For many retirees, Social Security provides a stable and guaranteed source of income. In fact, approximately 97% of people between the ages of 60 and 89 receive or will receive the benefit, according to the Social Security Administration (SSA).
It helps cover basic living expenses like housing, healthcare, and food, making it a widely used and important part of retirement income planning.
But for financial advisors, there are unique challenges and considerations to be aware of when it comes to maximizing Social Security retirement benefits for clients. For this reason, it’s crucial to understand that each individual’s circumstances are different and require tailored guidance.
Keep reading to learn expert tips and strategies to maximize Social Security benefits for your clients from Jim Blair, Founder of Premier Social Security Consulting, and the Advisor Controls team.
Understanding Social Security Basics
Social Security was established in the U.S. with the signing of the Social Security Act by President Roosevelt in 1935 in response to the economic hardships of the Great Depression. Initially, it assisted primarily retired workers but has since expanded to include various types of benefits, including:
- Disability Benefits
- Survivor Benefits
- Spousal Benefits
- Supplemental Security Income (SSI)
As of January 2024, the average monthly Social Security benefit is $1,907. The maximum monthly amount depends on the age you retire.
Social Security Eligibility Criteria
Generally, people qualify for retirement benefits if they have worked and paid Social Security taxes for at least 10 years. The age at which a person can start receiving full retirement benefits depends on their birth year, with the full retirement age ranging from 65 to 67.
Individuals can begin receiving benefits as early as age 62, but these benefits will be reduced compared to waiting until full retirement age.
9 Tips for Maximizing Social Security Benefits for Clients
Any financial planner will tell you that no two clients are alike — and the same goes for their Social Security filing strategy.
Advisors must consider the specific benefits available to clients, whether they are single, married, divorced, or widowed. This includes assessing eligibility based on their own work record, as a spouse, ex-spouse, or surviving spouse, as well as factors like having children or being a public employee.
Each of these criteria involves unique circumstances that can impact the timing and amount of Social Security benefits.
Premier Social Security Consulting Founder, Jim Blair, offered the following tips for helping clients optimize their filing strategies.
1. Consider the Optimal Claiming Age
When advising clients, always consider their Full Retirement Age (FRA), the age at which they are eligible for full, unreduced Social Security benefits. FRA varies by birth year: those born between 1943 and 1954 have an FRA of 66, while those born in 1960 or later have an FRA of 67.
Keep in mind the following points as you work with clients to help determine their optimal claiming age:
- Early Claiming: Benefits can be claimed as early as age 62 but result in permanently reduced benefits. For example, claiming at age 62 when the FRA is 67 can lead to a 30% reduction in monthly benefits.
- Delayed Claiming: Benefits claimed after reaching FRA, up to age 70, increase due to delayed retirement credits.
- Life Expectancy: One of the biggest factors in deciding when to claim Social Security benefits is life expectancy. Underestimating longevity can result in insufficient income later.
Given that average life expectancies often extend into the mid-80s, especially for married couples, delaying benefits can provide greater financial security in the long run. Advisors need to work with clients individually to assess their health, family history, and lifestyle to make the best decisions for them.
“Just because your neighbor took benefits at a certain point, doesn't mean that's when everyone should do that. So, people have to look at what benefits are available. Are they eligible on their own work record? Are they eligible as a spouse? Is there an ex-spouse? Are they able to file for survivor benefits and switch to their own later or vice versa? We want to look at everybody's specific situation and then point them in the right direction.”
– Jim Blair, Founder, Premier Social Security Consulting
2. Coordinate With Other Retirement Income
Coordinating Social Security with other retirement income sources is essential for a comprehensive and tax-efficient retirement plan. It helps integrate various income streams, allowing clients to optimize overall income and minimize tax liabilities.
Advisors can manage clients' taxable income by strategically drawing from different accounts, such as tax-free Roth IRA distributions or taxable investment accounts, to fill income gaps without pushing them into higher tax brackets.
When planning these withdrawals, consider Required Minimum Distributions (RMDs) from tax-deferred accounts starting at age 73, as these mandatory withdrawals can significantly increase taxable income.
3. Explore Various Filing Strategies for Spousal Benefits
Spousal benefits allow a spouse with little or no earnings to receive Social Security benefits based on their partner's record. A spouse can receive up to 50% of the working spouse's full retirement benefit if claimed at FRA, however, doing this results in a permanent reduction.
Depending on clients’ goals and circumstances, financial planners should consider the following Social Security filing strategies for married couples:
- Maximizing Benefits: The higher-earning spouse can delay claiming benefits until age 70 to maximize their retirement amount. The lower-earning spouse can claim their benefit earlier or opt for the spousal benefit, depending on which is higher.
- Sequential Claiming: One spouse can claim benefits early while the other delays, maximizing the higher-earning spouse's eventual benefit. For instance, the lower-earning spouse might claim early, while the higher-earning spouse waits until 70.
- Timing Coordination: Couples should consider ages, life expectancies, and financial needs when deciding when to claim benefits to maximize total lifetime benefits.
4. Understand the Nuances of Survivor Benefits
“Social Security is a big part of an individual's income in retirement. How you file will determine how much not only you're going to receive, but if you have a spouse who steps into your shoes when you pass away, how much they're going to receive.”
– Jim Blair, Founder, Premier Social Security Consulting
Survivor benefits provide financial support to the family members of a deceased worker who qualified for Social Security. These benefits are based on the deceased person's earnings record and are available to spouses, children, and dependent parents:
- Widows/Widowers: A surviving spouse can receive full benefits at their FRA or reduced benefits as early as age 60. If the spouse remarries after age 60, they can still receive survivor benefits. Additionally, if the surviving spouse is caring for the deceased person’s child who is under 16 or disabled, they can receive benefits at any age, regardless of remarriage.
