It’s suddenly everywhere, and for good reason. Baby boomer retirement means more education and observation about the “right” way to take Social Security. A plethora of online tools and techniques are now available to aid in the complicated and often overwhelming decision about when to begin receiving benefits.
Great news for clients heading for retirement and contemplating their optimal claiming strategy; not so for those already receiving benefits who now realize they made a mistake.
Fully 70% of recipients begin taking their benefits before full retirement age, and it’s safe to say some regret their decision. This represents opportunity for advisors. Unfortunately, too many advisors avoid Social Security planning either because they feel they can’t make money at it or they believe high-net-worth individuals don’t need or care about Social Security benefits. They couldn’t be more wrong. Helping to fix the problem, or at least alleviate some of the sting associated with a mistake, will lead to increased trust and more referrals.
I’ll go further than that—what kind of risk are you putting yourself and your practice in if you don’t offer Social Security planning? I question if you’re acting in a fiduciary capacity if you don’t. Every advisor should be going through their book to see which clients began their benefits early and whether or not they’re happy with the decision.
Recipients were once allowed to pay back the amount of benefits received prior to their full retirement age in order to begin again with a more advantageous strategy. That ended in 2010, and once begun, a strategy is irrevocable. However, a mulligan is still offered if clients are within 12 months of the date they started their benefits and they repay the full amount received thus far.
If clients find themselves outside the grace period, there are three primary methods to significantly improve the amount of their monthly payments. The first method is described here, with the remaining two explained in subsequent posts.
The standard disclaimer reads that each client’s situation is, of course, different and therefore each strategy must be fully vetted to ensure suitability. That said, one of the most effective fixes is to voluntarily suspend benefits at full retirement age and accrue delayed retirement credits.
This is huge; a guaranteed 8% increase in payments every year that clients delay after suspension, topping out at age 70. Think about where they could possibly find that kind of return in the stock market (guaranteed no less) and the excitement becomes clear. The 8% the client receives each year results in a substantial amount of money; an increase in monthly income that will continue for as long as they live.
This strategy works extremely well for someone who was unemployed and had to take their benefits to pay their bills, but has since found a job and is now is in a position to voluntarily suspend at full retirement age. A suspension will last for a little as one year; after that, the client can once again receive benefits at any time. Suspending for four years (from ages 66 to 70) is particularly advantageous to receive the full amount of the delayed retirement credits, but flexibility is there if needed.
If they believe they can’t afford to suspend their payments for four years, then fine, I’ve seen the 8% credit work wonders for their concept of affordability in as little as one year. The key is to at least raise the issue and, if possible, convince them to be disciplined enough to try. It’s something on which your business and their happiness potentially rely.
--- Related on ThinkAdvisor:
- When to Take Social Security: A Breakdown by Marital Status
- 5 Things Senior Clients Wish Their Advisors Knew
- Social Security: Then, Now and the Future