Social Security: Everything You Need to Know (and why it should matter to you)

Few advisors truly understand and implement Social Security planning into their practices. But the knowledge they can provide can make a big difference in a client’s overall retirement success. So, it’s important to get the facts and learn how you can start having discussions around Social Security with your clients.

Decisions around Social Security may be the most complex any client will face. When do I begin Social Security? What is the best election for my spouse? How can I coordinate with my spouse’s benefit? Can I maximize our benefits together? And how does all this work in conjunction with my retirement assets to make sure I don’t run out of income during my lifetime?

Here is the crux of the Social Security questions: The information and leadership we provide is critical to the retirement success of our clients; however, we don’t get paid by Social Security or on the income increase our advice provides. So why bother with it?

Get the Facts

Here are some startling facts around Social Security (Source: Nationwide Retirement Institute 2022 Social Security Survey):

• More than half of Americans are very concerned about inflation (53%) and almost 90% are very concerned or somewhat concerned about the impacts of inflation.
• About 20% of the workforce changed their filing date for Social Security due to COVID.
• 76% believe it is more important to maximize Social Security after COVID.
• 63% worry more about Social Security running out of money after COVID.
• 53% indicated they knew how to maximize Social Security benefits.
• Only 7% correctly identified the factors leading to benefit maximization
• 49% answered ​“not sure” when asked how much of their income will be replaced by Social Security.
• 44% answered ​“not sure” when asked what their benefit would be from Social Security.
• Less than a third of the population knew:
  • You could sign up for Medicare without taking a Social Security benefit.
  • The cap on earnings is taxed to support Social Security.
  • Changes can be made to your claiming strategy in the first 12 months.
  • Social Security can protect against inflation.
• Depending on the generation, 64% — 78% of Americans believe Social Security will run out of money in their lifetime.
• Younger generations are more likely to plan to work longer due to the lack of confidence in Social Security (77% versus the national average of 60%)
• A large increase in the percentage of workers are planning to take their Social Security early. (42% in 2022 versus 36% in 2021)
• 36% of the population works with a financial professional on Social Security issues and 50% of Millennials work with a professional.
• 66% of survey respondents indicated they would work with a financial professional to learn how to maximize their benefits.

Only You Can Increase Your Clients’ Confidence

“I’m scared!”

This is one of the pillars of retirement income planning for most Americans. And most people don’t have confidence that it will be there for them when they need it. Worse yet, our savings rate in the United States has fallen to less than 3% after the pandemic and our debt load is an all-time high. We are reaching the breaking point for many people near retirement.

But there is a bright side!

There has never been a better time to help so many Americans in need. And the consumer will need our services and expertise for decades to come. This just relates to Social Security and Income Planning not to mention the need to pass along trillions of assets to the next generation, manage assets through a potential recession and volatile markets, and continue to guide and create wealth.

But, having a vast understanding of Social Security is necessary to provide the best advice for clients in their retirement planning. You simply can’t make proper recommendations without having a command of the client’s Social Security strategies – regardless of income level.

As I have traveled around the country the last 20 out of 24 weeks, I have heard a renewed interest in face-to-face prospecting like seminars. It’s great to have a sense of ​“normalcy”, whatever normal is these days. Clients seem to want to gather in larger groups these days as we are further and further away from the pandemic. It’s time to dust off those slide decks and work on presenting new ideas. Many people may be concerned about the economy; however, I would argue that their decisions around Social Security elections will likely have a larger return on retirement income that anything around asset allocation.

If you want to be impactful to your clients or prospective clients, providing education on Social Security options is more meaningful and desirable today than ever before.

But I Don’t Get Paid on Social Security

That’s right. You don’t earn any revenue if your business model is tied to assets under management. However, making the proper decisions around Social Security can benefit your business model in three key ways.

1. Maximizing Social Security takes pressure off your assets under management, especially in later years. Conceptually, the impact of taking longevity off the table with Social Security income greatly increases the probability of retirement success by not eroding retirement assets. Social Security is protected against inflation. In 2023, the increase was 8.7% for every American receiving benefits from Social Security. That increase would have to come from assets under management to help the client retain purchasing power. By maximizing the benefits, you have provided relief from penetrating the assets and protected them from additional withdrawal levels.
2. Providing the education is really needed. Many successful advisors have moved to a fee-based or retainer-based compensation model. This model allows for ongoing compensation while providing services such as Social Security education. As the needs of your client base change, it is completely reasonable to expect some type of pricing changes from a client standpoint. If we are working toward a Best Interest practice, aligning ourselves with the current needs of our clients makes perfect sense.
3. Social Security elections impact not just the primary recipient but also the spouse. Spousal elections are some of the most misunderstood parts of the Social Security program. Choosing the wrong benefit to match the spouse’s needs can be devastating for the surviving spouse, their children, and the ultimate estate value passed to the next generation. Making decisions that positively impact the account balances that are passed to the next generation will exponentially increase the retention rate of your accounts.

Key Talking Points

No matter where I speak, I always am surprised at how few advisors truly understand and implement Social Security planning into their practices. It comes down to a variety of objections driven mainly by clients’ misunderstandings around the program.

Many clients tell our advisors they want to take their benefits as early as possible because they have worked their entire life and want to see the income as soon as possible. This makes emotional sense, not financial sense. The chances of dying between the ages of 62 to 70 are only about 8%, while the chances of living past age 90 are about 10%. You are more likely to live past 90 than you are to die before age 70. But we still want to take income early. The penalty for taking income early is about 76% of your age 70 maximized value. We need to reframe decisions around Social Security for our clients.

We also hear clients looking at their Social Security statements and focusing on their individual Full Retirement Age. For most clients, that will be age 67 going forward. Instead, we should think of Full Retirement Age as the age when we truly maximize the benefits of Social Security. I encourage you to start thinking about positioning the election for the highest level of income not as Full Retirement Age but age 70. That will increase the monthly benefit by 8% annually from Full Retirement Age, making age 70 the real full retirement age for retirees.

Finally, we need to coordinate with clients’ other income to bring clients into the conversation. Many clients want to know how to better use other streams of income to get into a position to maximize Social Security. This is a perfect segway from our discussions on asset growth and management to income.

In fact, I believe we will be paid in the future for how well we manage the decisions that mitigate risks in retirement. Those decisions can be increasingly impactful for clients near retirement. Coordinating and making the proper decisions on Social Security plays an important role because it reduces pressure on assets, provides longevity protection and creates inflation-adjusted income…all in one major decision.

What to Do Now?

If you are ready to take the next steps in retirement income planning and want to have meaningful conversations around income in retirement, we are here to help. Palladium Group, backed by the Ash Brokerage Retirement Income Consultants and Specialists, are prepared to help you and your clients navigate the complexity of Social Security and income planning in general. Reach out to your Palladium Group team of experts and learn about the vast capabilities in this area. You can remain relevant with your clients and grow your practice at the same time.