How To Talk To Clients About When To Claim Social Security

Advice for finding and making sense of Social Security benefit information for your clients

Fact checked by Vikki VelasquezReviewed by Samantha SilbersteinFact checked by Vikki VelasquezReviewed by Samantha Silberstein

Social Security benefits make up about 30% of the overall income of people over 65, so the conversation about when to claim Social Security benefits may be one of the most critical and consequential conversations you can have with your clients.

This article and the corresponding downloadable guide linked below can help you prepare for such conversations and answer clients’ questions about the right time to claim their Social Security Benefits.

Download: Client-Advisor Discussion Guide: When Should I Take Social Security?

Key Takeaways

• Consider using a pre-meeting questionnaire to help guide client education and conversations about expected retirement income.
• Ask clients to bring their annual statement from the Social Security Administration with them to their meeting. 
• Ensure clients know that any investment income estimates are based on past performance and are not guarantees of future performance. 
• Think about introducing annuities for clients particularly concerned about guaranteed income in retirement. 

Client: “What Kind of Monthly Income Can I Expect From All My Investments?”

Assuming that this client is not someone you are meeting for the first time today, you should already have a lot of this information from previous meetings and access to their portfolios. If you don’t have the information or this client is brand new, a pre-meeting questionnaire, including investment totals and types of accounts, will help you give your clients a fair estimate. 

There are many methods out there for calculating investment income, but before you can use any of them, you need to have a life-expectancy conversation with your client. As a whole, we are living longer. The life expectancy of someone over 65 is now at least 20 years, whereas it was only 14 years in the 1940s. The age when your client wants to start the transition from the accumulation phase to the withdrawal phase will determine how far those investments need to stretch to provide income for life. 

To quickly calculate the income for your clients from their investments, you can use the safe withdrawal rate projection. The safe withdrawal rate assumes a 30-year lifespan after withdrawals begin. Some advisors may prefer using the Monte Carlo simulation method to more accurately predict monthly income and whether or not the client will outlive their investments. Your firm may also use a simulator for this with predetermined withdrawal rates, as affected by life span. No matter how you illustrate this, the most important client takeaway from this conversation is that these are merely predictions and not guarantees. 

If your client is seeking more certainty in their retirement income, this is a pivotal point in introducing the concept of annuities. An annuity can be a valuable tool for guaranteeing a portion of your client’s income in retirement, providing them with a sense of security and stability. 

Important

When calculating investment income, the key point to illustrate to your client is that these are predictions, not guarantees.

Client: “Will My Other Retirement Income Sources Affect My Social Security Benefits?”

You already know that your client’s Social Security benefits are determined only by the amount of money they paid into Social Security during their working years. In other words, your client’s benefits will be unaffected by any pension payments, annuities, or income from savings and investments. But before you answer this question, consider why your client is asking it. 

If your client asks about how retirement income affects their Social Security benefits, they may not understand the basics of taxes during retirement on income from Social Security or investments. They may also be confused about how all of their sources of income will work together to create their monthly income in retirement. 

When clients approach you with questions about their retirement, they’re essentially seeking your guidance on what their future will look like. By understanding the root of their concerns, you can provide a more comprehensive and reassuring explanation of their retirement prospects. This reaffirms the trust they place in your expertise and strengthens your professional relationship. 

Client: “What Happens if I Continue To Work While Collecting My Benefits?” 

You and your client may determine that their Social Security benefits, combined with other income sources, will not meet their monthly needs in retirement. In this case, it will be especially important to determine what will happen if your client continues to work while collecting benefits. 

If your client is not at full retirement age when they plan to continue working and drawing Social Security benefits, explain to them that their benefits may be reduced if they make more than the yearly earnings limit. The annual earnings limit for the benefits reduction is not all that high, and the easiest way to show them how this affects their Social Security benefits is to use the SSA.gov calculator. While preparing ahead of time is best, this quick calculator can run the numbers on the spot. 

Client: “How Can My Spouse and I Maximize Our Social Security Benefits?”

Even if your married clients do not ask you this question, you should broach the topic when you are discussing Social Security. A couple of key decisions turn the tide for married couples and the Social Security benefits they receive. As their financial advisor, you should, at a minimum, disclose these factors to them since the decisions cannot be undone.

Previously, the Social Security Administration allowed married beneficiaries to file for spousal benefits while delaying their own retirement benefits. The Bipartisan Budget Act of 2015 changed this rule so that beneficiaries who file for spousal benefits are deemed to file for retirement benefits as well. In this case, beneficiaries will automatically award the higher amount to each spouse of their own Social Security benefit or the spousal benefit. 

Only some of your clients will understand how waiting until full retirement age can affect their benefits. A straightforward way to show your clients how to maximize their payments is to use the SSA.gov spousal benefits calculator, which will determine the benefits your clients can expect based on their age and retirement date. 

Remind your clients who are at least 62 years old, divorced, and not remarried that they may be eligible for their ex-spouse’s retirement benefits as long as they were married to the ex-spouse for 10 years. 

Tip

The SSA.gov spousal benefits calculator is a valuable tool that determines the benefits your clients can expect based on their age and retirement date. 

Client: “What Happens to My Social Security Benefits When I Die?”

This question from your clients may be straightforward. If that is the case, the Social Security Administration provides a regularly updated guide that can answer this question for nearly every scenario. You don’t have to have all the answers here, but you need to know where to look.

However, discussing what happens to your client’s Social Security benefits when they die might also open the door to conversations about providing for those they love even after death. 

Once you answer the basic benefits question using SSA tools and information, you can discuss options for legacy planning. While you will likely need additional appointments to complete legacy planning, addressing the importance of this issue with your client will show them that you care about their overall financial health and that of their loved ones. Unless you are also considering retirement soon, creating this kind of generational trust is what keeps your practice in the family. 

The Bottom Line

Considering that Social Security income makes up one-third of monthly income for retirees over 65, your clients must factor it into their overall retirement financial picture. You do not have to be a Social Security expert to offer sound advice to your clients about when is the right time to take their Social Security benefits. 

Anticipating your client’s questions about Social Security can lead to more meaningful conversations about their financial health in retirement. By familiarizing yourself with updated SSA regulations, understanding your client’s retirement needs, and being ready to discuss sensitive topics like life expectancy and current assets, you can be well-prepared for these important conversations.

Read the original article on Investopedia.