Retirement Watch

Social Security changes reveal a knowledge gap advisers can fill

Leverage the changes to educate clients about what Social Security will provide and how much of their needs it covers

Jan 17, 2016 @ 12:01 am

By Laura McCarron

Ask just about anyone what Social Security is, and they will confidently tell you that it is a government program designed to help provide financial protection against certain hardships, like disability, death and retirement, by way of monthly payments for life. But ask them how much they can expect, how their payout might be increased at retirement or how heavily their retirement income plan will depend on it, and you are likely to get a blank stare in response.

This knowledge gap is not new. The recent changes to Social Security claiming strategies called attention to it, while creating a timely reason for financial advisers to educate clients and revisit their retirement income plans.

Effective May 1, a popular benefit-claiming strategy, file and suspend, will be phased out, and the restricted application strategy will be ended entirely. Both of these approaches offered the ability to generate a significantly higher benefit payout for certain individuals. While the changes presumably will help to sustain the system, they will negatively impact the amount of Social Security benefits that many will be eligible to receive.


(Related read: Social Security changes present opportunities)

In addition to being faced with the task of re-evaluating your clients' retirement income needs and making up for any shortfall the Social Security changes may cause, you also have the opportunity to solidify your position as a trusted adviser.

Actively connect with clients approaching retirement age. For a limited time, individuals who are at least 66 years old — or will turn 66 before May 1 — can still take advantage of the file-and-suspend strategy. Along the same lines, connect with clients nearing age 62, the age at which most are eligible to claim early — and reduced — benefits, to ensure that they are not inadvertently minimizing their income potential. Once Social Security is claimed, the decision cannot be reversed.

The widely talked about changes helped to expose a broad knowledge gap about Social Security, which, no matter a client's net worth at the end of his or her working years, should play a part in retirement income planning. Leverage the opportunity to educate clients about what Social Security will provide and how much of their needs it will be likely to cover. After all, Social Security is — and always has been — just one element of a successful retirement income plan.


Re-engage clients in a dialogue about their desired retirement lifestyle. Transitioning into retirement is a process that requires guidance at every step of the way. There are so many variables to consider that it's easy to lose sight of the big picture. Help clients revisit their thoughts about retirement, including their dreams and worries, to ensure that their nest egg can support their plans.

Verify income needs. Some say individuals need 80% of their pre-retirement income to maintain their lifestyle in retirement. In reality, income needs may be higher or lower. Help clients outline their day-to-day must-haves along with their discretionary nice-to-haves. Having an up-to-date picture of a client's income needs will help to create a distribution plan that meets them.

(More insight: Top questions about the new Social Security rules)

Rethink retirement income. Determining when to collect Social Security is a major decision that should be made in conjunction with a full analysis of a client's retirement income sources. While Social Security benefits can provide a solid base, the bulk of a client's retirement income will come from personal savings, investments and employer-sponsored retirement plans.


Maintain a degree of risk in a client's pre- and post-retirement investment portfolio. For the average person, retirement is lasting longer than ever before. Most retirement portfolios must rely on both income and capital appreciation to reach withdrawal and longevity goals. Put simply, for retirees to keep withdrawing cash from their portfolio, their portfolio needs to continue to appreciate in value.

Although it should not be considered a primary source of income, the importance of Social Security's regular, guaranteed payments cannot be overlooked when planning for retirement income. Guiding clients through the complexities of the Social Security system is a win-win proposition — clients maximize their retirement income, and advisers maximize their value.

Laura McCarron is director of value-added marketing at New York Life and MainStay Investments.


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