Planning: New Reality, New Vision

Will Social Security Really Be There for Your Clients’ Retirement Income?

Advisors need to be the voice of reason amidst the hype and hoopla

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

Social Security is a critical product in every client’s comprehensive retirement income plan. In fact, it should be the first consideration in every plan, even for wealthy clients. Being on the receiving end of $3,000 per month per person is a good starting point – and it could be close to $6,000 per month for couples. The simple fact is, the more clients can get from Social Security, the less they draw off their own retirement portfolio. So, how can you guide clients when there is so much conflicting information out there about the viability of Social Security? Clients are confused and concerned. They are looking to you to provide all the answers.

Be the voice of reason by helping clients navigate through Social Security facts versus fiction.

Headline Hype and Hoopla

It never fails to amaze how inaccurate or incomplete a headline can make any situation sound. The words can be too sensational, too racy, or just plain scary. This year has been no exception with Social Security headlines striking fear into the general public. One claimed the “Social Security Trust Fund Goes Bust” and another, “Social Security to tap Trust Fund first time in 36 years”. Such scare tactics can make anyone uncomfortable. The problem, all too often, is that clients don’t read much beyond the headlines – they simply don’t want to know, or think they already know.

An important part of the financial advisor’s profession is that advisors not only read the articles to find the flaws in the headlines, but go to source documents to get real information. For Social Security, the top source is the Social Security Administration (SSA). On the SSA’s website you’ll find the most current information, and see that the report of Social Security’s death is quite premature.

Learn to Love the OASI Trust Fund Annual Report

While hardly a steamy romance or thrilling suspense novel, the Old-Age and Survivors Insurance (OASI) Annual Report is 270 pages of scintillating text and tables. In all seriousness, it is written by some of the top actuaries in the country, and folks who truly understand the inner workings of the system. They know how long and about how much, your clients will be counting on income from Social Security.

There are several sections every advisor should read in the 2018 OASI Annual Trustee’s Report:

  • The first 5 pages. The introduction is two paragraphs, and you get four pages of important highlights in this overview section
  • Page 27. This is the accounting view of the Financial Operations of the OASI Fund for the prior year. You’ll see the details behind gross receipts which are our payroll taxes; and gross distribution which are payments to retirees and survivors. It’s simple and straightforward
  • Section VI. Appendices – The History of OASI and DI Trust Fund Operations. It helps when talking to clients to have a good perspective about Social Security and how it operates. The tables, starting in 1937, show historic payroll contributions and beneficiary payments. Very enlightening
  • Section VI. Appendices – History of Actuarial Status Estimates. If you are looking for details behind how long the Trust Fund might last, this is the section. The table on page 166 shows the “Year of combined trust fund reserve depletion” from 1982 forward.

Projections Aim for 75 Years

As you peruse the Trust Fund Annual Report, you’ll see rationale behind the numbers. One number of particular importance is 75 years. The last Social Security amendments were enacted in 1982, during a major crisis. The legislative changes implemented by Congress at that time were designed to continue about 75 years, or until around 2057.
However, even with changes in 1982, the Trust Fund never quite made it to 2057. Rather, the projections bounced around between 2029 and 2051. The current projection shows the Trust Fund depletion around 2034.

Predicting the size and scope of a program as enormous as Social Security is only a best guess in any given year. Yet, literally, tens of millions of people depend on these estimates in their retirement income planning.

So, remind clients that Social Security is not fueled solely by the Trust Fund reserves. Rather, payroll taxes contributed by current workers fund the lion’s share of benefit payments. As long as we have employees working for covered employers, funds will be deposited into the Social Security program.

With Conflicting Points of View, How Can Advisors Reassure Clients?

It’s not a surprise that we have conflicting expert opinions and tantalizing headlines. As financial professionals, it’s important to recognize different points of view, but also to access and understand the sources of real information that you can share with your clients. Three distinct groups have emerged with their interpretations and perspective about Social Security solvency:

  • Group 1
    Social Security will be there. These are champions of the program. They base their perspective on the Trustee’s Report and believe the US Government will maintain a strong social safety net for America’s seniors.
  • Group 2
    Social Security can’t last. Social Security reserves are an accounting journal entry—a promise backed by the US Government. Current retirees depend on current workers to get their benefits paid; not on the reserves. There are fewer workers paying into the system today and more beneficiaries than at any other point in Social Security’s 83-year history. The math looks shaky right now. Is it such an extreme problem that we should throw the baby out with the bathwater?
  • Group 3
    Social Security will last if significant changes are made. That makes a lot of sense. Under today’s policies, we know there will not be sufficient payroll taxes to meet the needs of retirees. To strengthen the program, changes are in the wings. What the changes are and how dramatic remain to be seen.
It never fails to amaze how inaccurate or incomplete a headline can make any situation sound. The words can be too sensational, too racy, or just plain scary. This year has been no exception with Social Security headlines striking fear into the general public...

