Social Security planning is crucial to preparing clients for retirement

Knowing your client is the foundation for a successful financial plan. Part of that process is to understand the client’s current financial positions, including the amount of money the client (and spouse, if applicable) receive from Social Security in the form of retirement, disability and survivor benefits. This article assumes the client has covered employment and focuses on a retirement claiming strategy for a client and spouse. Understanding these benefit amounts will assist the advisor and their client in identifying any gaps in the current financial retirement plan, whether they are investment-related or protection-related or both.

Advisors go through a considerable amount of training, and much of that training is around legal issues, the regulatory environment and company-specific products. When it comes to Social Security, that is not the focus of training; we know what is available, and few have specialized knowledge. 

Additionally, various company-sponsored proposal platforms do not provide the precise Social Security retirement planning strategies that are available to clients, including any tax impact. The advisor and client must rely on making important strategy decisions solely from information found on the client’s Social Security statement.

Providing accurate Social Security strategy estimates based on the client’s specific situation is critical to finding solutions that meet the client’s financial and protection goals. 

Let’s look at a hypothetical married couple, Thomas and Mary, with a complete understanding of their Social Security situation as we review claiming strategies to maximize their income from Social Security. We will also show them the importance of proper protection planning as a survivor benefit. 

The following Social Security analysis has been prepared in accordance with standards established by the National Association of Registered Social Security Analysts. The RSSA Roadmap provides benefit estimates by considering historical earnings, future assumptions, and conditions provided by the client and advisor to determine optimal Social Security benefit claiming dates and strategies. The RSSA Roadmap is based on current Social Security law.  

The facts for Thomas and Mary are listed below. From this information, we can review four claiming strategies.

Lifetime benefits are shown as the present value of all future benefits. Annual and monthly benefits are shown in today’s dollars and are based on the year the younger spouse reaches age 71.

Although this information is important, the question remains: when to file? This will show the advisor and client which combination is optimal as well as the timing to claim such strategy. The purpose here is to maximize the retirement lifetime income benefit.

In addition to the lifetime benefits, an important planning topic is the “what if?” What if one spouse predeceases the other? Social Security provides survivor benefits for spouses and other dependents of the worker. 

As with the claiming strategy, the survivor amount and rules surrounding this benefit are often misunderstood and can vary based on when the worker begins retirement benefits, the age at death and the age the survivor begins survivor benefits.  The survivor benefit, which depends on the claiming strategy chosen and other factors, is shown below.

Visualizing all this for the client is now made easy; with the myriad of claiming strategies, the advisor and client are now in a better position to determine the best variation of when to claim based on the specific facts for Thomas and Mary. Below is a chart for Thomas and Mary and their advisor to consider. 

The fact is, Social Security will be a part of the retirement plan for almost every American worker. The advisor plays a critical role in educating the client and should consider future earnings, health, life expectancy, all other assets and debt, taxes, and finally, what the client’s desired financial standard of living will be. Consider many options; best practice is to work with the client to show the optimal claiming strategy. The optimal strategy is not necessarily the one that will provide the maximum lifetime income based on the assumed life expectancy.  

This is a high-level overview of the type of information an advisor and client should have in order to have an educated discussion of the distinct options that are available. Advisors have several tools available to assist clients; this is one financial technology tool that plays a valuable role in foundational planning. 

Martha Shedden, NARSSA president and cofounder, said, “We are all part of the Social Security insurance program. It was put in place as soon as we started working, and we have been paying into it for decades. Because you are an expert on this topic, your value is the knowledge you provide to make sure each retiring individual receives all the benefits to which they are entitled.”