- Children: Unmarried children under 18, as well as children who became disabled before age 22 and remain disabled, can receive survivor benefits.
- Dependent Parents: Parents who were dependent on the deceased worker for at least half of their support can receive benefits if they are at least 62.
When advising married clients, consider joint lifetime benefits. The timing of benefit claims should account for the surviving spouse's needs, as the higher-earning spouse's delayed retirement credits can significantly increase the survivor benefit.
Advisors often overlook maximizing benefits for the surviving spouse, which is crucial for long-term financial security.
5. Account for Inflation and Cost of Living Adjustments
Social Security benefits are adjusted annually for inflation through Cost-of-Living Adjustments (COLA). While COLA helps maintain the purchasing power of benefits, it is generally modest and may not fully offset rising living costs, particularly in healthcare and housing.
Advisors need to consider the impact of inflation on retirement income and account for additional sources of income or savings to supplement Social Security benefits, ensuring clients maintain their standard of living in retirement.
“Don't just file at age 62 because you get the lowest benefit payable and you're stuck with that. Yes, it increases for cost of living, but still, it's a lesser benefit amount. Don't file until you're ready and make sure you look at all your options.”
– Jim Blair, Founder, Premier Social Security Consulting
6. Know the Ins and Outs of Restricted Applications
The Restricted Application Strategy is a Social Security claiming tactic that allows eligible individuals to receive spousal benefits while delaying their own retirement benefits, thus allowing their benefits to grow through delayed retirement credits.
This strategy can be advantageous because it provides a source of income while maximizing the individual's eventual retirement benefit. To be eligible, an individual must meet specific criteria:
- Be born on or before January 1, 1954
- Be eligible for both their own retirement benefits and spousal benefits
This strategy requires careful consideration of marital status, the spouse's benefits, and the individual's earnings history.
7. Address Pension Considerations
A potential complication arises when individuals have pensions not covered by Social Security, such as those from certain government jobs. These pensions can be subject to provisions like the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO).
8. Assess Potential Healthcare Costs in Retirement
Healthcare expenses can become a significant financial burden during retirement, especially with increased medical needs as people age.
Advisors should plan for these costs, including Medicare premiums, out-of-pocket expenses, and long-term care. These expenses can quickly deplete retirement savings and significantly impact retirement income.
“If you're working or if your spouse is working and you're covered through an employer group health plan, you don't have to take Medicare. But if you've filed for Social Security benefits, once you're 65 or older, you'll have Part A, the hospital insurance portion of Medicare. There's no premium for that if you have your 40 credits or your spouse has their 40 credits. But if through your employer your insurance includes a health savings account (HSA), once you have Part A Medicare, you can no longer contribute to that account.”
– Jim Blair, Founder, Premier Social Security Consulting
9. Determine the Taxability of Benefits
Social Security benefits may also be subject to federal income tax depending on your combined income. The taxation rules are as follows:
- For Single Filers:
- If combined income is between $25,000 and $34,000, up to 50% of benefits may be taxable.
- If combined income exceeds $34,000, up to 85% of benefits may be taxable.
- Married Filing Jointly:
- If combined income is between $32,000 and $44,000, up to 50% of benefits may be taxable.
- If combined income exceeds $44,000, up to 85% of benefits may be taxable.
Some states also tax Social Security benefits. The rules vary by state, with some states exempting Social Security benefits entirely, while others follow federal taxation guidelines or have their own rules and guidelines.
You can also choose to have federal income tax withheld from your Social Security benefits to avoid a large tax bill when you file your tax return.
A Note on Provisional Income
Understanding how provisional income is calculated, including half of Social Security benefits, adjusted gross income (AGI), and tax-exempt interest, is crucial for determining the taxability of benefits.
Strategic financial planning, such as converting traditional IRAs to Roth IRAs, can help lower provisional income and reduce taxes on benefits.
Additional Best Practices for Successful Retirement Planning
To help maximize Social Security retirement benefits for your clients, it's essential to follow best practices for understanding and managing these benefits:
Leverage the “My Social Security” Portal
Encourage your clients to create an online account with the SSA through the My Social Security portal. This provides easy access to benefit statements, earnings records, and other useful information.
With an online SSA account, clients can:
- View estimates of retirement, disability, and survivor benefits
- Check the status of your Social Security applications
- Request a replacement Social Security card
- Estimate the impact of different retirement ages on benefits
Review Benefit Statements With Clients
Encourage clients to regularly obtain their Social Security benefit statements, which detail their earnings history and estimate future benefits. Reviewing these statements ensures all earnings are accurately recorded, as errors can affect benefit amounts.
Advisors should review these statements with clients to discuss potential benefits and provide a better understanding of their options, helping clients maximize their benefits and plan for contingencies.
Utilize Social Security Planning Software
Specialized software like Social Security Pro helps financial planners optimize benefit strategies, increase accuracy and efficiency, and provide visual representations of different filing scenarios — in just a few clicks.
By leveraging advanced retirement planning technology, advisors can deliver precise, customized, and current advice, enhancing client trust and helping clients optimize their Social Security filing strategies.
Retirement With Peace of Mind
By addressing these considerations and utilizing these expert tips where applicable, advisors can help clients maximize their Social Security benefits and work toward a secure retirement.
Looking for a powerful financial planning platform to help clients explore options and choose the best Social Security filing strategy? Sign up for a free trial of Social Security Pro, the go-to, client-friendly tool for retirement planning.
