Social Security and Tax Planning: The Advisor Opportunity

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Talk about poor word association: mention “taxes” and the mental equivalent of “root canal” comes to mind. Surprisingly, it’s also associated with a major staple of retirement income—Social Security.

Yes, one is paid while the other is received, but both taxes and Social Security involve the client doing something that is required by the government, namely filing. A further caveat is that Social Security encourages (or should encourage) the client to develop a coordination strategy with their financial plan. The joy felt by the client in doing so is reflected in the numbers; two-thirds of Americans currently do not have a formalized financial plan and three-fourths do not have a financial advisor, according to a study released by Northwestern Mutual in May (see Americans Worry About Finances, but Just 1 in 3 Work With Advisor).

Yet lessening the burden for clients when it comes to planning and filing for Social Security will go a long way in building trust, gaining referrals and growing the advisor’s business. Here’s why.

Like taxes, Social Security is complicated, and dealing with the former is one reason for the accounting profession as a whole. Like taxes, filing for Social Security in the wrong manner could result in a devastating loss of benefits to which clients are entitled. Lastly, like taxes, clients could do it themselves, but its unpleasant nature could also result in a rushed and slipshod job that might end up costing them more in the long run.

Therefore, helping clients through the process includes, but is not limited to, the following:

  • Comprehensive analysis of the various claiming strategies to maximize their benefits

  • Coordination with the overall retirement portfolio to establish a tax-efficient withdrawal strategy that will stretch the client’s retirement assets for as long as possible

  • Help with the filing process, including downloading the forms, assistance is filing out the paperwork and sending it off in a timely manner

Our research, originally published in the Journal of Financial Planning, shows that engaging in proper Social Security planning can result in anywhere from two to 10 additional years of benefits. This is often the equivalent of tens-of-thousands, and in some cases hundredsof thousands of dollars in additional benefits.

Taking the planning and claiming process off your clients’ shoulders with quality advice and finding them income in the form of additional benefits and/or tax-efficient withdrawal strategies is a major opportunity for advisors, one that’s wide open and desperately needed.

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