The Finance of Longevity

Advising High Net Worth Clients... and Their Social Security

Four strategies to consider 

by Marcia Mantell, RMA, NSSA

Ms. Mantell is the founder and president of Mantell Retirement Consulting, Inc., a retirement business development, marketing & communications, and training company supporting the financial services industry, advisors and their clients.  She is author of “What’s the Deal with®… Retirement Planning for Women” and blogs at

Does Social Security matter to high net worth clients and executives who can expect significant retirement income from considerable resources?  You bet it does!

In fact, from a Spectrem Group survey of affluent people in 2016, 37% of retirees who have amassed a sizeable nest egg (between $1 million and $5 million) report that Social Security provides 25 – 49% of their monthly income.  Among those who have saved $5 million or more, 23% report Social Security provides 25 – 49% of their monthly income.

Even when clients have strong, disciplined savings strategies, access to non-qualified compensation plans, stock options, and other equity compensation, they still rely heavily on Social Security.  If claimed in the right way, Social Security can be an important foundation to providing income throughout retirement as well as helping clients meet broader financial and legacy goals.

Awareness is High; Details are Hazy

It falls to financial advisors to explain Social Security’s ins and outs,  since clients only see one side of the equation.  Clients may know they contribute 6.2% of their income (up to the taxable wage base), but they often don’t understand the other parts of the program.  As a result, it’s helpful to have a good handle on how benefits are calculated and the reality of the numbers.

When you discuss how Social Security benefits work, remember to cover that:

  • Benefits are based on each person’s own work record and earnings history;
  • Similar in concept to tax brackets, a tiered benefit formula is used to calculate each person’s specific payment; and
  • Assuming they have a long retirement, clients will get much more out of the program than they paid in.

When explaining how social insurance benefits work, it may be helpful to share these pieces of information with clients:

  • Throughout one’s working career, FICA taxes have been paid into Social Security.  Both the worker (your client) and the employer have contributed to the program. Since 1990, the amount paid has been 12.4%, split equally between the parties.  (The exception was in 2011 and 2012 when worker’s contribution rate dropped from 6.2% to 4.2% to help recover after the great recession).
  • If a client has always been a high wage earner and reached or exceeded the Taxable  Wage Base, he or she has already contributed somewhere around $184,000 in real dollars to Social Security.  (This assumes the worker started earning in 1980 and stops in 2018.)
  • Assuming a client will have a 25-year retirement, and begins collecting Social Security benefits at Full Retirement Age (age 67), he or she will receive the maximum benefit available.  It will be increased for a calculated cost of living adjustment (COLA) each year, providing a stable foundation of income.

The Numbers Can Be A Pleasant Surprise
To illustrate, (see chart above) here is an example of the dollars paid into the program while working from 1980 to 2018 and the estimated benefit amount a highly compensated client could receive.  Estimated COLA is a straight line 2.5% per year. For simplicity, all numbers in the case are rounded off.

This example is for an individual.  If the client is married, there will be an additional benefit paid to his or her spouse, whether or not that spouse qualifies for benefits on their own record.

Recently announced:  The maximum benefit for highly compensated workers at Full Retirement Age and claim in 2019 will be $2,861.

Four Strategies to Consider

Clients will value an advisor’s advice not only about when to claim Social Security, but also how they might use it strategically in their overall retirement income plan.  Some clients will want to use Social Security as a regular part of their retirement income stream while others may want to direct it to a specific purpose.

Here’s a look at four strategies that may help high net worth clients best use this valuable income source:

1.  Claim at age 70 for maximum monthly benefits: Build a Bridge
If clients have sufficient assets to fully afford to sustain their lifestyle without tapping Social Security, it might be worth their while to wait until age 70 before they claim.

A client at Full Retirement Age today would get about 3 ½ years of delayed retirement credits by waiting until 70—a 28% increase in monthly benefits.  If their Primary Insurance Amount is $2,900 per month, their monthly payment would increase to roughly $3,700 at age 70.


By waiting, initial income will come from other available resources.  Ongoing work, part-time work, annuity options, or proceeds from downsizing a home may be options for building a bridge for the 3-to-5 year gap created by waiting to claim till age 70.

