After paying into the Social Security system for their entire career, many Americans on the cusp of retirement suddenly realize they don’t understand how the system works.
Perhaps they’ve heard rules of thumb about how they should claim their benefits, but those rules often conflict. For example, one popular strategy is that it’s best to start collecting a reduced benefit at age 62. That’s wrong, the counterargument goes — it’s actually best to delay collection as long as possible because the delayed benefit will be much larger. Other rules of thumb conflict on when couples and surviving spouses should claim benefits.
Advisors take different positions, as well. In early March, Dennis Miller, a retirement planning columnist for MarketWatch.com, explained why his wife decided to collect as soon as she reached age 62. Several weeks later, MarketWatch.com columnist Jeffrey Miller rebutted Dennis Miller’s logic and argued for delaying the start of payments.
All this Social Security confusion is problematic because the program is a major income source for many retirees. Consider the findings of a March survey, “Longevity Risk and Reward for Middle-Income Americans,” from Bankers Life and Casualty Company’s Center for a Secure Retirement:
- Nearly three-fourths (72 percent) of middle-income Americans say Social Security benefits make up at least half or more of their retirement income, which exceeds the national average of 65 percent, according to the Social Security Administration.
- Nearly 1 out of 3 (29 percent) count on Social Security for 75 percent or more of their retirement income. For retirees with household incomes between $25,000 and $50,000, 1 in 10 relies on Social Security for all of their retirement income.
- Of those age 55 and older, 1 in 3 (34 percent) do not understand that delaying when they start to collect Social Security can increase their future benefit amount.
- Nearly half (47 percent) of middle-income Americans age 55 and older incorrectly believe an annual cost-of-living increase to their Social Security benefits is guaranteed.
- More than one-third (36 percent) of middle-income Americans falsely believe full Social Security benefits start with their 65th birthday.
- About 1 in 3 (35 percent) middle-income Americans age 55 and older who are not yet receiving Social Security do not know what their Social Security income will be when they retire.
That’s the bad news. From an advisor’s perspective, however, seniors’ confusion creates opportunities to help clients and develop new business. We asked several financial advisors and industry vendors who have developed successful Social Security planning niches to share their formulas for success in this growing field.
Addressing the need
“Social Security planning is critical for women because we live longer and we’re usually the survivor,” says Martha Shedden, a Social Security specialist with ClientFirst Financial in Aptos, Calif. “That, in conjunction with the need for women to obtain financial advice, (makes) a perfect combination for advisors to be reaching out to women and couples with this service.”
ClientFirst Financial started working more actively in Social Security planning about three years ago, Shedden says. A client kept asking Frank Horath, the firm’s founder, detailed questions about the best strategy for claiming her Social Security benefits. Horath cited the widely known fact that delaying receipt would increase the monthly benefit. The client wanted more detailed and specific information, though, which led Horath to start more in-depth research.
He soon realized there was no convenient research source for financial advisors. Although the Social Security Administration provides calculators and content on its site, the agency can’t provide personal planning advice.
“They can give you the general information, and there’s a tremendous amount of it on their website,” Shedden says. “But they can’t deal with these hundreds and hundreds of different math equations that focus on one particular couple or a person. Each one is unique. There are different ages; there are different primary insurance amounts; they have different life expectancies; there’s a different relationship between a couple’s ages and their primary insurance and all that is what is just unique to each case.”
Nancy Fromm and Cristina Acosta, co-owners of advisory firm Money Wise in Scottsdale, Ariz., encountered the same problem. “We were sitting down with individuals who were asking us questions on the best way to take Social Security and we really didn’t have concrete answers for them,” says Acosta. “So in order to do the best planning possible, we decided to do the research and find out about all the different claiming strategies and how the whole system works.”
The expertise they developed led Fromm and Acosta to start offering a Social Security Claiming Strategies Class to the public in June 2012. They now run the program regularly and work with a marketing firm to identify and contact prospective attendees in the target demographic. They advertise the programs in local newspapers, and referrals from past attendees also boost enrollment. Fromm says the classes cover filing-age strategies, the financial impact of filing at different ages, and earnings tests as part of the material.
