Trending
Advisors seeking a conversation starter to reconnect with select clients while converting those in prospective camp have a gift that keeps on giving in the form of Social Security.
Obviously, Social Security is a topic that’s highly relevant to older clients. However, a confluence of factors, including questions regarding when is the right time to claim these benefits and the viability of the system, it’s worth it to address Social Security with clients in their 40s.
Beyond identifying the clients for whom Social Security conversations are most appropriate – indeed an easy task – advisors should realize that many clients are confident about Social Security but lack the knowledge to back up that confidence. An interesting dichotomy to be sure.
Closing the Social Security Confidence/Knowledge Gap
One of the big debates client face is when to claim Social Security benefits. They can do so as early as 62 years old, but there are clear benefits in delaying receipt until 70.
On the surface, delaying receiving Social Security is a positive. Math proves as much. In fact, the Federal Reserve’s 2019 Survey of Consumer Finances indicates essentially all workers currently in the 45-62 age range would be better off waiting beyond 65 to claim Social Security. Those that wait until they’re 70 stand to reap an additional $182,370 in today’s dollars.
As highlighted by the Nationwide Retirement Institute’s annual Social Security survey, age is illustrative of some of the conundrums advisors face in prepping clients to maximize these benefits.
“Only 13% of US adults correctly knew their full retirement age based on their birth year,” according to the survey. “42% of those not currently receiving Social Security weren’t sure how much their monthly Social Security payments would be.”
Add to that, 70% of those polled didn’t know that Social Security is tied to inflation, meaning that as inflation rises, cost of living adjustments (COLAs) increase as was seen last year. Addressing the confidence/knowledge gap is critical because many future retirees are banking on Social Security to do a lot of heavy lifting when they stop working.
“Among future retirees, many are counting on Social Security to cover a significant share of their future living expenses,” adds Nationwide. “According to our survey, current non-retirees, on average, expect Social Security to pay for 47% of their retirement costs. While that estimate may be accurate for some future retirees, many in higher income brackets in retirement may be surprised by the enormous gap between their earlier expectations for Social Security and the financial reality of what their actual benefits will cover.”
With Social Security, Advisors Matter
Data confirm there is value in advisors helping clients navigate Social Security complexities.
“Fortunately, many financial professionals have gotten the message. Around three in five American adults who work with a financial professional (62%) stated their financial professional had offered guidance on how to file for Social Security benefits. But that means two in five aren’t getting that guidance,” observes Nationwide. “And that gap doesn’t even include people not receiving guidance because they don’t work with a financial professional.”
In fact, at a time when clients’ are increasingly concerned about the sustainability of Social Security and pondering when to claim benefits, the merit of advisor involvement in Social Security planning is on the rise and that’s a good thing.
Related: How Prospective Clients Decide To Take the Advisor Leap