Why Social Security Is So Vital to Retirement Planning

The American College of Financial Services
December 3, 2019

Social Security is a near-universal program, with 97% of all Americans between the ages of 60 and 85 either receiving benefits or scheduled to receive them. That means, as a financial advisor, nearly all of your clients have a stake in the system. If you want to provide strong retirement income planning advice, you need to understand the role Social Security can—and can’t—play.

How Much Retirement Income Does Social Security Provide?

For many retirees, Social Security pays for half or more of their monthly expenses. However, not all retirees receive the same amount each month. Because the benefits are progressive, those who earned less than the average throughout their careers will have more of their earnings replaced by Social Security than will those who earned more than the average. In general, lower wage workers can expect to have about half of their earnings replaced, while higher wage workers can expect to have a quarter or less of their earnings replaced. As of 2019, the average monthly benefit is $1,470 a month, although many recipients elect to have the premiums for Medicare Part B deducted from their checks, reducing the cash benefit. A cost-of-living adjustment routinely raises benefit payments by small amounts.

What Role Can an Advisor Play?

In addition to lifetime wages, the age at which a retiree elects to start receiving benefits also affects the amount of their monthly Social Security check. Those who start claiming their or their spouse’s Social Security benefit at the age of 62 (the earliest someone can claim) will get a smaller percentage of their benefit each month than someone who delays their benefits past the age of 65. Since many people struggle to choose the best time to start receiving benefits for themselves and their spouse, a financial advisor can play a valuable role.

In general, developing an optimal claiming strategy for Social Security requires understanding a retiree’s and their partner’s retirement goals, factoring in each partner’s relative health and life expectancy, and accounting for other sources of available retirement income. With the proper advice, clients can avoid making poor Social Security claiming decisions that ultimately cost them income.

Is Social Security Stable?

The long-term viability of Social Security is a concern for many people—and another area on which you can provide advice and guidance. The American College of Financial Services recently surveyed 245 financial advisors with the Retirement Income Certified Professional® (RICP®) designation and found that 67% of these advisors have clients who are at least moderately worried that the Social Security program will drastically cut or eliminate benefits. However, over 50% of the advisors themselves say they aren’t worried about major cuts.

The discrepancy comes from the fact that the advisors have a deeper understanding of the system and know that Social Security is likely to remain in place for the foreseeable future. Additionally, since these advisors can help clients live in retirement using strategies that aren’t solely dependent on Social Security—or dependent on any other single source of retirement income—they are confident in their clients’ ability to plan for and live in comfortable retirement.

How Can You Provide Your Clients With Stronger Retirement Advice?

Whether your clients have questions about Social Security or about any other aspect of retirement income planning, the RICP® designation will provide you with the knowledge you need to help your clients make good decisions and thrive throughout their retirement. It’s a powerful designation for any financial advisor looking to elevate the value they offer.

All facts in this piece come from the Center on Budget and Policy Priorities

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