After years of preaching the gospel of delaying
Social Security benefits, I was gratified to read a new study from Morningstar Inc. saying that most retirees would be better served by waiting until their full retirement age or later to claim benefits.
The study, by David Blanchett, head of retirement research in Morningstar's investment management division, concluded that the larger, later benefits exceed the potential return that most retirees earn by starting benefits earlier and investing the difference.
“Delayed
Social Security benefits are especially valuable for females, married couples and retirees who expect to invest in relatively conservative portfolios during retirement, as well as retirees who have longer life expectancies,” he wrote in his new paper, “When to Claim
Social Security Retirement Benefits,” which was recently published in the Journal of Personal Finance.
“Delaying
Social Security is cheaper than buying an annuity in the current low-interest-rate environment,” Mr. Blanchett said in an interview.
For example, an individual who collects benefits early at 62 and invests the proceeds won't have to earn 31.7% a year to buy an annuity four years later that will match
Social Security benefits at full retirement age.
“Even if interest rates rise, which would make annuities more attractive, you have to wonder what will happen to inflation,” Mr. Blanchett said. “One of the real values of
Social Security benefits is that they are cost-of-living-adjusted.”
And don't forget to start with an accurate estimate of the clients' benefits. The
Social Security Administration no longer mails annual benefit statements, so the client will have to create an online account at ssa.gov/ myaccount to retrieve the information.
NEW TOOLS FOR ADVISERS
Optimizing strategies for claiming Social Security is becoming standard procedure in some financial advisory practices, particularly those that specialize in retirement income planning. But figuring out which software to use to estimate a client's future Social Security income can be challenging.
First, financial advisers should decide how much time, effort and money they want to devote to incorporating Social Security-claiming strategies into their practices.
Software prices range from about $200 to more than $1,000 a year. Some are stand-alone Social Security calculators, while others are integrated into broader retirement-income-planning tools.
If you want basic guidance on Social Security planning as a way to start a discussion about retirement income planning with existing and prospective clients, consider Social Security Explorer (social securityexplorer.com). It is easy to use, offers a clean, visual display and costs just $249.
If you need something more exotic to evaluate the impact of the earnings test for clients who collect Social Security benefits before their full retirement age (while they continue work), or if an adviser deals with public-sector employees who may be affected by government pension offset rules that can reduce their benefits, take a look at Maximize My Social Security (maximizemysocialsecurity.com) and click on the tab for planners. It costs $200.
SOFTWARE PACKAGE
For advisers whose practices comprise mainly married couples, Social Security Timing (SocialSecurityTiming.com) offers a package of software, training, customized client reports and inclusion in an online directory designed to connect consumers with advisers who can help their with their Social Security-claiming strategies. It costs $500 per year.
One of the latest innovations comes from HealthView Services (hvsfinancial.com), which coordinates these strategies with its HealthWealthLink calculator, which creates personalized retiree health cost estimates. The combo software products, which are expected to cost about $600, help advisers identify sources of income, including Social Security benefits, to pay for health care costs in retirement.
Those who specialize in retirement income planning and carve out a niche in Social Security-claiming strategies will want top-notch training and software.
Horsesmouth (horsesmouth .com), an advisory service for financial planners that focuses on retirement income and niche marketing, has been providing the definitive training programs on Medi-care and Social Security for years. Basic membership is $247 per year, plus an additional cost of $597 each for its Savvy Social Security Planning and Savvy Medicare Planning programs.
The Cadillac of Social Security planning software is Social Security Analyzer (ssanaylzer.com), designed by recognized industry experts William Meyer and William Reichenstein. But at $1,200 per year, it is also one of the most expensive.
In addition to its sophisticated planning software, training programs and customized reports, Social Security Analyzer can be paired with the company's retiree income software to develop tax-efficient retirement income strategies and extend the life of a client's investment portfolio.
Finally, Frank Horath, principal of ClientFirst Financial (clientfirst.info), plans to unveil his updated website this month that will help match advisers with the right Social Security-planning tools, software and services to take their retirement income practices to the next level.
