To Claim or Not Claim!

Here’s the scene: Harry has just arrived for his semi-annual review appointment with his trusted advisor to discuss the exciting decision to either claim or delay his Social Security benefits. Before the door closes, the advisor begins: “Well, Harry, statistically speaking and according to the most recent actuarial tables, if you fall into the experience of the general population of all males, you are likely to live to be 83 and in that case…”.  He continues with a masterful display of mathematical prowess and an articulate description of trend lines! Harry sits with an open mouth and jaw on his lap as the advisor continues for what seems an eternity. In a nutshell, the advisor skipped any appropriate congratulatory remarks about Harry reaching this claiming milestone and has unknowingly asked Harry to consider when he will DIE! With the best of intentions in mind, the advisor fell back to HIS comfort zone: numbers, data, and objective analysis.  In the meantime, within the first four minutes of the meeting, Harry has been put into a deep state of depression. 

With my I’ll-fated attempts at humor aside, I submit: the Social Security claiming decision should not begin by asking a client to predict their longevity, but rather with a conversation focused on how they want to LIVE in retirement! Instead of LISTENING to people’s ideas about what will bring happiness in their retirement years, financial advisors tend to fall back to what THEY are comfortable with: charts, figures, and probabilities. I believe there is a better way to help clients make this exceptionally important decision. 

My conversation with clients begins by listening to what they have heard and what they believe about the choice to claim their Social Security benefit.  Remember, the decision should still ultimately be theirs based on the NEED for this retirement income source and their ATTITUDE about claiming this entitlement program benefit that they have waited years for.  Our dialog happens with the goals of financial independence, security, and peace of mind for both the client, as well as their loved ones.

Without a doubt, the invitation by the Social Security Administration to begin a guaranteed, monthly income benefit for the rest of their lives may be as close as they ever come to the promise made when Publishers Clearing House shows up at their door!  But I remind my clients that the INVITATION to claim their monthly benefit is not an OBLIGATION to do so.  I don’t disregard longevity analyses, however I educate clients on the pros and cons of claiming their benefit early, at Full Retirement Age or even later.  I inform my clients of five important features of Social Security income:

1. The income stream that they will receive from Social Security is PAID FOR LIFE. There is no time limit.
2. For married couples, the benefit, if it is the larger between two spouses, CONTINUES FOR THE LIFE OF THE SURVIVING SPOUSE. So, this often becomes a decision that is paired with the pension and life insurance choices that a couple makes.
3. The benefit is inflation-adjusted. Since 1972, it continues to be in legislation that claimants WILL receive a Cost of Living Adjustment (COLA) based on annual increases in consumer prices.
4. Social Security income can be highly tax-efficient income. This income may be exempt from state tax and no one pays taxes on more than 85% of their total household Social Security income. In fact, some pay no federal income tax on their benefits!
5. Social Security income is BACKED BY OUR U.S. GOVERNMENT’S PROMISE, which I believe we should still hold in high regard.

Finally, in my opinion, we advisers should not try to persuade or convince our clients to take or not to take their Social Security income.  We should honestly and accurately reveal the choices. We should help them tackle the decision to claim Social Security benefits, keeping both their NEED for Social Security income and their ATTITUDE about claiming this benefit in mind. We should objectively show how Social Security income can be a CORNERSTONE of their total income in retirement years.  Doing this will increase the probabilities of clients reaching the best decision, so they can truly LIVE their retirement years the way they dreamed.