People think they know more about Social Security than they really do. According to a recent Nationwide Retirement Institute® survey, about 54% of respondents said they know exactly how to maximize Social Security benefits. Yet only 6% were able to actually identify the factors that determine a maximum benefit.
Helping clients fully understand Social Security and develop a personalized plan for claiming benefits is an important part of the financial planning process. It is also a great way for you to demonstrate your value as a financial professional. Every client or prospect you work with has questions about Social Security. Here are some common questions and misconceptions every financial professional should be prepared to address.
Misconception: Well over half of Americans believe that the Social Security program will run out of money.1
About 70% of adults worry that Social Security will run out of money in their lifetimes. That’s not a completely unfounded belief. According to the Social Security Board of Trustees, the program will exhaust the Social Security Trust Fund in 2034. At that point, incoming tax revenues will not be enough to support existing benefits. This would result in a 20% benefit cut for retirees.
That said, there are many things Congress could do to address Social Security’s long-term solvency. Options range from increasing Social Security tax rates, to imposing Social Security taxes on more income, to increasing Full Retirement Age, to offering incentives for wealthier Americans to opt-out of the program. The bottom line is that Social Security is a popular program that enjoys broad bipartisan support. In the coming years, there will be tremendous political pressure to extend the solvency of the program and Congress has many tools to do that.
Just under half of Americans surveyed in our 2022 Social Security study don’t have a clear sense of how much they will get in Social Security income.1
The Social Security Administration provides a free and secure “my Social Security” online account, which can produce up-to-date statements showing projected benefits. Encourage your clients to download their statement and provide you with a copy. This is a great first step in any retirement income plan.
Do Social Security benefits provide enough income to live on?
In general, no. In fact, it says right on the Social Security statement that Social Security was never intended to be our sole source of retirement income. When most people look at their essential monthly expenses in retirement and compare them to their projected monthly Social Security benefit, they will likely find a significant gap. As a trusted financial professional, you can help guide your client with tools to help optimize their Social Security benefits and then solve for the retirement income gap.
At what age do you receive full Social Security benefits?
You receive full Social Security retirement benefits at Full Retirement Age (“FRA”). For people born in 1954 or earlier, FRA is 66. If you were born from 1955 to 1959, FRA increases by 2 months each year. For those born in 1960 or later, FRA is actually 67.
If you claim retirement benefits before FRA, they will be reduced. For example, someone with an FRA of 67 who claims at 62 would receive only 70% of their full benefit. This reduction is generally permanent.
It’s important to make sure clients are aware of their FRA. That’s because a lot of people will want to retire earlier. These clients will need to factor the difference between their actual retirement age and their “Full Retirement Age” into their plans.
Can Social Security benefits be increased by waiting to claim them?
Yes, waiting until FRA ensures you will receive your full benefit, but waiting beyond FRA can produce an even larger benefit. In fact, for every year you wait beyond full retirement age to claim, your benefit will increase by 8% of your full benefit (two-thirds of a percent are credited each month). Someone with an FRA of 67 who waits until 70 to claim would receive a 24% higher monthly check.
But remember, your benefit stops growing when you hit 70, so make sure your clients don’t wait beyond age 70 to claim.
If Social Security Benefits are claimed early, will they go up at Full Retirement Age?
They will not. The amount in effect when you claim benefits, plus any subsequent cost-of-living increases, is the amount you will receive through your lifetime. That’s why your filing decision is so important.
If your spouse passes away, will you receive fewer Social Security benefits?
Yes. Married couples generally get two Social Security checks each month. When one spouse dies, the survivor will continue to receive the higher of those two checks. Still, by going from two Social Security checks each month to one, a survivor will always receive less Social Security income at a household level.
If you make a Social Security filing mistake, can you fix it?
If you claim Social Security early but change your mind, your options are somewhat limited. In the first year after claiming, you can withdraw your application, repay any benefits you’ve received, and then refile later. Once you hit full retirement age, you can suspend your benefit and receive an 8% delayed retirement credit each year. Not surprisingly, neither of these options are used very often.
Working with your clients so that they have a plan before they claim is a much better approach.
Social Security resources
When it comes down to it, everyone’s situation is different when it comes to their retirement and Social Security planning. As your client’s trusted financial professional, you can help guide them when it comes to making the best decision for them by providing a base level of knowledge about the program and showing them ways to optimize their filing decision.
Enhance your brand by offering the Social Security guidance your clients are seeking by reviewing the resources offered by the Nationwide Retirement Institute.