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How to Maximize Your Clients’ Social Security Income

Posted By Michael J. McGlothlin, CLU,ChFC,CFP,LUTCF, Thursday, May 3, 2018

I was recently reading an article about the new tax laws, and there were some statistics that should continue to concern everyone in the retirement income space.

According to the Federal Reserve, near retirees – those Americans age 55-64 – have an average of $135,000 set aside for retirement.1

The good news is that number is up from $111,000 three years prior, but the growth rate of 6.74 percent is substantially below the equity growth rate during those same three years, 2013-16.

Combine that with a continued decline in our overall savings rate, and you can see our industry will be forced to generate more income from fewer assets than ever before.2

That’s why Social Security income planning so important. I would argue that for most Americans, Social Security income is the largest asset on their balance sheet. Assuming a $1,000 per month income benefit and a 20-year life expectancy after retirement, that equates to $182,775.3 And, the options are far too complex for most people to understand on their own. This is where the financial community can really make a difference for most retirees.

Crossing the Bridge

One strategy to maximize Social Security income is highlighted in our popular white paper, “Crossing the Bridge: How to Fill the Income Gap Between Early Retirement and Maximum Social Security.”4 You can read the piece for details, but the strategy involves placing nonqualified assets into a single-premium immediate annuity for eight years, allowing the client to defer their Social Security income. The annuity provides the same income your client would have received if they elected early retirement. But by waiting until age 70 to elect their benefits, they will receive more in income.  

Assuming a 20-year life expectancy, the total difference in benefits received is nearly $123,000. Keep in mind that by maximizing the highest wage earner’s benefit, the spousal benefit at death will be substantially higher as well. The bridge strategy creates multiple layers of opportunity for the client to have higher income – now and later.

Many advisors look at eight-year period certain annuities, see the returns and then look the other way. However, you need to consider your client’s lifetime increase in income as part of the return in the portfolio. When you add in the additional cash flow from Social Security at age 70, you increase the return on the annuity to more than 10 percent by the time the client reaches age 82. Because when you’re using a bridge for Social Security, it’s not the return on the vehicle to get you there that matters – it’s the overall return the strategy gives you over the rest of your life.

Take this opportunity to learn more about maximizing Social Security by creating a bridge instead of electing early income. I think your clients will appreciate your advice and your ideas to help them find more income with fewer assets.

Winning Strategy

When you’re using a bridge for Social Security, it’s not the return on the vehicle to get you there that matters – it’s the overall return the strategy gives you over the rest of your life. Make sure that you look holistically at your clients’ income picture and resources when making plans for lifetime income.

 

1MarketWatch, “The good news and bad news about America’s retirement accounts,” Oct. 26, 2017: https://www.marketwatch.com/story/the-good-news-and-bad-news-about-americas-retirement-accounts-2017-10-25

2Trading Economics, United States Personal Savings Rate 1959-2018: https://tradingeconomics.com/united-states/personal-savings

3Assuming a 2.85 percent discount rate 

4Ash Brokerage, “Crossing the Bridge: How to Fill the Income Gap Between Early Retirement and Maximum Social Security,” Updated April 2018: http://go.ashbrokerage.com/WC2017-07-RET-Bridge_LP-Content.html

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