Security
2Social Security Administration, Fact Sheet
3Social Security Administration, How You Earn Credits
4Social Security Administration, When to Start Receiving Retirement Benefits
5Social Security Administration, Understanding the Benefits
6Social Security Administration, A Summary of the 2021 Annual Reports
7Social Security Administration, Starting Your Retirement Benefits Early
8Social Security Administration, How Work Affects Your Benefits
9Social Security Administration, Delayed Retirement Credits
10Social Security Administration, How Social Security Can Help You When a Family Member Dies
11Social Security Administration, Cost-Of-Living Adjustments
12Social Security Administration, Explore the Benefits You May Be Due