Many Americans, including financial advisors, are confused and overwhelmed by the rules that surround Social Security. They are also uncertain about its future. One thing that is certain: the age at which you start taking benefits affects the size of your monthly benefits check. So why is it that nearly three-fifths of retirees start “early,” that is, before Full Retirement Age (FRA)?1,2
See Social Security in a New Light
Clients may make the wrong choice about when and how to claim Social Security because they simply do not understand its value. Much of this may have to do with the way the topic is framed.
The next time the subject of Social Security comes up, pay attention to the language clients use. You’ll find that most describe it in terms of a monthly amount such as “I’m going to get $1,500” or “My benefit is only $700.” In essence, they think of Social Security as a monthly governmental I.O.U. This way of thinking shows that they not only misunderstand what Social Security is, it also diminishes the true value of this unique retirement income asset.
Think of It as an Investment in Retirement Income
While there can be no guarantee that the future program will operate as it has in the past, for many people Social Security has historically amounted to a government-sponsored, inflation-adjusted, lifetime retirement income. Most Americans have made contributions to it for decades. There is not a single product in the financial services industry that can duplicate Social Security.
Re-framing the discussion about Social Security is the first step in helping clients make wiser decisions about when to begin to receiving benefits. This is not only good for them, it is important for you as their advisor. Among other things, the larger someone’s Social Security benefit, the less they may have to draw down from their other personal assets. This can provide you, as their advisor, with more options for their retirement income plan.
Moreover, due to its unique nature and even without an explicit government guarantee, Social Security can fit with the “inflation adjusted guaranteed income” portion of a client’s portfolio. Maximizing this segment of your client’s total assets may free up other assets that could be allocated elsewhere, such as to higher risk growth-oriented investments that also seek to provide the long-term inflation protection clients need for a 25–35 year retirement.
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1 Full Retirement Age is 66 for those born from 1943–1954. It is gradually increasing to 67 for anyone born later. See http://www.ssa.gov/retirement/1943.html.
2 Franklin Templeton Retirement Income Strategies and Expectations (RISE) Survey, 2015.