Many high-net-worth investors ignore one of the most powerful financial-planning tools available to them: Social Security.
In many cases, the oversight likely stems from the misconception among wealthier people that the benefit is almost trivial—particularly when compared with their other retirement assets. While they probably are right that their other assets will dwarf what they receive from Social Security, that isn’t a reason to discount the payments. For wealthy couples, Social Security is still a guaranteed income stream that could pay out in excess of $1 million over their lifetimes, making it an integral retirement-income and estate-planning tool.
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Individuals who don’t have to depend on Social Security payments to fund their retirements can leverage that income stream to achieve other financial goals. For example, instead of deferring the benefit, high-net-worth investors could claim Social Security as soon as age 66. The benefit will be 32% smaller than had they waited until age 70, but the size of the benefit isn’t as critical as it would be for someone with a smaller estate. By starting the Social Security income stream earlier, the high-net-worth investor can begin putting those payments to work — directing the money into an irrevocable life-insurance trust to fund life insurance that can be used to help cover estate taxes, making charitable gifts or leaving a legacy for heirs.
Another smart use of Social Security benefits is as protection against the potential cost of long-term care.
It isn’t unusual for someone with a chronic or debilitating illness to pay upward of $10,000 a month for medical care—a significant expense regardless of net worth. And because those services aren’t covered by traditional insurance policies, using at least some of a Social Security benefit to fund long-term-care insurance can be a wise decision.
There are more than 2,700 rules governing Social Security and the typical couple has over 500 filing options. Regardless of their net worth, investors can strengthen their financial foundation by learning how to use Social Security to their benefit. As an inflation-protected, guaranteed lifetime income stream, Social Security shouldn’t be an afterthought but rather a building block of any individual’s retirement plan.