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The majority of advisors offer some sort of Social Security guidance, but only 36% recommend specific Social Security claiming strategies, according to a study from Practical Perspectives and GDC Research.

Juxtapose this with an earlier study by fi360 in which almost two-thirds of advisors claimed to have a fiduciary relationship with their clients.

What accounts for these two seemingly conflicting scenarios? The sad reality is that many advisors fail to effectively plan for Social Security benefits, and fewer still coordinate them with the overall retirement portfolio.

The result is simple and stark—as an advisor, you cannot claim to be a fiduciary and not properly account for your clients’ Social Security. Here’s why: Oft-repeated statistics from the Social Security Administration find that among beneficiaries, 52% of married couples and 74% of unmarried people receive half or more of their income from Social Security. Even more shocking, 22% of married couples and about 47% of unmarried people rely on it for 90% or more of their income.

Demographics are driving demand, and as baby boomers continue to retire, those figures will likely increase. It means more people are relying on Social Security for a greater portion of their retirement portfolio. How can an advisor possibly claim to be acting in his clients’ best interests if he ignores what is quickly becoming their largest retirement asset?

The answer is he can’t, yet for whatever reason, many advisors (and their clients) continue to view Social Security as separate and distinct from other assets that comprise the portfolio. The entire reason for the existence of the annuity industry is to create a guaranteed source of income in retirement. Social Security provides at least part of that guaranteed income, but without the high fees often associated with annuities, and it’s still often ignored in the planning process.

Without including it, the correct tax-efficient withdrawal process is almost impossible to coordinate. The sequence of clients’ drawdown is entirely dependent on where assets are located, whether they are in tax-deferred, tax-exempt or taxable accounts.

How, and to what extent, clients receive income from the various accounts would certainly be influenced by the Social Security benefits they receive. You’d never fail to account for the fixed income portion of the client’s portfolio in the planning process; why is Social Security any different?

Our research, published in Journal of Financial Planning, finds that the right sequence of withdrawal, one that properly maximizes and coordinates with Social Security, can extend the portfolio’s longevity by anywhere from two to 10 years, resulting in tens-of-thousands, if not hundreds-of-thousands of dollars, in additional income.

We’ve seen other cases where advisors fail to recommend particular products and strategies (or at the very least make their clients aware they exist) to their legal and compliance detriment. It needn’t be this way, and should not be viewed as a negative; rather, as another opportunity to truly do right by clients.


Financial advisors also need to be aware of rules of thumb when  it comes to Social Security claiming strategies.

They can be downright harmful. Biases that arise from myth and misconception (and laziness) will do lasting damage to a client’s retirement plan—and an advisor’s business.

A popular example involves the use of a person’s age to determine their asset allocation. If they’re 25 and starting out in a career, conventional wisdom dictates they allocate 25% of their portfolio to conservative bonds and 75% to higher-risk equities, and slowly adjust the ratio to a more conservative bent as they grow closer to retirement.

Overly simplistic? Absolutely, but at least there’s time to fix mistakes. Not so with Social Security planning, where there’s little room for error. With one small exception, “do-overs” don’t exist, so you’d better get your client’s claiming strategy right the first time, or risk legal action and, more importantly, your client’s quality of life in retirement.

One example making the rounds involves “file and suspend,” a set of rules that might be right for interested beneficiaries but certainly aren’t always right. Like too many quick fixes to complex problems in today’s society, they’re over-prescribed.

In effect, the rules allow clients to receive more in benefits over time by initially suspending their payments. It might sound counterintuitive, but it’s one way to maximize a Social Security claiming strategy.

For the purposes of our discussion, here’s how it works:

Step 1: A spouse who has reached full retirement age files to begin receiving their monthly primary insurance amount. He, or she depending on the situation, then immediately suspends payments, pushing the payments off to a future date. Delayed retirement credits will then begin to accrue for each month he delays beginning benefits past his full retirement age, culminating in 8% more per year between ages 66 and 70.

Step 2: When he filed for Social Security, he automatically triggered the ability of his spouse to file for spousal benefits, regardless of whether or not he immediately suspended and regardless of whether or not the spouse ever worked. The spouse is now eligible for up to one-half of the amount of his primary insurance amount.

Step 3: He will continue to earn delayed retirement credits either until he reaches age 70 or he begins receiving benefits, whichever comes first. However, if the spouse files after reaching full retirement age, they too can delay their own retirement benefits until age 70 while continuing. They will receive the same 8% annual increase in their own retirement benefits when they begin receiving payments.

It sounds great, but here’s the rub—they are rules off of which a strategy can be based, not strategies themselves. Choosing file and suspend is simply not enough for clients to plan; rather, they must develop something more personalized from there. Yet too many free and basic Social Security calculators do just that—conflate rules with strategies that produce a few canned claiming options, none of which are right for the client.

For us, it brings to mind a quote that is often attributed to master military strategist George S. Patton: “If everyone is thinking alike, then somebody isn’t thinking.” The bottom line is that rules of thumb like file-and-suspend are great for seminars and presentations, but dangerous for planning. Every client’s situation is different. We’ve illustrated just one example, but we could do it all day long.

The coordination of Social Security benefits with the overall retirement portfolio and the tax-efficient withdrawal of assets are other areas routinely subjected to such biases (4% rule anyone?). Don’t risk your business and your reputation by failing to properly address Social Security planning. The stakes are too high for all involved.

William Meyer is founder and managing principal of Social Security Solutions, a firm that helps advisors and clients with Social Security claiming strategies.


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