Social Security shortfall? Annuities may be an answer

When a financial advisor conducts a portfolio review, it’s common practice to factor in investments held outside their firm to help determine a client’s projected income in retirement. In addition to disbursements from an employer 401(k), a pension or other income-generating ventures, Social Security stands out as a reliable source of future income.

A major concern you’ve likely heard from clients is whether they’ll run out of money in retirement. It’s a valid consideration. One out of every three individuals who are age 65 today will live to at least age 90, and one out of seven will live to at least age 95.1

While Social Security can provide a base income to cover fixed costs like insurance, utilities, food and housing, it may fall short, especially for those who’ve come to expect a certain standard of living. If those individuals also miss out on opportunities to build savings and invest during their working years, the chasm widens. 

Recent market volatility is concerning to many older Americans approaching retirement age, causing them to wonder whether their investment accounts will cover any Social Security shortfalls or help pay for future discretionary spending such as travel or hobbies. 

If that sounds like some of your clients, you may want to discuss the following.

Social Security as a foundation

As it stands today, Social Security will provide guaranteed income for many of your clients, serving as a reliable foundation for fixed costs. That “base” income can vary significantly depending on your clients’ earnings during their working years and the age at which they choose to claim benefits.

Framing your conversation around a strategy that allows your client to receive as much Social Security income as possible is important. Even though a typical retiree can claim Social Security as early as age 62, strategizing ways to delay claiming benefits until age 70 could increase their monthly income by approximately 77%!1

For example, a client who might receive $700 per month at age 62 would receive a $1,240 monthly payment if they wait until age 70. The $540 income difference per month is likely to raise eyebrows, and the increased benefit during that time period may be appealing, especially in light of recent market volatility.1 

Arguably, advisors and clients alike will be hard pressed to find another type of “investment” that can guarantee a 77% increase within such a short time horizon.

Supplementing Social Security

Help your clients explore ways to bridge the gap between age 62 and 70 so they can delay taking Social Security benefits earlier than necessary. 

Continuing to work is an obvious choice — even part-time employment may help a client delay claiming Social Security and maximize their benefits. Relying on income from rental properties may also be an option. Additionally, passive income from dividends or business income may provide enough to get by. Some of these options require forethought and investing up front, though, and may be a luxury some older investors don’t have.

Those who’ve invested in a diversified portfolio may be better positioned to bridge the gap, should they choose to transition from the workforce prior to full retirement age without immediately claiming Social Security benefits. In these cases, you may want to explore whether taking distributions from traditional or Roth IRAs is practical. Withdrawals of earnings prior to age 59½, however, may come with penalties and tax implications.2

If a client has enough savings or other liquid assets, they may want to consider withdrawing short-term “income” upon retirement rather than claiming Social Security. Delaying Social Security benefits by even a couple years will make a difference in the monthly benefit amount they receive later on, helping investors enjoy their retirement years more fully.

Guaranteed income helps bring relief

Social Security, in essence, provides a monthly “paycheck” with a guaranteed floor based on when a retiree begins claiming benefits, and those benefits can’t be outlived. In addition to providing a fixed base income, they’re shielded from market volatility.

Many of Social Security’s attributes are similar to another type of protected income that can be considered as part of a diversified portfolio: annuities. While there are many types of annuities you can recommend, income annuities in particular may be appealing to those who want to create their own regular stream of guaranteed income and fill in the gaps that Social Security might not cover.

With guaranteed income from an annuity, you can help clients feel confident that they won’t outlive their savings. A first step is to help clients distinguish between different kinds of annuities, as they may be familiar with only one type, limiting their understanding.

Some types of annuities have customized features that allow them to opt for flexible payment types and offer ways to protect beneficiaries. They may also benefit from double-digit market growth and be able to establish a guaranteed floor — ranging from 0% – 10% — that helps limit losses, as with our Zone IncomeTM Annuity.

Clients generally like to know all their options, so include Zone Income Annuities in your conversations.


Those approaching retirement age may wonder how big a role Social Security plays in their financial strategy. Help them identify where potential gaps may occur and develop goals together.

The Social Security Administration website is an exhaustive resource that can help them calculate their expected benefits. They can start with the Social Security Quick Calculator, but logging into their personal account will provide greater accuracy. 

Marshall Heitzman
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™

Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Professionals on advanced retirement planning concepts for retirement and wealth management clients.

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