Social Security Planning: The Emerging Cornerstone of Financial Practices

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1 Summary: Social Security Planning: The Emerging Cornerstone of Financial Practices Survey of married couples age 60 to 66 shows increasing demand for Social Security advice from f inancial planners Social Security Timing

2 Summary: Social Security Timing launched a survey in July 2011 examining the knowledge level and expectations of married couples age 60 to 66 regarding Social Security planning specifically their knowledge of how to maximize Social Security benefits and whether or not they expect Social Security advice from financial planners. The results showed a lack of knowledge in three areas the mechanics of Social Security, how to maximize it and where to turn for advice on Social Security planning. In August 2013, Social Security Timing partnered with Qualtrics to survey 508 married couples age 60 to 66 on the same questions. When compared to the 2011 responses, 2013 s survey revealed that consumer expectations regarding Social Security are changing but knowledge about Social Security strategies had not improved. If the first survey revealed an opportunity for financial planners, the second survey confirmed it. Baby boomers not only want advice on Social Security, but also expect it from financial planners even more than they did two years ago. This increased demand reveals tremendous opportunity for financial planners to add value for clients by filling this information gap and helping clients make the right Social Security decisions. Key Findings: - Baby boomers are increasingly interested in seeking Social Security claiming advice from outside sources. - They continue to mistakenly believe they can go to the Social Security Administration (SSA) for advice on maximizing benefits, despite the fact that SSA representatives are prohibited from giving election advice. - If a client s primary financial planner is not equipped to provide guidance on Social Security planning issues, clients will seek the advice from another planner.

3 Introduction: Social Security is the major source of income for most of the elderly. In 2011, it provided at least half the income for 64 percent of the aged beneficiaries 1. There are two basic reasons for the increased importance of Social Security: 1) As life expectancy increases, so does the risk that retirees will outlive their assets. Social Security is the only asset that is adjusted annually for inflation, offers tax advantages, will pay as long as you live and is backed by a government promise. With fewer risks than other products and with great advantages, Social Security is the best annuity money can buy. 2) The shift from defined benefit plans to defined contribution plans means people s retirement assets are more at risk than in the past. This places greater importance on guaranteed assets like Social Security. Despite its importance, today s retirees and those about to retire know surprisingly little about the mechanics of Social Security and how they can maximize their benefit. Even more troubling, retirees are unsure of whom to turn to for advice when making this complex decision. Many people mistakenly think they can go to the Social Security Office for advice on when to elect. But Social Security Administration representatives are actually prohibited from giving election advice 2. Plus, SSA representatives in general are trained to focus on monthly benefit amounts for an individual, not lifetime income for a family. As a result, many don t understand the mechanics of Switch Strategies well enough to help a retiree understand when they should be used. So where is a married couple to turn for help making this critical decision? The SSA offers little help, and a Social Security calculator alone can only tell them how to elect. It doesn t help them put Social Security into the greater context of their overall retirement plan. That is why advisors are so critical to this process. Our research has found that more and more people are turning to their financial advisors for help maximizing Social Security. 1 Fast Facts and Figures About Social Security, 2013, Social Security Administration, Office of Retirement and Disability Policy, SSA Publication No , released August

4 Objective: Historically, financial planners have not factored Social Security into retirement plans, focusing instead on equities, bonds, annuities, CDs and other investments. We believed in 2011, when we conducted our first survey, that this was going to change. We set out with that survey to confirm or deny a fairly simple thesis: Social Security planning will become part of the job description for financial advisors in the very near future. In other words, the day is coming when helping clients maximize their Social Security won t be something advisors dabble in as an added benefit but will be expected by the majority of clients. The 2011 survey data supported that finding. The 2013 survey data repeated the same questions. We asked questions of married couples age 60 to 66: I. Knowledge How much do people know about Social Security election strategies? II. Expectations To whom do people turn for Social Security advice? III. Importance How much do people value Social Security advice? This approach allowed us to measure the level of need for advice, where they expect to receive that advice and how important the advice is to them. To address our research objectives, we designed a survey questionnaire, which was then administered by MarketTools in 2011 and Qualtrics in The survey was delivered to respondents via and completed online. A total of 532 respondents qualified and completed the survey in 2011 and 508 in In both years, the margin of error was +/- 4.3 percent.

5 Findings: I. Knowledge How much do people know about Social Security retirement benefits and election strategies? Findings: Despite frequent coverage in the mainstream media and the efforts of many in the financial industry, awareness of Social Security strategies among consumers remains flat. The 2013 survey showed that consumer knowledge of how to maximize Social Security has not improved since the 2011 survey. Respondents remain largely unaware of unusual Social Security claiming options, like file and suspend and restricted application, that can have a major impact on their benefits. Only about 27 percent were aware of such options in 2011 and 2013, despite increased industry outreach and mass media coverage in that time span. Figure 1 Knowledge of Social Security planning options remains flat from 2011 to 2013 Percentage who indicated awareness of...

