Social Security literacy is crucial for advisors

Social Security literacy is no longer optional for advisors; they must know the ins and outs of the program that is the foundation for Americans’ retirement security.

Martha Shedden, president and co-founder of the National Association of Registered Social Security Analysts, described how advisors can turn Social Security literacy into retirement security for their clients and growth for their practice during a recent webinar.

A perception problem persists around Social Security claiming strategies, she said. Most Americans oversimplify the Social Security decision by believing they only need to pick a claiming age. But that is only one decision they need to make.

The annual Social Security benefits statement often creates a sense of false confidence among clients. Clients focus on the projected benefits in the statement, which are based on assumptions that might not necessarily be true for a client.

Fear of making a Social Security mistake

“Individuals have a real fear of making a mistake and not making the right decision – not only about Social Security but about the whole comprehensive financial plan,” Shedden said. “The foundation of that is the Social Security platform. It is the foundation because it is guaranteed lifetime income, so it is one of the first decisions to make and one of the first conversations to have.”

Social Security timing acts as a lever, she said, affecting portfolio longevity, tax exposure, survivor income, Medicare costs and portfolio withdrawal strategy.

Shedden said one myth in retirement advice is that Social Security is a government benefit to “figure out later.” The reality is that Social Security is the largest guaranteed lifetime income stream with a cost-of-living adjustment. Social Security is the foundation of other insurance products and retirement planning.

“It’s the base layer of all other retirement finances,” she said. “It goes beyond the question of ‘when should I claim?’”

Use an integrated approach

A common approach that Shedden said advisors take to Social Security planning is to advise clients to file either at full retirement age or at age 62, or to file based on breakeven math.

The approach that advisors should take, she said, is to use an integrated income strategy, optimize Social Security benefits for the entire household, and incorporate risk management into the plan.

Advisors who are Social Security literate:

• Design income strategies to coordinate life insurance, annuities and other benefits.
• Identify overlooked family benefits.
• Protect widows, caregivers and disabled family members.
• Build trust by explaining complex rules clearly and confidently.

Shedden recommended the following steps to engage clients in Social Security planning.

1. Social Security data gathering.
2. Household analysis.
3. Income gap modeling.
4. Risk exposure review.

“Begin by saying, ‘Before we talk about investments, let’s talk about one investment you can’t outlive – Social Security,” she said.

Social Security literacy “doesn’t show up with perfect answers,” Shedden said, “but with better decisions for clients and explaining the tradeoff that they need to make. It’s not about getting the optimal lifetime amount but making the optimal decision for their circumstances, so clients can make an informed decision that is pretty much irreversible.”

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