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Social Security Secret: Advisor’s Dogged Pursuit Bears Fruit for Clients

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When pre-retirement clients asked Brett Horowitz when they should optimally take their Social Security benefits, the Evensky Katz financial advisor did not stop at the break-even analysis that conventional financial planning research advises. Rather, Horowitz read every article he could find and discovered some unconventional, and potentially lucrative, approaches involving “restricted applications” and a “file and suspend” procedure, the subjects of an AdvisorOne article published last week. He then contacted experts to confirm these strategies.

Thusly armed, Horowitz arrived at his local Social Security Administration office in Miami seeking official confirmation he could help his clients maximize their benefits. A group of five people gathered around him and shot down most everything on his question list. “They didn’t know what I was taking about,” Horowitz said.

Not giving up, Horowitz then contacted Social Security Administration HQ, where someone checked and came back to him with a thumbs up.

Brett HorowitzWhen it came time to put this now doubly confirmed information into practice, Horowitz (left) went with his clients to the Miami Social Security Administration office and presented his case. “We wanted to file a restricted application,” whereby a husband or wife who is deferring retirement can claim an additional 50% of the income that the spouse receives (if the spouse has reached full retirement age). “They said, ‘I don’t think this is possible.’ We left her materials,” he said. The local office investigated the matter, and ended up educating the whole office in these Social Security secrets.

“I’m grateful that the local office in Miami now knows about these rules. I don’t blame them [for not having known]. Very few people take advantage of these strategies,” Horowitz says. “The average [clerk] may not see one a year.”

For a firm the size of Evensky Katz, with some 250 clients, there might not be more than a couple of dozen clients who have not yet elected Social Security benefits, for whom this kind of advice is relevant. But this is the kind of service Horowitz says enables his firm to add value in ways that other advisors are not.

For other retiring clients, Horowitz is conducting research on reverse mortgages to see if they might be a viable cash management tool. For clients unwinding a business, Evensky Katz will refer them to private equity firms, always providing at least two firms to choose from. The firm also makes referrals to Medicare consultants.

“We’ll look over the life insurance quotes and powers of attorney,” he adds, noting that clients may have a durable power of attorney assigning rights to a spouse that seems well and good, but does not meet the requirements of the firm’s custodian, Schwab. So he makes sure such documents are approved by Schwab before they might be needed.

It is in that spirit that Horowitz created his spreadsheet to test multiple Social Security strategies in conjunction with client inputs such as the age, income and life expectancy of the spouses. He’s been approached by other firms interested in purchasing the analytical tool, but says the software is not for sale.

Besides the “restricted application” and “file and suspend” techniques enabling couples to substantially boost spousal benefits, Horowitz advises retirement clients on other little known Social Security strategies. For example, while it is widely known that working while collecting Social Security can reduce the recipient’s benefits, the Evensky Katz advisor tells clients the aspect of this rule they rarely hear is that any lost benefits are credited back to the recipient. “You never want to avoid working,” he says.

Horowitz explains the rules as follows. For a person who has reached full retirement age (currently 66), working is a nonissue: Even if the Social Security recipient earns millions of dollars, he will not lose a penny in Social Security benefits. A person who starts taking benefits at, say, 62, will similarly not lose a penny in benefits if his earnings are $14,640 or less.

What is less well understood is that if earnings are greater than that amount, the resulting $1 lost for every $2 earned above the limit is only temporary. After the recipient reaches full retirement age, he recovers credit for any lost benefits and may even be eligible for a higher level of benefit depending on how much he earned. Consequently, a 62-year-old with ideas for starting a business may find Social Security an ideal way to gain some income support while testing the market, and with no risk of lost benefits.

Another strategic concern Horowitz discusses with clients is the idea that husband and wife have to look at how their receipt of benefits will affect one another. For example, a higher-earning husband who takes benefits early must know that he is reducing his lower-earning wife’s survivor benefits for the balance of her life. “If you’re taking benefits at 62, you’re locking in those benefits for your spouse,” he says.

In the past, many couples who failed to understand all these rules could avail themselves of a “do-over.” The Social Security Administration used to allow people to repay the entirety of benefits they received and receive higher benefits at a later time. In essence, people were able to get an interest-free loan from the government for the years they collected benefits.

While most people seem to think the do-over is dead, Horowitz says it’s just on life-support. It is still available but applies only within the first 12 months of retirement, and recipients no longer get credits that can be recaptured while earning benefits. “It’s not the sweet deal it had been,” Horowitz says.

The bottom line for the Evensky Katz advisor is that Social Security solutions that provide higher cumulative benefits over the client’s lifetime add real value to the client relationship.

“They’re getting advice from us that they wouldn’t get from their former broker or other advisor,” Horowitz says. “Clients will sit with me [at the Social Security office] and say, ‘Why are you doing this for me? What’s in it for [you]?’

“I say ‘We’re fiduciaries. We’re on your side. If you know anyone else who can use our services, please point it out to us.’”

And Horowitz adds that $40,000 in added benefits can offset many years of client fees.


(Editor’s Note: An earlier version of this story incorrectly stated that survivor benefits would be reduced by a higher-earning spouse taking benefits early. It is spousal benefits not survivor benefits.)


Read the earlier story, Social Security Secret: How to Add Thousands to Retired Clients’ Income at AdvisorOne.

Check out more stories more stories related to Social Security: Time Bombs, Boomers, Widows and Secrets at AdvisorOne.


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