When providing advice to clients on matters of Social Security benefits, the first quarter of the year is an excellent time to meet. During the first quarter, financial advisors often meet with clients to review the prior year’s performance and to set goals for the upcoming year; tax professionals meet with clients to review tax returns and plan strategies for the new year. Social Security advisors must also be ready at this time of year to proactively assist clients to maximize their Social Security benefits and to answer basic questions.
This five-part series will explain the talking points that advisors need to share when meeting with clients to discuss Social Security benefits and provide assistance. Advisors must be proactive, not reactive, when meeting as clients are looking for both assistance and advice. This first part will discuss several important concepts:
- the role of Social Security representatives,
- how benefits are calculated,
- an explanation of the Social Security statement, and
- an explanation of the meaning of the terms “Primary Insurance Amount” (PIA) and “Full Retirement Age” (FRA), sometimes referred to as “Normal Retirement Age”.
Role of Social Security Representatives
The primary role of representatives at the Social Security Administration is not to assist or explain Social Security options with individuals. In fact, Social Security employees have been directed by the Commissioner of Social Security to specifically not review all available options. Social Security representatives tend to think “Inside the Box” by reviewing specific options for retirement at specific times such as at age 62 (time of earliest benefits), the individual’s Full Retirement Age and at age 70 (time of maximum benefits). This same information is actually also reported on the individual’s Social Security Benefit statement.
(Check out: 2017 Social Security and Medicare Facts co-authored by Marc Kiner)
Social Security representatives are not trained, or even permitted to present various “Outside the Box” options such as whether the coordination of spousal benefits would provide a higher level of benefits. It is therefore imperative that advisors are proactive and assist their clients in developing a plan to understand and maximize their benefits especially since the Social Security Administration takes an “advice neutral” stand. The SSA belief is that maximum benefits can be discerned by individuals through reading the SSA website at www.ssa.gov.
Retirement Benefit Calculation
Many advisors mistakenly believe that retirement benefits are based on the last five years of earnings or the highest five years of earnings. In actuality, benefits are based on the highest 35 years of indexed earnings. The term “indexed” indicates that the earnings are adjusted (indexed) for inflation.
The “highest 35 years” formula is utilized even the individual did not work for thirty-five years, such as if an individual stayed at home raising children for a number of years. In this instance, a spouse with the minimum 10 years (40 quarters) of employment will have 25 years of zero income factored into their benefit calculation, resulting in a smaller benefit. In this situation, it may be wise for the advisor to recommend that the client go back to work to replace zero earnings years with some positive earnings. The role of the advisor in this instance is to fully understand that retirement benefits are based on 35 years of indexed earnings.
(Marc Kiner is the co-author of 2017 Social Security and Medicare Facts, published by The National Underwriter Company, a division of ALM Media, and available for purchase here. Kiner is also the co-founder of National Social Security Advisors, LLC, which provides education, training and certification for Social Security consulting.)