Social Security Retirement Advice - The Importance of Knowing How to Maximize Your Benefit

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1 Summary: TM Social Security Planning: A Cornerstone of Your Financial Practice? Survey of married couples age on their knowledge of Social Security and their expectations for Social Security planning has big implications for financial planners Social Security Timing

2 Summary: In July 2011, Social Security Timing partnered with MarketTools to launch a survey examining the knowledge level and expectations of 532 married couples age with respect to 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 not only a lack of knowledge about the mechanics of Social Security and how to maximize it, but also of where to turn for advice on Social Security planning. Consequently, the survey data reveals an opportunity for financial planners to add value for their clients by filling this knowledge void and helping their clients make the right Social Security decision. Key Findings: Social Security Planning is becoming an expected service from financial planners. The vast majority of people are not aware of strategies that could increase their lifetime Social Security benefit by $20,000 to $40,000 (present value) and sometimes more. Awareness of planning options was higher among those who had higher income and net worth. Expectations of financial planners to perform Social Security planning and analysis also increased with higher income and net worth. People mistakenly believe they can go to the Social Security Administration for advice on maximizing their benefits.

3 Introduction: When to elect Social Security may be the most important decision a couple makes about their retirement. In fact, the difference between the best and worst Social Security election decision is often $20,000, $30,000, even up to $100,000 in lifetime benefits. This is critical when you consider how important Social Security income is to the average retired couple. Social Security benefits in 2008 accounted for on average 64.8% of total income for recipient households with someone aged 65 or older, according to a SSA report, Income of the Population 55 or Older, released in There are two basic reasons for the increased dependence on Social Security: 1. As life expectancy increases, the risk that retirees will outlive their assets is a growing challenge. Because Social Security is the only asset that insures against the three main retirement risks inflation, market (sequence risk) and longevity it takes on increased importance for people worried about outliving their assets. Considering that it s adjusted annually for inflation, is tax-advantaged, will pay as long as you live and is backed by a government promise, Social Security is the best annuity money can buy. 2. The shift from defined benefit plans to defined contribution plans means peoples retirement assets are more at risk than in the past, which leads to greater dependence on guaranteed assets like Social Security. Despite its importance, today s retirees and pre-retirees 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. SSA representatives are actually prohibited from giving election advice 1 Many people mistakenly think they can go to the Social Security Office for advice on when to elect. What they don t realize is that SSA representatives are actually prohibited from giving election advice 1. 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 SSA respresentatives don t understand the mechanics of Unusual Claiming Options 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? Most of the calculators out there don t help them; the SSA itself offers little help. Our research has found that more and more people, especially those with higher incomes and higher net worth, are turning to their financial planners for help maximizing Social Security. 1

4 Objective: Historically, financial planners have helped people with assets like equities, bonds, annuities, CDs, etc. But Social Security was not typically a major part of the planning process. We believe, and our survey data bears out, that this is going to change. People need to be educated on Social Security election strategies and they re beginning to expect it from their financial planner. This survey was prompted by our desire to confirm or deny a fairly simple thesis: Social Security planning will become part of the job description for financial planners in the very near future. In other words, the day is coming when helping clients maximize their Social Security won t be something planners dabble in as an added benefit, it will be expected by the majority of clients. To explore this issue, we asked questions of married couples age to gauge their knowledge level and expectations in three key areas: I. Knowledge How much do people know about Social Security Election strategies? II. Expectations Who do people turn to 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. The survey was delivered to respondents via and completed online. A total of 532 respondents qualified and completed the survey. The margin of error was +/- 4.3%.

5 Summary Findings: I. Knowledge How much do people know about Social Security retirement benefits and election strategies? Findings: While almost 9 in 10 respondents reported being aware of how timing affects their Social Security benefits, only 27% were aware of Unusual Claiming Options like file and suspend and restricted application. Furthermore, knowledge of Social Security seemed to be related to net worth. For example 98% of those with investable assets exceeding $1 million knew that Social Security benefits vary depending on the age at which they are elected, compared to 80% of those with investment assets less than $100,000. Figure 1 - Are you aware of % 72.7% 75.6% Yes No % 27.3% 24.4% 0 Timing Options Unusual Claiming Options Spousal & Survivor Benefits Conclusion: 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 are therefore more likely to be looking for advice on these options. Interestingly, lower income people, who rely more heavily on Social Security, were less aware of strategies to maximize it. This represents two opportunities for planners: help higher net worth individuals who expect advice on this topic and help an underserved middle market that is truly in need of education.

6 II. Expectations Who do people turn to for Social Security advice? Findings: We found that 77% of people expect to receive advice from the Social Security Administration (SSA) on how to maximize their Social Security Retirement benefits. In reality, 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. Financial planners were the second most popular choice with 56% of respondents saying they would expect Social Security advice from their financial planner. As noted in the previous section, the expectations on financial planners actually increase with the individual s income and/or net worth. For example 74% of people with household income exceeding $200,000 would expect to receive advice on Social Security benefit options from a financial planner, compared to only 48% of those with household incomes less than $50,000. When asked specifically what types of Social Security advice they would expect, Unusual Claiming Options which people were the least informed about in the previous section were the most popular choice with 57% of respondents saying they would expect advice on Unusual Claiming Options from their financial planner. Figure 2 - Would you expect advice from your financial planner on % 59.8% 57.3% 42.7% 52.4% 47.6% Yes No Timing Options Unusual Claiming Options Spousal & Survivor Benefits Conclusion: Respondents showed a substantial lack of awareness of what resources are available when looking for advice on maximizing their Social Security benefits. But more than half of people expect Social Security advice in some form or another from their financial planner. This number increases to 74% when looking only at individuals with income exceeding $200,000.

7 III. Importance How much do people value Social Security advice? Findings: While more than half of respondents said they would expect Social Security advice from their financial planner, nearly the same number actually value that advice enough to say they would seek advice from another financial planner if theirs couldn t or wouldn t analyze Social Security election options for them. Once again, the specific advice respondents seemed to value most was analysis of Unusual Claiming Options, which is also the topic they showed the least awareness of in section I. 57.3% of people said they would look for another planner if theirs couldn t or wouldn t analyze Social Security Claiming options. Figure 3 - Would you look for another planner if yours couldn t help with % 55.3% 57.3% 42.7% 51.5% 48.5% Yes No Timing Options Unusual Claiming Options Spousal & Survivor Benefits Conclusion: Not only are people beginning to expect Social Security planning advice from their planners, it is an important enough service that more than half of respondents said they would look for another planner if their current one couldn t or wouldn t offer it.

8 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. Retirees and pre-retirees are looking to financial planners for that education. Half of retirees and pre-retirees would be willing to leave their financial planner if they aren t offering that education. Consequently, it is our position that Social Security planning is on its way to becoming a cornerstone service for financial planners, and that we will see the financial planning industry shake out into three categories with respect to Social Security planning: 1. Early Adopters Those who start offering this service before their competitors have an opportunity to differentiate themselves from other planners by educating and adding value to 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. 2. Middle Adopters Those who catch on in the middle will likely do no better or no worse than just keep pace with their competitors. They may not lose many or any clients, but likely won t gain any either because they ll simply be offering a service that is expected of them at that point. 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. Bottom line: Social Security planning, especially for married couples, represents both an opportunity for those planners 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 married clients maximize their Social Security benefits. Social Security Timing, arrives at its recommendations after looking 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