Social Security is a complex and confusing topic for many. It seems that there is as much misinformation as there is information available on this subject, and the fear of the program going away has now heightened some of the hysteria.
Your role as a financial professional is to cut through the clutter and noise, and get to the root of your clients’ concerns. You can start by working to best answer these three questions that clients frequently have on the topic of Social Security:
1. When should I file?
I have found that this is the number one question by far on the topic of Social Security. Clients are usually asking their financial professionals if they should file early, wait until full retirement age, or delay up to age 70. The answer is… that there is no right or wrong answer. Determining when your client should file will depend on several different factors and will vary from person to person.
What I have found to be helpful for clients is to ask them to replace the word “when” with the word “what.” Have them ask themselves what income they will need for retirement. Then, work with your clients to put together and organize a list of the sources of income they plan to live off of in retirement in addition to Social Security; like perhaps an IRA, a 401(K), or another savings plan. Considering your clients’ future income needs can help put things into perspective and make the question of “when to file?” easier to answer right now.
2. What if I am still working?
The role of work is evolving. People are adapting to working remotely with more flexibility. This can mean that the traditional, professional finish line age of 65 or 67 may be pushed back; maybe for financial reasons, or maybe because the employee enjoys what they do.
It’s imperative that financial professionals educate clients on the benefit of Social Security prior to their full retirement age, as there are many factors that may come into play. For example, if your clients file for Social Security and continue working, they may only be eligible to earn a small amount versus their full benefit amount. And once they go over their income threshold, their benefit may be reduced, and oftentimes, it’s reduced dramatically. In other cases, continuing to work in some capacity while simultaneously filing for Social Security may not have as drastic of an impact on your account. You can walk your clients through the specifics on what they may actually receive by asking them to assess their working plans and have these conversations with you prior to making any final decisions.
3. Will I have to pay taxes on my benefit?
The quick answer is yes, you will likely have to pay taxes, but this is also the answer that your clients probably don’t want to hear. As a financial professional, it’s important to walk your clients through the details and let them know that they may pay taxes on some portion of their benefit, but it will depend on how much is subject to taxation and at what rate.
There are also many variables that may come into play on this topic. What you, as a financial professional, can do here is introduce your clients to trusted tax professionals. Passing the baton to a professional in this specific area will show your clients that you are working with them to help make smart decisions, and that you have their best interest in mind. If your clients are already working with tax professionals, set up a meeting for all of you to begin developing a strategy. A reputable and qualified tax professional could be your clients’ best contact to review their plan details and their options. Together, you can determine ways to ease the tax burden and what strategy may make the most sense for your clients from a tax-efficiency standpoint.
Start These Conversations Now
Being able to answer these questions about Social Security, bring clarity to these topics, and work with clients and their specific needs is instrumental in the role of the financial professional. Starting these conversations now will not only help to put plans in place for your clients’ retirement, but also ease their concerns and inspire them look to a brighter and clearer future.
Mike Lynch is a registered representative of Hartford Funds Distributors, LLC and a managing director of Applied Insights for Hartford Funds. In his current role, Mike is responsible for engaging and educating both financial professionals and their clients about current and emerging opportunities in the financial-services marketplace. These opportunities range from tactical strategies in areas such as retirement-income planning, investment planning, and charitable planning, to anticipating and preparing for long-term demographic and lifestyle changes.
