The Social Security Conversation

Advisors not discussing SSI options risk losing clients

by David Giertz

Mr. Giertz president of Nationwide Financial distribution and sales organization, NFS Distributors, Inc. He is responsible for the wholesale strategy and distribution of private-sector retirement plans, life insurance, annuities, specialty markets and mutual funds through banks, independent broker/dealers, regional firms and wirehouses.

With more than 2,700 rules in the Social Security handbook, it’s easy to see why many advisors don’t feel they are subject experts and are hesitant to discuss filing options with their clients. In fact, only a third of advisors offering retirement income planning services even offer Social Security claiming strategies.

However, a new survey by the Nationwide Financial Retirement Institute reveals that expectations for advisors are increasing, and not having these important discussions with your clients could be a critical mistake.

One of the most important retirement choices

When and how to claim Social Security are among the most important financial decisions retirees make in their lifetimes – and 38 percent of retirees told us they wish they would have waited. They regret their decision to take their benefit early, which locked in their lower monthly payment for life.

According to the survey, more than half of pre-retirees expect Social Security advice from their advisor and four in five say if their advisor doesn’t help them maximize their Social Security benefits they will switch to an advisor who does.

As a former advisor, I have seen this happen. I brought on a new client. At first it was just the wife. The catalyst for the initial discussion was Social Security planning. She had retired and was collecting. She and her husband had met with their current advisor to discuss the husband’s benefits. He was still working and getting ready to turn 66. The advisor suggested he file for benefits and invest the money.

I reviewed the numbers and there was a compelling argument for him to file for his spousal benefit and delay taking his own benefits until 70. The wife fully understood this and it was the final wedge between her and the advisor. She moved her assets over to our firm to be managed. Her husband employed the incumbent’s strategy. After one year it became apparent that strategy was more about the advisor creating a monthly investment than the client’s long-term best interest. He then moved his accounts too.
The key theme throughout our survey of 903 adults aged 50 or older, who are either already retired or plan to retire in the next 10 years, is how crucial it is that Americans work with a financial advisor who knows optimizing Social Security benefits is an important part of a holistic retirement plan.

Social Security can represent up to 40 percent of the total income clients receive throughout retirement. And retirees not working with a financial advisor are more than twice as likely than those who do to say their Social Security payment was less or much less than expected (33 percent vs. 12 percent). And, more importantly, those who do are much more likely to say they are able to do the things they want in retirement (82 percent vs. 62 percent).

Having the discussion is critical because those who don’t maximize their Social Security benefits can miss out on hundreds of thousands of dollars of retirement income. According to our survey, those who took their benefit early report an average monthly payment of $1,190. Those who collected it at their full retirement age have an average $1,506 monthly payment. And those who delayed collecting their benefit report an average monthly payment of $1,924 (or $734 more than if they had taken early).
According to the Social Security Administration, 40 percent of Americans file at age 62, and another 40 percent file sometime before their full retirement age.

Among the clients I have met with, one of the most common misperceptions is that they do not think they have any control over how they receive Social Security. They see it as a spigot that automatically turns on at 62. They do not realize that there are different filing strategies that they can use to optimize their Social Security benefit.

For example, our survey found that only about a third of future retirees knew that they could maximize their benefits by using a “file and suspend” to allow their benefits to grow. Only a third understand that they can file for spousal benefits only, and let their own benefits grow. And, despite the importance of survivor benefits, only half knew that survivor benefits are available as early as age 60.

When and how to claim Social Security are among the most important financial decisions retirees make in their lifetimes – and 38 percent of retirees told us they wish they would have waited

Filing early isn’t always the wrong thing to do – especially if you’re in poor health and don’t expect to live long. But I have found filing early is more often than not tied to a client’s incorrect expectation about their own longevity or fear of Social Security running out of money.

The fact is life is long; men now have an average life expectancy of 83, and one in four live to 89. Women’s average life expectancy is 86, with one in four reaching 92.

In our survey, 70 percent of future retirees worry about the Social Security program running out of funding in their lifetime. And 58 percent also believe the government does not educate Americans on Social Security in hope that people won’t take advantage of maximizing their benefits so that the program doesn’t run out of funding.
The 2013 Social Security Trustee report advises Social Security is fully funded until 2033; after 2033 about 75 percent of benefits are payable.

Funding health care costs with Social Security benefits

Another important reason to optimize is that nearly three in four Americans say Social Security is their top source of expected retirement income for out-of-pocket health care costs. And one third of retirees without a financial advisor say health care costs keep them from living the retirement they expected. That compares to just 13 percent of retirees with a financial advisor.

And the problem is only going to get worse. Health care costs for a middle-income healthy couple retiring next year at full retirement age will take up 69 percent of their Social Security benefits. But 10 years from now it will jump to 98 percent, and in 20 years they would need 127 percent of their Social Security benefits to cover their health care costs in retirement.1

How advisors can help

Unfortunately, only 12 percent of the Americans we surveyed have a financial advisor who gave them advice on Social Security.

That has to change. The problem is many of the advisors I talk with don’t have a good understanding of Social Security options so they don’t talk about it with their clients. Some of the more common misperceptions financial advisors have are whether or not clients have options after they’ve already filed, amount of benefits a spouse receives, and when a spouse can file for benefits.

To help simplify this complicated issue and encourage these discussions, Nationwide Financial provides an end-to-end Social Security program and retirement product solutions that equip advisors to be the expert their clients need to ensure they have enough money for retirement.

The Retirement Institute recently launched the Social Security 360 SM program to help advisors maximize their clients’ Social Security benefits. The award-winning program’s patented software compares all the election strategies available to married couples, single people, divorced people, widows, government employees and even those who have already elected. 2

It’s much easier to have these difficult conversations when, instead of guessing, advisors can “personalize” reports to include alternate election strategies suggested by the advisor or the client. In addition, Nationwide Financial’s Team of Specialists provide advisors with the support and solutions so they can design holistic retirement plans for their clients.

In summary

Americans need advice from financial advisors who understand how Social Security is a key component to a holistic retirement plan. Clients need education before and after retirement to make decisions at these key ages. With more than 60 million baby boomers reaching retirement by 2030, there’s a lot of planning and education needed – especially when it comes to Social Security benefits.

Financial advisors can play a critical role in helping America’s workers avoid a looming retirement crisis. And with four in five Americans saying if their advisor doesn’t help them maximize their Social Security benefits they will switch to an advisor who does – getting up to speed on a client’s filing options is good for the advisor’s business as well.




Financial advisors can visit to learn more.

1HealthView Services, Retirement Health Care Cost Index, 2014.
2 Bank Insurance & Securities Association (BISA) 2014 Technology Innovation Award