Controversial from the start, Social Security has become even more controversial in recent years due to concerns over its solvency, and it has become more complicated as laws and regulations have made it unclear when it is best to begin receiving benefits.
As a result, financial advisors have the opportunity to educate and advise investors about when it is best to take the benefits. But, wealthy investors do not always think of their financial advisor as an expert on Social Security.
A survey of more than 700 affluent investors over the age of 55 demonstrated a variety of decisions that were made or will be made regarding Social Security. Some of the investors surveyed have already begun receiving benefits, while others are waiting or not yet eligible to receive benefits.
Financial advisors who have a full understanding of the Social Security regulations can assist investors who have not yet started receiving benefits. There are a number of questions investors should answer related to their Social Security decisions, including:
· What role will your Social Security benefits play in your retirement finances?
· Do you want to retire early, or do you plan to work well into your 60s?
· What is your spouse going to do in regard to working or retirement?
These are questions for which advisors should provide answers or advice.
In general, the longer an investor waits to take benefits, the more monthly benefits he will receive, but there are regulations that complicate the matter of when to take benefits, especially if the investor is married and both spouses are at the age where social security can be considered.
The survey conducted with investors showed that many investors have not given much thought to their Social Security plans, and don’t fully grasp the need to do so. Among investors who have not yet started receiving Social Security benefits, almost half say they have no plans to talk with a financial advisor about the best age to begin taking those benefits.
Placing their understanding of Social Security on a 0-to-100 scale, investors rate themselves at 74.98, which is fairly confident. However, advisors might consider bringing the topic up with investors rather than waiting for the investor to broach the subject.
The earliest an American can receive Social Security benefits is at the age of 62 (although there are special rules for citizens with disabilities that might allow for earlier dispersal). The latest is age 70. The year an investor was born determines the age at which he or she is considered at full retirement age, at which point you begin to receive full Social Security benefits.
Investors who wait past their official full retirement age to take benefits get a credit for the number of months or years they waited, making it more lucrative to wait until they are older than their official retirement age.
The decision to wait as long as possible to begin taking benefits is more difficult today than it was 50 years ago because Americans have longer life expectancies. Waiting to maximize the monthly benefit can pay off for anyone living into their 80s. Advisors can inquire about health history and how long parents lived to use as a consideration for judging the best time to start taking benefits.
Among investors who are not yet receiving benefits, almost one-third plan to wait until they turn 70 years of age (the point at which monthly benefits are the highest). However, 44 percent of investors with a net worth over $5 million plan to wait until they turn 70.
Almost half of all investors plan to wait between the ages of 65 and 67 (66 was the most popular age, with 18 percent of investors).
Fourteen percent of investors plan to take benefits at the age of 62, even though that decision reduces benefits by five-ninths of 1 percent for each month between the age of 62 and the age of full retirement.
A majority of investors who have not yet begun receiving benefits expect their Social Security benefits to provide at least 10 percent of the monthly retirement income. Almost 40 percent expect Social Security to provide between 10 percent and 25 percent of their monthly retirement income, and 28 percent expect it to provide 25-49 percent.
Fifteen percent of investors who are not already receiving benefits expect those benefits to provide at least 50 percent of their monthly retirement income. Advisors who work with investors with that in mind can work closely with investors to determine the best time to begin taking benefits to maximize their monthly income.
Social Security benefits differ among individuals based on the age they started working and whether they worked for someone else or owned their own business. Those differences, too, need to be considered when an advisor and investor meet to discuss plans for Social Security and retirement.
Among investors who are already receiving Social Security benefits, more than 40 percent started at age 62. Nineteen percent waited until age 65, 17 percent waited to age 66 and 10 percent waited longer than that, with only 2 percent waiting to age 70.
Of those investors who are already receiving benefits, more than half say Social Security provides at least 25 percent of their monthly retirement income. Eighteen percent say benefits provide more than 50 percent of monthly income.
The computations are confusing for investors, and that is why advisors need to address the issue with all investors regardless of their age. Their health, their work plans, and their marital status are all matters to be taken into consideration when considering Social Security.