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4 Social Security planning options to discuss with your clients

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It seems we regularly get news that the demise of Social Security is just down the road. As a financial professional, this poses an important question we should discuss with our clients: Should we use Social Security as part of your planning or assume it won’t be available?

Some of the facts we should not ignore is, according to Mercer’s 2009 Guide to Social Security, nine out of 10 people 65 or older receive Social Security benefits, and for 32 percent of those, it makes up 90 percent of their income. For those who rely heavily on Social Security for their income, Congress will probably not make any new rules or laws that forgive their lack of planning.

Thus, when devising retirement strategies, it is important for a client to be aware of their options with Social Security benefits. Options include:

  1. Working in retirement. For many, this will be a necessity. Many times working and getting Social Security benefits are incompatible, and it is important to do the calculations before making a decision. The key is determining if a reduction in benefits might happen because work income exceeds allowable levels. According to the Mercer Guide, every year between age 62 and full retirement age, the client gives up $1 for every $2 they earn above $14,160. Once they arrive at their FRA, they give up $1 in benefits for every $3 they earn over $37,680. There is a second rule for the year they arrive at FRA.
  2. Delay taking benefits beyond FRA to increase benefits. What really comes into play here is expected longevity. Each year the client delays Social Security benefits beyond his or her FRA, there is an 8 percent increase in benefits. If the client has a shorter life expectancy, it might be to their advantage to take Social Security benefits before FRA, maybe as early as age 62. However, if life expectancy is beyond age 84, waiting tends to increase the value of the expected benefits. The financial professional needs to look at the client’s life possibly exceeding age 84 and determine not only the benefit increases at 8 percent but also average cost of living adjustments and discount factors. With these benefits, the base needs of the client are filled by adding any defined benefit plan pension payments and any personal defined income strategies that seem appropriate.
  3. Joint life analysis. Where there is a difference in the female’s age (younger), upon the death of the spouse, they move up to the spouse’s full benefit and with a female living longer, the present value of enhanced (delayed) benefits are even more important.
  4. Considering pay-back options. It is not very often you can decide to take a benefit, find it was the wrong choice and start over, but Social Security allows just that. Form SSA-521 allows the client to pay back the benefits they have received with no interest, get a deduction and start at a higher benefit base. While this is really a “safety valve” in the decision process, the client needs to understand it is available and determine if it’s appropriate for that specific case.

Given these options, it’s crucial the financial professional recognize all the sources of available income and consider the best way to maximize Social Security as the base of the strategy.

Jim Johnson is vice president of Advanced Sales for Allianz Life Insurance Company of North America and brings more than 40 years of financial services industry experience to the position. Johnson holds NASD Series 7 and 24 registrations and has earned his CLU and ChFC designations. He is a member of the Minnesota Bar Association, past president of the St. Paul CLU chapter, and served on the board of the Minneapolis CLU chapter for many years.


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