Before his second act as an advisor, Jack Butler had a full 28-year career at the Social Security Administration. He started straight out of college and worked his way up through the ranks to become manager of the Dubuque, Iowa, office before taking early retirement at age 50. In all those years, he says he spent most of his time explaining the system to people who were paying into it and who would be relying on it in their retirement.
Now, as a financial advisor with HTLF Investment Services at the Dubuque Bank & Trust in Iowa, he's doing the same thing. "The first thing I do when I get a new client is go over their Social Security account and tell them what they can expect to get from Social Security," he says. "I explain to them that this is their retirement base, and yet I'm still sometimes surprised at the number of people who don't know what they can expect to receive from it."
The idea of becoming a financial advisor came late in Butler's Social Security career. He would conduct pre-retirement seminars for companies and explain various scenarios if people retired at 62 as compared to, say, 70. He also worked with registered reps who were talking to their own clients about retirement and they would sometimes ask him to be a featured speaker.
But eventually he felt that talking about it wasn't enough. "I found that I could tell people all about the workings of Social Security, and what it could do for them and their families, but that was it. All I could do was inform. As an advisor, I figured I'd be able to actually do things for people."
So when an opportunity came to take early retirement at age 50, he jumped. "I left on a Friday, and on Monday, I started working as a rep."
He began his new career as a bank-based advisor at Security State Bank in Cascade, Iowa, a little town of just 1,800. Later, he moved to Dubuque Bank & Trust, part of the Heartland Financial Bank Group, where he is the only advisor at the branch.
His boss has him periodically give Social Security seminars not just for customers, but also for reps at other banks in the Heartland Financial system as well as bank employees. "He feels it is so important a part of a financial plan that everyone should know how it works," says Butler.
Butler has, in a sense, never left Social Security. "When a client comes to me for the first time," he says, "I tell them my Social Security Administration background, and it right away gives them a certain comfort level, and lends credibility to what I have to tell them. I can see them relax immediately when I mention my Social Security experience. Putting that on the table, they're more willing to listen to what I have to say about their investments, or college funding for children or grandchildren."
Only One Leg Doing Its Job
Butler often uses the old analogy of the retirement stool with three legs when talking with clients. Then comes the surprise: "Social Security is the only leg of that stool that is doing its job for you."
He says that many of his clients come in worried that Social Security is going to go away. "I try to explain that they should worry much less about Social Security and work on the other two legs - their pension or 401(k), and their other savings and earnings," both of which, he points out, have usually taken some big hits.
He becomes passionate when discussing advisors who try to sow fear among potential clients about the system. "I don't think that investment reps should be telling people that Social Security is at risk. Putting the fear of Social Security into clients in order to get them to invest more is unprincipled in my view," he says.
Indeed, when he started his advisory career 13 years ago, he was disturbed to hear financial advisors telling clients, 'Well, you know Social Security isn't going to be around here when you need it.'"
Butler often explains to clients that Social Security is not going away. "I tell them every year as far back as you want to look, Congress has tinkered with Social Security, and they'll tinker with it again. But even today, with the kind of long-term problems that they are talking about, they are only going to end up having to make a change of maybe 2.2% in the program."
There are political realities that protect the program against wholesale attack, he argues.
For one thing, he notes that most of the 75 million people in the baby boom generation - who are nearing retirement and have a vested interest in preserving the program - vote.
He also notes that in most communities, 15% to 20% of the population is getting a Social Security check. "If the government were to take away that program and those checks were to stop, it would be a huge blow to the economy. All that Social Security money goes right into the local economy each month."
Butler's conclusion: Social Security is not a static program. It tries to stay current. The idea that it must make changes is not new and not something to fear.
His advice to clients varies depending on their circumstances. "People who are retiring at 62 because they can't keep working need that money, so they should take it." Even though that means a much lower benefit amount, if they can get a part-time job, they will keep earning credits toward a higher benefit amount later, he says.
Things get trickier when people are better off and have a choice of when to retire. "These are most of the people I see at the bank," he says. Sometimes, he explains, it can make sense to retire at 66, but suspend getting benefit checks so the benefit amount continues to rise to age 70. For others, it can make more sense to wait to age 70 to retire with maximum benefits, which are 76% higher than if the person retired at age 62 and 32% higher than at age 66.
After making sure his client is taking maximum advantage of Social Security, he looks at their pension or 401(k). "Most people don't have a defined benefit plan these days," he says. "It's usually a defined contribution plan, so I tell them they should maximize that."
That means not only putting in the maximum possible contribution, but taking full advantage of any matching employer contributions. "If your employer is putting money into your fund, no investment out there will offer the same return," he says. "Even if you have to put in one dollar to get 25 cents from the employer, that is a 25% return. That is not money you want to leave on the table."
After that discussion, he says he moves to college funding, life insurance and long-term care. A lot of grandparents want to contribute to their grandchildren's college. Often they'll say it's their highest priority. But he always tells them to look to their own retirement first before they consider the grandchildren.
Recently, he says a couple came in, the man was 77 and the woman 76. They had reasonable Social Security checks, he says, and the woman also had a teacher's pension. His real concern was they had no long-term-care policy, and they were pretty old to be trying to buy one at this point. They also had no life insurance. So in their case he got each of them a life insurance policy with a nursing home provision, which allows a withdrawal of 2% per month for long-term care. "With a $150,000 policy each, that's $3,000 a month available to each of them for long-term care. Add in $1,000 a month for Social Security and $500 a month from the pension, and they've got $4,000 to $4,500 each available for long-term care, which out here would pay for a good nursing home."
When it comes to investments, Butler says he likes tax-deferred investments. He favors variable annuities, which are a way "to get most of the market gains and minimize the downs." Fixed annuities used to be a major part of his strategy, but he says, "No more - the rates are so low. Now if I go with a fixed annuity, it's with an annual reset."
He also doesn't like indexed annuities because of the complexity. "I've sold a few, but there are so many moving parts. I think most of the people selling them don't really understand what they're selling."
His advice to advisors: "Learn more about Social Security. I highly recommend having more than a passing knowledge about the program."
Name: Jack Butler
Bank: Dubuque Bank & Trust
Location: Dubuque, Iowa
2011 production: $81,846
2010 production: $42,559
2011 AUM: $16.46 million
2010 AUM: $16.56 million