Plan Your Social Security

Social Security – you invested in it, and you’ll want to maximize your return. So, don’t let this part of your retirement plan go… unplanned.

Regardless of whether you think it will be here or whether you think you’ll need it, it makes sense to plan for Social Security. It’s a benefit you or your spouse paid into, and you would be foolish not to try to get the most out of it.

There are choices you will need to make about when to start collecting social security that could have a very real effect on the income you’ll live on during retirement.

According to a recent study by The Pension Research Council of the University of Pennsylvania’s Wharton School, many of the 46 million Baby Boomers approaching retirement do not feel prepared to handle the complexity and range of choices to secure their financial future. So, having a financial advisor can be a big help. But it is not an infallible solution to your retirement planning puzzle.

In fact, another study by The Pension Research Council found that even those who use professional financial advisers claim benefits at age 62, which is far earlier than many experts believe is optimal. That’s a mistake that can dramatically decrease the benefits you’ll receive. The negative impact is even greater for women because, on average, they live longer than men, and they depend on Social Security for a greater portion of their retirement income.

The most effective way to help retirees is education and advice, including information on when to claim Social Security and how to optimize those benefits. The study suggests that financial advisers are one of the key channels for getting that message out to retirees. They have a high level of knowledge of financial issues, their clients need the information, and more than likely they’ve established a level of trust with their clients that will help turn advice into action.

While most financial advisers consider it their job to educate clients about how Social Security fits into their retirement finances, the commitment varies depending on where you go for advice. For instance, independent financial advisers (93 percent) were more aware of the responsibility to address Social Security than were bank representatives (80 percent).

Most advisers believed they should help clients decide when to claim Social Security benefits, but there were differences. Broker Dealers (68 percent) were most likely to suggest advising clients about claiming, while life insurance agents (62 percent) were least likely to feel they should.

And, of course, the advisers who were surveyed for the study varied in how much they thought they knew about Social Security benefits. Nearly all advisers (93 percent) felt they were “knowledgeable,” 22 percent described themselves as “very knowledgeable,” and 71 percent said they were “somewhat knowledgeable.” Most didn’t feel they were experts.

Less than half (44 percent) of all advisers thought they were “knowledgeable” about how retirement benefits rise with age, and slightly less than a quarter (24 percent) thought they were “very knowledgeable” about how spousal benefits work. Apparently, those rules are fairly complex.

And most advisers were under-informed about the Retirement Earnings Test. Never heard of it? Let us assure you – you are not alone!

Three quarters of advisers discussed Social Security with most of their clients, but in many cases it was the client who brought up the topic. Advisers raised the issue at a median age of 55, while clients didn’t raise the issue until much later at a median age of 60. Because time horizon is important in the planning process, the earlier you start to plan, the more effective your plan will be. So, take this tidbit to heart – start your own research and the conversation with your adviser sooner rather than later.

A frequent topic of discussion between advisers and clients was Social Security solvency. Some advisers told customers to count on receiving all their scheduled benefits, while others were less encouraging. Of course, there is no “real” answer to that question right now, so a conservative guess is probably best for planning. Under current law, Social Security is expected to pay scheduled benefits until around 2037. After that, taxes may increase, benefits may be reduced and initial benefits may be delayed. No one knows for sure.

There are strategies for maximizing Social Security benefits. And things like your health, when you plan to retire, household assets, your desired lifestyle, projected benefits, and your spouse’s age all come into play. Then add taxes to the mix. Yup, you need a plan if you want to make the most of your benefits.

It’s obvious that there is still work to be done on both the consumer and adviser side to learn more about the choices. SSA.gov, the Social Security website, is certainly a resource, although many say it is difficult to navigate. There are also other online resources including retirement savings calculators that have Social Security benefits factored in.

We recommend a “holistic” approach to retirement planning so you get the best possible strategies for ALL your benefits and savings. By including social security and health care, along with your savings and any employer-provided benefits, you can’t help but increase your retirement plan’s probability for success.

So, go into the planning process with your eyes open. If you’re a do-it-yourselfer, start your research early. It’s also a good idea to get help from a planner or adviser that you feel you can trust. Ask questions until you are comfortable that you’ve gotten the crucial facts to make decisions. And even then, it’s a good idea to follow up with your own research before you make those decisions. Being an active participant in your own retirement planning will certainly help you get the best results.

And if you’re planning for retirement, don’t forget about including the cost of healthcare. People 65 and over can get reliable information about Medicare and Medigap insurance, including help to compare prices of plans in your area.