What Your Clients Need to Know About Maximizing Social Security

Social Security is a key part of retirement planning—and it needs to be part of the planning conversations you have with your clients.

May 3, 2023 - Social Security is the closest thing many Americans have to a pension—a steady stream of monthly payments that continue throughout their lifetime. In 2023, about 67 million people will start to receive Social Security benefits. Nearly nine out of ten Americans older than 65 were receiving benefits by the end of 2022. But the benefits likely aren’t enough for most people to live on. (On average, they represent about 30% of a person’s overall post-retirement income.)1

For that reason, people need to think about Social Security as one part of their overall retirement plan. As a financial professional, that’s where you come in. Social Security needs to be part of the conversation when you have regular retirement planning meetings with your clients, particularly on maximizing monthly and lifetime benefits.

A few key principles can help you ensure that your clients get every dollar they are due, and that Social Security is an integral part of their overall plan.

Timing is everything

There are two aspects of timing that have a big swing in a person’s payout: when they stop working and when they file for benefits. Regarding the first question, the Social Security Administration (SSA) calculates benefits based on a person’s highest 35 years of indexed wages. If your client is thinking of retiring after only 33 years, they should understand that the government will use zero as the indexed wage for the other two, which in turn will reduce the monthly payout.

Similarly, if your clients earn high annual incomes, continuing to work past the 35-year point will likely raise their benefits because the higher-earning years will replace some of the lower-earning years from earlier in their careers. (This holds true even if they’ve already started receiving Social Security payments. The amount they receive is recalculated each year, using the highest 35 years no matter when those years occurred.)2

The second aspect of timing is determining when to file for benefits. Drawing benefits at the earliest possible age (62) will yield a much lower monthly payout than waiting until the full retirement age (66 for Baby Boomers, 67 for people born after 1960). Waiting until age 70 to claim benefits will give clients the largest monthly payout. Determining whether it’s better to hold out isn’t a straight math problem—based on a person’s health, projected life expectancy, and some other assumptions—but one you’ll need to discuss with clients.

Factor in spousal benefits

Many married couples designate one person to handle the financials, and that’s likely the person you deal with the most. But for the couples you work with, you should ensure that you’re talking to both people, at least some of the time. Not only does that help build relationships, but both sides would understand that they should each have a financial plan in place if either person should die. Social Security payments are a part of that calculation.

For married couples, spousal benefits are equal to 50% of the other person’s benefit. As with one’s own payout, filing early for spousal benefits can reduce the monthly payment, meaning it’s often better to wait. In addition, a person could potentially draw spousal benefits first and delay claiming their own (giving them the benefit of filing later), but there are catches. (For example, you must be already receiving spousal benefits before applying for your own.)3

Don’t forget about taxes

Some clients may not realize that a portion of Social Security benefits can be taxable, depending on their income level each year. For clients who continue working while drawing benefits—or who have income from other sources, such as real estate or withdrawals from other types of retirement accounts—it’s important to understand the tax implications.

For example, you could help clients time these withdrawals to minimize the tax burden. Or, for a client who regularly contributes to charity, you could work with them to potentially donate the stock directly from a retirement account rather than selling the stock, taking the withdrawal, and then donating. Doing so could reduce the person’s income level for a given year and thus potentially lower their tax burden—including on their Social Security benefits.

Monitor and adjust over time

Retirement plans don’t have a set-it-and-forget-it option. Just as you need to revisit other aspects of a plan for your clients over time—as market conditions and their own situation evolves—you’ll need to factor in changes to Social Security payouts as well. In 2023, monthly benefits increased by 8.7% as part of a cost-of-living adjustment (on top of a 5.9% adjustment in 2022).1 Other elements, such as tax thresholds, get updated yearly. For these reasons, you’ll need to stay on top of the changing rules and have ongoing conversations with your clients about how they may be impacted.

In sum, the rules about Social Security are accessible online, but when people look at those rules alone, they may struggle to understand their options. Because the program is designed to be just one part of an overall retirement plan, your clients need your help in making sense of those options—and how those impact other aspects of their financial situations. In other words, only you can help them see the complete picture.

Social Security Fact Sheet 2023, ssa.gov, accessed April 5, 2023.
Emily Sherman and Emily Brandon, “10 Social Security Rules Everyone Should Know,” US News & World Report, March 31, 2023.
Elliot Marks, “Social Security Tips: 8 Ways to Maximize Your Benefits,” SSOfficeLocation.com, accessed April 5, 2023.

The information provided only summarizes complicated topics and does not constitute financial, legal, tax, or other professional advice. Further, the information is not all-inclusive and should not be relied upon as such.


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