When an individual makes an appointment with the Social Security Administration, they often believe that the representative will be able to instruct them on how best to file and maximize their monthly benefit. In actuality, the representative is legally prohibited from giving any advice on how someone should file for their Social Security benefit, which could affect approximately 50-90% of their retirement paycheck.
Pro tip: The Social Security Administration will not tell clients how to get the most out of their Social Security check. This is a great opportunity for advisors to strengthen client relationships!
It’s easy for individuals to get confused by Social Security benefits because they usually start receiving promotional material at age 60. The material informs them of their eligibility to begin taking their social security benefits at age 62. They then share that information with their peers, without considering that the rules are different for people of different ages and different dates of birth (which are major factors when determining benefit amounts and eligibility).
Advisors are uniquely positioned to help their clients overcome many common Social Security misconceptions like these:
Misconception 1: The full retirement age is 62.
Fact: 62 is the age at which you become eligible for Social Security (unless, you are widowed – in which case you are eligible to file for Social Security at age 60). The full retirement age is a sliding scale. If you were born between 1937-1942, your FRA is 65. If you were born between 1943-1954, your FRA is 66. If you were born between 1955-1959, your FRA is 66 and some number of months depending on your birth year. If you were born in 1960 or later, your FRA is 67.
Misconception 2: If I begin collecting my Social Security benefits early, I will only take a penalty in the years leading up to my full retirement age.
Fact: Once you accept an early withdrawal penalty, you have it forever. It does not go away once you reach full retirement age.
Misconception 3: Waiting to claim until age 70 is the best way to maximize your Social Security benefit.
Fact: While you will get an eight percent increase due to Delayed Retirement Credits for each year you wait to file for Social Security benefits, you’ve sacrificed income during those years so it might not ultimately yield you the most income. Additionally, you might be losing out on special spousal strategies that would allow you to switch between collecting a spousal benefit (while earning delayed retirement credits on your record), then filing for your benefit in the future, or vice versa. This strategy sometimes provides a greater cumulative strategy for a married couple.
To battle these misconceptions, consumers need to run the numbers and compare scenarios. An advisor’s role in retirement planning should include Social Security advice to help their clients determine the best scenarios alongside their other retirement investments.
LifeYield provides an easy-to-use tool that advisors can use to walk their clients through multiple scenarios to determine the exact age that will maximize their social security benefits. With Social Security Advantage®, advisors can be more proactive when it comes to Social Security and can help remove much of the mystery around this important source of retirement income. This increases your value to clients across the age spectrum from those planning retirement investments in their 30's and 40's to those approaching retirement.
LifeYield's Social Security Advantage is available to advisors and retirement plan sponsors to help their clients enjoy their personal LifeYield Tax-Smart Retirement Paycheck®.
A Social Security optimization tool is a key piece of technology when you're looking to deliver a complete client experience. This whitepaper walks through all the major elements of a modern wealth ecosystem and how they benefit both the advisor and the client.