In June, Social Security’s trustees reported what was, on the whole, good news: that scheduled benefits
Still,
A 2021 study by the Center for Retirement Research at Boston College concluded that news accounts of the annual Trustees Reports often adopt an alarmist tone, focusing on reserve depletion and de-emphasizing the ability of ongoing revenues to deliver about three-quarters of scheduled benefits. And other studies have found that concerns about Social Security’s future could lead to earlier claiming, which might be a poor choice for many seniors.
“We encourage everyone to delay claiming Social Security if financial, health and other circumstances permit,” said Laura D. Quinby, a senior research economist at the center and co-author of the study.
Mary Johnson, Social Security and Medicare policy analyst at the Senior Citizens League, concurs, urging financial planners to focus on advising clients about the retirement age when they’ll get the maximum benefit — age 70 — or full retirement age (FRA) if someone needs to retire sooner.
As Johnson points out, “Headlines are written to draw readers, and there’s no policy that’s going to change that. Nor should it.”
Not going anywhere
If clients and prospects will continue to receive downbeat news about Social Security, how can advisors bring a more balanced view to the start-date decision?
They can start by making sure they don’t, themselves, fall into the Social-Security-will-disappear-any-minute-now trap — after all, planners read the grim headlines, too. Rather, they must realize and convey to clients that Americans will keep working, payroll taxes will keep getting collected and benefits will keep being paid to retirees — even if the trust fund does tap out.
“We rely on trusted sources to keep abreast of this issue,” says Chris Cordoba, founder of California Retirement Advisors, based in El Segundo, California. “Then we can communicate important information to clients, especially those who are just reading headlines in the media, titles on social media posts or scare-tactic marketing materials used by some financial service providers, increasing their concern about the Social Security trust fund.”
Educating people about Social Security’s finances produces good results, affirms Kathy Stepp, founder of Stepp & Rothwell, a financial planning and investment advisory firm in Overland Park, Kansas.
“None of our clients has brought up this topic recently,” she said. “In 30 years, I haven’t had anyone panic over Social Security.”
Stepp tells her clients that the Social Security reserve fund is indeed being depleted, but only by the amount of benefits paid in excess of taxes received. “Before it’s depleted, there will be an increase in taxes or, more likely, another deferral of start dates. Because the benefits are capped, the math can be done to cover the shortfall,” she said.
Rainy day buckets
Assurances about Social Security’s viability are strengthened when backed by a financial plan that keeps cash flowing through the years.
“We remind clients that we've created a distribution strategy to fund their income for many years,” said Cordoba. “We use a ‘now’ bucket of assets that funds one to two years of income; a ‘soon’ bucket for two to 10 or 15 years; and a ‘later’ bucket for beyond. We don't expect Social Security to fall off a cliff, but we could take any shortfall from bucket one, then reload that bucket, as needed, from buckets two and/or three, over time. This plan covers any number of unforeseen events, including but not limited to a change in Social Security benefits.”
Such astute planning tactics may help clients maximize retirement benefits by giving them more ways of deferring the start date of their Social Security benefits.
“If working longer isn't an option,” said Quinby, “someone could consider
While Social Security is delayed, an amount equal to the expected future benefit can be withdrawn from a 401(k) each month for living expenses until the increased Social Security benefit begins. Creative ways to enable seniors to delay claiming may help counter the premature filing that can result from unnerving press posts.
Foiling the formula
Fair press or frantic, the strains on Social Security can’t be denied.
“Americans are retiring earlier, living longer and saving less,” says Randy Thurman, CEO of Retirement Investment Advisors in Oklahoma City. “That’s a formula for disaster. More people are depending on Social Security, and it’s no wonder they’re scared to death it’s not going to be around. There’s a lot of fear-slinging in the news.”
To combat the doom and gloom, Thurman, author of “The All-Weather Retirement Portfolio,” tells clients that Social Security isn’t going away. Benefits may be reduced, but will be there. Taxes might be increased in some manner, especially on high-income taxpayers, as has been done with Medicare premiums.
“As advisors,” he said, “our job is to share the facts, not the fear, and build flexible plans that can weather these storms.”
The facts about Social Security are cause for concern, but advisors can alleviate clients’ worries with effective explanations and savvy strategies.
