Advisors can help clients strategize about the best way to incorporate their benefits into their retirement income plan.
Social Security benefits, along with savings and investments, is an important part of a healthy retirement income plan. Social Security provides a strong base for retirement, with a guaranteed stream of income that’s unaffected by market performance, income that’s adjusted to account for increases in cost of living and some tax benefits. However, clients may be unsure of the best time and strategy for claiming their benefits. In particular, they may be unaware of the potential for increasing their benefits by delaying claiming them as long as possible.
“Clients don’t always grasp the potential impact of delaying, so they really appreciate when advisors provide insights into Social Security strategies that can have substantial consequences for their income in retirement,” says Roberta Eckert, vice president of the Nationwide Retirement Institute.
In fact, one in four clients wish they had delayed their benefits, according to the 2016 Nationwide Retirement Institute Social Security consumer survey. So while many advisors focus their energy on helping clients save and invest, they can also make an impact by helping clients understand how delaying helps them make the most of their Social Security benefits.
How delaying works
Clients may be tempted to take their Social Security benefits as soon as they are eligible, at age 62. In some cases, this approach may make the most sense for the person’s individual situation.
But it is important that clients understand that those benefits will be reduced by a half-percent for every month before full retirement age that a client claims their benefits. At full retirement age (age 66 for those born 1943-1954), clients are eligible to receive full benefits. For every year beyond full retirement age that a client delays receiving their benefits, those benefits grow by as much as 8% annually until the client reaches age 70.
The impact of waiting
When helping a client decide whether a delaying strategy is right for them, there are a number of factors to consider. First, though it can be a difficult conversation to have, help your client examine their life expectancy. The longer they live, the more money they will need to provide for their retirement. So if a client has a family history of longevity, waiting to take a larger benefit could make a meaningful difference.
As life expectancy increases, not only will your client need more money to cover daily expenses for a longer time, but he or she may face additional costs over time. “Increased health care costs, in particular, can really eat into your retirement savings,” says Eckert. Delaying claiming benefits can help close that gap.
Additionally, delaying increases the size of the benefit available to a surviving spouse, should the other spouse pass away. Work with married couples together to determine if one spouse—typically the higher earning or older partner—should delay.
In general, delaying taking Social Security benefits can be a helpful strategy for many clients, but it’s not right for everyone, says Eckert. “Whether recommending that clients delay or not, advisors should help clients understand the decisions they are contemplating,” she says.
Consider using online tools like Nationwide’s Social Security 360 Analyzer®, which can help advisors give clients a complete view of the Social Security strategies that work best for their situation.