Advisors who become experts in Social Security benefit timing and filing as part of their practice really add value to their firm and their clients’ retirement plans, specialists say.
Even the Social Security Administration admits it falls short on optimizing benefits planning. In fact, in a sample of 100 retirement beneficiaries, 69 were eligible for higher survivors benefits, found the SSA’s Office of inspector General in a June study. Of those 69 surviving spouses, 49 were eligible for about $630,000 in survivors benefits.
This oversight occurred, said the OIG, because 1) SSA employees did not always assess and take action when cases were alerted for possible payment increases, and/or 2) they did not have processes to detect beneficiaries potentially eligible for higher survivors benefits.
The review also found that 15,076 retirement beneficiaries were eligible for $193.8 million in survivors benefits as of September 2019. Plus, an estimated 12,615 of these beneficiaries could lose an additional $530.9 million in survivors benefits over their lifetimes.
Advisors who specialize in this area have found that working with clients — not just widows and widowers — on when to file for Social Security could mean the difference of more than $100,000 in lifetime benefits that are missed.
But surviving spouses are regularly missed, says Joe Elsasser, founder and CEO of Covisum, a software firm that created a Social Security timing solution for advisors. He is also a certified financial planner with his own advisory in Omaha, Nebraska.
Widowed spouses can claim survivors benefits for a period of time and then later switch to their own retirement benefit or visa versa, he adds.
“The first step for advisors in where they add value is just identifying the options and quantifying the value between the options. And software is well suited to do that,” he says.
Elsasser’s software, called Social Security Timing, came about as a way to simplify his spreadsheet method of calculating the best timing for his own clients, as no software was available at the time (around 2009).
Married couples, surviving spouses and divorced people all come with different “complexities,” he says. ”Once you start to get into all the nuances around Social Security, you see there is just a ton of value in specializing in that because it’s such a core decision for the mass affluent, even the affluent retiree,” he says. “It’s a regular thing to find a $100,000 spread — present value — between an optimal claiming decision and someone just claiming early, which was always the default, especially 10 years ago.”
More Social Security Software
James Loftin, CEO of Gerloftin Wealth Advisors near Atlanta, who utilizes LifeYield software for his practice, found the SSA gave some of his clients bad advice that would have cost them thousands of dollars.
“The SSA gave [married clients] two different answers and one of them was dead wrong,” he says. For example “giving them some bad information when they should max out or when they should pick up spousal benefits. There’s a lot of confusion. Our firm challenged the SSA’s recommendations and got the couple $60,000 and $100,000 more in potential lifetime benefits.”
LifeYield, like the Covisum offering and other financial software, uses an analyzer to run through different scenarios and optimizes client information to determine the best options, such as whether to take full or partial benefits and the best time to access their benefits.
“But there’s a lot of nuances to it, and a lot of new [SSA] rules when a spouse should take full benefits, what happens if one of the spouses is deceased, etc.,” Loftin says, adding that “having the software takes a lot of guesswork out and [clients] can quickly look at it [a graph] and see at different decision points how their benefits will [change].”
Another example is when a couple came in and the husband, who self-managed their money, just wanted to check on the optimal time they should begin to collect Social Security benefits. They found an optimal strategy in which the younger wife would file sooner and delay his filing until 70, while still attaining their goals. It added a potential $114,000 in lifetime benefits, Loftin explains.
Elsasser says the power of doing this work is pairing it with other revenue streams, such as pensions and IRAs, to determine the best route for the client.
“Social Security has all kinds of weird rules, like if you were born on any day of the month other than the second, you actually are not able to claim at age 62,” he says. ”If you were born on the first, Social Security treats you as being born in the prior month, but if you aren’t 62 throughout the entire month, you can’t claim that month, which means that everyone other than those whose birthdays fall on the second of the month are actually claiming at age 62 and one month.
“There are so many goofy rules like that that abound in Social Security that advisors who do [this work] are really able to differentiate from advisors who don’t. And when clients see that, it makes [the advisor] really referable.”
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