There are several members of Congress advocating for improvements. In fact, the Office of the Chief Actuary recently released a well-organized summary of ideas presented for shoring up Social Security and returning the program to full solvency. The summary states, “Recent Reports call for informed discussion, creative thinking, and timely legislation to address expected future deficits.” Links and detailed information covering 10 categories makes it easy to see the various proposals being discussed at the legislative level.

Taking a Moderate Stand with Clients Is a Wise Approach

So, now what? Can you believe Social Security will be there for your clients’ retirements? For your own retirement?
Let’s look at what would happen if the skeptics are right and Social Security disappears. It’s not a pretty picture. Using the Retirement Income Calculator at T Rowe Price’s individual investor website, it was easy to assess the impact of losing Social Security retirement benefits. Here are the topline assumptions and results for two cases considered:

Case 1: Single individual
Sally was born on 4/1958, plans to retire at 66, and lives to age 95. Her salary is $145,000/year. She has saved $595,000 to date, and continues to save 13% into the company retirement plan in a 60% stock/30% bond/10% cash allocation. She’s planning to spend $5,000 per month in retirement: Social Security of $2,825 and personal savings of $2,175.

  • This scenario shows she has a 92% chance of her savings lasting until 95. Not too bad.
  • Cut Social Security out entirely and her chance of success drops to 14%. She could reduce her spending to $2,677/month, a 46% reduction. That gives her an 80% chance of not outliving her money.
  • A more moderate approach is to cut her Social Security estimate by 25%, to $2,119/month. The likelihood of success drops to 73% if she does not make any corresponding cuts to her spending. But, if she can reduce her spending to $4,800 per month, the chance of having money at age 95 increases to 80%.

Case 2: Married Couple
Now, let’s assume Sally (born 4/1958) is married to Sam (born 8/1957). Sally’s salary is $145,000 and Sam’s is $85,000. Together they have saved $1.87 million for retirement. Each plans to retire at 66 and live to 95. They want to keep their lifestyle about the same, so are planning a monthly budget of $12,000. Their retirement income will be composed of $5,144 from Social Security and $6,856 from personal savings.

  • At first cut, they have an 85% chance of their money lasting until 95. Assuming they may cut back somewhat as they age, this case looks promising.
  • Cut Social Security out entirely and their chance of success drops to 29%. If they were willing to reduce spending to about $7,500 per month, a 38% reduction, the chance of their money surviving until age 95 increases to 80%.
  • A more moderate approach is to cut Social Security estimates by 25%, to $3,858/month. The likelihood of success drops to 73% if they do not make any corresponding cuts to spending and overall expenses. Some difficult trade-offs may be necessary.

Bottom Line

These are draconian measures clients may face if nothing is done to shore up Social Security. So, to let clients believe Social Security is on the brink of total disaster with no hope of improvement is not reasonable or responsible. No one but the most wealthy could survive such severe cuts to Social Security income. The SSA knows it. Congress knows it. And financial professionals know it.

There is plenty of time to make changes to strenghten Social Secuirty. But it is unsettling and uncertain when clients are at the point of making decisions about creating income for the next 30 years—without a paycheck. As a result, the sooner the lawmakers make Social Security improvements a priority, the sounder millions of near-retirees will sleep.
The cure here is for financial professionals to be a staunch voice of reason for every client. Counterbalance the hype, hoopla, and hysteria that clients face on a daily basis with measured, factual information. Read the Trustee’s reports. Calculate the implications of moderate cuts to Social Security. Show clients their results in a personal, helpful way. More important, help each client make the best possible decisions despite all the noise out there.

…and One Last Thing
The Center on Budget and Policy Priorities has an excellent 3-page piece called Understanding the Social Security Trust Funds. It might serve as a good handout or link for clients who are concerned about the viability of Social Security. Take a read. ◊