Social Security: Everything You Need to Know (and why it should matter to you)

Social Security is a big topic. It’s fluid, misunderstood and has a huge impact on your clients’ retirement. Even with beneficial changes in Social Security that took place in December 2024 (specifically, a repeal expected to increase benefits for more than 3,000,000 retirees), the program remains a complex benefit full of irrevocable choices for clients. And the problem is that there is not a good source of answers.

When you pose a question to the Social Security Administration, they are trained to respond to that specific question and nothing else. Unfortunately, even when we seek out advice, clients don’t get the whole story or the answers that are important to their situation.

Common questions that we need to provide advice on are:

• When do I begin Social Security?
• What is the best election for my spouse?
• How can I coordinate with my spouse’s benefit?
• Can I maximize our benefits together?
• How does all this work in conjunction with my retirement assets to make sure I don’t run out of income during my lifetime?

Here is the crux of the Social Security confusion: The information and leadership we provide is critical to the retirement success of our clients; however, we don’t get paid by Social Security or on the income increase our advice provides. So why bother with it?

Because Social Security is that important to our client’s overall retirement success and our clients need the knowledge we provide. It makes a huge difference.

Get the Facts

Here are some startling facts from the Nationwide Retirement Institute 2024 Social Security Survey:

• Over half (55%) of Americans have negative emotions about current/future Social Security benefits.
• 72% of Americans worry that the program will run out of funding during their lifetime. Millennials (77%) and GenXers (77%) are more likely to fear running out of funding during their lifetime than GenZ (66%) and Boomers (62%).
• Over two-thirds support an increase of tax from 6.2% to 7.2% to increase funding.
• 51% support the Full Retirement Age (FRA) to be increased to 69 for those individuals less than 50 years old today.
• Only 18% of respondents said they would invest in protected retirement income options like annuities if their FRA increased. 34% said they would increase their 401(k) deferrals.
• Four in five Americans want to learn the impact of inflation on their benefits and get help from a financial professional.
• Half the respondents plan on maintaining their current living expenses while less than one in five (19%) believe their living expenses will be less in retirement.
• Those age 60-65 plan on electing Social Security at age 65, two full years before Full Retirement Age and 100% of benefits.
• 49% agree that they do not know how to maximize their Social Security Benefit.
• Only 4% of respondents identified all five factors that determine maximum Social Security Benefits.
• 33% of Americans do not know the age when they qualify for full retirement benefits from the program.
• There are generational differences in how much inheritance an individual plans to leave for family of other causes. As much as a 30% difference in plans creates a need for individualized planning.
• 65% plan to or are using their full monthly benefit for monthly expenses. Few plan to invest any portion of their benefit.
• Only 45% think their monthly benefit will cover their monthly expenses.
• 43% of pre-retirement income is being replaced by Social Security.
• Two in five Americans are unsure how much their future benefits will be.
• 67% of survey respondents don’t know or project when their retirement savings will run out.
• Life events (47%) were reasons why people took early benefits.
• 66% plan on filing for benefits early and still working. This creates the potential for loss benefits and increased taxation of benefits.
• 58% of women expect their financial professional to provide advice on Social Security.
• 82% will switch to another financial professional if their current financial professional doesn’t show them how to maximize Social Security.

Only you can Increase your clients’ confidence

I’m scared!

This is one of the pillars of retirement income planning for most Americans. And most people don’t have confidence that it will be there for them when they need it. Worse yet, our savings rate in the United States has fallen to less than 4% after the pandemic and our debt load is an all-time high. Our life expectancies are underestimated by as many as 10-15 years. We are reaching the breaking point for many people near retirement.

But there is a bright side!

There has never been a better time to help so many Americans in need. And the consumer will need our services and expertise for decades to come. This relates to Social Security and income planning not to mention the need to pass along trillions of assets to the next generation, manage assets through potential inflationary times and volatile markets, and continue to guide and create wealth.

However, having a vast understanding of Social Security is necessary to provide the best advice for clients in their retirement planning. You simply can’t make proper recommendations without having a command of the client’s Social Security strategies – regardless of income level.

