What You Need to Know
- The Social Security claiming decision should be one of the first decisions a retiree-to-be makes.
- Advisors with Social Security expertise are in an excellent position to add value to their clients and increase referrals.
- Holistic retirement planning examines not only investment accounts but also reverse mortgages, tax strategies, health care, long-term care and estate planning.
With the rise of more online, remote access to financial advice, including robo-advisors, there has also been increasing pressure from younger workers who want more than just investment advice. Financial professionals who see the value of providing a holistic approach to financial planning can set themselves apart by expanding their scope of services.
The traditional financial advisory service of calculating optimal portfolio allocations and focusing on measurement of alpha (the return of an asset) and beta (an asset’s historic volatility) no longer provides sufficient personal value for many of today’s investors.
Beyond alpha and beta, gamma is the term used by Morningstar academics to measure additional income realized as a result of holistic planning. Especially when providing holistic retirement financial planning, the variables involved in evaluating this type of comprehensive planning are numerous as retirees age.
In its 2013 study titled Alpha, Beta, and Now … Gamma, Morningstar quantified a 22.6% increase in retirement income using only five strategies: (1) total wealth (including Social Security), (2) withdrawal sequence strategy, (3) incorporation of additional income products, such as annuities, (4) tax-efficient decisions and (5) liability-relative asset allocation optimization.
Morningstar did not examine all possible strategies, such as the long-term impact of Roth conversions when increasing taxes are expected, nor did they consider the use of the many home equity conversion mortgage (HECM) options such as reverse mortgage lines of credit. But the additional or increased retirement income can be significant when utilizing a holistic approach to retirement financial planning.
Starting With Social Security
As a registered Social Security analyst, I feel strongly that the Social Security claiming decision for a retiree-to-be should be one of the first decisions to make as they approach retirement.
For financial planners looking to attract retirement-age clients, Social Security advice is perhaps the most nearly universal, nonthreatening and sought-after retirement financial topic. The financial consequences that result from helping workers understand and make a smart Social Security election decision are numerous.
First, as reported by Statista, in 2020, only 29% of Americans worked with a financial advisor, while 65 percent said that they didn’t have a financial representative. Nearly all Americans, however, will be eligible to collect Social Security. Looking for more clients and referrals? Become a Social Security expert and watch your popularity skyrocket!
Financial advisors who have Social Security expertise are in an excellent position to add value to their current clients, increase referrals and reach a large segment of the retiree demographic who may not yet work with a financial planner.
Second, in the same Statista article, giving retirement investment recommendations was the service financial advisors performed most often for retirees in 2019. Although investments are often considered only funds held in retirement and personal accounts, all assets must be included in a retirement plan.