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
This is a great time to reflect on the importance of such a critical income source for many retirees and its impact on their retirement plans. Take a look at five interesting Social Security facts and consider how these benefits can play a role in the advice you give to your clients.
Over 62 million Americans receive Social Security benefits each month, with an average monthly benefit of about $1,538.2
Have you asked your clients to estimate their projected monthly Social Security income? If so, have they followed through? They could be missing a major potential wildcard in their retirement strategy. Without knowing the estimated monthly Social Security check that will serve as their guaranteed base income, it’s nearly impossible to determine supplemental income goals.
If you have clients who’ve 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 own individual Social Security accounts.
Social Security benefits typically replace only a portion of a person’s pre-retirement income.3
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 Traditional or Roth IRAs, if they have them. An exploration of annuities to supplement social security income should also be part of the mix.
An examination of how clients spend their current earnings sometimes gets overlooked. Are clients living beyond their means? Does debt have the potential to threaten their retirement well-being? A frank yet delicate discussion might be appropriate so their finances are in order when the time comes to transition from accumulation to distribution and spending.
Someone who reaches age 65 today is expected to live for around 18 more years.4
Why do we bring this up? It raises a major concern that may be a sensitive subject: will your clients have enough money to last the rest of their lives?
It’s essential for those who are at that age to have a plan in place so they find the balance between enjoying their savings and retirement funds while also ensuring they will have enough to last for a couple more decades.
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 potential solutions to protect beneficiaries while ensuring they won’t outlive their savings.
If someone delays claiming Social Security until age 70, they could receive a 77% increase in their monthly benefit compared to taking Social Security at age 62.5
Do you have a product or investment strategy that may provide a 77% increase in lifetime income over an eight-year span? If you did, you’d likely have clients pounding at your door. But this might not be an option a client has considered, one way or the other.
Stressing the significant 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 results? Even so, any discussion must also include the realities of waiting until age 70. Will it be worth it for them to hold off on claiming those checks for so long? What works for one client may not work for another.
The full retirement age for anyone born after 1960 is increasing to 67, meaning they’ll receive a reduced benefit if they claim Social Security at any younger age.6
Complementing Fact #4 is the fact that, while delaying Social Security benefits leads to increased dollars, taking it early does the opposite and reduces the benefit. There’s always a flipside!
Get creative in how you present conversations about early vs. delayed withdrawals. Don’t be afraid to get into more personal topics, as long as you’re able to do so without causing undue discomfort to your client. Should they wait until age 70 for a higher benefit? Or start earlier while they’re younger but receive fewer dollars per payment? Weigh the options together.
Whether someone wants to claim Social Security benefits early, late, or right at full retirement age, they could still wind up leaving the workforce before age 67. If they’d rather wait to claim Social Security for full or increased benefits, help them bridge the gap by exploring investment options that may provide supplemental income and help delay their filing period.
A deferred income annuity or immediate annuity may be attractive options for clients to create their own pension and provide a guaranteed income stream during the transitional period between retirement and claiming a higher Social Security benefit. Even if they help a retiree delay claiming benefits by only a few years, that extra time could prove beneficial.
Additional Resources for Guiding Your Clients
With the observance of Social Security Day, keep these conversation starters in mind. Help your clients further by using our Elevate™ Advanced Planning Resources as a guide. They contain additional insights on legacy planning, rollovers, annuity strategies and other complex scenarios. Get appointed to receive access to the full library.
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Marshall is a VP - Advanced Planning Consultant with CUNA Mutual Group and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Advisors on advanced retirement planning concepts for retirement and wealth management clients.
1Social Security Administration, Social Security History, Undated
2Social Security Administration, Research, Statistics & Policy Analysis, May 2022
3Social Security Administration, Retirement Benefits, Undated
4Centers for Disease Control and Prevention, Mortality in the United States, 2020, December 2021
5Social Security Administration, When to Start Receiving Retirement Benefits, January 2022
6Social Security Administration, Retirement Benefits, Undated