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Of all the topics discussed in customer conversations, social security can pose special problems for advisors. Planning when to claim benefits can stir up confusion and debate.
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For starters, advisors often tell clients about the basics of this federal program. Many people may not realize that social security is more than a source of retirement income and that some adults and children with disabilities may be eligible.
Others assume that they have to wait to reach a certain age, say 65 years, to receive social security pension benefits. Depending on the age of the client, counselors can explain the pros and cons of accepting these payments as early as age 62.
Some clients are surprised to learn that their non-active spouse is eligible for Social Security. Even spouses who have never generated income can claim benefits.
"A large number of clients do not understand the benefits offered to spouses," said Keith Fenstad, a certified financial planner in Houston. "When I tell a client that your wife who has never worked will get up to half of your retirement benefits, they often answer," Really? ""
Bob Phillips, a 61-year-old Indian-funded financial planner, helps clients focus on the interaction between spousal benefits and the timing of their claims for social security benefits. As people live longer, he explains to clients that after the death of the first spouse (usually the man who earns the highest salary), the surviving spouse will receive the highest benefit from the deceased spouse for life .
"By delaying benefits, your surviving spouse can get more later," he said. "We view this as some kind of insurance policy."
Will social security survive?
For many people, the main problem is knowing when to claim social security. They may try to calculate how long they have to live to break even, depending on the age at which they choose to take out benefits.
"They tend to do this mental exercise," said Phillips. "Often it's based on how they feel medically, but it's a mistake."
Instead, it redirects customers toward assessing their long-term financial status and their cash flow projections for the rest of their lives. From there, it becomes easier to integrate social security benefits into their future.
For some clients, the problem is not knowing when to claim benefits, but whether money will be available when they need it. Skeptics sometimes say to Phillips that they want to take it at 62, before the funds are exhausted.
"The biggest misconception is the fear of the collapse of the social security system," he said. "So we're discussing it from a historical perspective, we think the program will change at some point, but Congress has never changed it for anyone in the system or about to retire."
Even if clients are reassured about the solvency of social security over the next few years, advisors may still need to resolve other issues. In 2015, Congress eliminated the "file and suspend" grievance strategy that has proven to be a complicated but attractive option in some cases. This simplifies the decision as to when to claim benefits from two workers of a married couple, even though a rigorous analysis is still needed.
Market cycles
Part of the advisor's role is to broaden a client's understanding of social security, to consider claim options more broadly by taking into account a broader range of variables. This leads to more informed judgments about how to maximize benefits over time.
Fenstad, 48, likes to look at the big picture when he advises clients on social security. One factor that he judges is the recent performance of the stock market.
"Everyone is looking at the breakeven point," he said. "But I do not know if everyone is trying to find out where the market cycle is at when to start collecting Social Security."
According to him, as the current stock market continues to be around unprecedented highs, it can be argued that the investor's expected return on investment could be lower over the next five or seven years. In August, in the United States, the longest bull race left many Americans wondering how much longer that period of steady earnings remained.
Investors today who choose to sell stocks at a high level could use these funds to cover their living expenses in the short term. This would allow them to defer social security benefits for a few more years and thus gain a greater advantage.
He adds that clients' medical histories, as well as data on the longevity of their family, also play a vital role in determining the best claim strategy. A 64-year-old man who has survived three heart attacks and whose parents have died may be better off taking Social Security as soon as possible.
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