Class participants are invited to a follow-up meeting at the Money Wise office. The information gleaned from that meeting allows Fromm and Acosta to determine whether the person or couple would benefit from a more detailed Social Security analysis. “We need to determine if an analysis would be appropriate for them because there are a lot of different strategies,” says Acosta. “Social Security is just not a cookie-cutter program. At the end of that first meeting, if we all agree that they do want to see the full analysis, then we schedule a follow-up meeting. We have a fee for that analysis. We did a lot of research into the different software that is available and we found a company [Social Security Solutions] that gives very detailed printouts; we go over that with the client when we have the follow-up meeting.”
Selling the solution
Horath decided to leverage his knowledge and experience with the complexities of Social Security into a marketing and advisory program that other financial advisors can buy. The program is sold for $339 online as the “Social Security canGROW Your Financial Practice Tool Kit.” Shedden says it is a turnkey package to “get advisors up and running on Social Security income planning for their clients in a short amount of time.”
The program includes education materials for advisors, PowerPoint presentations that can be used with the public, articles that can be distributed to prospects and newspapers, and advice on incorporating Social Security income planning into a financial advisory practice. The package also includes marketing advice.
“It talks about centers of influence, such as accountants, attorneys, estate planners and human resource personnel,” says Shedden. “It talks about giving group presentations, how to brand your practice so that you will be the person in your community to go to for this service.”
Financial marketing organizations (FMOs) are also starting to offer Social Security programs to their affiliates. Magellan Financial in Topeka, Kan., started testing a program in late 2012 with a limited number of agents and subsequently rolled it out this past January. The program’s presentation is aimed primarily at married couples between the ages of 58 and 66, according to Alex Stanchfield, the company’s marketing director. Agents can follow up with a more detailed analysis for each couple using software from Charlotte, N.C.-based Impact Technologies Group Inc.
“That allows us to sit down with the client in about a 40-minute to one-hour consultation that we offer at no charge and show them what’s going to give them the most lifetime income when it comes to Social Security, based on a number of different factors,” Stanchfield says. “(Those factors include) their current age, what their full retirement age benefit is for each individual in that couple and then when they plan on retiring. We show them the difference between if they wait and if they don’t wait or if they file right away. This software program is really helpful, and it’s really user-friendly, easy to use and you can sit down with a client and create a customized report for them. It’s just a good way to start the income-planning conversation.”
FMO Able Financial in Centennial, Colo., also offers a Social Security-based marketing program, says Jonathan Musgrave, a principal with the firm. He reports that the company’s affiliates are having success with their presentations.
“If you did a normal investment-type seminar, you might get half a percent to eight-tenths of a percent response rate,” he notes. “(With a Social Security program) you can skip the meal that you would typically serve with a seminar, just do an educational workshop and double or triple your response rate. We’re seeing averages upward to 1 percent and 1.5 percent response rate on our Social Security planning workshops.”
Seniors are eager to learn more about Social Security income planning, Musgrave says. Because many advisors overlook that subject, it creates a market opportunity.
“There’s actually a statistic that says that 75 percent of advisors or 3 out of 4 financial planners do not address Social Security timing planning with their clients,” he says. “We’re actually able to fill that gap, and that’s one of the reasons that this market has been so responsive.”
Buying a packaged Social Security planning program can be helpful, but senior market advisors should still be ready to work, Acosta cautions. “The advice that we would offer is, be prepared to do a lot of research and homework,” she says. “You have to realize that this is a government program, and when potential clients are coming to you for advice, you need to make sure that you’re giving them the proper advice. We find that the biggest mistake is that people come to us and their current advisors either misadvise them or they couldn’t advise them at all. So, we just tell people if you’re looking to get into this arena, you need to make sure you know your stuff.”
For more on Social Security, see: