Advising Clients on Social Security: Talking Points, Part 1

When providing advice to clients on matters of Social Security benefits, the first quarter of the year is an excellent time to meet. During the first quarter, financial advisors often meet with clients to review the prior year’s performance and to set goals for the upcoming year; tax professionals meet with clients to review tax returns and plan strategies for the new year. Social Security advisors must also be ready at this time of year to proactively assist clients to maximize their Social Security benefits and to answer basic questions.

This five-part series will explain the talking points that advisors need to share when meeting with clients to discuss Social Security benefits and provide assistance. Advisors must be proactive, not reactive, when meeting as clients are looking for both assistance and advice. This first part will discuss several important concepts:

  • the role of Social Security representatives,
  • how benefits  are calculated,
  • an explanation of the Social Security statement,  and
  • an explanation of the meaning of the terms “Primary Insurance Amount” (PIA) and “Full Retirement Age” (FRA), sometimes referred to as “Normal Retirement Age”.

Role of Social Security Representatives

The primary role of representatives at the Social Security Administration is not to assist or explain Social Security options with individuals. In fact, Social Security employees have been directed by the Commissioner of Social Security to specifically not review all available options. Social Security representatives tend to think “Inside the Box” by reviewing specific options for retirement at specific times such as at age 62 (time of earliest benefits), the individual’s Full Retirement Age and at age 70 (time of maximum benefits). This same information is actually also reported on the individual’s Social Security Benefit statement.

(Check out: 2017 Social Security and Medicare Facts co-authored by Marc Kiner)

Social Security representatives are not trained, or even permitted to present various “Outside the Box” options such as whether the coordination of spousal benefits would provide a higher level of benefits. It is therefore imperative that advisors are proactive and assist their clients in developing a plan to understand and maximize their benefits especially since the Social Security Administration takes an “advice neutral” stand. The SSA belief is that maximum benefits can be discerned by individuals through reading the SSA website at www.ssa.gov.  

Retirement Benefit Calculation

Many advisors mistakenly believe that retirement benefits are based on the last five years of earnings or the highest five years of earnings.  In actuality, benefits are based on the highest 35 years of indexed earnings. The term “indexed” indicates that the earnings are adjusted (indexed) for inflation.

The “highest 35 years” formula is utilized even the individual did not work for thirty-five years, such as if an individual stayed at home raising children for a number of years. In this instance, a spouse with the minimum 10 years (40 quarters) of employment will have 25 years of zero income factored into their benefit calculation, resulting in a smaller benefit.  In this situation, it may be wise for the advisor to recommend that the client go back to work to replace zero earnings years with some positive earnings.  The role of the advisor in this instance is to fully understand that retirement benefits are based on 35 years of indexed earnings.

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(Marc Kiner is the co-author of 2017 Social Security and Medicare Facts, published by The National Underwriter Company, a division of ALM Media, and available for purchase here. Kiner is also the co-founder of National Social Security Advisors, LLC, which provides education, training and certification for Social Security consulting.)

Social Security Benefit Statements

The Social Security Administration (SSA) recently changed the policy of mailing paper statements to your clients.  Printed statements will be mailed only to clients aged 60 and older who do not have online accounts.  It is strongly suggested that all individuals establish online accounts as the statements provide detailed information regarding benefit estimates and displays the earnings figures which were used to calculate the estimated benefits. Accounts can be created at www.ssa.gov or www.socialsecurity.gov

To verify an applicant’s identity, SSA will ask questions from the applicant’s credit report and other public sources. Once an account is set up, the individual can then review their estimated benefits and reported earnings.  Review of the benefit statement is a great exercise and should be done annually. The role of the advisor here is to encourage clients, regardless of their age, to create these online accounts.

Full Retirement Age

Full Retirement Age (FRA) is the term used to describe the age that individuals can collect 100% of their Social Security benefit.  The Full Retirement Age varies depending upon the date of birth of the beneficiary. For individuals born between 1943 and 1954 the FRA is age 66.  The FRA moves forward in two month increments beginning for persons born in 1955 until the FRA reaches age 67 for clients born in 1960 or thereafter. Benefits are reduced if begun prior to reaching FRA and are increased if begun after reaching FRA. Available benefits reach a maximum at age 70. The role of the advisor in this instance is to understand the client’s Full Retirement Age in order to advise as to various options.

Primary Insurance Amount

The Primary Insurance Amount, or PIA for short, is the amount of Social Security benefits payable at Full Retirement Age.  Therefore, a PIA of $2,000 means that an individual will receive $2,000 at Full Retirement Age. Your client’s PIA is listed on their Social Security benefit statement.  The role of the advisor in this instance is to understand the definition and amount of the PIA at various points in the client’s life.

Social Security can appear complex, is not a difficult program. It is important, however, that advisors take the time to learn and understand how the Social Security program works. This first article has explained and reviewed five basic concepts regarding Social Security.  In the second installment, we will step it up a notch and delve deeper into the program to increase your understanding of Social Security to be able to assist clients to maximize their benefits—earning the title of “trusted advisor.”

(Marc Kiner is the co-author of 2017 Social Security and Medicare Facts, published by The National Underwriter Company, a division of ALM Media, and available for purchase here. Kiner is also the co-founder of National Social Security Advisors, LLC, which provides education, training and certification for Social Security consulting.)

 --- Check out other Social Security Talking Points installments by Marc Kiner.

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Related

Advising Clients on Social Security: Talking Points, Part 2

This installment will discuss more advanced topics, like explaining Social Security retirement income eligibility, and COLAs.

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