Optimizing Social Security Benefits for Client Financial Plans
Explore the importance of discussing Social Security benefits with clients to enhance their financial plans. Learn how to utilize tools like RightCapital to illustrate the impact of Social Security decisions and avoid common pitfalls. Discover key factors influencing when to begin Social Security and how to help clients make informed choices for a secure retirement future.
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Presentation Transcript
How to Win Clients by talking about Social Security optimization Nov 2016
Agenda Why have discussions around Social Security? How to use RightCapital to illustrate Social Security decisions Illustrating the impact of Social Security decisions to prospects / clients
Reasons to discuss Social Security with prospects Advisors risk losing clients if they fail to include Social Security in their clients financial plans. Many clients are uninformed about Social Security; they need professional advice. Many clients take Social Security earlier than they should 48% of men and 42% of women take benefits at age 62* Even after recent rule changes, Social Security discussions are still relevant * according to data from the Center for Retirement Research at Boston College.
Quick Review of Social Security Benefit Basics Retirement Spousal Survivor Eligibility Age 62 62 60 Full Retirement Age 65 to 67 Same as Retirement 66 Max (82.5% of deceased PIA, monthly retirement income) Primary Insurance Amount PIA 50% of spouse s PIA Early Withdrawal penalty 5.0% to 6.7% per year 5.0% to 6.7% per year 4% to 6% per year Delayed Retirement Credit 7.5% to 8% per year None None
What you need to know about Social Security Benefits Retirement benefit, Spousal benefit and Survival benefit Primary Insurance Amount (PIA) Early start penalty Delayed Retirement Credit Cost of Living Adjustment (COLA)
3 questions on when to begin Social Security How much income do you need in retirement? How long will you live? Because you can t be sure how long you ll live, what makes you feel more secure; a smaller benefit sooner or a bigger benefit later?
Case Study - Meet the Bradys Mike and Amanda: Current ages: Life expectancy: Salary: Social Security: Monthly expenses in retirement : Invested assets: $ 1.5mm qualified married 56/54 90/90 $200,000/ $100,000 ? $10,000 $ 100k non-qualified
What are the Bradys options? three simple strategies tested Take as early as possible at age 62 Start receiving benefits as early as possible, incurring early start penalties Wait until Full Retirement Age No penalty nor delay credit Wait until age 70 Delay as long as possible to maximize the delay credit
How big is the difference? Total benefit Difference Take as early as possible at age 62 $2,384,201 Wait until Full Retirement Age $2,718,649 +$334,448 Wait until age 70 $3,051,951 +$667,750 Assumes life expectancy of age 90 for both Bradys and 2.5% annual Social Security COLA.
Comparison between wait to 70 and Start early Wait to age 70 results in much higher payment in later years $667,750 total savings with a life expectancy of 90 years Start early results in more payments in earlier years
Life expectancy is an important variable to consider Delay strategy generates more payments if living longer than 79 Early strategy generates more overall payments before age 79 Two strategies cross over at age 79. If client expects to live longer than age 79, then the delay strategy generates more payments. Otherwise, the earlier strategy generates more payments.
Use a holistic approach when determining social security strategy If you delay social security, how do you fund retirement expenses before age 70? Take into account any spousal benefit and survivor benefit Take into account other income and financial goals. Define your optimal strategy by consulting a financial advisor
RETIREMENT BENEFIT BASICS Eligibility age 62 Normal retirement age 67for 1960+; 65 for 1937 and earlier Preliminary benefit amount PIA, Full Retirement Benefit Early withdrawal penalty 5.0% to 6.7% per year 8.00% per year for DOBafter1943, 7.5% per year for DOB between1941 and 1943 Delay creditis up to age 70 Delay credit
SPOUSAL BENEFIT BASICS Eligibility age 62 Normal retirement age Same as retirement benefit Preliminary benefit amount 50% of spouse s PIA Early withdrawal penalty 5.0% to 8% per year (35% max) Delay credit none Government pension offset As much as 67% reduction of spousalbenefit Reducedbenefit if you work for an employer who does not withhold Social Security taxes from your salary such as a government agency Windfall elimination
SURVIVOR BENEFIT BASICS Eligibility age 60 Normal retirement age 66 Preliminary benefit amount Max( 82.5% * deceased spouse PIA, his monthly retirement benefit) Early withdrawal penalty 4% to 6% per year (28.5% max) Delay credit none