Today, less than 5% of all retirees wait to claim until age 70.  However, having the discussion with high net worth clients today helps them to consider more options than they may know about.

2.  Protect the lower-earning spouse’s income: A Survivor’s Strategy
An additional strategy to consider is the implication to household income for married couples when the first spouse dies.  There may be a balancing act you need to think about depending on the work status of the spouses.

Overall, advisors should discuss the importance of protecting the lower-earning spouse in the event that he or she becomes the surviving spouse.  The general rule for surviving spouses is that the survivor steps into the shoes of the deceased, so long as that benefit provides a higher income. The survivor will be entitled to receive the higher payment amount – either their own or that of the deceased.  But overall, there is a significant reduction in household income from Social Security that must be planned for.  A couple of examples to illustrate:

3.  Use Social Security as a designated “health care bucket”: Self-Insuring for LTC
High net worth individuals and couples often have a rude awakening when they learn that their Medicare Part B premiums are much higher than the standard.  In 2019, the standard premium  is $135.50 per month per person.  Depending on adjusted gross income, clients with high incomes throughout retirement will pay substantially more:  up to $460.50 per month per person for Part B, plus an additional $77.40 premium on their Part D, prescription drug plans.  And, these amounts are automatically deducted from their Social Security checks.

Consider the affluent client who is expecting approximately $3,000 per month from Social Security retirement benefits.  His actual payment will be closer to $2,462— an 18% decrease in anticipated monthly income.  And, that’s before taxes are due on the benefit.  Added together, income from Social Security can be significantly reduced.

An idea for high net worth clients in this situation:  look at  Social Security payments as a health care funding bucket.  Since they are already paying Medicare premiums directly from this amount, and assuming they already have an income strategy using other resources, they can use Social Security to pay monthly Medigap premiums (those can range anywhere from $200 – $800 per month and more, depending on one’s personal health profile), prescription drug co-pays, and other out of pocket medical or health care expenses.

An additional strategy to consider is the implication to household income for married couples when the first spouse dies.  There may be a balancing act you need to think about depending on the work status of the spouses...

In other words, use this strategy to protect client’s income for lifestyle and essential living expenses by holding out Social Security to cover potentially high costs of health care.  If a client has long-term care insurance, Social Security payments might be used to fund those premiums.  And, for those who are self-insuring for long-term care potential, saving Social Security payments may provide a cushion should the time come to use it.

Why health care as the “designated bucket”?  Covering health care needs in retirement consistently comes up as one of the biggest concerns clients have for retirement.  By presenting an option that is only possible for high net worth clients, you’re providing a creative, tangible option that solves a grave client concern in a real and practical way.

4.  Start Gifting Earlier than Planned: An Early Legacy
When wealthier clients turn on their Social Security benefits, they may find they have available resources now to begin gifting strategies for their children or grandchildren.  Depending on their inheritance plans, it might be more valuable for them to begin sharing their wealth in years when their family needs it most.  While wonderful to inherit a large sum when the beneficiary is 70, it may be more meaningful and useful if  that inheritance was made available when the beneficiary was 45 or 55 with a mortgage and 3 kids to put through college.

When Social Security payments begin, annual income rises by nearly $36,000 per year.  Use it as an “exchange.”  Clients now use Social Security as income, and can direct some other assets to their children or grandchildren in meaningful, tax-efficient ways.  Perhaps use some assets to fund 529 college plans, or IRAs for younger family members with earnings.  Another thought is to set up a charitiable giving account or donor advised fund.


The range of options stemming from Social Security that you can present and discuss with high net worth clients goes way beyond when to claim Social Security.  Advisors are in an ideal position to help clients address and balance retirement income needs with health care costs concerns and legacy goals.  Be prepared to offer creative solutions  and suggestions.  It’s not always just about the numbers.  It’s about clearing a new path for clients to explore while ensuring that they have sufficient income for retirement.

…and One Last Thing
You may find it interesting to see the changes in the Taxable Wage Base (TWB) over decades.  The TWB is the income level set by the Social Security Administration each year that is subject to FICA tax.  Take a look at the historic limits (started at $3,000 in 1937) and what the FICA tax rates have been throughout time, starting at 1% of wages. ◊