Advisors looking for a topic to be leveraged for the purposes of client engagement need not look much further than Social Security.
Of course, this subject is most applicable to older clients and with thousands of baby boomers retiring on a daily basis, Social Security is a pertinent subject for a broad swath of clients. Social Security is also taking on added importance due to inflation and the simultaneous weakness in stocks and bonds this year. Plus, a variety of data points confirm relevance of Social Security in advisor/client relationships.
The 2022 installment of the Goldman Sachs “Retirement Survey & Insights Report” is instructive for advisors because it sheds light on clients’ concerns and all-important demographic trends. Not surprisingly, in this edition of the survey, confirms clients are increasingly concerned about the scourge that is inflation.
“Retirees face a confluence of factors in retirement that can affect their ability to generate income. They report that they are most concerned about inflation (71%), meeting future healthcare needs (51%) and potential reductions in Social Security (46%),” according to Goldman Sachs.
Helping Clients Avoid the Big Social Security Mistake
As advisors know, clients’ most frequently asked when it comes to Social Security is when to claim those benefits. Problem is advisors answer this question differently, which isn’t surprising, but the reality clients are better off by waiting.
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, according to the study.
“Workers are eligible to claim Social Security starting at age 62, although doing so results in lifetime benefits that are about 30% less than what they’d be at full retirement age, which is 67 for those born in 1960 or later. Claiming at full retirement age gives you 100% of your earned benefit, while waiting until age 70 gives you124% of what you’d get at full retirement age,” reports Elizabeth O’Brien for Barron’s.
Delaying Social Security claims is important and potentially attractive to clients for another reason: Increasing lifespans. As Barron’s notes, based on a lifespan of 85 years, the worker that waits until 70 to claim Social Security isn’t being cheated out of any benefits.
That’s worth noting at a time when many workers are, arguably, retiring prematurely, but that increase isn’t being met with a corresponding rise in retirement perks.
“Other research has noted that applications for Old-Age Social Security benefits have not risen concurrently with self-reported retirements with some evidence that income support from other pandemic-era policies may have allowed some retirees to delay claiming benefits,” notes the Federal Reserve.
Who Benefits When Social Security Is Claimed Too Early
One way to appeal to clients’ better judgment when it comes to premature Social Security claims is by telling them who benefits from that scenario: The financial services industry. The earlier Social Security is claimed, the lower the benefits, meaning clients need to keep their assets parked in hopes of generating more returns to make up for Social Security shortfalls. That means more fees for banks and fund issuers.
Another issue advisors should bring up with clients – and it’s one they’ve likely thought of on their own – is outliving their money. Particularly after this miserable year for bonds and equities, clients are worried about the health of their portfolios.
That’s all the more reason to resist tapping those assets too early and delay taking Social Security to give beaten up retirement accounts and the like more time to rebound.
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