If you work with a financial planner, you have a special relationship. Afterall, he or she is trying to help you have the best retirement possible. The level of trust is high! However, many financial professionals are not well versed in Social Security claiming strategies, laws and regulations. While some are, in a new report, it seems some do not give the best claiming strategy because it may hurt their business. Should you be concerned? Maybe.

According to a study titled, Biased Advice? THE RELATIONSHIP BETWEEN FINANCIAL PROFESSIONALS’ COMPENSATION AND SOCIAL SECURITY RETIREMENT BENEFIT CLAIMING DECISIONS (co-authored by David Blanchett, head of retirement research for PGIM DC Solutions, and Jason Fichtner, chief economist at the Bipartisan Policy Center), all people who worked with a financial professional (CPAs, accountants, financial planners, etc.) seemed to file early. However, affluent households on average filed two years earlier than those of non-affluent households. This leaves hundreds of thousands of dollars of lifetime income on the table.

Lack of Knowledge or Biased Advice?

Consider that a financial professional’s fiduciary duty is to ensure the most gain possible. Afterall, a $100K+ increase in earnings can be the difference between maintaining a lifestyle and just barely making ends meet for many. And these are people with money, hence the need for a financial planner/advisor.

So, if they have money to live off during the early years of retirement, allowing their social security benefit to grow higher than the market, on average, with none of the risk, why would they advise them not to do so? Would living on investments hurt commissions or they just did not know?

A Little Clarity

I am sure some people will read what I am about to write and say, “I got more than that!” While others will say, “I WISH I got that.” With that said, the market will deliver on average, seven percent (7%) annual increases, if you take a span of time and average it. However, it does not come without risk; it is not a guarantee. During the years of 62 through 70, one needs to practice risk management, NOT take on risk.

If what happened between 2007 and 2009 were to happen again, would your retirement survive that? Could you afford to lose 10%, 25% or more of your portfolio? Why would you risk losing money when you are ready to live off it, when you could get a guaranteed eight percent (8%) annual growth, PLUS a COLA (cost of living allowance) increase on top of it each year with no risk?

Let’s add some more context. When required minimum distribution (RMD) arrives (either at 73 or 75, depending on year of birth), whatever you must withdraw counts 100% towards your average gross income (except for a Roth IRA and Roth 401K, they are not subject to RMD). Only 50% of Social Security counts toward your average gross income. Therefore, would it make more sense to allow your social security to grow larger, longer, and live off your investments for those eight to 11 years, so your RMD is lowered, hence your taxes?

A lower RMD means a lower AGI. A lower AGI decides whether you pay taxes on 50% or 85% of your Social Security check. And that 35% difference adds or removes 100Ks of dollars over your lifetime in income. Remember, it’s not what you make; it’s what you keep.

The Mistake of Compartmentalizing Retirement Income

The mistake many make is to compartmentalize their retirement nest egg. Investments on the right, social security on the left, etc. Then create separate strategies that sound effective but wind up costing them a boatload in taxes. Ideally, one wants to look at it as a whole. Then strategize how to get maximum growth while minimizing taxes.

Registered Social Security Analyst^® (RSSA^®)

This is why RSSAs (Registered Social Security Analysts) seek to work with financial planners. We are NOT financial planners and do not pretend to be one. However, if financial planners had access to a comprehensive report that takes all monies and liabilities into consideration, using one’s actual Social Security earnings record, and would show what tax liability would be in retirement, and how to maximize Social Security income, they could think with this information and look at their client’s portfolio with a different pair of glasses. They could deliver more comprehensive advice.

Moreover, you, as the client, would have this information to think with as strategies are devised, to see if the advice is truly in your best interest or self-serving.

So, whether you are a financial planner looking to offer a higher-level of service, or a client who wants to know how Social Security works and have hard data based on your numbers to plan with, you may want to speak with an RSSA. Get your questions answered, get your comprehensive report and take it to your CPA or financial planner. Arm them with the necessary data to ensure the best strategy for you. After all, you are a team! And that team is only enhanced by this information.

If you do not have an RSSA and need one, send us a message in the form on the right, below if you are reading this on your phone, and we will get back to you to schedule your FREE, NO OBLIGATION CONSULTATION. We will answer your questions and make sure you understand how Social Security works best for you.

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