As I have traveled around the country a lot in the last 90 days, I have heard a renewed interest in face-to-face prospecting like seminars. Clients seem to want to gather in larger groups these days as we are further and further away from the pandemic. It’s time to dust off those slide decks and work on presenting new ideas. Many people may be concerned about the economy; however, I would argue that their decisions around Social Security elections will likely have a larger return on retirement income than anything around asset allocation.

If you want to be impactful to your clients or prospective clients, providing education on Social Security options is more meaningful and desirable today than ever before.

But I don’t get paid on Social Security

That’s right. You don’t earn any revenue if your business model is tied to assets under management. However, making the proper decisions around Social Security can benefit your business model in three keyways.

1. Maximizing Social Security takes pressure off your assets under management, especially in later years. Conceptually, the impact of taking longevity off the table with Social Security income greatly increases the probability of retirement success by not eroding retirement assets. Social Security is protected against inflation. In 2025 the increase will be 2.5% for every American receiving benefits from Social Security. That increase would have to come from assets under management to help the client retain purchasing power. By maximizing the benefits, you have provided relief from penetrating the assets and protected them from additional withdrawal levels.
2. Providing education is really needed. Many successful advisors have moved to a fee-based or retainer-based compensation model. This model allows for ongoing compensation while providing services such as Social Security education. As the needs of your client base change, it is completely reasonable to expect some type of pricing changes from a client standpoint. If we are working toward a Best Interest practice, aligning ourselves with the current needs of our clients makes perfect sense.
3. Social Security elections impact not just the primary recipient but also the spouse. Spousal elections are some of the most misunderstood parts of the Social Security program. Choosing the wrong benefit to match the spouse’s needs can be devastating for the surviving spouse, their children and the ultimate estate value passed to the next generation. Making decisions that positively impact on the account balances that are passed to the next generation will exponentially increase the retention rate of your accounts.

Key talking points

No matter where I speak, I always am surprised at how few advisors truly understand and implement Social Security planning into their practices. It comes down to a variety of objections driven mainly by clients’ misunderstandings around the program.

Many clients tell our advisors they want to take their benefits as early as possible because they have worked their entire life and want to see the income as soon as possible. This makes emotional sense, not financial sense. The chances of dying between the ages of 62 to 70 are only about 8%, while the chances of living past age 90 are about 10%. You are more likely to live past 90 than you are to die before age 70. But we still want to take income early. The penalty for taking income early is about 76% of your age 70 maximized value. We need to reframe decisions around Social Security for our clients.

We also hear clients looking at their Social Security statements and focusing on their individual Full Retirement Age. For most clients, that will be age 67 going forward. Instead, we should think of Full Retirement Age as the age when we truly maximize the benefits of Social Security. I encourage you to start thinking about positioning the election for the highest level of income not as Full Retirement Age but age 70. That will increase the monthly benefit by 8% annually from Full Retirement Age, making age 70 the real full retirement age for retirees.

Finally, we need to coordinate with clients’ other income to bring clients into the conversation. Many clients want to know how to better use other streams of income to get into a position to maximize Social Security. This is a perfect segway from our discussions on asset growth and management to income.

Income is the most important outcome in retirement.

In fact, I believe we will be paid in the future for how well we manage the decisions that mitigate risks in retirement. Those decisions can be increasingly impactful for clients near retirement. Coordinating and making the proper decisions on Social Security plays an important role because it reduces pressure on assets, provides longevity protection and creates inflation-adjusted income…all in one major decision.

What to do now?

If you are ready to take the next steps in retirement income planning and want to have meaningful conversations around income in retirement, we are here to help. Our team of Retirement Income Consultants and Specialists are prepared to help you and your clients navigate the complexity of Social Security and income planning in general. Reach out to our team of experts and learn about the vast capabilities in this area. You can remain relevant with your clients and grow your practice at the same time.

*Source: The Nationwide Retirement Institute® 2024 Social Security Survey