Many younger clients are deeply skeptical about the future of Social Security.
Nearly three-quarters, 74%, of millennials believe that Social Security will not be there for them when they retire, according to the 2016 Wells Fargo Millennial Study.
Advisers say that such sentiments are overly pessimistic. But at the same time, they think that younger clients are correct not to expect Social Security to be the same for them as it is for today’s retirees.
“Millennials have cause to be concerned about Social Security benefits,” says Lauren Locker, a CFP and the principal of Locker Financial Services in Little Falls, New Jersey. “We know that some changes need to be made in the system – the question is how and when the changes will occur.”
Discussing the likelihood of long-term changes and the possibilities of reduced benefits offers advisers opportunities to impress the importance of savings strategies on younger clients.
This can be challenging when many millennial clients don’t even ask about Social Security.
“It so rarely comes up,” says Sophia Bera, a CFP and the founder of Gen Y Planning in Austin, Texas, who specializes in working with younger clients.
That is only natural because, “we don’t put a lot of time and energy into things we don’t have a lot of control over,” she says. “Honestly, I don't even talk to my clients about Social Security since they're not going to be eligible for 30 or 40 years.”
“Honestly, I don't even talk to my clients about Social Security since they're not going to be eligible for 30 or 40 years,” Bera says.
The point is to get younger clients thinking about all the other important ways to increase their savings, she says.
“If Social Security is still around, then it will be some bonus income, but my clients plan on funding their own retirements,” Bera says.
SIGNIFICANT CHANGES AHEAD?
Social Security benfits will still be around for millennials, predicts Anthony Ogorek, a CFP and the chief investment officer and founder of Ogorek Wealth Management in Williamsville, New York. But he foresees significant changes, including increases in the FICA ceiling, later start dates for retirement benefits and some forms of means testing.
“The program is antiquated, and it’s being asked to do what it was never conceived of doing,” Ogorek says. “Now, there’s a recognition that life expectancies have increased way beyond what the original framers of Social Security ever expected – and it’s not unreasonable to expect changes to occur.”
But uncertainty about changes can be positive if it spurs younger clients to plan for retirement earlier, say advisers.
“If millennials are concerned that the program will change radically over their lifetime, it’s an additional incentive for them to be saving at least 10% or 15% of their pay in tax-deferred vehicles,” says Ogorek. “As a millennial, I don’t think you can bemoan what’s going to happen to Social Security and not ramp up your savings to at least 15% percent of your income. If you believe what you’re saying, your savings rate has to go up.”
That’s where advisers can assuage fears about Social Security and boost savings rates for younger clients at the same time.
“It’s important for millennials to develop the habit of saving that eluded many of the boomers for so long,” says Locker. “It’s also critical for them to understand the concept of budgeting and the value-related choices that come with setting spending limits for yourself.”
Millennial trends toward postponing or eliminating home and car purchases can in some cases provide opportunities to save more money for a retirement nest egg, Locker says.
Fears about Social Security can help advisers to make younger clients see the benefits that even small savings can make, when started early enough.
“Small, sustainable, incremental changes in lifestyle options can make a big difference over a lifetime, and millennials are well-positioned to make the shift toward more frugal and less consumer-driven choices,” Locker says.
This story is part of a 30-30 series on Social Security.