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.”

In those cases, Chard develops the plan without including Social Security.

However, for people in households earning $35,000 to $40,000 or less a year, Social Security is a key part of the retirement plan, Chard says. With these clients, he does not go into how possible reforms might change things, because he says many do not understand Social Security, how it pays out, the wage basis and so on. “I feel it would be unethical for me to discuss the proposals with them, because there are too many uncertainties right now. Also, the discussion may be perceived as a scare tactic, even though that would not be intended.”

Concerning the higher wage earners, Chard says he focuses on how Social Security reform may affect lifestyle. Such clients have more discretionary income than lower wage earners, are more attuned to taxation and are interested in how certain financial changes might impact lifestyle, he explains. He likes to set up a methodical retirement savings program for them.

But even with the higher wage earners, Chard says he steers clear of discussing the impact on them of specific proposals, as these still are not decided. “We talk about Social Security as we know it today.”

Whatever the advisor does, “dont spin it,” cautions Pollack. Instead, discuss trends behind the proposals, she says, referencing increased longevity, boomer retirements, proportionately fewer taxpayers contributing to the system, increasing federal funds going into Medicaid, etc.

Make it an “open discussion,” she suggests, including a review of how Social Security works.

“You can point to products like Roth IRAs, traditional IRAs, SEPS, Keoghs, cafeteria plans, MSAs and 401(k)s. Note how we have these products because the government wants to encourage people to prepare for their own retirement.”

It also helps to point out that, in retirement, boomers will want to have enough money not only to maintain lifestyle but also to pay for emergency expenses such as long term care. “Ask them, where is the money coming from? That is the issue.”

Sun Lifes Wallace says maintaining lifestyle is very important to boomers who have investable assets of $250,000 or more. These boomers arent talking about managing on a budget in retirement, she says. “They want to get more money.”

In working with these boomers, “dont play on fear,” she says. “Rather, build on hope, that they can live their desired lifestyle.” Some advisors may hesitate to call clients about this, especially those still reeling from stock market losses, she allows. “However, Social Security can be a nice springboard for talking about retirement income.”

Talking Points

To Open Up The Social Security Discussion

Ask what the clients would live on if they retired today.

–John Diehl, Hartford Life, Simsbury, Conn.

Talk about how to convert the retirement nest egg to income.

–Tony Ferreira, Sun Life Financial US, Wellesley Hills, Mass.

Explain whats happening with the government and Social Security in an understandable way, using examples to which the client can relate.

–Amy Pollack, LTC Financial Partners, Atlanta office

In your annual or semi-annual visits with clients, arrange for gradual changes in the plan, particularly if new legislation goes through.

–Gary Chard, Principal Financial Group, Rochester, N.Y., office


Reproduced from National Underwriter Edition, March 25, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.