Is Your Social Security Advice a Fiduciary Risk?

Register now

The majority of advisors (90%) 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.

Color us skeptical. The sad reality is that too 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 the argument for a guaranteed source of income in retirement. Social Security provides that guaranteed source, but without the high-fees that have long torpedoed 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 be 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.

William Meyer is founder and managing principal of Social Security Solutions, a software firm that helps advisors and their clients optimize Social Security claiming strategies. More information is available at www.ssanalyzer.com.

Read more:


For reprint and licensing requests for this article, click here.
Financial planning Retirement planning