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.
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:
As of January 2024, the average monthly Social Security benefit is $1,907. The maximum monthly amount depends on the age you retire.
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.
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.
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:
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
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.
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:
“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:
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.
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
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:
This strategy requires careful consideration of marital status, the spouse's benefits, and the individual's earnings history.
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).
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
Social Security benefits may also be subject to federal income tax depending on your combined income. The taxation rules are as follows:
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.
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.
To help maximize Social Security retirement benefits for your clients, it's essential to follow best practices for understanding and managing these benefits:
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:
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.
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.
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.