6 Conclusion: The financial planning industry has promoted Social Security awareness more in the past two years. Mainstream publications, both print and online, as well as television programs have responded by extensively covering issues like Social Security timing. Even so, the vast majority of people are not aware of strategies that could increase their lifetime Social Security benefit by $20,000 to $40,000 and sometimes more. Higher income individuals were more aware of Social Security options, and therefore more likely to be looking for advice on these options. Interestingly, lower income people, who will rely more heavily on Social Security, were less aware of strategies to maximize it. This represents two opportunities for advisors: help higher net-worth individuals who expect advice on this topic and help an underserved market that is truly in need of education. II. Expectations To whom do people turn for Social Security advice? Findings: Consumers continue to think, wrongly, that the SSA can advise them on big-picture financial goals. Of respondents, 84 percent expect claiming advice from the SSA. That s actually up from 77 percent in Still, most SSA personnel are not trained or equipped to dispense anything more than monthly benefit amounts at different election ages, and the SSA actually prohibits its representatives from dispensing advice. Like in 2011, financial planners were the second most popular choice for consumers to turn to for advice. Of respondents, 54 percent said they would expect Social Security advice from their financial advisor. Demand for Social Security advice from financial planners was up across the board from 2011 to 2013: 46 percent of respondents would want their financial planner to analyze the timing of electing Social Security benefits with them, up from 40 percent in percent of respondents would want their financial planner to analyze Social Security switch strategies, up from 57 percent in percent of respondents would want their financial planner to evaluate Social Security survivor benefits, up from 52 percent in 2011.

7 Figure 2 Uptick in demand for Social Security advice from financial planners Percentage indicating Yes they want advice from a financial advisor on... Conclusion: As in 2011, respondents lacked awareness of where to turn for advice on maximizing their Social Security benefits. Yet, when asked if they expect their financial planner to advise them on Social Security, more people expect their financial advisors to be able to discuss different Social Security strategies than two years ago. III. Importance How much do people value Social Security advice? Findings: When comparing the results from 2011 to 2013, more consumers are willing to look to another financial planner if theirs can t help with Social Security. Again, this was an across-theboard increase in three Social Security strategies timing of benefits, claiming options and survivor benefits. 54 percent of respondents said they would look for another planner if theirs couldn t or wouldn t analyze the timing of when to elect Social Security benefits with them, up from 44 percent in percent of respondents said they would look for another planner if theirs couldn t or wouldn t analyze Social Security options, up from 57 percent in percent of respondents said they would look for another planner if theirs didn t evaluate Social Security survivor benefits, up from 51 percent in 2011.

8 Figure 3 Clients show a greater sense of urgency in seeking help with Social Security planning Percentage who indicated Yes they would look for another advisor if theirs couldn t help with... Conclusion: Not only are people beginning to expect Social Security planning advice from their advisors, but it also is an important enough service that more than half of respondents said they would look for another advisor if their current one couldn t or wouldn t offer it.

9 Conclusion: The findings from our research can be summed up as follows: Retirees and pre-retirees (particularly married couples) are in need of education on Social Security planning. An increasing number of retirees and pre-retirees are looking to financial advisors for that education. An increasing number of retirees and pre-retirees are willing to leave their financial advisor if they aren t offering that education. Consequently, we ve now concluded in two separate surveys two years apart that Social Security planning is indeed on its way to becoming a cornerstone service for financial planners. As a result, we continue to see the financial planning industry breaking into three categories regarding Social Security planning: 1. Early Adopters Advisors who start offering this service before their competitors have an opportunity to differentiate themselves in terms of educating and adding value for their clients. Their referral business will increase as they become known in their community as someone who is offering help in an area where no one else is. The 2013 data outlined in this paper show that neither the media nor individual advisors have even made a dent with this message. Most consumers still are not aware of Social Security maximization strategies. Therefore, advisors who adopt this message today could be considered early adopters. 2. Middle Adopters Advisors who catch on in the middle will likely do no better or no worse than keeping pace with their competitors. They may not lose clients, but they won t gain many either. They ll simply be offering a service that s expected of them. 3. Late Adopters Those who catch on late run a tremendous risk of falling behind their competition and potentially losing business because they don t offer a service that is so fundamentally important to their clients overall financial picture.

10 Conclusion: Bottom line: Social Security planning, especially for married couples, represents both an opportunity for those advisors who are able to start offering this service before their competitors, and a risk for those who fall behind. About Social Security Timing Social Security Timing is a patent-pending online software application used by financial planners all over the country to help their clients maximize their Social Security benefits. Social Security Timing arrives at its recommendations after looking at a couple s age and income record and running complex calculations to find the election strategy that offers the highest expected lifetime benefit. Planners can run reports and get training at