Financial advisors need to be aware that many rules of thumb can be downright harmful when blindly followed as a fail-safe strategy. They can be unhelpful in financial planning, and with Social Security claiming strategies in particular.

A popular example involves the use of a person’s age to determine their asset allocation. If they’re 25 and starting out in a career, conventional wisdom dictates they allocate 25% of their portfolio to conservative bonds and 75% to higher-risk equities, and slowly adjust the ratio to a more conservative bent as they grow closer to retirement. Overly simplistic? Absolutely, but at least there’s time to fix mistakes.

Not so with Social Security planning, where there’s little room for error. With one small exception, “do-overs” don’t exist, so you’d better get your client’s claiming strategy right the first time, or risk legal action and, more importantly, your client’s quality of life in retirement.

One example making the rounds involves “file and suspend,” a set of rules that might be right for interested beneficiaries but certainly aren’t always right. Like too many quick fixes to complex problems in today’s society, they’re overprescribed.

In effect, the rules allow clients to receive more in benefits over time by initially suspending their payments. It might sound counterintuitive, but it’s one way to maximize a Social Security claiming strategy. For the purposes of our discussion, here’s how they work:

Step 1: A spouse who has reached full retirement age files to begin receiving their monthly primary insurance amount (PIA). He or she then immediately suspends payments, pushing the payments off to a future date. Delayed retirement credits will then begin to accrue for each month they delay beginning benefits past his full retirement age, culminating in 8% more per year between ages 66 and 70.

Step 2: When he filed for Social Security, he automatically triggered the ability of his spouse to file for spousal benefits, regardless of whether or not he immediately suspended and regardless of whether or not the spouse ever worked. The spouse is now eligible for up to one-half of the amount of his PIA.

Step 3: He will continue to earn delayed retirement credits either until he reaches age 70 or he begins receiving benefits, whichever comes first. However, if the spouse files after reaching full retirement age, they too can delay their own retirement benefits until age 70 while continuing. They will receive the same 8% annual increase in their own retirement benefits when they begin receiving payments.

It sounds great, but here’s the rub—they are rules off of which a strategy can be based, not strategies themselves. Choosing file and suspend is simply not enough for clients to plan; rather, they must develop something more personalized from there. Yet too many free and basic Social Security calculators do just that—conflate rules with strategies that produce a few canned claiming options, none of which are right for the client.

For us, it brings to mind a quote that is often attributed to master military strategist George S. Patton: “If everyone is thinking alike, then somebody isn’t thinking.”

The bottom line is that rules of thumb like file-and-suspend are great for seminars and presentations, but dangerous for planning. Every client’s situation is different. We’ve illustrated just one example, but we could do it all day long. The coordination of Social Security benefits with the overall retirement portfolio and the tax-efficient withdrawal of assets are other areas routinely subjected to such biases (4% rule anyone?). Don’t risk your business and your reputation by failing to properly address Social Security planning. The stakes are too high for all involved.

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