Social Security is an enigma. Solve it for your clients

Visit our Social Security resource center for client-approved seminars, resources, and more.

Here’s a sad truth: Social Security is not designed to knock on your door and automatically hand over your maximum possible payout.

According to the National Institute on Retirement Security, 40% of the U.S. population relies on Social Security for their sole source of retirement income. But so few understand how to maximize it for themselves.

At BlackRock, we’ve seen advisors strengthen loyalty with their clients and gain new prospects just by getting this one small but important part of their business right. We’ve compiled a few of their “top tips” that have made a significant impact for many of their clients.

Because in what other discipline can you help clients find money that they didn’t know they had?

Top Social Security tips for clients

Fear of Social Security “going away” should not be a driver of decisions.

Some clients file early simply because they worry that Social Security will suddenly become insolvent. Of course, while filing early can be the right decision for some, many clients who are not solely reliant on Social Security will often maximize their benefits by waiting. Why? Because an individual’s Social Security benefits rise each year he or she defers filing for benefits. This increase is between 5% and 6.67% per year between age 62 and full retirement age and then 8% per year through age 70. You also get a nice bump from Cost of Living Adjustments (COLA), which is projected to be 8.9% this year (however, COLA has averaged around 2% over the past 10 years). That kind of growth is awfully hard to beat with a taxable investment account, especially for a conservative investor at retirement age.

If your clients are still not convinced, remind them that the Social Security Administration is required to be transparent about the health of the program. The most recent projection states that Social Security reserve funds could be depleted by 2035 if Congress does not take action before then. In the event that reserves were depleted, Social Security payments would then be funded only from the taxes collected from current workers, which is projected to satisfy 79% of the benefits recipients had been expecting. (By the way, this language is written on the back of all Social Security checks.)

Filing after age 70 is never a good idea.

You’d be surprised by the number of people who miss out because they wrongly believe they will be rewarded with larger benefits for each year they defer indefinitely. But there is nothing to be gained by deferring Social Security beyond the age of 70. Some people simply forget to file for benefits before their 70^th birthday. Again, Social Security is not going to knock on anyone’s door.

There are “blind spots” that apply in nuanced situations.

Life can be difficult. If your client is widowed, he or she may be eligible to begin receiving Social Security payments as early as 60 years old, and even earlier if they have young children. Few people know this fact because it isn’t relevant… until it tragically is. And it’s likely far down the priority list in the midst of grief.

Another little-known feature of Social Security: If your client is divorced, he or she may be eligible for Social Security benefits from an ex-spouse, or a deceased ex-spouse. There are caveats: the applicant must have been married for at least 10 years and then remain unmarried or remarried after age 60 if the ex-spouse is deceased.

As an advisor, imagine being the one to tell clients they are eligible for monthly payments they never expected. If that doesn’t make it worthwhile to learn the ins and outs of Social Security, I don’t know what is.

The math behind optimizing benefits isn’t straightforward

Beyond quick tips, optimizing Social Security benefits isn’t always easy. The optimal strategy entails consideration of your client’s lifetime income earnings,, marital status, income relative to their spouse’s income, their age, their spouse’s age, their risk tolerance, life expectancy… I think you get the picture.

But getting it right can be critical. Here’s an example of how the optimal strategy can make quite a difference:

Married couple with large difference in benefits

Source: BlackRock. FRA = full retirement age; PIA = primary insurance amount; YOB = year of birth.

Jordan and Alex as a couple would receive maximum benefits over time if Alex – the lower income earner – begins collecting benefits as an individual at age 62, and Jordan – the higher earner – begins collecting at 70. Once Jordan turns 70, Alex can file to add spousal benefits, providing a boost to the monthly payment Alex was already collecting.

Mapping out the path to maximum benefits, and then executing on each step at the right time can be challenging but the payoff can be quite meaningful. Even with Jordan passing away at the young age of 75, this strategy put roughly $20k more in their pockets than if they had assumed that both of them filing early or deferring until later was the right decision for them.

The complexity of identifying the strategy that will maximize Social Security benefits for each client’s unique circumstances – and the cost of making mistakes – underscores the value that you can deliver as an advisor.

The bottom line

For many clients, maximizing Social Security benefits isn’t just about the dollar figure. It can be emotionally rewarding to receive back from a system that they have paid into for decades. As an advisor, being proactive about helping your clients get every dollar they are entitled to can strengthen loyalty in a massive way.

If you’d like to partner with BlackRock in bringing clarity to your clients, visit our Social Security resource center for client-approved seminars, resources, and more.