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January 16, 2024 at 10:40 AM
What You Need to Know
- Welcome to Connecting the Dots, Marcia Mantell's column on real-life decisions tied to Social Security claiming and retirement.
- Younger clients might be worried about the future of Social Security. Reassure them that it's not going away.
- Help them build confidence and a sense of control by giving them good tools to run their own scenarios.
As we kick off a new year, financial concerns run high across the younger generations. A key issue for financial advisors working with clients between 35 and 55 is how to build Social Security into their financial outlook.
Most reports find at least half the younger generations think they’ll get nothing from Social Security. It’s time to set them straight.
Be confident Social Security will be around.
Social Security is a gigantic law of thousands of pages. It works by collecting payroll taxes and paying them back out. The program is managed with a 75-year view.
Even though the inbound dollars will be insufficient to cover all obligations beginning in 2033 or thereabouts, there are many levers that can be moved up or down to limit the damage. Talk to your clients about the following:
- Every Congress since 1983 has known about this imbalance. It’s not new.
- Every Congress since 1983 has had more than enough opportunities to take small actions to shore up the program. All have chosen not to act.
- Most Americans could never save sufficient assets to pay for a 30-year retirement.
- Congress will not leave the vast majority of older citizens living below the poverty line.
The program is wobbly today, but it will deliver insurance benefits to millennials and Gen Xers. Otherwise, they should save 50% of their income!
Action Items to Build Younger Clients’ Confidence
What can realistically be assumed for clients who are young and trying to plan? Here are three important to-do’s to talk about with your clients:
1. Do the math.
Each client needs to connect the dots between Social Security’s potential payments and their own savings. The outcome is bleak if Social Security disappears. (Again, it’s not going away.)
Have your clients run projections of how Social Security affects their retirement spending using the “How Important is Social Security?” tool on Dinkytown.net. They’ll quickly see why this program cannot be eliminated. Two examples to set the stage:
Millennial Marc. He’s 35, earns $65,000 and saves 12% (the median for this generation). His 401(k) is at $50,000 (average for this generation).
- Retiring at 68 with Social Security intact? He should have more than $650,000 remaining assets at age 100.
- Retiring at 68 with no Social Security? His savings run out at 84.
Gen X Gemma. She’s 50 with an $800,000 portfolio.
- Retiring at 68 with Social Security? She also ends up with more than $650,000 at age 100.
- Retiring at 68 with no Social Security? Her savings are depleted by 89.
2. Use great resources.
This may sound funny in a not-so-funny way, but all clients should be using AARP’s website. They aggressively advocate for strengthening Social Security and provide excellent, comprehensive content.
