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Retirement Planning > Social Security

IRI’s Weatherford: Want More Clients? Go Holistic.

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The Insured Retirement Institute (IRI) joined with other financial industry, education and advocacy organizations last month to lead National Retirement Planning Week, a national effort to increase awareness of the need for comprehensive retirement planning. Throughout the week, we were able to bring together thought leaders from the public and private sectors, academics, and consumer advocates to cover all areas of retirement—new research was presented, seminars were provided and financial planning was promoted.

But the most important conversations that were taking place during National Retirement Planning Week were happening between financial professionals and their clients. According to new IRI research unveiled at the beginning of the week, confidence in retirement security is severely depressed with only 36 percent of baby boomers being confident in having enough assets to live comfortably during retirement. Yet, previous IRI research studies have shown that 90 percent of boomers who work with a financial planner believe they are doing a good job preparing financially for retirement. Those who work with advisors are on their way. So how do we increase the number of people who turn to a financial professional for help?

During IRI’s 2012 Marketing Summit, Ken Dychtwald, president and CEO of Age Wave, succinctly summed up the situation: People need help, people need our solutions, but people need a guide they can trust. There’s a tremendous opportunity to deliver on all three, but it may require going beyond traditional conversation starters. The time has come to go holistic.

When to collect Social Security?

IRI’s second annual survey on boomers’ retirement expectation shows that nine out of 10 baby boomers expected Social Security to be a source of income during their retirement years. Given that Social Security is such an important component of a retirement income plan, it needs to be part of any conversation regarding a holistic retirement strategy. When it comes to Social Security, one of the most important decisions—and most overlooked—is when to begin collecting benefits. As baby boomers head en masse toward retirement, many will limit their retirement security by collecting benefits before their normal retirement stage. In fact, nearly three-quarters of current Social Security recipients are collecting reduced benefits.

During National Retirement Planning Week, IRI hosted a webinar for financial advisors featuring Chad Terry, director of investment and retirement education at BlackRock. Terry discussed how to help clients maximize Social Security benefits as part of a successful retirement strategy. He explained that by collecting Social Security benefits at age 62, many will reduce their benefits by 20 percent to 30 percent, which could amount to the loss of hundreds of thousands of dollars in lifetime payouts. He recommended that advisors work with their clients so that they understand how their decision will affect their benefits in the long term, especially if they live into their late 80s or early 90s. Helping your clients and potential clients understand how the system works, how spousal and survivor benefits are determined, and how to incorporate Social Security into a holistic retirement plan is a value-add and has the potential to build the trust that consumers require from a financial professional.

Future of Social Security

Of course, consumers have a great deal of anxiety regarding Social Security’s financial challenges and its future. The trustees of Social Security delivered more sobering news when they recently reported on the program’s financial condition. The trustees stated that the combined Social Security and Disability trust funds would be exhausted in 2033 and at that point would rely solely on incoming payroll tax revenue to pay benefits, which will cover only about three-quarters of currently scheduled benefits.

There are several important takeaways from this report for clients and prospective clients. Despite headlines to the contrary, the program will continue to exist. Too many depend on the program and too many have paid into the system for it to disappear. The program, however, will require changes to address its financial challenges. And so while there is great uncertainty regarding the program, the one thing that is certain is that change will come. These reforms may potentially reduce the cumulative amount of benefits that future retirees will receive from Social Security—whether through a modification to the measure of inflation that would affect cost of living adjustments, an increase in the retirement age, or the introduction of means testing and/or other potential changes to the benefit formula.

Any or a combination of these reforms could limit consumers’ overall retirement security—creating the need to identify alternative sources of lifetime income as part of their overall retirement strategy. By providing these value-add discussions on Social Security as part of a holistic retirement plan, they will turn to you to discuss income planning and supplementing Social Security payments with other forms of lifetime income, like annuities.

So expand the breadth of your retirement planning conversations and talk with clients and potential clients about less-traditional topics such as Social Security. These conversations will help your clients and build the trust they require from you, the financial advisor. Make the effort to “go holistic” and you will experience the reward of satisfied clients.

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