Who can resist an urban myth? Like the man who drank clear liquid from a salsa jar in a friend’s apartment. Believing it was alcohol, he immediately spit the contents out when he realized it was gasoline…and then lit a cigarette to get over the shock.
Or the sewer worker who succumbed to highly toxic hydrogen sulfide fumes and lost consciousness, as did the six people who followed him, each in turn falling unconscious into the container of waste in a vain attempt to rescue those who had gone before (from “Pool Party.”)
True? Probably not, but entertaining nonetheless. It’s not quite as funny when it comes to the myths surrounding Social Security, and most of your clients will cry rather than laugh when they realize the benefits they sacrificed on the altar of misinformation.
With that in mind, we debunk 10 myths involving Social Security (10 through six are here, five through one will be in our next post in two weeks).
Lest you think this a David Letterman-style list, with the payoff closer to the end, each of the 10 myths has an equal shot at devastating even the best-laid retirement plan.
After years of research with thousands of clients, these are the misconceptions we most often hear:
10) Social Security doesn’t impact the overall retirement portfolio.
This could constitute an entire post. Social Security benefits are a source of income in retirement, so why wouldn’t it be included in a retirement income portfolio? For some weird psychological reasons, the depths of which we have yet to plumb, too many advisors and clients consider it to be this “other” stream of money. Yet including it in stochastic and deterministic modeling projections presents a more accurate picture of the recipient’s retirement projection, income strategy and risk profile.
The Takeaway: As an example, if original projections have clients exhausting their retirement income in 2030, they could, with some degree of confidence, now see it extended out to 2035, allowing them to more precisely plan.
9) My clients are rich, and don’t care about Social Security planning.
Even for high-net-worth clients, when and how to take Social Security benefits is still a million-dollar decision. We don’t care who you are, you’d be pretty upset with the advisor who lost it for you (or who never even informed you it was there).
The Takeaway: Inheritance isn’t the only source of wealth for high-net-worth clients, and those who earned it on their own are pretty smart about their nickels and pennies.
8) Social Security won’t be around for my clients to collect.
If you’re 25, you’re forgiven for such a thought. But for those advising clients that are 55 or older, this can be one of the most invidious myths of all. The most prevalent age to begin collecting benefits is 62. Some of the reasoning involved is a bias against Social Security solvency, driven by media hype surrounding government shutdowns, record debts and ballooning deficits. The reality is that Social Security is an incredibly popular government program (how often can that be said?).
The Takeaway: Prudence requires consideration of a time when solvency might be an issue, but it won’t be happening anytime soon, and don’t let you clients hurt themselves in the meantime.
7) I don’t need to offer my clients Social Security planning services.
The beginning of Social Security benefits is the beginning of a new life stage for many recipients. As such, they are more open to other planning and strategy discussions at that time; it’s a natural progression. Additionally, more baby boomers are retiring, and more Americans are relying on Social Security for a larger portion of their retirement portfolio.
The Takeaway: If you aren’t speaking to your clients about Social Security planning, it’s a safe bet someone else is.
6) The Social Security Administration will tell my clients what to do.
No, it won’t. SSA agents may tell your clients about the rules, which your clients will mistake for “advice,” but Social Security agents are prohibited from dispensing guidance of any kind. Biases toward collecting early that are inherent in the Social Security system, due to “save the date” and similar issues, further confuse recipients.
The Takeaway: There’s a reason Social Security optimization platforms exist.
Any of the aforementioned myths can devastate a client’s retirement income portfolio, and by extension the advisor’s retirement income business. Look for five more dangerous myths in our next post.
(Photo: This Jan. 11, 2013, file photo shows the Social Security Administration’s main campus in Woodlawn, Md. A new congressional report says the SSA has been closing a record number of field offices, even as millions of baby boomers approach retirement. The agency blames budget constraints. As a result, seniors seeking information and help from the agency are facing increasingly long waits in person and on the phone. AP Photo/Patrick Semansky, File)