Mary Beth Franklin: Four costly Social Security mistakes

While some retirees are simply uniformed, others are dangerously misinformed.

There’s nothing I enjoy more than sitting around with a bunch of smart people discussing my favorite topic: Social Security claiming strategies. I had the chance to do that on Monday with a stellar panel of experts at the Newseum in Washington, DC.

The event was designed to unveil an updated report from Prudential outlining the options and strategies that individuals can use to maximize lifetime Social Security income. In the 2012 version, author James Mahaney, vice president of strategic initiatives at Prudential, focuses on important claiming strategies for divorced and widowed individuals and pulls back the curtain on the perplexing ways Social Security benefits are taxed.

I have enormous respect for Mr. Mahaney’s work. In fact, it was his research that sparked my interest in Social Security claiming strategies several years ago.

What is the biggest fear of today’s retirees? Running out of money. What can Social Security offer? Guaranteed income for life that increases over time. Seems like a match made in heaven. Yet 70% of retirees continue to claim Social Security benefits before their full retirement age, even though their benefits will be reduced for life.

Claiming reduced benefits early is just one of the four biggest mistakes that many retirees make regarding Social Security benefits. The others include underestimating the real value of Social Security, not understanding the various ways married couples can integrate their benefits and getting blindsided by the tax torpedo as it applies to Social Security benefits.

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I’ll be writing about some of these issues in coming weeks, but I wanted to give all of my InvestmentNews readers a heads up about this terrific new paper and companion video that you can find on the Prudential homepage. If you do nothing else, watch the brief video and tell your clients about it. It will go a long way in educating them about the true value of Social Security benefits as part of a coordinated retirement income strategy.

As Mr. Mahaney said in his paper: “No other vehicle can match the combination of inflation-fighting increases, longevity protection, investment risk elimination and spousal coverage as Social Security can — potentially making it one of the most valuable sources of retirement income.”

Advisers who educate themselves about this important resource will go a long way in winning the loyalty of their current and potential clients. And when clients are more confident about their guaranteed sources of retirement income, they may be more inclined to invest their rest of their assets with you.