Most advisors are woefully unprepared to advise average Americans on their single most important source of retirement income: social security.
“The subject is 10 times more complex than you ever thought,” Bill Meyer, founder and CEO of Social Security Solutions, said at the Retirement Income Industry Association conference.
Nevertheless, he urged advisors to educate themselves about social security and to use software to guide them and their clients through the dizzyingly complex task of optimizing benefits under the program.
Meyer estimates that some 25 million people a year are thinking about social security, opening a door to a gigantic market. “Social security is the catalyst for money in motion,” Meyer said, adding that people thinking about social security are receptive to planning and investment management.
“Advice quality matters,” he exhorted the advisors. “The difference between a good strategy and a bad strategy is hundreds of thousands of dollars.”
One of the myriad ways to optimize social security is by delaying payments past the full retirement age of 66 (for those born between 1943 and 1954). Payments delayed until age 70 increase by at least 32% compared to taking them at the full benefit age, according to speaker Bob Seawright, CIO of Madison Avenue Securities, a broker-dealer and investment advisory firm headquartered in San Diego, Calif.
Unfortunately for many American delaying social security is not always an option, Seawright said. Most Americans, 75%, take retirement before they’re 65 with the most popular age being 62.
“Delaying social security is generally a good idea but only for those who can afford it and who have up-to-date skills and good health,” Seawright said.
For those with the means to do so, delaying payments can make a significant difference. Meyer estimated that single Americans with $200,000 in savings can make their money last 10 years longer by pushing back their social security retirement benefits. “Delaying actually makes sense for tons of middle Americans,” Meyer said. “They just don’t have the numbers.”
The issues, however, are much broader and deeper than simply delaying social security. “It’s not just delaying. It’s figuring out switching strategies and all the components of leveraging all the rules,” said Meyer, noting that there are 20,000 pages of rules in social security.
Meyer urged advisors to use interactive software that models various social security benefit scenarios but cautioned against the use of overly simplistic software programs.
To illustrate the complexity of social security, Meyer warned advisors of so-called “rat holes,” or periods of time during which people should never claim benefits. Individuals born between 1943 and 1954 should never claim benefits between the ages of 62 and one month through 63 and 11 months, nor should they claim benefits between 65 and five months through 67 and seven months.
Meyer worked through an example of a single person who claimed benefits at 62, just before the beginning of the rat hole, versus claiming benefits on “the other side of the rat hole”. Claiming benefits outside the rat hole gave the individual 20% more in monthly income.
“This stuff is so complex,” Meyer said. “Make sure you get the details. I contend if you don’t, you have compliance issues.”
Clarification: An earlier version of this article inaccurately reported that Bill Meyer endorsed Money Guide Pro's new social security optimization software program. He compared Money Guide Pro to his Social Security Analyzer software at the industry conference, but did not endorse it.