Broaching Social Security With Boomers

By Linda Koco

Financial advisors can, and should, discuss Social Security with boomer clients, says Amy Pollack, specialist in long term care insurance and a partner with LTC Financial Partners in the Atlanta office.

This discussion should include review of recent Social Security reform proposals, she maintains, “but focus on the message behind the proposalsthat the government is saying you have to plan for yourself.”

Boomers need to hear that, she says, whether Social Security changes or not.

Pollack and other financial professionals believe opening up a logical, informational conversation about Social Security and the reform proposals is the best road to take. They dont want to engage in scare tactics or be accused of that; but neither do they want to duck the issue.

Many boomers already are wondering about how the proposals might affect them, whether the advisor brings it up or not, points out John Diehl, vice president-advanced markets and product developer at Hartford Life, Simsbury, Conn. “In fact, without discussion, clients might become more apprehensive,” he says.

It is “premature” to start running numbers on the potential impact on a client of specific Social Security proposals, he allows. However, Diehl believes this is a good time to help clients start exploring their overall retirement income picture, especially since “many people today dont even know what that picture looks like.”

A good approach would be to turn the discussion toward finding ways to minimize overall reliance on Social Security for retirement income, Diehl suggests. That way, regardless of what happens, “the client will be better off.”

That dovetails with findings from a survey on Social Security privatization just out from Sun Life Financial US, Wellesley Hills, Mass. “Fully 81% of the 500 respondents agreed that regardless of Social Security privatization, I will still need to supplement my retirement savings,” says Tony Ferreira, director-market research. An even higher percentage (95%) of younger respondents, age 55-57, said the same. Conducted in February 2005, the survey polled people aged 55 to 64 who have $250,000 or more in investable assets.

Another survey, conducted in February 2005 by Harris Interactive for Principal Financial, Des Moines, Iowa, found that 51% of employees expect 25% or less of their future retirement income will come from Social Security. The trend especially was pronounced among 18- to 34-year-olds, 65% of whom reported this expectation (vs. just 36% of those age 55 and up). The survey polled employees of small and mid-sized U.S. firms.

Apparently, consumer actions are not yet reflecting beliefs. For instance, in the Sun Life survey, 28% of the total group and 48% of younger respondents said they believe they should talk to a financial advisor about privatization. However, only 7% indicated they had contacted their advisor in the last 3 months to set up/think about a retirement plan, and only 2% made such a contact to discuss or create a financial plan.

In Principals survey, 48% of employees reported being “very/somewhat uncomfortable” with the idea of managing a personal retirement account. Yet the top strategies they named for managing in retirement, if Social Security fails to provide the expected amount, do not include income planning. Instead, their top strategies were: remain in workforce longer (36%), phase into retirement (32%), start saving more now (18%), and lower their standard of living in retirement (9%).

Findings like that are spurring more professionals to consider having “the Social Security discussion” with clients.

Karen Wallace, assistant vice president-market center at Sun Life, thinks advisors should definitely do that. For example, she says “the advisor might say, guess what we need to talk about and then open up into the discussion.”

Tax time is a particularly good time for this, she says. “People already are thinking about their finances at that time of year. They are either feeling good or wanting to look at changes they can make.” Another good time is 3 months before the clients birthday, when the Social Security benefits statements come out, Wallace says.

Diehl sees all the public discussion about Social Security as being good for financial planners and clients, because it “heightens awareness of the role Social Security plays in the retirement income plan.”

That can open the door to discussing how to make Social Security a smaller percent of the retirement income plan, he says. For instance, he says the advisor and client might “take stock of other private savings options available, such as an employer-sponsored retirement savings plan and contributions to IRAs.”

It helps to ask the client directly whether to include Social Security in the retirement plan, Diehl says.

Gary Chard, senior financial representative with Principal Financial Group, Rochester, N.Y., does that, right at the start of planning. Significantly, many professional clients, under age 40 and with household incomes of $100,000+, now answer “no, Im not counting on Social Security at all.”