Years after several independent software companies and numerous financial services firms first began offering Social Security claiming tools to financial advisers, Bank of America Merrill Lynch has unveiled its own proprietary tool.
Ben Storey, the firm's retirement product director, considers the timing a stroke of luck. Congress voted to change key Social Security claiming rules last fall while the tool was still in development. As a result, the final version launched internally last week includes up-to-date guidance to the firm's more than 14,500 advisers. So far, about 2,000 advisers have received initial training.
“The timing just really worked in our favor,” Mr. Storey said. “This is a really hot topic, and we get so many questions from our advisers who want to be able to provide information to their clients to make an informed decision” about when to claim their Social Security benefits.
The Social Security analyzer tool complements earlier resources the company provided to its advisers, including iPad apps and research papers.
“I think it sends a strong message about what is top of mind for individuals who are approaching retirement,” he said. “Regardless of clients' net worth, Social Security is very important to them and it has driven us to focus on this particular topic.”
Offering a client, or prospective client, a personalized Social Security claiming strategy report can serve as a gateway to a broader retirement income discussion, Mr. Storey said.
Merrill Lynch advisers can use the tool as a stand-alone report or plug the results into the firm's Wealth Outlook program to see how various Social Security claiming strategies might affect a client's cash flow and long-term portfolio sustainability.
Research has shown that delaying claiming Social Security benefits until they are worth more at an older age can improve the longevity of a portfolio, as clients would need to tap less of their assets later in life. Social Security benefits last a lifetime and are one of the few sources of retirement income that includes inflation protection.
“The way our advisers are looking at this is they are trying to make sure there is no shortfall even if their clients lives into their 90s,” Mr. Storey said.
Other advisers can take a page from the Merrill Lynch action plan. Identify your clients who will be 66 or older by May 1. If they haven't claimed Social Security yet, reach out to them and tell them they have an opportunity to file and suspend their benefits by April 30, 2016. That will allow them to take advantage of existing rules that can trigger benefits for a spouse or minor dependent child.
One Merrill Lynch adviser who participated in the initial Social Security training contacted one of his clients who was the father of young twins, according to Mr. Storey. The client had planned to wait until 70 to claim his benefits. The adviser told him if he filed and suspended his benefits before the April 30, 2016, deadline he would be able to trigger dependent benefits for his children while his own benefits continue to grow.
“That's money the client would have left on the table if it weren't for his financial adviser,” Mr. Storey said.
Also review your records for clients who turned 62 by Jan. 1, 2016. (Social Security considers anyone who was born on the first day of the year to have reached age 62 in the prior year). They will still be able to claim spousal benefits when they turn 66, assuming their spouse is either collecting Social Security or was old enough to file and suspend benefits before the April 30, 2016 deadline.
Filing a restricted claim for spousal benefits when they turn 66 will allow them to collect half of their mate's full retirement age amount while their own retirement benefit continues to grow by 8% per year up to age 70. They do not need to do anything before they turn 66 to reserve the right to claim spousal benefit when they reach full retirement age.
Even though clients who were younger than 62 by the end of 2015 will no longer be able to use either of these creative claiming strategies, they still will face important decisions of when to claim their benefits and how to coordinate the timing of those claiming decisions with a spouse.
For example, it may be desirable for at least one spouse to delay claiming benefits up until age 70 when they are worth the maximum amount, which will also translate into the maximum survivor benefit for whichever spouse survives. But that strategy could pose a problem for couples with a single breadwinner. In order for a non-working spouse to collect spousal benefits, the working spouse must actually collect benefits. Delaying until 70 could sacrifice years of cash flow for both spouses.
Even when these creative claiming strategies are history, deciding when and how to claim Social Security benefits will remain an important decision for clients. Advisers who can offer insight into those decisions will be well positioned to capture a larger share of the retirement income market.
Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.